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General Real Estate Tip: Leverage Investments, Maximize Profits

Often I am asked, “Is it better to buy properties using all cash or to finance with a loan?”  The answer is, “Both.”  The old saying, “Cash is King” is true… IF you never run out of cash…  but, since all of us, even the wealthiest people in the world, are on some kind of finite budget, having the ability to secure vast amounts of loan financing is often more valuable than having only an exhaustible amount of cash.  Knowing when to use your own cash or when to use someone else’s cash is the question you need to answer.  This blog is dedicated to maximizing your return from your income properties by recognizing the pluses and minuses to using cash versus loan financing.

When you purchase with cash, you will receive five distinct perceived advantages, but are they really advantages or just popular myths?  First, you will qualify for any type of sale that you are entertaining, i.e. REO properties, HUD properties, VA repos, Short-Sales, Conventional Sales, Courtroom Steps Auctions etc…  A seller may reject your offers on the grounds of price and terms, but, it’s a guarantee, no seller in their right mind is going to tell you, “hmmm…I don’t know if cash is going to work for me”… unless you’re our own government (there are certain government attached properties that give preference to certain types of financing).  When financing a property purchase while using a loan, your options can be restricted based on the type of sale, seller requirements, and property condition (many lenders will not lend funds if property condition is not at a certain expectation which is noted in the property appraisal).

Secondly, cash financing has an advantage in that it can allow for a quick closing.  That means, usually, less chance of a long; strung out, escrow process, hence less stress.  It also means you, as the savvy buyer, can quickly start making income from the property by renting or reselling it.  Furthermore, as a seller, your eyes light up because cash financing looks like a ‘sure thing’ and it’s perceived that a seller will be able to accomplish their goal of selling their property… at least in theory.  Therefore, a cash buyer usually receives preference from a seller, as long as the terms and purchase price are similar, over all other forms of financing (again some government sales this generalization is not true).

 The third major advantage cash has over financing is there is no risk of failing to finance.  Therefore, not only is the seller going to feel more at ease, but you, as the buyer, can too, which will free up time and energy to move onto other investments or concentrate on other aspects of your life.  Time is money.  Too often buyers fail to finance for many reasons, a property appraisal comes in low, a property condition comes in unsatisfactory to the lender,  or the buyer owns too many other liabilities such as other properties or vehicles that have loans on them also and the lender now feels uncomfortable issuing another because of the ‘debt to income ratio’ risk looks unsafe to the investors backing the new loan.

Fourth, it’s cheaper to use cash…really?  On one hand, yes, using cash can save you money on your closing costs, usually about 1% of the property purchase price and it can save you and the seller time.  However, on the other hand, your cash is now tied up in that property, upon purchasing, for usually a minimum of six months if you plan to refinance or about 30-90 days for if you choose to sell.  If you ever want the cash out of the property, you will need to commonly, sell, take out a home equity line of credit, or do what is called a cash-out- refinance, two of the three will cost you many more percentage points than the 1% extra you pay to use a loan during your original purchase.   So, perhaps, because of its rigidness, cash is not the cheapest way to go, figure out your own homework and keep track of your own bank account to know for certain.

Fifth, as a cash buyer, many people argue that you receive the ‘peace of mind’ of not having a monthly mortgage payment to cover.  This can be true.  Much like the time aspect pointed out in number two, having peace of mind and decreasing your stress level will allow you to think more clearly and focus on other things.  However, if you take a moment to contemplate life, you’ll see, often, you’re only kidding yourself.  Each year inflation, taxes, college tuition, retirement, entertainment, food, gas, and other ever climbing life costs grab a piece of your pie faster than your salary is probably increasing (in the last 10 years the average United States worker has actually had a 10% decrease in their salary/wages and an increase in their taxes).  You’re currently fighting a losing battle and need to find new ways to bring your income and quality of life back up to where you desire it to be.  When you purchase real estate using cash financing your return on your investment differs dramatically from the return on the investment you would receive when purchasing using loan financing.   A cash buyer may be receiving a 12% gross return on your investment if he/she purchases a property for 97K (estimated 3K closing costs equals 100K total) and the property rents for 1000K per month.  On the other hand, a loan buyer that has the same 100K in his or her bank account, purchasing the same 97K property (estimated 3-4K closing costs) places about a 20% down payment (20K) to receive their loan of about $600 per month on a 30 year fixed mortgage (figure roughly includes taxes and insurance in Las Vegas).  This would allow them to purchase five properties instead of only one for the same 100K.  As long as they receive a loan with a good percentage rate (today’s general investor rates are about 5%) they will come out far ahead in the game.  In this scenario, with five cash producing properties instead of just one, the actual dollar figure they would come out ahead would be rough $1600.00 (4 X $400) per month (That’s almost 20K per year), and that figure does not include possible tax write offs or property appreciation!  There you can easily see, if you’re limited on cash, cash becomes queen and leverage is king by using your good credit to obtain more financing from loans.

