Investment Advice
I do not claim to be a financial adviser, however, I do have some sound investment advice to offer wealthy investors. I have practiced Real Estate full time for about 8 years. I started off selling apartment buildings. So, my first exposure to Real Estate was working with high net worth individuals who were looking for a great return on their money. With a good application of the fundamentals of Real Estate investment, Apartment Buildings are historically one of the best ways to get a high rate of return with little risk. As the market shifted, I got out of apartment sales and into foreclosures. Now, I am seeing deals that far exceed good fundamentals. I am also seeing institutional money investing in 200+ unit apartment complexes around the nation. They do not look for foreclosures or repositioning opportunities, they are looking for a smart place to park their money. They are buying A and B properties at 6,7, and 8 caps. What this tells me is that they see apartment investing as safe and secure and they are entrusting apartment buildings to grow their massive piles of cash over the coming years. Why do they feel so secure in apartments? I think it is because #1. Foreclosures are creating a high rental demand, #2. Echo boomers are coming into the market and you may know what happened to Real Estate values when baby boomers entered the market, and #3. The rest of Commercial Real Estate is going down in value as are stocks, bonds, commodities and so many other investment vehicles largely because of inflation. Apartment investing is benefited by inflation.
The same thing is true for residential “buy and hold” investors. If you are focused on sound fundamentals, it doesn’t get any better. 1. Low risk – housing is one of the three essentials in life. 2. High reward – foreclosures present an opportunity to buy low that has never been seen before. 3. Passive income – if all you did was invest for the cash flow from these properties, you would succeed if you know cap rates, ROI, and Cash on Cash formulas to compare with other alternatives and you execute a sound plan. 4. – Other benefits – You have control of the investment, you get the same writeoffs a business owner does and more, and the value of the property will appreciate over time.
Let me give you a quick example of what $100,000 invested in McHenry Foreclosures could look like…
$75,000 – Purchase Price
25,000 – Repairs, closing costs, lease up costs, professional fees, etc.
This is the scenario of the purchase. Now, let’s look at what happens after you buy it assuming you are using all cash.
$140,000 – Value
100,000 – Investment
Equals – $40,000 in equity. If you sold the property now, you would profit $20-30,000 after closing costs, etc.
If instead, you held on to the property, you would maintain a true $30,000 in equity and it would grow in value, too. If the property rented for $1,400 per month and your total expenses were $700 per month which includes taxes, insurance, repairs, maintenance, management, replacement reserves, you name it: you would have a net monthly cash flow of $700 per month. If you multiply that by 12 to get your annual net cash flow, you would have made $8,400 that year in spendable income. So, that is a 8.4% Cash on Cash Return. Now, say you sell the property in 3 years. You currently have a net equity of $30,000. Divide that by 3 years and that means you also made $10,000 per year because of the equity you got for free because you were smart and bought a foreclosure. Add another 10% to your return on investment. Now, we are at 18.4. Where can you get a safe and secure 18.4% true return on investment? Let’s keep going. Appreciation – everyone has their opinion on this, but I factor it in. If you didn’t look at appreciation, you would be fine and you have already found yourself a safe, secure, highly profitable investment that is almost guaranteed to succeed and you have hired a professional management company that you picked to manage the asset for you. Historically, Real Estate appreciates at over 4%. So you can add that and you are at 22.4%. Oh yeah, I almost forgot about write-offs and depreciation. While you will have to pay ordinary income tax on your net cash flow that you made from renting the property, your write-offs will exceed this. For example, using straight line cost recovery, you will get a write-off of over $5,000 per year. That would be another $1,750 (assuming a 35% tax bracket) you would make because of this $140,000 property that you paid $100,000 for. This would equate to almost 2% in addition to the 22.4. So we are at 24.4% total return on investment or ROI. Now, if your expenses are 50% of your income for this property (which is what I used above to figure out the $700 cash flow) you would also see $8,400 in write-offs and since this is so variable and unique per situation, I can’t say what the ROI implication would be, so let’s use 2% again for a Grand Total of 26.4% Total ROI, yield, whatever you want to call it. This compared to investing in an IRA, stocks, mutual funds, savings, etc. Most people don’t know that they can self-direct their current and old 401Ks, IRAs, Keoghs, etc. Check this company out to be enlightened. Even if you royally messed up and got half of that, would you be happy with a true, realistic, and safe 13% rate of return on your money? These large institutional investors are happy with a 10% yield. What if I agreed to partner with you and get you 13% and you didn’t have to worry about any of this foreclosure, short sale, repositioning, rehabbing, renting, leasing, relationship building, management hiring, project management mumbo-jumbo? I can. In fact, that is conservative and I can show you how and why, in a practical scenario using the exact situation you are working with. Contact me for more information or join my facebook group to get tips, information, and deals from fellow investors.
Hope this helps!
Nick Graff
nick@nickgraff.com
847-629-5400
