Why is Real Estate Investing Such Low Risk?

Why is Real Estate Investing Such Low Risk?

The answer to the question in the article title is easy, and one word...CONTROL.

It is the only investment I know of that gives me control over all aspects of the investment, mainly because it is the only investment that is so transparent.  Think about.  If you are investing in stocks, bonds or mutual funds, you have no control over your investment...and you also have no idea of the costs associated with them.  They are not transparent at all.  The only thing you do know is you are turning over all of your money to a sales person Financial Advisor (check out the requirements to become one...and compare that to a beautician) who may not even buy the same investment they are selling you.  You are buying for the "long hall", which really means that you won't see your return on investment until the person that sold it to you is retired...or out of the business.  Why would you do that?

Real Estate is Predictable 
Real Estate, on the other hand, is predictable.  You know, if you educate yourself well, before you even buy what your returns will be.  This means you are in control.  You simply need to purchase at the right price, finance it properly, pick the right location, and have it managed well.  Not every property qualifies, which is why you must educate yourself to be able to recognize a good deal from a bad one.

The good deals come with so many advantages that are not found with other "capital gains" type investments, such as:

1. Cash Flow (Income comes in every month like clock work)
2. Leverage (You can get financing for real estate if you learn how to write a business plan...again with the education.  Try to get financing for your next mutual fund purchase).
3. Amortization (If you have cash flow, your tenants pay off your debts.  In fact, you should be able to pay off the debt service faster than you thought...see this site for more information)
4. Depreciation (Isn't it nice of the government to allow us this deduction for the reduced value of our property...even though it almost always goes up in value)
5. Foresight  (Change the value of your property by changing the zoning, or improve/rehab a broken down house)
6. Broaden Horizons (Start with Single Family, move onto Multi-Family, then commercial and development)
   
   
   
   For more information on NNN houses see earlier Blog.
7. Forecast Results (You can predict the future much easier, and control the outcome, with good management in place...this may be you in the beginning.  Invest in NNN guaranteed lease houses or commercial properties and control the management even more)
8. Tax-deferred Income (Many ways this comes into play, not the least of which is through a 1031 exchange.  This allows you to sell, profit, re-invest, and delay taxes until.....?)
9. Appreciation (See #4 above.  Your property, if purchased and set up correctly, WILL go up in value)

Why Cash Flow is King
I prefer to invest for cash flow than for appreciation (flipping) since the tax treatment is far better and I like the idea of steady cash flow and my tenants paying off my mortgage...ahead of time.

Joe Villeneuve, President

The Power of Real Estate Now

www.thepowerofrealestatenow.com

joe@thepowerofrealestaenow.com

NNNHouses

Fast Mortgage Payoff Program

Nevada corporations for your Real Estate Holdings

Nevada corporations for your Real Estate Holdings 

You must Protect your investment and Nevada is the place.
    

Why Incorporate?

Incorporating separates your business assets from your personal assets and protects your savings, home, retirement and other personal assets from having a "bullseye" painted on them just waiting for any lawsuit against your business. In addition, incorporating adds the potential for additional tax deductions that could put money back into your business.

Why Incorporate in Nevada?

For a long time, Nevada has been known as an extremely pro-business state; They have no corporate income tax and no franchise tax. Nevada is one of the few states where the corporate veil has never been pierced, except in instances of fraud. Personally, I would only use Nevada Corporate Headquarters, Inc. for all of my business entities protecting my real estate, and other business ventures. Why Incorporate with Nevada Corporate Headquarters, Inc. (NCH)? There are many other incorporating companies, NCH is a one-stop, turn key, full service incorporator. NCH is the largest incorporating service in Nevada, and their Senior Consultants are certified asset protection specialists. Their Staff support and innovative systems make creating your business and protecting your assets easy, quick and convenient. You can count on NCH to help you grow you business and protect your family's future. WHICH CORPORATE STRUCTURE IS BEST FOR YOU? CLASSIC CORPORATION The classic corporation (C-Corp or S-CORP) has the most flexibility and are a dynamic business entity. It offers huge advantages that generally aren't part of other business structures; this is one of the reasons why the corporation is the most commonly used in business.  It is a legal entity created completely separate from the individual owner and operator which than separates a corporation's debts and taxes from its owners or shareholders; this could be the greatest personal liability protection of all business structures is provided. LIMITED LIABILITY COMPANY (LLC) The LLC is combines the best of both worlds...the best of the D.B.A. type of structure and that of a Classic Corporation.  This type of entity combines the pass through attributes of a partnership with the corporate characteristics of limited liability, distributes profits and losses directly to the individual members of the LLC who are taxed at their personal tax rates. You can use an LLC  to hold property or transact any type of business, and members' personal assets are protected in the event of a business claim. Many real estate investors will use one LLC to hold each property, thus protecting each property from the other.  The LLC also can separate its members from the business itself; that way, there should be no personal liability for LLC debts.   All of this should be discussed with your legal and tax professionals, which is why I use NCH, Inc.  They will take care of the full package for you. They have a free 100 page eBook that will explain all of this.

