Let’s look at some numbers and what the average investor is doing. Most people feel comfortable and safe putting their money into a money market account or CD accounts at their local bank. One advantage to these types of investment methods is that they are secure and you can control what happens. You know exactly what you are putting in and what you will get in return. Although these types of accounts are low risk they also have an extremely low rate of return. The average rate of return today is about 2% annually. So if I invest $100,000 my monthly return is $166 and some change. For the weary and hesitant investor that is an acceptable rate of return, but for those who really want to make their money work, then in my opinion, real estate is the best investment avenue. Allow me to show you why.
Sure the media makes it seem like real estate is too scary and unstable because of the markets, but if you really analyze things, has the market changed that much? If you ask yourself, “How much can I RENT a house for today compared to two years ago?” you will find that RENT has actually gone up over the last two years. Rental amounts have stayed stable and if they have changed they have gone up, which is good news for those who have rental properties. When you look at the market through a rental perspective it changes the doom and gloom outlook to one that is rolling in the money.
Again let’s look at numbers. The value of a home or property should be based off cash flow. The amount you could rent the property for. If you simply reverse the calculation for a mortgage
using the RENT amount as the monthly mortgage you end up with the TRUE value of the home.
As an example I will use an actual property that was purchased by an AIA member recently from one of our partners – Nationwide Real Estate.
Examples of what a home should be worth if it’s based off Rent.
Rent = $600/month/ Payment
Term = 30 years
Interest Rate = 5% fixed
$90,000 loan amount with a 5% interest rate 30 year term = $600
The home should be valued at $90,000.00
Your ROI would be 8% annually if you bought it at $90,000.00
Here is an actual property that is available from one of our partners - Nationwide Real Estate.
Rent = $600/month
With our calculations the Home Value = $90,000
We are selling the home for $27,000.00
Your ROI will be 26% annually
I chose this one example and will not bore you, however there are MANY, MANY more examples just like this available from the American Investors Association.
With all the media and foreclosures and inflation that has occurred over the past few years everyone feels the real estate sky is falling. In actuality, rental properties are looking better and better. Right now, in most areas, you can buy a home for 25% to 35% less than you could 5 years ago. If we use our same calculation from above this property would have a value of $90,000, but this is where it gets exciting. By working with companies like Nationwide Real Estate you get homes that receive an average rent of $600 per month for $27,000 to $38,000. Wow! You may ask if you can really buy a home for $28K that is paying $600 per month, and the answer is YES! I will be perfectly honest with you these homes that should have a value of $90K probably have an actual value of $50,000 to $70,000; you are getting homes at an amazing 55% discount. I feel that we may have only 2 good years to take advantage of this incredible market. Your next question is how do I get more information?
It’s a lot easier than you think to find deals like this. One of the quickest ways is to network into your local real estate group or a national group like the American Investors Association. By surrounding yourself with others that are in the same industry, you vastly increase your exposure to great deals.
American Investors Association
American Investors Association