How to invest in appreciating assets to create your own financial freedom

7 years ago today, we took possession of a luxury 6-plex with 3 bedrooms / 2 bathrooms / underground indoor parking / central air for four of the units and the 2 bedrooms / 1 bathroom / central air for two of the units.

We acquired it for roughly $1 million after environmental fees ($965K + closing costs and fees) with ~$220K down. While most people assume this would be out of reach for nearly everyone, we borrowed the capital from the equity within our homes by using a home equity line of credit.

Many people take out home equity lines of credit to perform renovations, purchase trailers / luxury vehicles or to take luxury vacations. All of these purchases depreciate in value and/or eliminate wealth, so we chose to go against the norm and to transfer our equity into assets that appreciate instead.

In this timeframe of 7 years, having borrowed ~$220K from our home equity, we’ve paid interest of ~$42K on the loan (~$6K per year x 7 years). In that same timeframe the property has appreciated to a value of $1.5 million and our mortgage owed is now down around the ~$650K mark. Paying interest of $42K have earned us a return of $600K ($1.5 million value minus $650K mortgage minus $250K outstanding home equity line of credit). This investment has resulted in a whopping 1,300% return in just seven years!

Now, to acknowledge the unusual market conditions, we are acutely aware that this won’t always be the case; properties have appreciated at a ridiculous and unsustainable pace over the last several years; in fact our forecasts had us earning $300K less, which had that happened, it still would have been an incredible return. What were the assumptions we used to calculate our returns? We assumed historical averages of appreciation aligned w/ inflationary metrics.

I’m not sharing this to brag. I’m sharing it because I have family, friends, clients and investors that continue to be apprehensive to invest in their own financial future. If this helps even one person to take the first steps required to invest in their future selves, then this post was worth my time. Anyone could do this. It does require a bit of learning and some patient due diligence, but it is absolutely a worthwhile investment. The biggest barrier to us having ever taken this step was fear. Once we got over that, it’s been mostly smooth sailing.

The biggest lesson of all that we’ve learned on this journey is that if we had never taken these first steps to invest in our future selves, our net worth would be millions of dollars lower, we wouldn’t be in any position of financial independence and the only people who would have paid the cost of our inaction would have been ourselves.

If anyone takes anything out of this post today, stop procrastinating, write down your dreams, put a plan together and begin working towards it. Baby steps, one at a time, a little bit each day; believe me, if I can do it, so can anyone else. We’ve achieved our dreams, not because we did anything extraordinary, but because we took action, set our fears aside and moved forward a little bit at a time. Why wouldn’t you do the same? Your future situation depends on what you do today. Go get ’em tiger!

The new Tesla Model 3 is only “$35K”?

Tesla Model 3The new Tesla Model 3 is only $35K? That’s at least what their advertising would like you to believe. It’s only a “bit more” expensive than your last vehicle purchase. Maybe it’s finally time to get on that; you’ll save so much money on gas too!

Hmm… it seems too good to be true, let’s slow down and take a moment to do some due diligence… after all, the advertised price is after government tax rebates and alleged gas savings. That seems like a shady way to advertise… after all, the base purchase price is really ~$47,600 and after all the fees and high financing costs it’s really much, much more.

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Luxury condo vs. multiplex – a comparison of the likely outcome

21902074-1-175187114[1]Scenario 1:
You can purchase a luxury 3 bed/2 bath condo for $600K (http://bit.ly/2Clh7J9) which would cost you $4,400 monthly excluding utilities ($3K mortgage + $600 property tax + $500 property maintenance + $300 insurance)

Scenario 2:9424169_1[1]

…or you could purchase a 6-plex (http://bit.ly/2MLDgVP) which earns you positive cashflow ($500-900 / month), appreciation ($1K-1.5K / month), equity via mortgage paydown ($1K-1.2K / month) and tax benefits via reducing tax basis due to depreciation ($2K / month).

