We don’t claim income property investing works just because we like the sound of our own voices. We do it for two reasons. The first is that from Platinum Properties Investor Network founder and CEO, Jason Hartman, on down through the rank and file of agents and administrators, we’ve seen first hand how well it works in our own portfolios. Secondly, it truly irritates us to see hardworking Americans tossing their money into the stock market machine, which, as the facts bear out, is a second rate investment that has been seriously misleading investors about profit potential for a long time now.
The trouble we’ve noticed, when it comes to educating new real estate investors, is they try to learn everything at once. Buying income properties and putting together a long term strategy to retire financially independent is not as complicated as you might have built up in your mind. That’s why today we want to step back and allow you to take a calming breathe while we strip away the bells and whistles and point out how incredibly profitable a conservative approach to buying property and renting it out can be.
First, let’s work through an example. Don’t worry. It’s a really easy one that cuts straight to the heart of the blueprint for how to invest in something that works. Suppose you walked into your favorite local bank today and secured a loan for $100,000, which you used to buy a single family residential house and turned around and rented it out for $1,000 per month. Expenses like repairs, advertising, vacancies, and insurance run about $300 monthly – a legitimate real world estimate – which leaves you with an income of $700 each and every month. Of course, you also have to make the loan payment but, if you follow Jason Hartman’s advice on how to choose a property, you should have no problem finding a positive cash flow real estate investment even with that included.
For the purposes of simplicity, let’s further say that you never refinanced the loan and never raised the rent. Fast forward thirty years. The loan is now paid off. You own the property free and clear and have a passive income of $700 monthly. Will you feel wealthy on $700 per month thirty years in the future? Not likely but imagine that you refinanced along the way, taking out mounting equity and leveraged it into the purchase of additional income producing real estate. Maybe after thirty years you’ll have ten properties, each throwing off $700 a month. Basic math tells us you’d be cashing $7,000 a month worth of checks and not lifting a finger for the privilege.
Can you live on $7,000 a month? Most of us would say that figure is getting into the ballpark of something that resembles a decent retirement. Except you might already be retired by then, thanks to your passive income, and gone on to do something you really love like traveling, gardening, or writing the next average American novel. Who cares what particular pursuit you choose? The larger point is that investing in real estate the right way made it all possible. A side note: it’s highly unlikely that rental rates will remain stable over the course of three decades. Obviously, you will be raising them to meet what we predict will be a rising demand, and at least to keep pace with inflation.
Now let’s backtrack a bit and point out the tasty morsel of detail that makes income property investing so exciting. Remember how we left the mortgage payment out of our original example back up there? In the real world you can’t just ignore it. That is a property expense that must be paid. But what should cause a tingle to run down your spine is the idea that you take the money for the monthly payment out of the tenant’s rent also. This reduces your monthly cash flow but has the effect of having your tenant pay the mortgage. Lets stop a moment to consider the long-term ramifications.
The bank loans you the money to buy an asset, specifically an investment property. Your tenant pays you for the privilege of living in the asset, money that you divert to pay the bank back. After thirty years, YOU own an asset that someone else paid for! Don’t try this in the stock market. It’s hard for us to even conceive of an investment strategy as perfect as this, and every single day a new real estate investor takes the first step down the road to changing his financial future forever. Why should such an amazing life change always belong to the other guy?
Why not you?
Why not now?
The Creating Wealth Team
Flickr / Micah Sittig