How To Become A Millionaire In 10 Years (or less)

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.


Use these ideas to get the money you might need to start the above "plan"