So, for all those pessimists and worry warts out there who are about to pipe in and say, “What happens when my properties are vacant or rental incomes drop and I now have to cover a mortgage?”  Remember, first, a savvy investor always ensures they purchase cash flow positive properties or have hard and fast rules for selling a losing investment when they do buy.  Second, with the rising costs of your daily world, doing nothing about it is really not an option and most people’s quality of life is currently continuing to deteriorate without solid investments. Third, you’re making $2000.00 per month positive cash flow when you are renting all five properties (5 X $400).  In a scenario where two of the five properties sit vacant for long periods of time (minus $800 from your cash flow and add $1200 to your expenses by covering your vacant mortgages out of your own pocket), you will still be at a breakeven point which can actually usually still be pushed into the green with tax incentives claimed on your “depreciating,” “losing”, “investments” when tax time comes around.

 For those of you who are still worried and want to play it ‘safe’, buying with cash will at least allow you to cover some of your everyday losses from economic inflation, however, remember, if your one and only property goes vacant, then you will have no income coming in at all.  The bottom line, all investments have risks, mediating those risks is key and doing nothing is really not a viable option unless you want to accept a lesser quality of life in the future.  If you don’t believe me and would like to verify, next time you drop by the grocery store, take a look at the prices of everything.   As a practical exercise, pick out a handful of your favorite items you used to purchase as a kid and compare them to the prices you used to purchase them for.  My example is Starkist Tuna fish; I used to buy these cans as part a staple diet all through college less than 15 years ago for 38 cents a can.  I just saw them at Sam’s Club, a usually ‘cheap’ vendor, last week for just over $1.00 per can.  When you conduct this experiment, if you notice one or more of your examples has not shot up in price, I challenge you to then check the quality.  Usually you’ll notice the quality dramatically went down if the price did not shoot up.  For those of you who still feel purchasing property is too much of a risk, perhaps real estate investing is not the right type for you, perhaps you would like to continue contributing to a 401K that ‘someone else’ overlooks, because we all know those ‘safe’ investments all preformed so well in the last few years.

Lastly, please notice how nowhere in the above paragraphs have I ever mentioned that cash will give you a ‘discount off the property.’   Sometimes people argue with me until they are blue in the face that, strictly because they are purchasing with cash, that entitles them to a huge discount on every property they deem interesting.   It is true the a cash buyer has a greater chance of creating a ‘low-ball’ scenario, however, this absolute ‘must be’ opinion is one of the biggest myths in the real estate industry as a ‘discount’ off a property has to do a lot more with the motivation of the seller than any kind of financing that is ever used for the purchase.   For example, at the courtroom steps auctions, banks liquidate their distressed property holdings for immediate cash.  They are willing to sacrifice money, in offering a discount to quick cash buyers, in exchange for saving the time and energy it will take to place a property onto the retail market and then waiting for a buyer to come.  On the other hand the buyer is willing to risk certain protection concessions and incur more liability.  Again, time is money on both sides.

