Real Estate Investing

Secure Your Financial Future With Less Risk

WTFO? You Might Want To Be Here If…

You already own a home but want to take the next step

You have investment capital in stocks, bonds, mutual funds, etc. but wonder if there’s a better place for it

You have equity in your home but don’t know how to make it work for you

You’d like to take an active role in building your wealth

You Might NOT Want To Be Here If…You don’t own a home yetRetiring early and with financial security isn’t

important to you

Disclaimer

Summary

Stats Part I: Why You Should Care Part II: Your Rental’s Secret

Weapons Part III: Stocks vs Real Estate Part IV: Release Your Equity! Part V: Building Your Portfolio Part VI: Where Should You Invest?

Statistics There are over 115,000,000 housing units

in the U.S.A.

Almost 1/3 of all U.S. housing is rented.

60% of U.S. rental housing is owned by individual landlords.

The wealth of the top one percent of

Americans is greater than that of the bottom 95 percent.

Part I: Why Should We Care? Retirement: The Last Third of Your Life Social Security? Don’t Plan On It…

Benefits may be taxable No guarantee that it will be there when you retire

Military Pension? Gotta Do The Time… Fewer than one in five make it to 20 years1

Don’t plan on finding a better pension than the military1

CSB/Redux at 15 years – Avoid It!2

http://www.ssa.gov/planners/calculators.htm

1 http://www.cbpp.org/4-29-99Bud.htm2 http://findarticles.com/p/articles/mi_m0IBQ/is_2002_June/ai_90189538

Military Pension? Gotta Do The Time…

Part I: Why Should We Care?

= $1433/month

= $2486/month

http://www.defenselink.mil/militarypay/retirement/ad/index.html

IRA and TSP? Limited Safety NetPro: Tax BenefitsCon: Limited Flexibility (Withdrawal

Penalties)Con: Higher Gains Require More Risk

Part I: Why Should We Care?

http://www.tsp.gov/rates/monthly-history.html

Part I: Why Should We Care? Your Retirement Will Not Take Care of

Itself There’s Another Way to Make Money!

It’s An Appreciating AssetNational Average

Washington State Average

Part II: Your Rental’s Secret Weapons

≈10% per Year

≈15% per Year

http://www.ofheo.gov/media/pdf/1q07hpi.pdf

It Helps You Pay Less TaxesTaxes on Regular Income:1

Allowable Tax Deductions2

○ Interest paid on mortgage or equity loan (Saves Thousands)

○ Insurance Payments○ Depreciation (cost/27.5)

Part II: Your Rental’s Secret Weapons

Married

1 http://www.savewealth.com/taxes/rates/2 http://www.nolo.com/

Single

It Helps You Pay Your TaxesAllowable Tax Deductions (cont.)

○ Operating Costs○ Repairs○ And More…

Taxes on Capital Gains:1

○ Profits from stocks, mutual funds, savings accounts etc.

○ Roth IRA profits are exempt○ Profits from sale of primary residence are exempt

Sell Your Own Home - Keep All Profits Tax Free!!!○ Must have lived there for 2 out of the last 5 years○ Profits not to exceed $250,000 ($500,000 if married)

Part II: Your Rental’s Secret Weapons

1 http://www.irs.gov/pub/irs-pdf/p550.pdf

It Helps You Pay Your Taxes1031 Exchange1

○ Defer capital gains taxes○ Use your rental’s equity to buy another one

Part II: Your Rental’s Secret Weapons

1 https://www.1031cpas.com/1031%20literature.htm

It Gives You Leverage20% Down on a $200,000 house = $40,00010% Annual Appreciation

○ 1 Year: $220,000○ 2 Years: $242,000○ 3 Years: $266,200○ 4 Years: $292,820○ 5 Years: $322,102 = $122,102 gain in value!

$122,102 profit from $40,000 investment after 5 years

Part II: Your Rental’s Secret Weapons

Average of 32% annual return!

Part III: Stocks vs Real EstateStocks/Bonds Real Estate

Investor buys $50K stock porfolio Investor puts 20% down on a $240,000 rental

Initial Investment $50,000 Initial Investment (incl. close, reserve) $50,000

Initial Value $50,000 Initial Value $240,000

Annual Appreciation 10% Annual Appreciation 10%

1st Year New Value $55,000 1st Year New Value $264,000

Gain $5,000 Gain $24,000

% Return after 1 year 10% % Return after 1 year 48%

Values after 5 yearsInvestment $50,000 Investment $50,000 Initial Value $50,000 Initial Value $240,000 Appreciation Rate 10% Appreciation Rate 10%New Value $80,526 New Value $386,522 Gain $30,526 Gain $146,522

Percent Return 61% Percent Return 293%

Appreciation Rate Required to Double the Money Invested

Stocks/Bonds Real Estate

100% 20%

Avg Annual Return 12% Avg Annual Return 59%

What is Equity?Value of an asset, minus liabilitiesShould I pay off my mortgage?

