Most of my clients are recurring. Well, looks like they like me and the solutions I provide to them. And here’s another success case I would like to share with you.
Just for the sake of this story, I’m going to call my client Mr. C. He’s fairly young to be called "Mr" (he’s actually 35 years old), but it suits the purpose.
Mr. C is a real estate investor, with a total of 11 doors bringing him money every month, between single family homes and multifamily (which he started to purchase after he met me 😁 )
The Strategy Behind Everything
He’s strategy is simple, but not simplistic. He buys properties using leverage (a.k.a, money from other people, such as banks), increases the value of rent via cosmetic and basic renovation, build equity for a while and use this same property to cash out money to buy the next one. After that, he repeat the process.
Let me give you an exemple so you can understand better.
If you buy a property today for $300,000.00, giving 20% down, you have $60,000 of equity on that house and $240,000.00 in debt.
Considering an interest rate of 5%, in a 30 year mortgage, after 3 years you own the bank $228 thousand, increasing your equity in $12,000.00.
Let’s say that the property value went up 6% per year, as the average rate. After 3 years, the property market price is $360,000.00, giving you an extra equity of $60,000.00.
In total, you have $72,000.00 in equity that you can ask you bank to lend you that money so you can buy another property.
That’s what Mr. C does. As long as the cash flow (revenue from the property, discounted the mortgage payments) are positive, you are building equity and filling your pockets at the same time.
But You Can Make More Money
If you paid attention to what I wrote, I considered that the property value just went up by the average rate of 6%, without doing anything. But there are more things you can do to increase your property value.
The first thing you can do is minor renovations. Updating the kitchen and bathrooms, painting, cleaning, and other small details. One way to figure out how much money you can make is looking other properties in better conditions and see their market value. If the improvements that you have to make to achieve that value are less expensive than what you can make, go for it.
But when we talk about income producing properties, that’s not the only thing. Or that’s not the MAIN thing. You need to be able to increase the value of the rents, because a little thing called Cap Rate.