Don’t be fooled, often a buyer using financing has received a better ‘deal’ than the cash buyer; it’s all in the motivation of the seller.  Remember also, terms of sale are more important than the purchase price itself.  If you get fixated only on price, you will always fail to maximize your profits.  As a true investor, you should be willing to buy absolutely anything as long as it provides the correct terms of sale.  Ask yourself, if you knew of a prospective rental property would provide you a 100% return on your money for many years to come, would you feel comfortable buying that property for more than it is worth (appraised value) or do you feel the need to buy a property at a 20% discount no matter what even while it may currently rent for a 5% return on your money and looks to be dropping in value?  I know your answer is, “I want both the discount and the return,” all investors say that, but the reality is, there are 24 hours in a day, seven days in a week, and 365 days in a year.  If you’re always waiting for the ‘perfect deal’ to come along, you just missed several ‘good deals’ that would make you a lot more money than the one perfect one that may never even come.  Furthermore, a sale type like an auction that provides very little safety measures for your money may end up being a money pit for you instead of a safer retail market investment that usually affords luxuries such as title insure and other contractual safety nets.

Thank you very much for reading my blog, I hope this information helped you out.  For this blog and other helpful tips and tricks please visit our tourism and real estate website http://PlacesInLasVegas.com or, for all aspects of general real estate, our parent website http://LasVegasRealEstateConnection.com.

 

Sincerely,

 

 

James Bellile

Phone: 702-222-0815

*All blogs are personally written by James.  Although we encourage and are grateful for sharing, all information is copyrighted by James and needs to be given credit.  Thank you.

 

This blog was originally written 11-18-2011

Las Vegas Real Estate: Where did all the houses go?

Perhaps you’ve been driving around looking at the condition of the Las Vegas valley.  If so, you’ve probably noticed that many new home builders have increased production substantially and are advertising their developments much more ferociously than they had been doing the last few years, correct?  You may also have noticed that a few commercial complexes are popping up here and there and some infrastructure is being added to the previously halted road construction projects throughout the city, but especially the south side and northwest corner.  How about downtown?  Did you notice that many of the older commercial areas off Las Vegas Blvd have been either knocked down or shut down and fenced off with steel mesh fencing?  Did you notice the freeway signs scattered throughout the city stenciled “Zappos” adopted highway?  During your escapades about, did you happen to notice the lack of residential home signs out there in people’s yards?  I wrote a blog almost two years ago titled Las Vegas Globalization.  It was a monster of a blog, coming in at 10+ pages, and I sincerely thank the one or two people who graced their eyes on it to the end.   Although it was long and dull to most, so far, it’s well worth the read, as, everything I’ve listed above, and more, I already predicted would happen, has happened, almost to the number.

This blog is dedicated to describing these tell tale signs of upcoming growth and exposing them for what they truly are, our government’s attempt to falsely inflate everything to appear much more stable than we really are.  Everyone knows that this is election year.  The last thing politicians, both Democrats and Republicans alike, want before new voters casting their ballots in November is the open existence of a stalled and stale economy which has remained throughout the last four years.  Did you know that there are still an estimated 100,000 properties alone in the Las Vegas valley that have missed payments and are in danger of foreclosing?  Yet we have barely 4,500 single family homes currently listed for sale on the available retail market, very few new properties being listed each day, and more than 3,000  properties (all types) a month being purchased by a frenzy of buyers continuously multiple bidding nearly every listing out there.  Top put that into perspective, those shortages of numbers are almost what they were during the crazy boom we had in 2004-2006 where people were bidding 10%-20% over listed prices and writing offers on car hoods so they could run back in the properties and present to the owner before the owner picked from a line of other offers.

Why does this shortage exist currently?  The largest reason is a law called AB284.  This was a law passed by our state government last year in October of 2011.  I encourage you to look it up for exact details, but, basically, this law forces banks to have all the necessary paperwork in order before proceeding to foreclose on a property (imagine that, they didn’t track it too well before, apparently, as there are estimates of several hundred to several thousand illegal foreclosures just here in the city) and then, if a property owner wants to work with the bank instead of foreclosing, the bank is encouraged to assist the property owner with a short-sale or loan modification.  Furthermore, the bank, in most cases, cannot place a new Notice of Default (a Notice of Default is the first legal step in the foreclosure process approximately 90 days of missed payments) against a property until all avenues of resolution, outside of foreclosure, have been exhausted.  Sounds like a good deal, right?  Wrong.  You see, the banks restrict loan modifications to a 2% interest rate on the remaining loan balance in 99% of all cases out there.  Principle modifications are unicorns, not just unicorns, but purple unicorns in velvet.   Here’s the problem with that, Las Vegas real estate has fallen more than 60% since 2006 so the remaining balance on many loans still offers a payment greater than what rent would be on the same property and stiffs the owner with an access of 40% debt on their loan so most loan modifications will never go to completion, but rather, they are used as a stall method by the homeowner to remain in the property for free (it’s important to note, because few Notice of Defaults are filed, the homeowner may actually want out, but may be stuck in the home) and they are actually liked by the banks as this stall tactic is stalling new inventory from hitting a buyer frenzied market that has falsely now increased in price 10% in most neighborhoods to as much as 30% in some neighborhoods since last Christmas.  So the question becomes can this go on?  The answer is YES it can, not inevitably of course, but until the game of musical chairs stops its music again just like it did in 2007 and the market crashes again.  You see our state legislators are not even convening until February 2013.  Therefore, at best case scenario, AB284 can’t be modified or overturned until the Summer of 2013 and the effects of the overturned law wouldn’t be felt until early 2014.

