real estate investing
TRANSCRIPT
Secure Your Financial Future With Less Risk
WTFO? You Might Want To Be Here If…
You already own a home but want to take the next step
You have investment capital in stocks, bonds, mutual funds, etc. but wonder if there’s a better place for it
You have equity in your home but don’t know how to make it work for you
You’d like to take an active role in building your wealth
You Might NOT Want To Be Here If…You don’t own a home yetRetiring early and with financial security isn’t
important to you
Disclaimer
Summary
Stats Part I: Why You Should Care Part II: Your Rental’s Secret
Weapons Part III: Stocks vs Real Estate Part IV: Release Your Equity! Part V: Building Your Portfolio Part VI: Where Should You Invest?
Statistics There are over 115,000,000 housing units
in the U.S.A.
Almost 1/3 of all U.S. housing is rented.
60% of U.S. rental housing is owned by individual landlords.
The wealth of the top one percent of
Americans is greater than that of the bottom 95 percent.
Part I: Why Should We Care? Retirement: The Last Third of Your Life Social Security? Don’t Plan On It…
Benefits may be taxable No guarantee that it will be there when you retire
Military Pension? Gotta Do The Time… Fewer than one in five make it to 20 years1
Don’t plan on finding a better pension than the military1
CSB/Redux at 15 years – Avoid It!2
http://www.ssa.gov/planners/calculators.htm
1 http://www.cbpp.org/4-29-99Bud.htm2 http://findarticles.com/p/articles/mi_m0IBQ/is_2002_June/ai_90189538
Military Pension? Gotta Do The Time…
Part I: Why Should We Care?
= $1433/month
= $2486/month
http://www.defenselink.mil/militarypay/retirement/ad/index.html
IRA and TSP? Limited Safety NetPro: Tax BenefitsCon: Limited Flexibility (Withdrawal
Penalties)Con: Higher Gains Require More Risk
Part I: Why Should We Care?
http://www.tsp.gov/rates/monthly-history.html
Part I: Why Should We Care? Your Retirement Will Not Take Care of
Itself There’s Another Way to Make Money!
It’s An Appreciating AssetNational Average
Washington State Average
Part II: Your Rental’s Secret Weapons
≈10% per Year
≈15% per Year
http://www.ofheo.gov/media/pdf/1q07hpi.pdf
It Helps You Pay Less TaxesTaxes on Regular Income:1
Allowable Tax Deductions2
○ Interest paid on mortgage or equity loan (Saves Thousands)
○ Insurance Payments○ Depreciation (cost/27.5)
Part II: Your Rental’s Secret Weapons
Married
1 http://www.savewealth.com/taxes/rates/2 http://www.nolo.com/
Single
It Helps You Pay Your TaxesAllowable Tax Deductions (cont.)
○ Operating Costs○ Repairs○ And More…
Taxes on Capital Gains:1
○ Profits from stocks, mutual funds, savings accounts etc.
○ Roth IRA profits are exempt○ Profits from sale of primary residence are exempt
Sell Your Own Home - Keep All Profits Tax Free!!!○ Must have lived there for 2 out of the last 5 years○ Profits not to exceed $250,000 ($500,000 if married)
Part II: Your Rental’s Secret Weapons
1 http://www.irs.gov/pub/irs-pdf/p550.pdf
It Helps You Pay Your Taxes1031 Exchange1
○ Defer capital gains taxes○ Use your rental’s equity to buy another one
Part II: Your Rental’s Secret Weapons
1 https://www.1031cpas.com/1031%20literature.htm
It Gives You Leverage20% Down on a $200,000 house = $40,00010% Annual Appreciation
○ 1 Year: $220,000○ 2 Years: $242,000○ 3 Years: $266,200○ 4 Years: $292,820○ 5 Years: $322,102 = $122,102 gain in value!
$122,102 profit from $40,000 investment after 5 years
Part II: Your Rental’s Secret Weapons
Average of 32% annual return!
Part III: Stocks vs Real EstateStocks/Bonds Real Estate
Investor buys $50K stock porfolio Investor puts 20% down on a $240,000 rental
Initial Investment $50,000 Initial Investment (incl. close, reserve) $50,000
Initial Value $50,000 Initial Value $240,000
Annual Appreciation 10% Annual Appreciation 10%
1st Year New Value $55,000 1st Year New Value $264,000
Gain $5,000 Gain $24,000
% Return after 1 year 10% % Return after 1 year 48%
Values after 5 yearsInvestment $50,000 Investment $50,000 Initial Value $50,000 Initial Value $240,000 Appreciation Rate 10% Appreciation Rate 10%New Value $80,526 New Value $386,522 Gain $30,526 Gain $146,522
Percent Return 61% Percent Return 293%
Appreciation Rate Required to Double the Money Invested
Stocks/Bonds Real Estate
100% 20%
Avg Annual Return 12% Avg Annual Return 59%
What is Equity?Value of an asset, minus liabilitiesShould I pay off my mortgage?
