Author Topic: Methods of Leveraging to $1 Million.  (Read 4943 times)

Freeyourchains2

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Methods of Leveraging to $1 Million.
« on: August 09, 2013, 10:38:47 AM »
Has anyone used leveraging to make a $1 Million dollar stache?


One method i could see being used is putting down $40,000 on a $200,000 split in the middle duplex, kind of like two condos seperate by a soundproof wall in the vertical middle. Then renting out both sides for $1,200. Say estimated total expenses with mortgage, principal, taxes total up to $900/month.

With good tenants and little to no repairs, you could make $1,500 per month.
$1,500/month for 3 years - another $40,000 downpayment to repeat this method.

If you repeat this method every 3 years, your income may become:

1 house:   $1,500/month:  3 years to acquire.
2 houses: $3,000/month: 3 years invested to acquire.
3 Houses: $4,500/month: 6 years invested to acquire.
4 Houses: $6,000/month: 9 years invested to acquire....then Retire, or keep going to you rent out the entire village (houses and businesses) and single handily control the economics of the village?

Can the same thing be done with small businesses? (but with a money multiplier of about 100)

Undecided

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Re: Methods of Leveraging to $1 Million.
« Reply #1 on: August 09, 2013, 11:15:26 AM »
Has anyone used leveraging to make a $1 Million dollar stache?


One method i could see being used is putting down $40,000 on a $200,000 split in the middle duplex, kind of like two condos seperate by a soundproof wall in the vertical middle. Then renting out both sides for $1,200. Say estimated total expenses with mortgage, principal, taxes total up to $900/month.

With good tenants and little to no repairs, you could make $1,500 per month.
$1,500/month for 3 years - another $40,000 downpayment to repeat this method.

If you repeat this method every 3 years, your income may become:

1 house:   $1,500/month:  3 years to acquire.
2 houses: $3,000/month: 3 years invested to acquire.
3 Houses: $4,500/month: 6 years invested to acquire.
4 Houses: $6,000/month: 9 years invested to acquire....then Retire, or keep going to you rent out the entire village (houses and businesses) and single handily control the economics of the village?

Can the same thing be done with small businesses? (but with a money multiplier of about 100)

I find that assuming annual cash-on-cash returns of 45% or more makes it easy to succeed with any hypothetical.

Freeyourchains2

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Re: Methods of Leveraging to $1 Million.
« Reply #2 on: August 09, 2013, 12:05:31 PM »
Has anyone used leveraging to make a $1 Million dollar stache?


One method i could see being used is putting down $40,000 on a $200,000 split in the middle duplex, kind of like two condos seperate by a soundproof wall in the vertical middle. Then renting out both sides for $1,200. Say estimated total expenses with mortgage, principal, taxes total up to $900/month.

With good tenants and little to no repairs, you could make $1,500 per month.
$1,500/month for 3 years - another $40,000 downpayment to repeat this method.

If you repeat this method every 3 years, your income may become:

1 house:   $1,500/month:  3 years to acquire.
2 houses: $3,000/month: 3 years invested to acquire.
3 Houses: $4,500/month: 6 years invested to acquire.
4 Houses: $6,000/month: 9 years invested to acquire....then Retire, or keep going to you rent out the entire village (houses and businesses) and single handily control the economics of the village?

Can the same thing be done with small businesses? (but with a money multiplier of about 100)

I find that assuming annual cash-on-cash returns of 45% or more makes it easy to succeed with any hypothetical.

What's neat is these exist in my area with this kind of low mortgage, low taxed area too!

Mr Mark

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Re: Methods of Leveraging to $1 Million.
« Reply #3 on: August 09, 2013, 12:17:01 PM »
I plan to establish a small investor's company, and get partners to bump equity, then leverage with a commercial deal to allow economies of scale.

I want to go back to the old 19th century investment model of limited partnerships of like-minded individuals, very local in scope, and with a collection of partners that have both diverse expertise and influential well-connected local networks of others active in the community.

By doing this, you can gain a lot of synergy in a small area, even be involved with zoning, community engagement and improvement, other partnerships.... etc.

And it allows reasonable leverage at lower risk for the lenders.

I call it "The league of Gentlemen" (copywrite) ... ( stashettes allowed, btw) , because in the 19th century, that's what they were.


brandino29

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Re: Methods of Leveraging to $1 Million.
« Reply #4 on: August 09, 2013, 12:23:50 PM »
I find that assuming annual cash-on-cash returns of 45% or more makes it easy to succeed with any hypothetical.

+1

Has anyone used leveraging to make a $1 Million dollar stache?