  So, now that I’ve disclosed these facts, I’d like to revisit the first paragraph and address this growth in new construction developments and downtown.  Because there is nearly zero move-in-condition inventory on our market, cash buyers have been snatching up most of that which is left.   This leaves normal, everyday, people who need a loan to purchase their home with no alternative than to go to the new home builders.  Hence the reason new home sales are now up almost 400% since Christmas and most builders have increased their prices by as much as 30% in that time as well forcing a loan buyer to overpay for a property if they want a nice home.  Likewise, people at the top of the food chain see this trend and, although they haven’t built yet, as many are recovering from bad business years themselves or are emerging from business bankruptcy, also the fact that the election results have not come in yet, they have taken steps to acquire land for future development which is why you are seeing so much new vacant land and steel fencing downtown.  Simply put, as always, the rich are getting richer and the poor are getting poorer… fast.  One more point of interest, how many people do you know who have gotten a raise in the last four years at their current jobs locally in Las Vegas?  If you’re a tip earner, you may notice a small increase to your paycheck, but how about the tips?  Are your tips anywhere near the same as what they were in 2007?

Furthermore, I mentioned Zappos above.  Zappos, for those who don’t know, is Zappos.com, a huge online shoe retailer that was purchased a while back by Amazon.com for 500+ million dollars.  The CEO of Zappos is Tony Hsiech and he is hailed for being responsible for the revitalization of downtown San Fransico a few years back.  Zappos headquarters was in Henderson, but, very early in the year, Mr. Hsiech moved his operation to downtown Las Vegas, where he has publically pledged to help revitalize downtown along with our mayor, previous mayor, and a few other influential figures throughout the city.  As you can see by the first hand growth of the new city hall, revitalization of some downtown businesses, and First Friday growth from what started as a few hundred people a few years ago to what is now thousands of people, they are having some good successes.

So, what shall be the ending of this blog?  I guess what I’d really like to convey to a reader, who fought this far, is that, whether it’s false growth or real growth, knowing when the music stops in the game of economic musical chairs is far more important than debating what’s real and what is not.  I saw a lot of people make A LOT of money flipping houses this spring.   I was even involved in a few successful ventures myself.  But, if flipping isn’t your thing, keep in mind, with inventory disappearing, how long before the supply of rental houses disappears as well?   Whether you are an investor or just the average person who doesn’t want to rent anymore, this should be of concern to you.  Move-in-condition properties are becoming harder and harder to find every single day and the acceptance of paying above the marked listed price is becoming a normal practice again already.  Are you starting to see a repeat of 2006 coming?  So when’s the crash again?  2017, 2018, 2020?  Maybe never, maybe our politicians will be able to convince or, at least, scare, enough people into holding onto their upside-down homes long enough to fight it off for another generation or longer.   The time to buy is now.  Act on it.

Thank you very much for reading my blog, I hope this information helped you out.  For this blog and other helpful tips and tricks please visit our tourism and real estate website http://PlacesInLasVegas.com or, for all aspects of general real estate, our parent website http://LasVegasRealEstateConnection.com.  My team offers several services; buyers, sellers, distressed sellers, renters, and property management.  Honest and truthful professionals to a fault.  Call us direct @ 702-222-0815.

 

Sincerely,

 

 

James Bellile

 

*All blogs are personally written by James.  Although we encourage and are grateful for sharing, all information is copyrighted by James and needs to be given credit.  Thank you.

