There are two camps of thought when it comes to real estate…
Camp #1: Real estate is complex and overwhelming. It’s not for me.
Camp #2: Real estate is one of the greatest ways to build wealth starting from virtually nothing. I’ll push myself through the small hurdles to build a better life for me and my family.
Do you know which camp you’re in? Since you’re here reading this, you’re probably somewhere in the middle looking for a reason to jump into one or the other.
Well, with this real estate wealth-building strategy that uses other people’s money, I can safely say you’ll end up in Camp #2 in no time…
The beauty of building wealth in real estate comes from its unique gift of leverage, especially being able to leverage your money AND the money of others.
It’s one of the primary reasons why Donald Trump has been able to build a real estate empire. Set aside his politics for a second, because he’s an excellent example of the moneymaking power of real estate.
So how does this “getting real estate rich with their cash” really work…
I’ll walk through an example to demonstrate…
First, let’s keep it simple and say that you get a 90% loan of the value of the property, and that the appreciation rate is 5% per year.
Here’s how it all works:
1. You buy a $300,000 property with 10% down
To do this, you’ll assume a loan of 7%, fully amortized after 30 years. In just 5 years, thanks to appreciation, your situation will look like this…
- The appreciated value of the property = $382,000+
- The 90% available for loan = $343,800
- The note balance ~ $259,000+
- The cash out refinance amount = $84,800+!
There’s your property after 5 years. And now that you have that $84,800 in hand, it’s time to buy property #2. But since you can leverage your money AND the bank’s money through a loan, it’s even more beneficial to buy a higher valued property for a bigger return…
2. So take your $84,800 to put a 10% payment down on a $848,000 property. Assuming the same parameters as before, here’s your situation after just another 5 years…
- The appreciated property value for Property 1 = $487,540+ | Property 2 = $1,082,286+
- The 90% available for loan for Property 1 = $438,000+ | Property 2 = $974,057+
- The note balance for Property 1 ~ $219,000 | Property 2 ~ $857,000
- The cash out refinance amount for Property 1 = $219,000+ | Property 2 = $117,000+
So after just 10 years from acquiring that first property you now have $219,000 + $117,000, which is a total of $336,000!
That’s all from starting with $30,000 using the power of leverage on your money AND the bank’s money…
If that doesn’t pull you into Camp #2 and get on the ride that is real estate riches, I don’t know what else will…
