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Episode #2 “Minimize Risk for the Big Reward”
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If you buy an ounce of gold, you can hold it, you can cuddle it, you can love it forever.The problem is 100 years from now you will still only have one ounce of gold. If you buy a property it will produce for you every year. You can use that money to do all sorts of things and After 100 years you still have your property. It’s very similar to buying a goose that lays a little golden egg for you each month.
With any investment you're looking for something that you can put money out and that asset you buy gives you back more money then you put in over time. With fixed dollar assets you give up your money, and in return you get a fixed amount back. It’s an entirely a different game to “gamble” your money in the unpredictable world of “real estate”. We know the higher the risk, the higher the reward. The good news is you don’t need to take on 100% of the financial risk
to get 100% of the financial reward as you do with most investments, we can take full ownership of the property with little to no money down.
When I say little to money money down, I mean using little to no money of yours. We will need to come up with 100% of the purchase price plus pay taxes and lawyer fees.
The “Secret” to buying real estate is to use other people's money. The term “other people's money” really means the banks money. If you already own your home, or part of it, you have little gold eggs sitting in the walls. Each mortgage payment you have made up to now is like putting away 1 little gold egg. The “Secret” is use the eggs as collateral to buy another property.
Your first response will be I don’t want a bigger mortgage or another loan. I can understand that point of view. Let me explain how this would work.
What if you put in 20 dollars, and put I put in 80 dollars, we would 100 dollars in total.
We then go out and buy a 100 dollar investment property.
Since “we” own the investment, I’ll let you keep any equity we make as long as you pay the mortgage, taxes, insurance, gas, water and hydro. You also have to look after the property too.
Mortgage, Taxes, insurance, gas, water and hydro seems like a lot to cover one would think. The good news is The market is full of great people who would be willing to that for you. Tenants pay you rent, the water, the gas, the hydro and cover your costs (taxes and insurance).
They basically will cover 100% of the promise you made to the bank.
There is a million variables when it comes finding the right tenant and that will be covered in another video. If we assume most people are good, as most are, lets assume we found you a good tenant. We can also assume you buy a good property and that the income covers the expenses and at the end of the year there is zero left for you. If we fast forward this senairo
5 year into the future.
During that period you paid kept your promise to the bank and your business partner the tenant paid you rent, the utilities, your taxes and insurance, they also kept up the property because you have a great relationship.
During that time the market appreciates 5% per year, each year for 5 years.
Your 100.00 dollar investment would be worth 121.55.
The mortgage was also paid, each month, for 5 years totalling 60 payments.
You paid down the mortgage balance to 67.91.
Your total equity now would be 121.55 - 67.91 giving you a hefty profit 53.31.
This is how real estate investing works.
Big Risk for Big Returns
If you can minimize risk and still reap the big return why not explore the idea?
But what about the 20 dollars I had to put down in the start of this video, how do I get that out of my house and who pays for that?
The next blog will explain how the “Little to no money down” investment program works. It’s really about leveraging the golden eggs (equity) in your home and putting them to work for you.
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