Real Estate Investment: Maximizing Profit

Often I am asked, “Is it better to buy properties using all cash or to finance with a loan?”  The answer is, “Both.”  The old saying, “Cash is King” is true… IF you never run out of cash…  but, since all of us, even the wealthiest people in the world, are on some kind of finite budget, having the ability to secure vast amounts of loan financing is often more valuable than having only an exhaustible amount of cash.  Knowing when to use your own cash or when to use someone else’s cash is the question you need to answer.  This blog is dedicated to maximizing your return from your income properties by recognizing the pluses and minuses to using cash versus loan financing.

When you purchase with cash, you will receive five distinct perceived advantages, but are they really advantages or just popular myths?  First, you will qualify for any type of sale that you are entertaining, i.e. REO properties, HUD properties, VA repos, Short-Sales, Conventional Sales, Courtroom Steps Auctions etc…  A seller may reject your offers on the grounds of price and terms, but, it’s a guarantee, no seller in their right mind is going to tell you, “hmmm…I don’t know if cash is going to work for me”… unless you’re our own government (there are certain government attached properties that give preference to certain types of financing).  When financing a property purchase while using a loan, your options can be restricted based on the type of sale, seller requirements, and property condition (many lenders will not lend funds if property condition is not at a certain expectation which is noted in the property appraisal).

Secondly, cash financing has an advantage in that it can allow for a quick closing.  That means, usually, less chance of a long; strung out, escrow process, hence less stress.  It also means you, as the savvy buyer, can quickly start making income from the property by renting or reselling it.  Furthermore, as a seller, your eyes light up because cash financing looks like a ‘sure thing’ and it’s perceived that a seller will be able to accomplish their goal of selling their property… at least in theory.  Therefore, a cash buyer usually receives preference from a seller, as long as the terms and purchase price are similar, over all other forms of financing (again some government sales this generalization is not true).

The third major advantage cash has over financing is there is no risk of failing to finance.  Therefore, not only is the seller going to feel more at ease, but you, as the buyer, can too, which will free up time and energy to move onto other investments or concentrate on other aspects of your life.  Time is money.  Too often buyers fail to finance for many reasons, a property appraisal comes in low, a property condition comes in unsatisfactory to the lender,  or the buyer owns too many other liabilities such as other properties or vehicles that have loans on them also and the lender now feels uncomfortable issuing another because of the ‘debt to income ratio’ risk looks unsafe to the investors backing the new loan.

Fourth, it’s cheaper to use cash…really?  On one hand, yes, using cash can save you money on your closing costs, usually about 1% of the property purchase price and it can save you and the seller time.  However, on the other hand, your cash is now tied up in that property, upon purchasing, for usually a minimum of six months if you plan to refinance or about 30-90 days for if you choose to sell.  If you ever want the cash out of the property, you will need to commonly, sell, take out a home equity line of credit, or do what is called a cash-out- refinance, two of the three will cost you many more percentage points than the 1% extra you pay to use a loan during your original purchase.   So, perhaps, because of its rigidness, cash is not the cheapest way to go, figure out your own homework and keep track of your own bank account to know for certain.

Fifth, as a cash buyer, many people argue that you receive the ‘peace of mind’ of not having a monthly mortgage payment to cover.  This can be true.  Much like the time aspect pointed out in number two, having peace of mind and decreasing your stress level will allow you to think more clearly and focus on other things.  However, if you take a moment to contemplate life, you’ll see, often, you’re only kidding yourself.  Each year inflation, taxes, college tuition, retirement, entertainment, food, gas, and other ever climbing life costs grab a piece of your pie faster than your salary is probably increasing (in the last 10 years the average United States worker has actually had a 10% decrease in their salary/wages and an increase in their taxes).  You’re currently fighting a losing battle and need to find new ways to bring your income and quality of life back up to where you desire it to be.  When you purchase real estate using cash financing your return on your investment differs dramatically from the return on the investment you would receive when purchasing using loan financing.   A cash buyer may be receiving a 12% gross return on your investment if he/she purchases a property for 97K (estimated 3K closing costs equals 100K total) and the property rents for 1000K per month.  On the other hand, a loan buyer that has the same 100K in his or her bank account, purchasing the same 97K property (estimated 3-4K closing costs) places about a 20% down payment (20K) to receive their loan of about $600 per month on a 30 year fixed mortgage (figure roughly includes taxes and insurance in Las Vegas).  This would allow them to purchase five properties instead of only one for the same 100K.  As long as they receive a loan with a good percentage rate (today’s general investor rates are about 5%) they will come out far ahead in the game.  In this scenario, with five cash producing properties instead of just one, the actual dollar figure they would come out ahead would be rough $1600.00 (4 X $400) per month (That’s almost 20K per year), and that figure does not include possible tax write offs or property appreciation!  There you can easily see, if you’re limited on cash, cash becomes queen and leverage is king by using your good credit to obtain more financing from loans.

