How To Build A Multi-million Dollar Property Portfolio
Formula for success
Formula for success
Over 6 years ago, my mentors showed me the formula for success to building a multi-million dollar property portfolio and how to achieve a retirement income of over $100,000 p.a. in 10 - 14 years.
Here's the reality. No one likes to go into debt! How many people have $400k cash to buy a property? Or how long would it take you to save 400k? It would take forever wouldn't it!!!
But if you don't borrow money, how are you going to invest? Property investment is about using other people's money to make you money.
There are two types of debt. Good debt and bad debt.
Bad debt is when you borrow money to buy a car, a boat or an LCD TV - something that goes down in value. So avoid bad debt as much as you can.
Good debt is when you borrow money from a bank to buy an asset or property - something that goes up in value and will also give you an income. The bank is happy to lend you money for a residential property because they know it's safe.
At the outset, I was very scared of getting into debt, but now, I'm glad that I've got a lot of good debt. My investments increases in value and gives me an income - and I sleep well because I've got security.
How to achieve an income of at least $90,000 per year for life
Please refer to the "formula of success" diagram on the previous page.
Today - You start with your 1st investment property
Assume your first investment property is $400k. You can put in a 10% deposit or use your existing property as security for you to borrow 100%. In this exercise, assume you borrow 100%. You will have some costs like stamp duty, solicitors' fees, and bank fees etc. I haven't included those fees in this exercise; I just want to show you the concept. Once you understand the concept then you will understand how it works.
In this exercise let's assume you buy 1 property every 3.5 years. You could however, if your finance is strong enough, buy 1 property every year or every 2 years.
So you start with your first property purchase - your asset is $400k, your loan amount is $400k and your net worth or equity is $0.
3.5 years later - You buy your second investment property
Assume, as we can by looking at historical trends, that a well located property's value doubles in 7 years (an increase of 100%). In 3.5 years therefore, your first property will have appreciated in value by 50% and so it's now worth $600k. You have made $200k in capital growth. Ask yourself, can you really save $200k in 3.5 years?
You continue and you purchase your second property which may be worth $600k, depending on your financial situation. So now you have 2 properties each worth $600k that gives you a total asset worth of $1.2m. You borrowed $400k for your first property and $600k for your second property and so your loan amount is $1m.
But, how exactly do you purchase your second property? Well, you can use your first property as security to borrow 100% for the second property or you can refinance your first property to take out a 10% deposit for your second property.
7 years later - You buy your third investment property
Your first property has doubled in value, your second property has appreciated by 50% and you have made $600k in capital growth. How many people could save $600k in 7 years?
You continue and purchase your third property by refinancing one of your properties to get a 10% deposit for your third investment. Now you have 3 properties each worth $800k - that gives you an asset of $2.4m, and your loan amount is $1.8m.
10.5 years later - You buy your fourth investment property
You purchase your fourth investment property. Now you have 4 properties each worth $1.2m. This gives you an asset of $4.8m, your loan amount is $3m and you have made $1.8m in capital growth. Just think about it - if you hadn't invested in property like this, could you have saved $1.8m in 10.5 years? Or what else could you have done to give you $1.8m? Now you play the waiting game.
14 years later - You retire
At this point, your loan amount is still $3m because you haven't borrowed any more money. Your assets are worth $6.4m, and you have made $3.4m in capital growth. You have become a net worth multi-millionaire over the space of 14 years. Now you can quit your job or work when you want to and live the lifestyle that you dream of.
If you don't pursue this avenue of property investing, what else are you going to do to secure your future?
Now that you have your multi-million dollar property portfolio, what options are open to you?
First option: You can live off the positive cashflow and keep the 4 properties, letting your portfolio continue to grow in value for you.
Second option: You can get rid of your debt by selling two of your properties. There will be fees to pay from the sales including capital gains tax and agents' fees, but I haven't included them in this exercise as I just want to show you the concept.
You are then left with two properties which are paid off, worth $3.2m. Your rental return on these properties would be around 5 - 6% p.a. On a 5% rental figure on two properties worth $3.2m, that gives you a rental income of $160,000 a year in passive income, year in year out for the rest of your life.
Ok, let's assume the worst case scenario... Let's slash the income by $70,000, leaving you with $90,000 p.a. passive income. Would you still be happy on a $90,000 passive income in a worst case scenario?
If you don't invest in property, could you save $3.2m in 14 years? That is equal to $228,000 per year!!!
Imagine the lifestyle that awaits you in 10 - 14 years' time. You can holiday at will for the whole twelve months - one month in China, one month in Singapore and the next month in another location. And the rental income keeps on coming into your bank account month after month. You can work the hours you want but it's a choice not a necessity. You can do the things you love to do. You're happy, your wife is happy, your children are happy. Isn't this what life is all about? You have become one of the top 5% of the population who have achieved financial freedom.
by: Nhu Sang Duong
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