Seminar for Realtor Partners and Investors
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Presentation on to help Real Estate Agents increase their business. To make it easy for individual investors to understand their mortgage, how it can affect their overall financial plan. Why investing in Real Estate is a safe bet.
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Seminar for Realtor Partners and Investors
- 1. 11 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 ““Real Estate Millionaire Club”Real Estate Millionaire Club” Convention -- January, 2006Convention -- January, 2006
- 2. 22 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 Mortgage & Real Estate Investment Strategies to Build Wealth Presents:
- 3. 33 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 Robert Ratimorszky – StarpointeRobert Ratimorszky – Starpointe MortgageMortgage My Experience:My Experience: 5 years as a Practicing Mortgage5 years as a Practicing Mortgage PlannerPlanner Illinois Licensed Mortgage LoanIllinois Licensed Mortgage Loan OriginatorOriginator 50 Millions Dollars in loans under50 Millions Dollars in loans under managementmanagement Real Estate InvestorReal Estate Investor
- 4. 44 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 –– Starpointe MortgageStarpointe Mortgage Why I am here tonight:Why I am here tonight: Partner with 250 clients (like you)Partner with 250 clients (like you) and, over the next 10 years, helpand, over the next 10 years, help them create $1,000,000 or more inthem create $1,000,000 or more in equity that produces a monthlyequity that produces a monthly passive income of $15,000.passive income of $15,000.
- 5. 55 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 Tonight’s ObjectivesTonight’s Objectives • Challenge/Enlighten • Review the 7 main reasons to invest in Real Estate • Learn the 7 keys to successful Real Estate investing • Learn the basics of an Investment Real Estate Business Plan • Start to build Wealth Through Real Estate
- 6. 66 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 What we won’t do tonight!What we won’t do tonight! Try to sell you any books, tapes, orTry to sell you any books, tapes, or seminars!seminars! Blow smoke at you about “investing in realBlow smoke at you about “investing in real estate with no money down”!estate with no money down”! Promise or promote any idea we have notPromise or promote any idea we have not used ourselves!used ourselves!
- 7. 77 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 Your Home and It’s EquityYour Home and It’s Equity No Mortgage is good, right?No Mortgage is good, right? I “should” always pay extra on my mortgage,I “should” always pay extra on my mortgage, right?right? I “should” get a 15 year, fixed rate mortgage,I “should” get a 15 year, fixed rate mortgage, right?right?
- 9. 99 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 The “Meaning” ofThe “Meaning” of Debt FreeDebt Free Pay off Mortgage Become Debt Free Achieve Financial Freedom Make your life dreams come true Make a difference in the lives of your loved ones Care for elderly parents Provide education & opportunities for children
- 10. 1010 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 The Meaning ofThe Meaning of Debt FreeDebt Free Having no mortgage (traditional thinking) Having, but not needing to have a mortgage (new paradigm thinking)
- 11. 1111 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 The Impact of Leverage onThe Impact of Leverage on Your HomeYour Home No Mortgage With Mortgage Home Value $500,000 $500,000 Mortgage Balance - $350,000 Home Appreciation 3% 3% Invested Equity $500,000 $150,000 Home Value – 5 Years $580,000 $580,000 Rate of Return on Equity 3% 10.7%
- 12. 1212 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 The Impact of Leverage onThe Impact of Leverage on Your HomeYour Home No Mortgage With Mortgage Investment Assets - $350,000 Interest @ 6% - $21,000 Tax Ded. @ 31% - $6,510 After-tax Interest - $14,490 7% Invest. Yield - $24,500 Invest. - 5 Yrs - $490,893 Home Value - 5 Yrs $580,000 $580,000 Mortgage - 5 Yrs - $350,000 Net Worth - 5 Yrs $580,000 $720,893 Extra Wealth - $140,893
- 13. 1313 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 Recommended Reading:Recommended Reading: ““Missed Fortune 101” by Doug AndrewMissed Fortune 101” by Doug Andrew
- 14. 1414 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 Why Invest in Real Estate?Why Invest in Real Estate? 1.1. Positive Cash FlowPositive Cash Flow
- 15. 1515 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 The Option ARMThe Option ARM Option ARMOption ARM 2.90 Index + 3.10 Margin = 6.00% Interest Rate Option ARMOption ARM 3.10 Index + 3.60 Margin = 6.70% Interest Rate Primary Residence – 80% Financing: Investment Property–90% Financing (No PMI):
- 16. 1616 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 The Option ARMThe Option ARM Deferred InterestDeferred Interest Interest Only Fully Amortizing Option #1Option #1 Option #2 Option #3 1.375%1.375% 6.00% 6.00% $1187 $1750 $2098
- 17. 1717 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 The Power of Deferred Interest!The Power of Deferred Interest! Since 1970, homes in our market have achievedSince 1970, homes in our market have achieved average appreciation of 5% per year.average appreciation of 5% per year. In the preceding example, you could potentially deferIn the preceding example, you could potentially defer $563 per month ($1750 interest only payment minus$563 per month ($1750 interest only payment minus $1187 minimum payment) to your mortgage balance,$1187 minimum payment) to your mortgage balance, which would equal $6756 in a 12 month period.which would equal $6756 in a 12 month period. During that same 12 months, if your $500,000 homeDuring that same 12 months, if your $500,000 home appreciated 5%, you would gain $25,000 in new equity.appreciated 5%, you would gain $25,000 in new equity. Subtracting the deferred interest, you have still realized aSubtracting the deferred interest, you have still realized a net gain of $18244, plus you have leveraged the $6756net gain of $18244, plus you have leveraged the $6756 into another higher and better use!into another higher and better use!
