This is an interesting thread. I am getting increasingly interested in RE - however I do belive in trends,and the fact the RE (specially in CA - where I live is in a bubble....
so bubbles pop....right?
> In the latest issue of The Entrepreneur's
> Hotsheet we linked to a post which
> contained a story about a woman who became a
> millionaire in 7 years. See the story here:
> http://www.creonline.com/wwwboard/messages/49935.html
> While the story revealed what she did - in
> general - it doesn't tell HOW she did it. It
> does not reveal the Investment Math behind
> it.

> This is my take on what she did...

> She bought one property (home, apartment,
> condo, townhouse, etc.) per year using

> Interest Only Loans! Bought correctly,
> the rent should be enough to cover interest,
> insurance, taxes and repairs.

> Assuming it covers these things exactly,
> what then happens is

> the properties go up in value. The
> difference between what she owes and the
> current value of the property is its Equity
> . And that Equity is hers.

> After ten years (or seven in her case), her
> first property should have doubled in value.
> If she paid $100,000 for it, it should now
> be worth $200,000. But she only owes
> $100,000 on it. So $100,000 would belong to
> her.

> Her second property (the one she bought in
> year two) would nearly be doubled and would
> certainly be doubled the following year.

> Adding up the value of all her properties,
> you will come up with over one million
> dollars of worth. Possibly even two million.
> Of that, her share would be quite
> substantial - $700,000 or more, depending on
> how fast the property is increasing in
> value. (At 10% increase per year, the value
> will double in about seven years. At 7% per
> year increase, the property will double in
> about ten years. At 5% increase, the
> property will double in about fifteen
> years.)

> For example: Here is the value and equity of
> a property bought for $100,000 with $10,000
> deposit, over a fifteen year period.

> Year 1: $105,000 with $15,000 equity
> Year 2: $110,250 with $20,250 equity
> Year 3: $115,762 with $25,762 equity
> Year 4: $121,550 with $31,550 equity
> Year 5: $127,628 with $37,628 equity
> Year 6: $134,009 with $44,009 equity
> Year 7: $140,710 with $50,710 equity
> Year 8: $147,745 with $57,745 equity
> Year 9: $155,132 with $65,132 equity
> Year 10: $162,889 with $72,889 equity
> Year 11: $171,033 with $81,003 equity
> Year 12: $179,585 with $89,585 equity
> Year 13: $188,564 with $98,564 equity
> Year 14: $197,993 with $107,993 equity
> Year 15: $207,892 with $117,892 equity

> Note that the proprty is worth $207,000.
> It has $117,892 in equity and the borrowed
> $90,000 is still owed because it was an
> interest only loan.

> Note also that during this time period,
> while the repayments would have stayed
> relatively the same the rent has been
> increased. So if the property was in a
> slight negative cash flow in the beginning,
> it probably became a positive cash flow
> property after two years because of rent
> increases.

> Note also that if the porperty was turned
> into a Share Accomodation type of property,
> the overall rent collected will be higher.
> For example: a 2 bed apartment might rent
> out for $480 per month ($120 per week), but
> you could justify $400 per month ($100 per
> week) per person when renting it
> individually in a "share"
> situation.

> Back to the example property...

> After 15 years, the property value has more
> than doubled and it is producing positive
> cash flow.

> IF one such property had been bought per
> year, then each property would be at a
> different stage of the growth table. The
> property bought in year 2 would have the
> value matching the year 14 example.

> Anyway. After 15 years, you have a whole
> bunch of property. Some will be in such a
> state of positive cash flow - the properties
> near double their value - that in theory you
> can now RETIRE.

> To retire, you Borrow the equity back out of
> the oldest property on an interest only
> loan. The property's existing rent should
> more than cover that "loan."

> You use this money to live on.

> The following year, you borrow the money out
> of house number two - as it has now doubled
> in value and its rent will also more than
> cover the borrowing.

> The following year, it's house number
> three's turn.

> Each time, the loan is interest only. And
> the property's rent should more than cover
> it.

> By the time you have gone through your
> collection of properties, the first property
> should have doubled in value again.

> In our example, that means it should be
> worth about $432,379. Of that, you have the
> original $90,000 loan and the $117,892
> equity you took out - if you could only get
> 80% of that equity you would have gotten
> $94,313 and may have elected for $90,000
> because it's even. Assuming you only took
> $90,000 out, your total borrowing is now
> $180,000 with $252,379 equity! That's over
> one quarter of a million dollars in equity.
> Waiting for you to borrow out again, if you
> want to.

> Note that while you do have the option of
> borrowing the equity back out of each of
> your properties after they have doubled in
> price, many will be throwing off substantial
> positive cashflow because of the increase in
> rent over the years.

> Note also that while this sounds simple -
> and does not require any
> "creative" financing - that
> properties increase in value at different
> rates in different part of the country and
> in different parts of a city. And you will
> need to pick your properties wisely. You are
> only buying one property per year so there
> is No Rush. Also, finding your property will
> require research on your part. And cash flow
> analysis. You need to be able to figure the
> income the property will make you (after all
> expenses - interest, taxes, insurance,
> repairs).

> Well, that's how I believe the woman in the
> story became a millionaire and how you can
> use the same method to also become a
> millionaire and to retire, if you want.

> Final note: If debt scares you, this method
> is not for you. On the other hand, if you
> can handle the debt from an emotional point
> of view, then this method might be right up
> your alley.

> Michael Ross

> P.S. Hopefuly Robert Campbell will jump in
> here and share some of his "timing the
> real estate market" knowledge.




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