Part IV: Release Your Equity!
Mortgage
Loan TypeInterest RateMonthly PaymentMonthly Savings versus 30 year fixed
You Owe
Loan repaid in 30 years$250,000
30 Year Fixed7.000%
$1,663.26 $0
30 Years Later
$0.00
Interest Only Payment$250,000
30 Year Interest Only7.000%
$1,458.33 $204.92
30 Years Later
$250,000
You OwnA home valued at $250,000
plus appreciationA home valued at $250,000
plus appreciation
Monthly Savings re-invested at 10% returnMinus the payoff from the home loanTotal cash assets after home loan repaid
$0 $0
$0
$463,226 $250,000
$213,226
How can I release my equity?RefinanceHome Equity Line of CreditDrawbacks
○ Closing costs○ New interest rate
Part IV: Release Your Equity!
Part V: Building Your Portfolio1st House -- Purchase
$250,000 Price
$200,000 Loan
$58,000 Down Payment + Reserves + Closing Costs
$0 Equity applied
$0 Equity released
33 months pass…(At 10% annual appreciation)
1st House Refinanced$328,750 New Appraised Value
$263,000 Loan
$0 Out of Pocket Invested
$5,000 Closing costs of Refinance
$0 Equity applied
$58,000 Equity released
Original House Sold$404,250 Sale Price
$379,995 Proceeds of Sale
$263,000 Loan Payoff
$995 1031 Exchange Fee
$116,000 Equity Released
New 1st House$250,000 Price
$200,000 Loan
$0 Out of Pocket Invested
$8,000 Closing costs plus Reserves
$58,000 Equity applied
$0 Equity released
New 3rd House$250,000 Price
$200,000 Loan
$0 Out of Pocket Invested
$8,000 Closing costs plus Reserves
$58,000 Equity applied
$0 Equity released
2nd House – Purchase$250,000 Price
$200,000 Loan
$0 Out of Pocket Invested
$8,000 Closing costs plus Reserves
$58,000 Equity applied
$0 Equity released
25 months pass…(At 10% annual appreciation)
33 months pass…
(At 10% annual appreciation)
2nd House Refinanced$328,750 New Appraised Value
$263,000 Loan
$0 Out of Pocket Invested
$5,000 Closing costs of Refinance
$0 Equity applied
$58,000 Equity released
4th House – Purchase at 5.5 years
$250,000 Price
$200,000 Loan
$0 Out of Pocket Invested
$8,000 Closing costs plus Reserves
$58,000 Equity applied
$0 Equity released
Portfolio Stats:
Total Time Elapsed 10 Years
Out-of-Pocket Invested $58,000
1st House is gone (sold)
NEW 1st House Value $418,211
2nd House Value $514,634
3rd House Value $418,211
4th House Value $391,347
Total Value of Properties $1,742,403
Loan Balance $863,000
Total Equity $879,403 Annual Rate of Return 31.24%
Keeping track of the numbersEach house has its budget
Part V: Building Your Portfolio!
What Are The Risks?House drops in value
Part V: Building Your Portfolio!
http://www.ofheo.gov/media/pdf/1q07hpi.pdf
What Are The Risks?Buy a bad house
○ Licensed property inspectors make sure you don’t
House gets trashed○ Property managers○ House is insured
Unspeakable acts of the Almighty○ Diversify your locations
What if you need money?○ Sell one of your rentals!
Part V: Building Your Portfolio!
Part V: Building Your Portfolio
What Are The Risks?How come no one else has thought of this
before?
Part VI: Where Should You Invest?
http://www.ofheo.gov/media/pdf/1q07hpi.pdf
Why Buy Here?Washington State Average1
Local Averages1
Part VI: Where Should You Invest?
≈15% per Year
http://www.ofheo.gov/media/pdf/1q07hpi.pdf
≈15% per Year
≈15% per Year
≈13% per Year
http://www.ofheo.gov/media/pdf/1q07hpi.pdf
Acceleration when most other areas are slowing!
Different Markets For Different FolksHigher appreciation = lower cash flowHigher cash flow = lower appreciation
Find Flourishing Micro-MarketsJob growthSchool systemsDistance to large citiesFavorable state/local legislationIntangibles
Part VI: Where Should You Invest?
Do I Have To Live Close By?You’re not bound to the local marketLicensed inspectorsProperty managersScared yet?
NorthPoint Investment GroupStrategic planningMarket researchFinancing strategyProperty managementOne-stop shop for all your real estate investment
needsInvest in markets nationwide!
Part VI: Where Should You Invest?
Sample Cash Flow:
Questions?
Ryan Simms(253) [email protected]