single family homes (cont from last post)

Single family homes are by far the best investment for the intermediate investor because it has the biggest market of buyers, they is always a demand, and it offers the best loan structures. Since single family homes are known to be the safest investments in real estate, banks allow you to have the best interest rates and the lowest down payments. For obvious reasons, it is always best to put the least amount down for a property as possible. Single family homes , or SFH, also offer the biggest market to sell to when you go to sell. Every American family wants and looks for a nice 3 or 4 bedroom home, in a good neighborhood, and with good schools. There will never be a trend that sways this trend. SFH also provide you with the biggest market to low interest loans and low down payment structures. SFH can include condos, but the buyers market, especially in a down market like the one we are experiencing right now, will be significantly smaller. One of the properties I bought in 2004 was a condo in Tacoma, WA, which was purchased with $1,000 down. I put $1,000 for the down payment, which was a deposit for this condo, and financed 100% of the purchase price. One year after buying, I sold this property for $41,000 more than I purchased it for. Also, during this year, the rent of $1,200 completely covered my $1,200 mortgage, which means that all I paid out of pocket was the HOA, taxes, and insurance costs. Minus comissions and closing costs, I received a check for $30,000, and reinvested this money into a bar/nightclub (please leave a comment for more info). Currently we are experiencing a buyers market, meaning many properties are being sold for less than market rate, due to the fact that there are not many buyers right now. Many , many millionaires will be created in the next 10 years due to the fact that a lot of saavy investors are buying up quality properties for pennies on the dollar. As all the news articles say that the recession is in progress and people are losing money in real estate, I guarantee that people like Robert Kiyosaki are buying up properties all across the country.

What successful people do

Business Ownership:

In my life I have met a lot of successful people, six figure earners and millionaires, self-made and some inherited. Today I wanted to talk about two things that I have reconized that true wealthy people have in common, they own businesses and they own real estate. These categories can be broken down even futher as there are different types of businesses to own (this lesson is important! ) There are owner operated businesses , and owner absentee businesses! Owner operated businesses means that the owner operates the business essentially working there to make sure it is running. Owner absentee business means that the owner does not work there and is absentee. In both cases , time is very important and in the second option of owner absentee business, many successful entrepreneurs create a profitable business system so that they don't have to be there and they could move on to start other business without selling or folding the first business. Personally I would rather have a business that nets $30,000 a year without having to do anything but check my bank account, rather than a business that nets $75,000 a year , and have to be there all the time. I have seen this strategy create millionaires, best case example being franchises (i.e. panda express, subway, 7-11, etc).

Real Estate:
Real estate has historically created the most millionaires rather than any other industry in the world. This is why lenders give 30 year loans on homes for low interest rates, because real estate is a safe risk. Lets break this down even further! Lets say you buy a home for $100,000 today (not realistic in Bay Area, but for numbers sake we'll keep it low), and put $20,000 for a down payment. Your best friend, Bill, a stockbroker, is trying to tell you to put your $20,000 into the stock market just like he did. Lets say , one year from now, Bills stocks have gone up by an amazing 20% and your home has only gone up by a measly 10%. Bill brags to you why you should have invested with him, but here is why you win. You only put $20,000 down for a $100,000 home, and got a loan for the other $80,000. If you home went up by 10%, you actually made $10,000 on your $20,000 investment, a 50% return! If this home is a rental and the rent that you get pays your mortgage, then this means you have put nothing else in other than your down payment. Now take the same example and make the numbers $1,000,000 or $10,000,000 for homes (or commercial / residential real estate) and do the math. People that have successfully invested in real estate and held on to their investments are now millionaires. They buy good real estate (homes, apartments, or commercial) , let it grow, and over time reinvest their profits. Another reason real estate beats any other investment, is because you can sell your home and pay ZERO taxes (check with your CPA for proffessional advice). Through a 1031 exchange , you can sell your home , take the proceeds, and reinvest in more like homes and pay no capital gains tax. You may be asking how will you ever get the money out? You really don't need to get the money out if you keep building your portfolio of real estate , rents alone will make you money to put in your pocket. If you did want to get some money out tax free, you can take an equity line on your home. Heres a real example: In 2003 , my Arizona home was worth about $350,000 and of this I only owed about $130,000 on the mortgage. I took out an equity line for about $50,000 at 7% interest and paid about $400 a month on payments. My rents for the home were about $1400 and my mortage was only about $1,000/ month. This means that the rent covered my equity line and mortgage. I took the $50,000 and later sold the home and did a 1031 exchange to buy more properties. (please leave a comment if you would like more info)
The last part about real estate is the tax breaks at the end of the year. You are allowed to write off up to $25,000 in depreciation expense, meaning if your income was $50,000 for the year but you own homes that add up to the $25,000 depreciation , your reportable income now becomes $25,000. If you are at the 30% tax bracket that means you just saved $7,500 in income tax! This is probably the best part of real estate , and if you are a real estate professional , you can write off $100,000 or more! So everyone understands how crazy this is, I need to explain a little futher. Depreciation expense means that the govenment is saying that you can deduct cost for your home depreciating and losing value. The only this is that over a long period of time, real estate has never lost value! This is one of the best kept secrets of the rich and wealthy.
Real Estate is very simple if you keep it simple. Of course there are more types of investments like re options, foreclosures, flipping, syndicates, commercial leases , which are all great but a little more complicated. The mentor that taught me this simple strategy owns more than 500 residential homes and is worth over $50,000,000! The craziest comment I remember him saying is that he rents his 4,000 square foot home in Marin, because he says if he lives there it isn't an investment (tax breaks, mortgage, no income, etc)