Why invest in real estate?
The stock market is an easy access investment platform which anyone and everyone can jump aboard and roll the dice. There are multiple problems that we face in stock investments:
1) We are investing in companies we really know very little about.
2) No one can predict what will happen to the individual stock or the stock market on a daily basis.
3) Your capital (e.g. savings, nest egg, retirement, cash, etc.) is actually at risk in the stock.
Real estate investing on the other hand is the exact opposite. We invest in properties with very clear and easy to understand information about each individual property. We have sales histories, comparable proeprties that have sold and are for sale in the immediate area. It is exact and precise information. Real estate is not prone to short term swings. There are gradual shifts in the value of properties. And the key to real estate investing is levaraging your money by refinancing each property upon completion and taking out your investment capital to invest in another property.
The conservative investment approach that we at Matrix Investment Group use insures that we purchase properties that in a worst case scenario we can sell quickly and still not lose money. We buy severly undervalued properties that require significant rehabilitation. Usually purchased from banks who are quite aware that they have a very limited pool of buyers. We purchase the property at pennies on the dollar, giving us the flexibility of multiple exit strategies and if necessary emergency exit strategies where we can dump the property and still not lose money.
Initial investment capital: $100,000
Purchase of property #1: $45,000
Rehab of property #1: $55,0000
Upon completion of property rehabilitation appraisal value is $160,000. The investor then does a cash out refinance at a max of 70% of the appraised value = $ 100,000+ .
The investor now owns Property #1 with a low interest mortgage and has all of his initial capital safely back in his bank account free to invest in another property.
Depending on his investment strategy the property will either be flipped, rented out, or rent to own.
If this were to be a rental unit it would play out in the following scenario:
Mortgage for $100,000 @ 7.5% interest: $700/mo.
Management fees: $90/mo.
Total Expenses: $1,070/ mo.
Total Income for section 8 four bedroom house: $1,500/mo.
MONTHLY Profit: $430
The best part is you are making a profit each month, you no longer have any of your money at risk in the property. In addition you have $60,000 in equity in the property and each month you add to that equity as you pay down your mortgage.
If you were to hold this property for 5 years. The total cash flow income would be approximately $25,000 + $4,400 (paid to principal from loan payments) + property value appreciation over that 5 year period. If we only assume a $25,000 appreciation the profit would be $54,000+.
If one leverages their investment capital and purchases multiple properties, even with a modest portfolio of only 10 properties you can take $100,000 and turn it into either $4,000+/ mo. cash flow or $500,000 in profits in a 5 year period.
The genius of real estate investing is that the entire time you have your money safe and you keep using the same funds to purchase multiple properties.