Buying Investment Real Estate

What if buying Investment Real Estate “were” as easy as purchasing stocks and bonds? Imagine picking up the phone and calling your broker and requesting two rental homes that fit the most popular profile in a high-growth housing market and having property management available along with an exit strategy. Pre-construction homes, or existing homes under three years old, 3 BD/ 2 BA / 2 CG fit our investment “box”. Place your order and let your broker do all the work for you. This is reality with Quantum Realty Solutions.

Why Florida? Because Florida is Hot !

There are market dynamics that will keep Florida Real Estate rising in value for many years to come.

1. Baby Boomers! Folks born between 1946 and 1964. This generation is going to be retiring in record numbers. Due to the fact that the high birth rate was sustained over a period of 18 years, a sustained increase in retirees moving to Florida will ensure a strong demand for housing. Statistics are stating that the population of Florida will double by the year 2030.
2. Weather, Sports, Water, Travel, Cultural Events = an Active Lifestyle!
3. No State Income Tax!
4. Fastest Growing Region in the Country!
5. Jobs – 2% Unemployment; Creates Economic Stability & Long Term Growth!
6. Owner Friendly Tenant Laws!
7. Welcomes Relocations!

According to Fortune Magazine, 97 of 100 millionaires in the United States became that way through owning and controlling Real Estate. Why then doesn’t everyone become a millionaire Real Estate Investor?

Regardless of the tremendous benefits Real Estate has to offer, some investors perceive that Real Estate Investment is a “hands on” activity, cumbersome to acquire, and they don’t know how to purchase without exposing oneself to a high degree of risk. However, behind these perceived barriers lies the vehicle that can deliver on the promise of a secure tomorrow. More secure than any other form of investment, including stocks, bonds and mutual funds.

The difference between the poor, middle class, rich and the wealthy is that the wealthy have assets working for “them”; the poor, the middle class and to a large extent the “rich” work for their assets.

Stocks vs Real Estate and Why Real Estate Will Always Win! Assets provide their owners returns in two ways: (a) The rate at which their value increases every year , (capital appreciation), and, (b) The rate at which they generate an income for their owner, i.e., dividend or rent. When comparing Real Estate to stocks, it is essential to look at both types of returns to the investor. When looking at the long term historical view and adjusted for risk, both stocks and Real Estate appreciate at roughly the same rate. These cycles of appreciation may not be the same, but over time, the returns are similar. And, on the surface, it may seem that they are both equally good investments over the long term. However, Real Estate always comes out on top!

Have you ever considered that banks will only lend you 50% of your stock portfolio to buy more stock……………. yet, those same banks will lend you 90% of the value of your Real Estate portfolio? Which investment do you think they consider to be more risky? Because Real Estate has greater access to leverage, your return is always going to be higher for a given underlying rate of appreciation.

No Real Estate Bubble! Our Real Estate Investments are valued as the result of cash flow. If market conditions drive the price beyond a certain level of support, we will simply not recommend the investment.

Wildcard! The one wildcard in a sustainable upward swing in real estate prices is where interest rates are going. If rates stay under 7.5% then the Real Estate market will be relatively unaffected. If they go higher, then there may be some pressure on appreciation. This pressure will initially be felt on the upper end of the housing market (luxury properties) and depending on how high the rates go up, things may work their way down the chain to the level of investment grade properties, i.e., 3/2/2 single family homes priced at close to replacement or building and land cost types of properties.

Determine Your Objectives! First, we determine exactly how much income you want every month for the rest of your life and what your debt elimination goals are (if any). We then tailor an investment strategy for you that will meet these objectives within a finite time frame. Our strategy will not be based on an y unrealistic assumptions and will work in the background allowing you to live your life without making any sacrifices today but at the same time securing your tomorrow.

How Do We Do This? We will formulate a systematic plan for you that involves an acquisition phase, a holding phase, and a selling phase. Depending upon your specific Objectives, we may mix some short term gain investments with some longer term income generating investments. The end result will be a portfolio of properties that delivers on the desired objective.

After a fixed amount of time, anywhere from 5 to 15 years, your investment portfolio will be able to sustain itself and you will have an income that will last for as long as you choose to own it.

Finally, your assets will be working for you! With assets, capital return on investment is based more on how much asset you control rather than own outright. You can usually control more than you own outright by borrowing money against your asset and leveraging it to produce a higher return. It’s access to this leverage that magnifies your return on investment (ROI) and because Real Estate has greater access to leverage, your return is always going to be higher for a given underlying rate of appreciation.

The following are examples – assuming you have $100,000 to invest – either in the stock market or in Real Estate. Note: To maximize your ROI, you will want to leverage the investment to the maximum degree to which you have access.

Stocks:  You can borrow up to 50% of the value of your portfolio on margin. Therefore, your $100,000 investment will allow you to borrow $50,000 for a total investment portfolio controlled by you of $150,000. Assuming 8% Appreciation: $150,000 x 8% or $12,000 ROI at the end of one year. Compare your original investment of $100,000 and your capital ROI for the year divided by the total return on your total controlled portfolio ($100,000 / $12,000) = 12%.

Note: Most people assume that when the pride of their Real Estate rises 6% they are earning a 6% return. But, since they have invested only their down payment, their actual cash-on-cash return is significantly higher.

Real Estate: You can borrow up to 90% of the value of your portfolio. Therefore, your $100,000 investment will allow you to control $1,000,000 worth of Real Estate! Assuming 8% Appreciation: $1,000,000 x 8% = $80,000 ROI at the end of one year. Compare your original investment of $100,000 and your capital ROI for the year divided by the total return on your total controlled portfolio ($100,000 / $80,000) = 80%.

You can see in these examples that for a given appreciation rate, real estate produces an 80% return on your investment dollar and stocks produce a 12% return on your investment dollar.

Conventional wisdom dictates that the higher the level of leverage, the risker the investment. We mitigate or contain risk in Real Estate investing by defining parameters that make the investment as risk adverse as possible.

We prefer residential properties that the buying public can afford in areas that are ripe for appreciation and has a strong demand for rental housing. This type of asset provides a very basic need for everyone and that is shelter. We can do without any company’s stock in the marketplace, but we cannot do without a place to live.

Simply put; By purchasing the right Real Estate investment and maximizing your leverage on it, you can be assured of a solid long term wealth building strategy for you and your family.

2nd Examples in which assets produce returns for their owners is income. For a stock, income is called a dividend. For Real Estate Investment, income is called rent.

Stocks: The average blue chip or “safe” stock pays income or dividend at an average rate of 1.5% - 2%. That means that you would have to own or control $10,000,000 (Ten Million Dollars) worth of stock to realize an income of $150,000 to $200,000 per year. To control $10,000,000 worth of stock, you would need approximately $7,500,000 and borrow 50% on that to get to the $10,000,000.

Real Estate: Investment grade Real Estate produces an income or rent that is approximately 6% - 8% of the value of the asset. That means if you controlled $10,000,000 worth of Real Estate, the income generated would be $600,000 to $800,000 per year. It is your access to leverage that makes controlling $10,000,000 worth of Real Estate more realistic than controlling $10,000,000 worth of stock. With access to 90% financing, you can control $10,000,000 worth of Real Estate with $1,000,000 vs $7,500,000 you would need to control the same amount of stock.

(To facilitate all of your tax and financial needs, we advise and expect that you consult with your financial advisors for the exit strategy which best suits your specific goals, needs, and financial/tax requirements. Due Diligence in any real estate purchase is strongly recommended. Quantum Realty Solutions does not guarantee future returns on investments. Estimates on possible future appreciation and returns on investments are based on the best information available to Quantum Realty at this time. )