Apartment Investing: Creating A Powerful...

We all know the song by the O’Jays...

“Money, money, money, mon-ay, monnn-ayyy!”

It’s true that money is the outcome of wealth building, but it’s not the only reason that smart people are determined to build equity.

Hey Moguls, Chris Urso here and today I want to chat about one of the biggest wealth-building tools when it comes to investing in multi-family properties.

I had you at “wealth building,” didn’t I? ;-)

So, why is building wealth important?

Well, besides the obvious reason (mon-ay), it also helps you create a legacy as a real estate investor and provides you with a strong sense of security. But as with any good thing, it takes time and a sound strategy to build your wealth.

“Building wealth is marathon, not a sprint. Discipline is the key ingredient.”
~Dave Ramsey

So today, I want to share my insight on building wealth with multifamily property investments. Whether you’re a passive investor or someone who’s out there doing deals left and right, you can benefit from this information, including a stellar example deal with all the numbers and dollars calculated and a useful method I call Principal Paydown.

Ensuring Good Leverage

What do I mean by "ensuring good leverage?"

I mean that you should not overextend yourself... but make sure you do a multifamily transaction the right way.

To help illustrate how to do this, let me give you an example...

So our loan is going to be $3 million (since 75% of $4 million = $3 million).

Our down payment : $1 million

This brings our total investment to $1,250,000. And this is for a good, solid property. Depending on which market you’re in, a $40 million property will probably be around 60-100+ units.

Now, the next part...

Now, if you’re starting to feel intimidated, just remember: The tenants will be paying your operational expenses and mortgage. If you buy the right property in the right location and hire the right managers, you won’t have an issue with needing to pay out of pocket every month.

Year 1 principal remaining: $2,907,871
– Year 10 principal remaining: $1,848,034
$1,058,837 principal that's been paid down

Think about it: You’ve accumulated over $1 million in equity in this single investment! (Can I get an Amen?) And let’s remember – how much did you invest? $1.25 million. So you’ve practically reached 100% return on your investment in just 10 years by using the power of Principal Paydown (PP).

error For all the naysayers (I know you’re out there) – if you had to invest every single dollar that the property made back into the maintenance/operational budget of the property over the course of the 10 years, you still would have made nearly a 100% return on your money!

In 20 years alone, you’d have a $4 million asset (and that’s assuming that the property doesn’t increase in value, which is unlikely).

This is the simplest way for me to convey to you that you have options! And they’re good. This is the way that private real estate investors can build significant wealth for their families and futures. And this is how legacies are built.

Now, going back to our example...

We assumed that the property didn’t increase in value at all (again, this is not probable because we chose the right property in the right area).

Let’s say that the property value increased just slightly – about 2% total – from Year 1 to Year 10 of the loan.

At Year 10, we would now have a property worth $4.8 million, and have $1.8 million in equity (our original $1 million down payment plus the $800,000 increase in value).

So if you’re nervous about getting started with multifamily property investment, think of this…

If you have a property or asset that you inherited that maybe you don’t need - what I like to call a “lazy asset” – you can sell it for $1 million and get started on your multifamily investments by purchasing a $4 million property. And now you have doubled, tripled, and eventually quadrupled your lazy asset.

apartment This is how you blow up your net worth and increase your wealth exponentially.

Now, if you want a little more cash flow to work with today, then you might consider a 30-year mortgage instead. And it can still be powerful when you use the PP method.

So, let’s see what happens if we switch to a 30-year amortization schedule….

Year 1 principal remaining: $2,953,708
– Year 10 principal remaining: $2,421,673
$532,035

As you can see, by using the PP method, you’ve paid down more than half a million in interest – which is nothing to scoff at. It’s still an awesome step toward building your wealth.

Invest Away

At the end of the day, investing in multifamily property is all about your personal situation, the reasons why you’re looking to invest and your unique goals.

Investing in stable investments such as a multifamily property will allow you to really build a significant amount of net worth.

So, I encourage you to consider it today.

Chris

Speak Up

Got any PP or wealth-building questions? Speak up below.

Jot it Down. List your preferences, as far as how much money you’re willing to invest, whether you prefer to have more cash flow available or to build equity more quickly, and what your overall goals are (in terms of your real estate investing).

Find the Winners. Scout out potential properties that you might want to scoop up. Remember: only choose the right property in the right area.

Have Patience: Don’t rush into a deal that’s going to bite you in the rear end later.