NNN guaranteed lease houses available

NNN Guaranteed

Lease Houses Available

Here are the details:

1. Each house costs an average of $60k
2. The CAP rate on each house is a set 9.11 so the average income from each house is $5466/year or $455.5/month.  You may say that you can't retire off of this, but you'd be wrong...see below
3. The terms of the lease are as follows:
   
   
   • NNN absolute lease
   • Guaranteed for 10 years, with extensions added to the back end anytime you want. Usually you will wait until year 5 to extend the lease so that both parties see what the effect of a few years makes on the rent's going rate since the extension will include a rent increase.
   • Since this is a NNN absolute lease, the investor is only responsible to make the payments on the debt service. All other payments, including taxes, utilities, insurance, etc., are made and guaranteed by the lease contract.
   
   
   
4. If the property becomes vacant, the lease payment to you is guaranteed
5. If there are any repairs that need to be made, the lease pays for them...as well as making all lease payments to you...guaranteed  to you if the property is vacant during the time of repairs.
6. Investor retains all deductions, like depreciation.
7. Money to you is automatically deposited in your account (of choice).
8. At any time after 60 days, you (and only you) have the option of breaking the lease with the lease company and taking over directly with/to the tenant. This means you will be making more money per month, but also taking on all the responsibilities of managing the tenant.
   
   
   • Vacancies
   • Collecting rent checks
   • maintenance
   • ...etc.
   
   
   
9. The total rent received from resident tenant goes to the lease company to act as manager. The investor receives their lease payment from that amount, and the lease company receives their management amount from that as well.
10. The bottom line is the lease company takes over the problems of residential income property, namely the tenant, while the investor is left with the advantages, such as the cash flow, tax deductions and appreciation.

Now, one house does a retirement make. But, many house will...if you have a plan...and I have a plan.




How to Retire from this System:

1. Buy 1 - 2 houses at a time ($60 - 120k). I like the idea of using a Self Directed IRA, or even better, a loan from the cash value of an insurance policy since you can pay it back and use it over and over again.
2. Hold the property(s) until seasoned for refinancing (6 - 12 months) in LLC or other business entity.
3. Refinance, and pay back original source of funding.
4. Original source of funding is available again to repeat steps 1 to 3.
5. Include my fast mortgage payoff program with each refinance (this is very important as this is what makes this system work so well).
6. Buy at least 10 sets of 2 houses...20 houses.
7. Since refinanced mortgage will be paid off in 10 years or less (see step 5 above), you can refinance again. This time, with no debt service to pay off, so this is all profit/cash in pocket...tax free since it is a loan...that you tenant is paying off.
8. Since you have 10 sets of houses (2 in each set), you can repeat step 7 for 10 consecutive years.
9. In year 11, the refinancing done in the first year in step 7 is paid off, and you repeat the process again. This means that every year, for as long as you want, you can have 6 figure tax free income. Can you say retirement plan?

Let's look at the numbers:

1. Average $60k house, at 9.11 CAP rate gets you $5466 cash flow per year.
2. 100% financing (remember, you control this since you can get this from your IRA or insurance policy), at 4.5% interest rate (you control this too), gets you a yearly debt service of $3437.4/year.
3. Net cash flow of $2028.6/per year.
   
   Here comes the best part.
   
4. Payoff in 10 years.
5. Refinance/cash out equity.
   
   
   • Property has equity built in when you buy it originally. After 10 years, you should have at least 20% equity or more.
   • 20% equity would mean an appraised value (based on average. price of $60k when bought) of $72
   • This means you can refinance, at 80% LTV, the $60k right back out...in the form of a loan...so it's tax free.
   • This time you sill use traditional financing, so let's just take $50k out (you can do the full $60 though) which would be about 70% LTV, at 5% interest making your yearly debt service at $3865.08...for a cash flow of about $1600/year. Oh wait a minute. At this point we will be working with the extension, which will have a rent increase in it, so the lease payment to you goes up, so the cash flow also goes up too.
   
   
   
6. These numbers are based on just one house. If you do this in pairs, each year you can get $50k tax free from each house for a total of around $100k, plus, the cash flow from each of the 20 houses per year.
7. Just a thought: If the rent went up just 10% for the extension per year, that would mean $6012.60 would be your new yearly NOI. That could mean a much larger refinancing amount than the one we've just laid out for you.

All of this takes place at the time of closing. You buy the house and there is a "lease carry back" that takes place at the same time.

If you are interested, just contact me joe@3VEnterprises.ws and fill out this form for more information.  I will put you in direct touch with the supplier.

No monetary or legal commitments are made until you talk directly with the supplier, do your D.D. on them and the houses you are interested in, and are satisfied to move move forward.

Please discuss all of this with your professional advisers before committing to any of this...but I bet they'll love it too.  If you have any questions please let me know.

It all starts...and ends, wtih a system.

Welcome. If you want to make anything work efficiently, it must be part of a complete system. When it comes to real estate investing (any investing for that matter), that means you must have a way in, be able to control your risk (eliminate if you can) and, this is critical...you must have an exit strategy in place BEFORE you start the process. If you don't, you will not be in control..the investment will control you.

I have put in place many investment system for both residential AND commercial. It starts with the financing, and ends with the payoff. If you have both of these items in place, you can make any good deal great.

This blog is to be a sample of my systems as well as those of others as they add them to the mix. Please keep in mind, if there is no control in the system, it will not be posted.