What does your future hold for you? Will you be able to retire without loosing the lifestyle
you have become accustom to? Are you looking to have enough passive income that you can quit
your job and travel? Perhaps you would like to be able to help other people that are less
fortunate than yourself? These are all great reasons to build wealth, but to build wealth
requires a plan. Without a plan the only way you will build wealth is by getting Lucky.
The old adage get a good education, work hard and you will be rewarded may allow you to get
buy today but what about the future? Support your union and your union will support you.
Find a good company and keep your nose to the grind stone and you will be taken care of. How
did that attitude work out for the steel workers of America or the Enron employees? The only
great retirement plan that is available today is the ones created by our government
Representatives for themselves. They do not rely on savings, IRA, company retirement plan or
Social Security.
If you plan to live 20 years after retirement you will need over one million dollars in the
bank to live comfortable. How much do you have in your retirement plan today? Take a look
at how long it took you to get to today's amount and extrapolate it out until you retire and if you will not have at lease one million dollars available then your plan is not working.
The average real estate appreciation since 1968 has been 6.34 percent per year. Some years
it is less and some years it is more, but the averages has been 6.34%. Real estate investing
is a great way to build wealth. The chart below shows what could be possible if you decided
to develop a plan to invest in real estate.
I have made certain assumptions when I created this plan. I used an average of 6 percent
increase in the value of the real estate per year. Each new home purchased was done at the
first of the year so the increase in the value of the home was calculated for the year
purchased. After you purchased your first home no more out of pocket money was invested.
All homes and commercial properties purchased produced a positive or near positive cash flow
through rent because I did not want you to change your current life style.
The starting home value was $150,000. Some areas the price of a single family home is much
more and some areas the price is much less. I used $150,000 because I am investing in the
Rio Grande Valley area of Texas.
You will noticed that after the purchased of the first home no new properties were purchased until year 4 because you did not have enough equity for the down payment in the next property. Year 7 and 8 two properties were purchased each year to average the total homes to one per year. At year 10 the investment strategy changed from single family homes to commercial properties such as apartment building, warehouses or strip malls.
Year 4 one home was purchased for $200,000 using 10 percent down or $20,000 of the $28,652
equity build up over the last 3 years of your first home. I always left enough equity
available after the purchase to allow for time to find a renter and to cover the costs of
any repairs that may be needed in your investment properties. Year 5 one home was purchased
for $220,000 with a $22,000 down payment. You will notice that at the end of year 5 you will
be controlling $658,547 of investment properties.
Yr Total Starting Purchased Ending Equity Equity Equity
Homes Value Value Values Available Used Gained
01 1 150,000 159,000 9,000
02 1 159,000 168,540 9,000 9,540
03 1 168,540 178,652 18,540 10,112
04 2 178,652 200,000 401,371 28,652 - 20,000 + 22,719 = 31,371
05 3 401,271 220,000 658,547 31,371 - 22,000 + 37,276 = 46,648
Year 10 a change into commercial properties was taken. One or more commercial properties was purchased for $2,500,000 with a down payment of $250,000 bring our ending year property values from $4,045,227 to $6,937,940.
Yr Total Starting Purchased Ending Equity Equity Equity
Homes Value Value Values Available Used Gained
05 3 401,271 220,000 658,547 31,371 - 22,000 + 37,276 = 46,648
06 4 658,547 250,000 963,059 46,646 - 25,000 + 54,512 = 74,158
07 6 963,059 300,000(2) 1,656,842 74,158 - 60,000 + 93,783 = 107,941
08 8 1,656,842 500,000(2) 2,816,252 107,941 - 100,000 + 159,410 = 167,351
09 10 2,816,252 500,000(2) 4,045,227 167,315 - 100,000 + 228,975 = 296,290
10 10/1 4,045,227 2,500,000(C) 6,937,940 296,290 - 250,000 + 392,713 = 439,003
11 10/2 6,937,940 4,000,000(C) 11,594,216 439,003 - 400,000 + 656,276 = 695,279
12 10/3 11,594,216 6,500,000(C) 18,094,216 695,276 - 650,000 + 1,085,652 = 1,230,928
13 10/4 18,094,216 12,000,000(C) 31,899,868 1,230,928 - 1,200,000 + 1,805,652 = 1,836,580
At the end of year 15 you would have $87,867,491 in investment properties and you would be gaining $4,973,631 per year in equity.
Yr Total Starting Purchased Ending Equity Equity Equity
Homes Value Value Values Available Used Gained
01 1 150,000 159,000 9,000
02 1 159,000 168,540 9,000 9,540
03 1 168,540 178,652 18,540 10,112
04 2 178,652 200,000 401,371 28,652 - 20,000 + 22,719 = 31,371
05 3 401,271 220,000 658,547 31,371 - 22,000 + 37,276 = 46,648
06 4 658,547 250,000 963,059 46,646 - 25,000 + 54,512 = 74,158
07 6 963,059 300,000(2) 1,656,842 74,158 - 60,000 + 93,783 = 107,941
08 8 1,656,842 500,000(2) 2,816,252 107,941 - 100,000 + 159,410 = 167,351
09 10 2,816,252 500,000(2) 4,045,227 167,315 - 100,000 + 228,975 = 296,290
10 10/1 4,045,227 2,500,000(C) 6,937,940 296,290 - 250,000 + 392,713 = 439,003
11 10/2 6,937,940 4,000,000(C) 11,594,216 439,003 - 400,000 + 656,276 = 695,279
12 10/3 11,594,216 6,500,000(C) 18,094,216 695,276 - 650,000 + 1,085,652 = 1,230,928
13 10/4 18,094,216 12,000,000(C) 31,899,868 1,230,928 - 1,200,000 + 1,805,652 = 1,836,580
14 10/5 31,899,868 18,000,000(C) 52,893,860 1,836,580 - 1,800,000 + 2,993,992 = 3,030,572
15 10/6 52,893,860 30,000,000(C) 87,867,491 3,030,572 - 3,000,000 + 4,973,631 = 5,004,203
No plan is 100 percent perfect. They will have to be modified over time to adjust to real
life conditions. Some years you will have good equity growth and some years you may have a
negative equity growth. Some years it will be difficult to have a positive cash flow for all
investment properties and you may need to use some of the equity to cover expenses. What
is important is that you have a plan and stick to it as much as possible.
You do not have to invest in your neighborhood. In fact you do not need to invest in your
town, city or even state. You do not have to purchase properties at current market values.
Look for area that have properties from 10 percent to 40 percent below market value. If you
can find properties below market value then you could hire the services of a real estate
management company to manage your properties and still maintain a positive cash flow.
Attend real estate seminars to increase your knowledge of real estate investing. Pay close
attention to the tax benefits of investing and also take a look at where the megapolitan
regions are scheduled to occur. Both of these investment strategies will increase your
potential of making wise real estate investments.
David Cowley has created numerous articles on real estate investing. He has also created a Web Site dedicated to real estate investing. Visit
Real Estate Investing
