A Purposeful Plan — It Works Every Time
Posted @ 10:50 pm - Filed under Real Estate Investing, Purposeful Planning, Retirement
Between the podcasts on Purposeful Planning, and several posts, you can read and/or hear plenty about on this blog. I encourage you to spend some time with them.
The difference between learning about it and applying it is an early retirement with an income higher than you ever made while working.
Knowing where you are now, before you start, will give you a clear picture of what might be possible. It will also reveal your weak points - and your strong points.
Having a solid and reliable lender who has already approved you as a solid citizen goes farther than you might think. Often, down the road it makes sense to refinance. Your lender now knows you, (and me for sure) which will be more valuable than you might predict.
Since we’re talking retirement here, growth is the word of the day. Long term growth. Monitored growth. Once your equity position gets a little on the Grandpa side, it’s time to move into more property. The higher the equity, the slower the growth. What? Watch.
Two investors have $100K for down payments plus closing costs. They both have cash reserves (Sominex accounts) of $40K. One is very close to the vest and buys a couple properties totaling $400K in price. The other buys more properties totaling roughly $1Mil. They invest in different regions.
The first guy enjoys 10% appreciation for three years. The second guy gets a little less — 7%. How do they fare?
Conservative Guy has a total three year gain of $132K. Not bad. My guy, (yeah, I’m taking credit) watched his capital grow by $225K — just short of a $100K better — with an appreciation rate 30% less than the other guy.
Now for the record, I’m not trying to pass this off as an equation worthy of Albert Einstein. In fact if this was a math problem on a test, it could be given to sixth graders. But if it’s so easy to understand, why do so very few investors actually take advantage of it? And you can’t say because of negative cash flow, or you can’t in your town, or any of the rest of the normal reasons.
There are plenty of regions offering opportunities to put a little lower down payment than you might be used to.
If the numbers tell you it will break even, (which you know is a lie perfected by Murphy himself) and you have a generous Sominex account, what’s your problem? What’s the worst that could happen to my guy with the million dollars in properties? He could own them for 4-5 years, have them go up only 5% a year, and spend his entire $40K cash reserve account. And after all sales costs his $100K would be about $275K. That’s an annual capital growth rate of almost 22.5%.
To equal that, the first guy has to benefit from about double my guy’s annual appreciation. Now take these numbers and multiply them over 10, 15, or 20 years. As sure as the sun will rise in the east tomorrow morning, my guy will be ahead by $1-3Mil. Let’s look at how that translates to your ultimate goal, retirement.
If the difference is only a million bucks over 10-20 years, and you’re able to secure an 8% yield, your retirement cash flow will be $80K a year more than conservative guy. Most of the investors in the country never have one year in their life when they earn that much on the job. Think about it for awhile.
My guy won’t just have $80K a year in income. He’ll have that much MORE retirement income than the other guy. It’s an EXTRA $80K. A year. For the rest of his life. That’s almost $7,000 a month more than the other guy.
What would you do with an extra $80K a year — in your retirement years?
Yeah — me too. Whatever I feel like doing. 
This entry was posted on Wednesday, April 25th, 2007 at 10:50 pm and is filed under Real Estate Investing, Purposeful Planning, Retirement. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.