Part IV: Release Your Equity!

Mortgage

Loan TypeInterest RateMonthly PaymentMonthly Savings versus 30 year fixed

You Owe

Loan repaid in 30 years$250,000

30 Year Fixed7.000%

$1,663.26 $0

30 Years Later

$0.00

Interest Only Payment$250,000

30 Year Interest Only7.000%

$1,458.33 $204.92

30 Years Later

$250,000

You OwnA home valued at $250,000

plus appreciationA home valued at $250,000

plus appreciation

Monthly Savings re-invested at 10% returnMinus the payoff from the home loanTotal cash assets after home loan repaid

$0 $0

$0

$463,226 $250,000

$213,226

How can I release my equity?RefinanceHome Equity Line of CreditDrawbacks

○ Closing costs○ New interest rate

Part IV: Release Your Equity!

Part V: Building Your Portfolio1st House -- Purchase

$250,000 Price

$200,000 Loan

$58,000 Down Payment + Reserves + Closing Costs

$0 Equity applied

$0 Equity released

33 months pass…(At 10% annual appreciation)

1st House Refinanced$328,750 New Appraised Value

$263,000 Loan

$0 Out of Pocket Invested

$5,000 Closing costs of Refinance

$0 Equity applied

$58,000 Equity released

Original House Sold$404,250 Sale Price

$379,995 Proceeds of Sale

$263,000 Loan Payoff

$995 1031 Exchange Fee

$116,000 Equity Released

New 1st House$250,000 Price

$200,000 Loan

$0 Out of Pocket Invested

$8,000 Closing costs plus Reserves

$58,000 Equity applied

$0 Equity released

New 3rd House$250,000 Price

$200,000 Loan

$0 Out of Pocket Invested

$8,000 Closing costs plus Reserves

$58,000 Equity applied

$0 Equity released

2nd House – Purchase$250,000 Price

$200,000 Loan

$0 Out of Pocket Invested

$8,000 Closing costs plus Reserves

$58,000 Equity applied

$0 Equity released

25 months pass…(At 10% annual appreciation)

33 months pass…

(At 10% annual appreciation)

2nd House Refinanced$328,750 New Appraised Value

$263,000 Loan

$0 Out of Pocket Invested

$5,000 Closing costs of Refinance

$0 Equity applied

$58,000 Equity released

4th House – Purchase at 5.5 years

$250,000 Price

$200,000 Loan

$0 Out of Pocket Invested

$8,000 Closing costs plus Reserves

$58,000 Equity applied

$0 Equity released

Portfolio Stats:

Total Time Elapsed 10 Years

Out-of-Pocket Invested $58,000

1st House is gone (sold)

NEW 1st House Value $418,211

2nd House Value $514,634

3rd House Value $418,211

4th House Value $391,347

Total Value of Properties $1,742,403

Loan Balance $863,000

Total Equity $879,403 Annual Rate of Return 31.24%

Keeping track of the numbersEach house has its budget

Part V: Building Your Portfolio!

What Are The Risks?House drops in value

Part V: Building Your Portfolio!

http://www.ofheo.gov/media/pdf/1q07hpi.pdf

What Are The Risks?Buy a bad house

○ Licensed property inspectors make sure you don’t

House gets trashed○ Property managers○ House is insured

Unspeakable acts of the Almighty○ Diversify your locations

What if you need money?○ Sell one of your rentals!

Part V: Building Your Portfolio!

Part V: Building Your Portfolio

What Are The Risks?How come no one else has thought of this

before?

Part VI: Where Should You Invest?

http://www.ofheo.gov/media/pdf/1q07hpi.pdf

Why Buy Here?Washington State Average1

Local Averages1

Part VI: Where Should You Invest?

≈15% per Year

http://www.ofheo.gov/media/pdf/1q07hpi.pdf

≈15% per Year

≈15% per Year

≈13% per Year

http://www.ofheo.gov/media/pdf/1q07hpi.pdf

Acceleration when most other areas are slowing!

Different Markets For Different FolksHigher appreciation = lower cash flowHigher cash flow = lower appreciation

Find Flourishing Micro-MarketsJob growthSchool systemsDistance to large citiesFavorable state/local legislationIntangibles

Part VI: Where Should You Invest?

Do I Have To Live Close By?You’re not bound to the local marketLicensed inspectorsProperty managersScared yet?

NorthPoint Investment GroupStrategic planningMarket researchFinancing strategyProperty managementOne-stop shop for all your real estate investment

needsInvest in markets nationwide!

Part VI: Where Should You Invest?

Sample Cash Flow:

Questions?

Ryan Simms(253) 970-6193ryan_simms@hotmail.com