So, for all those pessimists and worry warts out there who are about to pipe in and say, “What happens when my properties are vacant or rental incomes drop and I now have to cover a mortgage?”  Remember, first, a savvy investor always ensures they purchase cash flow positive properties or have hard and fast rules for selling a losing investment when they do buy.  Second, with the rising costs of your daily world, doing nothing about it is really not an option and most people’s quality of life is currently continuing to deteriorate without solid investments. Third, you’re making $2000.00 per month positive cash flow when you are renting all five properties (5 X $400).  In a scenario where two of the five properties sit vacant for long periods of time (minus $800 from your cash flow and add $1200 to your expenses by covering your vacant mortgages out of your own pocket), you will still be at a breakeven point which can actually usually still be pushed into the green with tax incentives claimed on your “depreciating,” “losing”, “investments” when tax time comes around.

For those of you who are still worried and want to play it ‘safe’, buying with cash will at least allow you to cover some of your everyday losses from economic inflation, however, remember, if your one and only property goes vacant, then you will have no income coming in at all.  The bottom line, all investments have risks, mediating those risks is key and doing nothing is really not a viable option unless you want to accept a lesser quality of life in the future.  If you don’t believe me and would like to verify, next time you drop by the grocery store, take a look at the prices of everything.   As a practical exercise, pick out a handful of your favorite items you used to purchase as a kid and compare them to the prices you used to purchase them for.  My example is Starkist Tuna fish; I used to buy these cans as part a staple diet all through college less than 15 years ago for 38 cents a can.  I just saw them at Sam’s Club, a usually ‘cheap’ vendor, last week for just over $1.00 per can.  When you conduct this experiment, if you notice one or more of your examples has not shot up in price, I challenge you to then check the quality.  Usually you’ll notice the quality dramatically went down if the price did not shoot up.  For those of you who still feel purchasing property is too much of a risk, perhaps real estate investing is not the right type for you, perhaps you would like to continue contributing to a 401K that ‘someone else’ overlooks, because we all know those ‘safe’ investments all preformed so well in the last few years.

Lastly, please notice how nowhere in the above paragraphs have I ever mentioned that cash will give you a ‘discount off the property.’   Sometimes people argue with me until they are blue in the face that, strictly because they are purchasing with cash, that entitles them to a huge discount on every property they deem interesting.   It is true the a cash buyer has a greater chance of creating a ‘low-ball’ scenario, however, this absolute ‘must be’ opinion is one of the biggest myths in the real estate industry as a ‘discount’ off a property has to do a lot more with the motivation of the seller than any kind of financing that is ever used for the purchase.   For example, at the courtroom steps auctions, banks liquidate their distressed property holdings for immediate cash.  They are willing to sacrifice money, in offering a discount to quick cash buyers, in exchange for saving the time and energy it will take to place a property onto the retail market and then waiting for a buyer to come.  On the other hand the buyer is willing to risk certain protection concessions and incur more liability.  Again, time is money on both sides.

