Real estate investing is the classic wealth vehicle that
has taken people from living hand to mouth to the pinnacle
of wealth.
It's the vehicle of choice because it's accessible to all
of us. Everone has a least rented a house or apartment, and
most of us have bought a house. So knowing what it's like
to be renter or homeowner we have first hand knowledge of
our customers when we set out to be real estate investors.
The classic real estate investing model is buy a bunch of
houses, rent them out and in 30 years the mortgages will be
paid off, the properties will have at least doubled in
value, the rents will be twice what they were when you
started ... with no loan payment.
The goal sounds inspiring. Imagine having 10 properties you
bought 30 years ago, each for $80,000, now be worth
$350,000 apiece as a result of a average annual
appreciation rate of 5%. You would have a portfolio worth
about $3,500,000. Monthly rents, on the low side, of $1,200
per house would give you gross monthly rents of $12,000.
After T&I you probably put $9,000 in your pocket.
I think you would agree this is an extremely modest goal,
but what a payoff!!
What a payoff indeed ... for those who actually stick with
it. You see there's a problem with the above scenario, and
that is the early years are really tough.
Cashflow is slim, expenses are high, and most investors who
take this on don't make it through.
They run out of cash.
The short-term solution is to change your focus from buying
and holding to quick-turning houses for cash. Quick-turning
houses, getting them under contract super cheap and
flipping them to another investor for $5-20,000 or more
will take care of your cashflow needs today while you hold
your rental properties for long term growth. This is great
... money, cash!
But you are not out of the woods yet.
Your new short-term problem is management. If you are
buying houses to hold for the long term you must be
prepared for the fact that you will be managing them
yourself, whether you take on that job as an individual or
create a management company to do it. The fact remains that
at some point your occupation will change from real estate
investor to landlord.
And I'm afraid gentle reader, landlording is dirty, smelly
business. One you do not want to be in.
There are worse things in life than being a landlord, most
definitely, but that's not why you got into real estate.
You got into real estate because you want the big dollars.
The really big ones. The 'buy your own island' big dollars,
the 'house on each continent' kind of dollars. The nine
figure net worth.
Didn't you?
That net worth is available, in fact it's waiting for you
to claim it, but you won't achieve the growth necessary to
get there buying single family homes. As a growth vehicle
they are very inefficient.
From a real estate investing standpoint the purpose of a
single family home is to give you experience doing deals,
and to take care of your immediate cash needs.
After you've paid off all your debts, have 12 months living
expenses in the bank, and have a kitty of say, $100,000 to
$200,000 there isn't much further use for single family
homes.
Unless, of course, you want to be a landlord.
As soon as you are debt free and have some starting capital
you should move straight into buying apartments.
There is all kinds of leverage to be achieved by changing
your wealth vehicle from single family houses to apartment
buildings.
- from a value standpoint when buying apartments you are
dealing with much bigger dollars, so as the years go by,
you make more through appreciation.
- apartments have a much higher rent per square foot
compared to houses, so property management can be brought
in take management out of your hands in a cost effective
manner.
- apartment buildings make sense from a business standpoint
so it is no difficult to attract partner capital. - there
is an abundance of apartment financing available from
lenders up to 80% loan to value.
- there are many profit centers, like repairing units and
increasing rents, filling vancancies, that can be
capitalized on to capture upside value.
Also, because apartments are not reliant on your personal
attention and can be effectively managed by property
management companies you are not restricted to buying in
your own local market.
By becoming aware of market cycles and tracking them
closely, you can buy quality properties in any market in
the US at the bottom of a cycle, and ride the appreciation
to the top of the market, where you sell (or exchange out)
and take huge profits.
Of course, providing you live in a market (like CA) that
appreciates rapidly in an up cycle, you can achieve this
with single familiy houses too. But which property would
you rather have appreciating at 15% a year, a $300,000
house, or a $10,000,000 apartment building.
After 10 years a $300,000 house will turn into $1.33M.
Nothing to sneeze at. But during the same 10 years in the
same market a $10M apartment building will turn into $44.4M.
Which would you rather have?
It's an easy choice, and one you simply need to make.
----------------------------------------------------
Ben Innes-Ker is a real estate investing warrior and author
of the SMART Guide To Apartment Investing. He is constantly
refining his systems to make his investing more profitable
with less effort. He shares how to create a huge passive
income buying large apartment buildings with none of your
own money with his subscribers. To receive your Free SMART
Guide To Apartment Investing, go to
http://www.apartmenthouseprofitmachine.com .
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