One method i could see being used is putting down $40,000 on a $200,000 split in the middle duplex, kind of like two condos seperate by a soundproof wall in the vertical middle. Then renting out both sides for $1,200. Say estimated total expenses with mortgage, principal, taxes total up to $900/month.

With good tenants and little to no repairs, you could make $1,500 per month.
$1,500/month for 3 years - another $40,000 downpayment to repeat this method.

If you repeat this method every 3 years, your income may become:

1 house:   $1,500/month:  3 years to acquire.
2 houses: $3,000/month: 3 years invested to acquire.
3 Houses: $4,500/month: 6 years invested to acquire.
4 Houses: $6,000/month: 9 years invested to acquire....then Retire, or keep going to you rent out the entire village (houses and businesses) and single handily control the economics of the village?

Can the same thing be done with small businesses? (but with a money multiplier of about 100)


I would venture to say most people who have made a lot of money through investing are doing so through leverage (of some sort).  I think you're being way overly optimistic with your numbers in your hypothetical, and you're also leaving out money lost to interest on the mortgage and income taxes on the rent received. 

The principle is sound though.  It's what we're hoping to do, starting with our first rental property that we close on next week.  Our goal is to use renters to build equity, turn around and sell in 3-7 years, use proceeds for downpayment on a duplex, build equity for several years, sell, repeat, ultimately to have one or more multi-unit apartment buildings in 15-25 years. 

Undecided

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Re: Methods of Leveraging to $1 Million.
« Reply #5 on: August 09, 2013, 12:24:27 PM »
Has anyone used leveraging to make a $1 Million dollar stache?


One method i could see being used is putting down $40,000 on a $200,000 split in the middle duplex, kind of like two condos seperate by a soundproof wall in the vertical middle. Then renting out both sides for $1,200. Say estimated total expenses with mortgage, principal, taxes total up to $900/month.

With good tenants and little to no repairs, you could make $1,500 per month.
$1,500/month for 3 years - another $40,000 downpayment to repeat this method.

If you repeat this method every 3 years, your income may become:

1 house:   $1,500/month:  3 years to acquire.
2 houses: $3,000/month: 3 years invested to acquire.
3 Houses: $4,500/month: 6 years invested to acquire.
4 Houses: $6,000/month: 9 years invested to acquire....then Retire, or keep going to you rent out the entire village (houses and businesses) and single handily control the economics of the village?

Can the same thing be done with small businesses? (but with a money multiplier of about 100)

I find that assuming annual cash-on-cash returns of 45% or more makes it easy to succeed with any hypothetical.

What's neat is these exist in my area with this kind of low mortgage, low taxed area too!

Great, as long as that holds for 9 years, you're golden.

brewer12345

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Re: Methods of Leveraging to $1 Million.
« Reply #6 on: August 09, 2013, 01:18:31 PM »
Has anyone used leveraging to make a $1 Million dollar stache?


One method i could see being used is putting down $40,000 on a $200,000 split in the middle duplex, kind of like two condos seperate by a soundproof wall in the vertical middle. Then renting out both sides for $1,200. Say estimated total expenses with mortgage, principal, taxes total up to $900/month.

With good tenants and little to no repairs, you could make $1,500 per month.
$1,500/month for 3 years - another $40,000 downpayment to repeat this method.

If you repeat this method every 3 years, your income may become:

1 house:   $1,500/month:  3 years to acquire.
2 houses: $3,000/month: 3 years invested to acquire.
3 Houses: $4,500/month: 6 years invested to acquire.
4 Houses: $6,000/month: 9 years invested to acquire....then Retire, or keep going to you rent out the entire village (houses and businesses) and single handily control the economics of the village?

Can the same thing be done with small businesses? (but with a money multiplier of about 100)

I find that assuming annual cash-on-cash returns of 45% or more makes it easy to succeed with any hypothetical.

What's neat is these exist in my area with this kind of low mortgage, low taxed area too!

Great, as long as that holds for 9 years, you're golden.

Certainly would have been very "exciting" over the past 9 years.

mpbaker22

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Re: Methods of Leveraging to $1 Million.
« Reply #7 on: August 09, 2013, 01:34:12 PM »
Unless your subtracting the part of the payment that builds equity ...
At 4% (i think it more likely you get 5% or higher in this scheme), your mortgage payment is $763.86.  Are you saying insurance and taxes total $1633.68 (I know it's possible in my area, but not in an area that gets $2400 rent).