Don’t be fooled, often a buyer using financing has received a better ‘deal’ than the cash buyer; it’s all in the motivation of the seller.  Remember also, terms of sale are more important than the purchase price itself.  If you get fixated only on price, you will always fail to maximize your profits.  As a true investor, you should be willing to buy absolutely anything as long as it provides the correct terms of sale.  Ask yourself, if you knew of a prospective rental property would provide you a 100% return on your money for many years to come, would you feel comfortable buying that property for more than it is worth (appraised value) or do you feel the need to buy a property at a 20% discount no matter what even while it may currently rent for a 5% return on your money and looks to be dropping in value?  I know your answer is, “I want both the discount and the return,” all investors say that, but the reality is, there are 24 hours in a day, seven days in a week, and 365 days in a year.  If you’re always waiting for the ‘perfect deal’ to come along, you just missed several ‘good deals’ that would make you a lot more money than the one perfect one that may never even come.  Furthermore, a sale type like an auction that provides very little safety measures for your money may end up being a money pit for you instead of a safer retail market investment that usually affords luxuries such as title insure and other contractual safety nets.

Thank you very much for reading my blog, I hope this information helped you out.  For this blog and other helpful tips and tricks please visit our tourism and real estate website http://PlacesInLasVegas.com or, for all aspects of general real estate, our parent website http://LasVegasRealEstateConnection.com.  My team offers several services; buyers, sellers, distressed sellers, renters, and property management.  Honest and truthful professionals to a fault.  Call us direct @ 702-222-0815.

 

Sincerely,

 

 

James Bellile

 

*All blogs are personally written by James.  Although we encourage and are grateful for sharing, all information is copyrighted by James and needs to be given credit.  Thank you.

 



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Investment Tip: Maximize Returns Using The Rule of 72

Many people are a little apprehensive when it comes to any kind investing; real estate is not an investing exception.  There are many different ways to make money using your real estate, some of the most common are from purchasing below market value, cashing out on appreciation, renting your property, or running a goods and services sales business from your real estate.  However, there are still many more methods of generating cash from your real estate, for example, just to name a few more, withdrawing an equity line of credit to leverage into another investment, tax incentives, and industrial potential such as mining, foresting, and manufacturing, or agricultural use.  If you wanted to get really creative, I’m sure you could think up 100s, if not, 1000s of potential uses for a piece of real estate within these categories alone.

In all of these many examples, there is a simple mathematical rule all investors should take advantage of in order to maximize their return on their investments.  That rule is The Rule of 72.  The Rule of 72 works by taking the number 72 and dividing it by the return on your investment, which will give the answer of the number of years it will take for your investment to double in value.  For example, if you are making 9% on your money in the stock market, then every eight years, your investment will double.

Although the Rule of 72, in itself is extremely simple to use, remember, you always need to think of how many ways your investment is actually making you money (and losing money) before generating a true number for a rate of return.  For example, in real estate, your renter may be paying rent each month which is returning 10% annually; however, you may also be making 5% in appreciation on your property annually, and also receiving an additional percentage of X discounted on your taxes each year.  Perhaps you have even sold some rights to your land to another “renter” who is using part of it for storage or perhaps taking raw materials such as trees, dirt, minerals, water, wildlife, or other valuable items which are also providing you income.  All of these sources of income are called “income streams” and a good investment will almost always have more than one.

And, of course, every investment has some form of maintenance.  In the case of real estate, perhaps hiring a professional property management company, maintenance, repairs, and now and then, evicting a bad tenant, are some of the upkeep expenses that you will encounter.  Keep in mind, although a percentage or two seems miniscule in many respects, when using the Rule of 72, one or two percent can actually be the difference of several years in doubling your money.  For example, that same 9% return on investment which doubles your initial investment money in only eight years, if dropped to an 8% return, will take a full extra year to double.  This adds up significantly over the course of a lifetime.  A good poker player will tell you that it’s not the rare huge pot that wins a poker game, it’s the many small ones that do.   Holding out for only that one rare mega win will usually just make it so that someone else is building a new casino for you to play and pay, leaving you empty handed and scrabbling with an unsatisfying income.

Thank you very much for reading my blog, I hope this information helped you out.  For this blog and other helpful tips and tricks please visit our tourism and real estate website http://PlacesInLasVegas.com or, for all aspects of general real estate, our parent website http://LasVegasRealEstateConnection.com.  My team offers several services; buyers, sellers, distressed sellers, renters, and property management.  Honest and truthful professionals to a fault.  Call us direct @ 702-222-0815.

 

Sincerely,

 

 

James Bellile

 

*All blogs are personally written by James.  Although we encourage and are grateful for sharing, all information is copyrighted by James and needs to be given credit.  Thank you.

 

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