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The quadfecta of building wealth in real estate investing

Real estate investment returnsIn 2015, we purchased this luxury 6-plex for $960K with indoor parking, central air, four 3 bedrooms/2 bathroom units and two 1 bedroom 1 bathroom units. Each year we’ve been close to cashflow neutral, earning absolutely no monies from positive cashflow. Many of my startup students ask in bewilderment, “Why bother?”

The reality is that many of my new startup students have walked away from investment opportunities simply because they don’t generate cashflow. Unfortunately, they have likely missed out on some pretty amazing opportunities. The reality is that positive cashflow isn’t the only way to build wealth in real estate investing; in fact it often isn’t even the typical way.

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Cottages Are Great Investments… Or Are They?

Buying a cottageLast year, my friend bought a cottage for $180K. His down payment was 25%, or $45K. This year he boasted to me that he had made $18K in a year off the cottage. It was recently appraised at $195K (+$15K equity) and he rented it out a few times this summer to earn $3K in additional cashflow. Not a bad return right? $18K total. If only it was true…

Here’s the reality…

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You’re Doing It All Wrong (The Truth About Financial Freedom)

Budgeting your moneyYou don’t need to earn a lot of money to achieve financial freedom quickly. You just need to follow two simple rules:

  1. Live within your means (and)
  2. Invest the rest.

I’ve never paid myself more than $60,000 a year, I don’t live frugally, I spend $700 / month on food, entertainment and other stuff plus I donate $100 monthly. Yet I still manage to invest nearly $18,000 each and every year.

Isn’t it about time you make a spreadsheet, face your own truth and make some changes in your life? Take a look at mine and see how you compare, look for places you can improve and make decisions about what expenses truly bring you sustained happiness and which ones are holding you back from achieving your potential.

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Do Just One Thing Great in 2016

To all of my entrepreneurial friends, if you read just one book this year, I strongly recommend this be it.the-one-thing

After mentoring nearly a hundred entrepreneurs in 2015, and my going through my umpteenth own self-discovery phase, I’ve noticed one of the biggest mistakes made by almost everyone is a burning desire to do more. This is the not only the wrong approach to achieving success; as you gain momentum in different areas you continue to de-focus yourself and push yourself further away from achieving the potential that you are capable of in any singular focus.

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A Single Sacrifice Is All It Takes To Retire Early

necessity-vs-luxuryLast night I met with a colleague of mine who said she didn’t have any money to invest in her retirement. As it turns out, within five minutes I found several instances where she was believing her own lies. The biggest one? Her car costs as much as her mortgage… that’s nuts!

Mortgage ($810 mortgage + $140 property tax)
$950 / month

Car ($465 payment + $250 insurance + $240 gas)
$955 / month

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Preparing Your Net Worth Statement to Buy Investment Real Estate

checklist-628x363[1]In a previous blog (Get Organized Before Buying Investment Real Estate), I outlined a list of documents that anyone should have prepared before they seek financing for their real estate investment acquisitions.

One of the most important documents is your “Net Worth Statement”. In the last year I’ve had the pleasure of reviewing dozens of these and, as a result, it’s clear to me that many newbie investors have a challenging time filling it out properly. As a result they have reported having a challenging time obtaining financing approval within the time constraints of their deadlines.

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Pay Attention to the Small Things, Because They Add Up Quickly!

Light bulb vs. LEDShort term pain for long term gain. Many people will avoid spending $100-200 to replace their lights with a more efficient alternative.

Recently I replaced the last 16 bulbs in my house with LEDs, the investment of $128 will break-even in less than 18 months and save me approximately $2,000 over the next 20 years.

At this pace, assuming no increase in electricity cost for the next 20 years (which is unlikely), worst case scenario I will earn an annual ROI of 33.3%; which is far greater than the historical average ROI of the stock market historical average of 10.1% (8.7% adjusted for inflation). There are many cases when masterful saving can outperform systematic investing and it’s worth paying attention to.

Take a look:

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