I'm really liking the assumptions of good tenants AND no repairs.  Holy cow.  If only we all could invest based on the best possible case.

arebelspy

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Re: Methods of Leveraging to $1 Million.
« Reply #8 on: August 09, 2013, 04:17:10 PM »
Reasonable assumptions of vacancy, capital repairs, maintenance, etc. and a mortgage for 160k at 5% = $859 P&I leaves you with $341/mo cashflow, which is 4092 annual.

Put this at a 10.23% cash on cash return.  That's much more reasonable than the assumed 45% return (that is - you won't see a property that doesn't have repairs or vacancies ever, so this made the scenario more realistic).

Rerun your numbers with that assumption, and let us know how you fare.

And yes, some of us are following similar paths (my own cash on cash is higher than that 10.23, but not by a lot) to FI.  Certainly much less work than running a business, and real estate and business ownership are the two best ways to fast wealth, IMO.

Obviously more risk and work (not as passive as a simple 60/40 portfolio), but a much shortened time to FIRE.

But again, paper returns of 45% are stupid.  Let's talk real world.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Undecided

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Re: Methods of Leveraging to $1 Million.
« Reply #9 on: August 09, 2013, 05:00:00 PM »
Reasonable assumptions of vacancy, capital repairs, maintenance, etc. and a mortgage for 160k at 5% = $859 P&I leaves you with $341/mo cashflow, which is 4092 annual.

Put this at a 10.23% cash on cash return.  That's much more reasonable than the assumed 45% return (that is - you won't see a property that doesn't have repairs or vacancies ever, so this made the scenario more realistic).

Rerun your numbers with that assumption, and let us know how you fare.

And yes, some of us are following similar paths (my own cash on cash is higher than that 10.23, but not by a lot) to FI.  Certainly much less work than running a business, and real estate and business ownership are the two best ways to fast wealth, IMO.

Obviously more risk and work (not as passive as a simple 60/40 portfolio), but a much shortened time to FIRE.

But again, paper returns of 45% are stupid.  Let's talk real world.

So he just needs it to hold for 30 years? :-)

arebelspy

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Re: Methods of Leveraging to $1 Million.
« Reply #10 on: August 09, 2013, 07:42:50 PM »
Reasonable assumptions of vacancy, capital repairs, maintenance, etc. and a mortgage for 160k at 5% = $859 P&I leaves you with $341/mo cashflow, which is 4092 annual.

Put this at a 10.23% cash on cash return.  That's much more reasonable than the assumed 45% return (that is - you won't see a property that doesn't have repairs or vacancies ever, so this made the scenario more realistic).

Rerun your numbers with that assumption, and let us know how you fare.

And yes, some of us are following similar paths (my own cash on cash is higher than that 10.23, but not by a lot) to FI.  Certainly much less work than running a business, and real estate and business ownership are the two best ways to fast wealth, IMO.

Obviously more risk and work (not as passive as a simple 60/40 portfolio), but a much shortened time to FIRE.

But again, paper returns of 45% are stupid.  Let's talk real world.

So he just needs it to hold for 30 years? :-)

Or add in other income.. Starting with 40k and never adding in another dime and trying to reach FI isn't feasible.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Jamesqf

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Re: Methods of Leveraging to $1 Million.
« Reply #11 on: August 10, 2013, 11:27:19 AM »
Or add in other income.. Starting with 40k and never adding in another dime and trying to reach FI isn't feasible.

It seems that he would also have to be doing a lot of (highly disagreeable, to me) labor: finding the properties, obtaining the loans, finding tenants, dealing with their problems, etc.  So much easier to make say $100K/yr doing software - something I enjoy - while putting half of it in mutual funds.  Since the stock market has on average returned 6.8% after inflation (per Google), if I invest $4K/month, I should (if I hit the right buttons on the calculator) have $1 million in just a bit over 13 years.

tomsang

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Re: Methods of Leveraging to $1 Million.
« Reply #12 on: August 10, 2013, 11:58:03 AM »
Real estate has a number of huge pluses that have helped many people becoming very wealthy.

1). Leverage. You are able to borrow money with little down.
2). Tax benefits are huge. With depreciation and running through expenses, many cash flow positive deals are kicking off substantial tax losses. Usability of losses depends on whether you are an active real estate professional or your income. It is rare for real estate millionaires to pay taxes.
3). Once you have a few million in real estate networth you feel pretty rich, yet your wealth is tied up. So when the newest Tesla comes out, you have difficulties just writing a check. Great for SO who see money in the bank and think it should be spent.

This environment is the time to lock in low mortgages and low prices for SFRs. If you think inflation is going to occur, this is the best hedge possible. I have trouble with commercial as I think the future is going to look very different from the past. Going to work may be in your home office, shopping may be only online, etc.