- 18. 1818 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 Interest Rate HistoryInterest Rate History
- 19. 1919 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 How This Strategy Can Work For YouHow This Strategy Can Work For You • Investment Real Estate • Primary Residence
- 20. 2020 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 Why Invest in Real Estate?Why Invest in Real Estate? 1.1. Positive Cash FlowPositive Cash Flow 2.2. Tax AdvantagesTax Advantages
- 21. 2121 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 Tax Advantage #1Tax Advantage #1 DepreciationDepreciation Depreciation allows you to deduct a certain portion of the purchase price of an investment. This effectively offsets some of the income that you receive from the investment and allows you to achieve a greater after-tax yield. Only the value of the improvements, not the value of the land can be depreciated. With residential properties (both single and multi-family), you can depreciate the value of the improvements over 27.5 years.
- 22. 2222 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 Depreciation at WorkDepreciation at Work Depreciation on a Residential Property Purchase Price/Initial Investment: $250,000 Value of Improvements (75%): $187,500 Annual Depreciation (27.5 years): $6,818 Net Income (10% cap rate): $25,000 Taxable Income: $18,182 Income Taxes @ 35%: $6,364 After-tax Income: $18,636 After-tax Return on Investment: 7.45% w/depreciation vs. 6.5% without depreciation
- 23. 2323 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 Depreciation at WorkDepreciation at Work Additionally, you may be able to “bifurcate”Additionally, you may be able to “bifurcate” the property, dividing the purchase pricethe property, dividing the purchase price into land value, improvements value, landinto land value, improvements value, land improvements value, and personalimprovements value, and personal property value.property value. The advantage in doing this is that landThe advantage in doing this is that land improvements and personal property areimprovements and personal property are depreciated at a faster rate.depreciated at a faster rate.
- 24. 2424 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 Tax Advantage #2Tax Advantage #2 1031 Exchanges1031 Exchanges Section 1031 of the Internal Revenue Code allows you to avoid paying capital gains tax on the sale of your investment if you “exchange” the investment for another of “like- kind”. In other words, if you use the sales proceeds of a real estate investment property to purchase another real estate investment property of equal or greater value, you will not be obligated to pay capital gains tax on the proceeds of the sale.
- 25. 2525 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 Tax Advantage #2Tax Advantage #2 1031 Exchanges1031 Exchanges 1. Roll Over Investments Indefinitely 2. Step-up in Basis Upon Inheritance 3. Time Limitations to Identify Property and Consummate the Transaction - see a CPA for details
- 26. 2626 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 1031 Exchanges at Work1031 Exchanges at Work 1031 Exchange of a Real Estate Investment Property Purchase Price/Initial Investment: $250,000 Sales Price/Net Proceeds: $300,000 Profit: $50,000 Re-invested Funds: $300,000 Capital Gains Tax @ 15%: $0 Sale of Investment Without 1031 Exchange Capabilities Purchase Price/Initial Investment: $250,000 Sales Price/Net Proceeds: $300,000 Profit: $50,000 Capital Gains Tax @ 15%: $12,500
- 27. 2727 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 Why Invest in Real Estate?Why Invest in Real Estate? 1.1. Positive Cash FlowPositive Cash Flow 2.2. Tax AdvantagesTax Advantages 3.3. Property AppreciationProperty Appreciation
- 28. 2828 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 Why Invest in Real Estate?Why Invest in Real Estate? 1.1. Positive Cash FlowPositive Cash Flow 2.2. Tax AdvantagesTax Advantages 3.3. Property AppreciationProperty Appreciation 4.4. Hedge Against InflationHedge Against Inflation
- 29. 2929 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 Why Invest in Real Estate?Why Invest in Real Estate? 1.1. Positive Cash FlowPositive Cash Flow 2.2. Tax AdvantagesTax Advantages 3.3. Property AppreciationProperty Appreciation 4.4. Hedge Against InflationHedge Against Inflation 5.5. Investment DiversificationInvestment Diversification
- 30. 3030 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 Why Invest in Real Estate?Why Invest in Real Estate? 1.1. Positive Cash FlowPositive Cash Flow 2.2. Tax AdvantagesTax Advantages 3.3. Property AppreciationProperty Appreciation 4.4. Hedge Against InflationHedge Against Inflation 5.5. Investment DiversificationInvestment Diversification 6.6. Psychological AssetPsychological Asset
- 31. 3131 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 6. Psychological Asset6. Psychological Asset Which has more appeal to you?Which has more appeal to you? This?This? Or This?Or This?
- 32. 3232 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 Why Invest in Real Estate?Why Invest in Real Estate? 1.1. Positive Cash FlowPositive Cash Flow 2.2. Tax AdvantagesTax Advantages 3.3. Property AppreciationProperty Appreciation 4.4. Hedge Against InflationHedge Against Inflation 5.5. Investment DiversificationInvestment Diversification 6.6. Psychological AssetPsychological Asset 7.7. Positive LeveragePositive Leverage
- 33. 3333 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 7 Keys to Successful Real Estate Investing7 Keys to Successful Real Estate Investing Determine Acceptable Level of LiquidityDetermine Acceptable Level of Liquidity
- 34. 3434 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 7 Keys to Successful Real Estate Investing7 Keys to Successful Real Estate Investing Determine Acceptable Level of LiquidityDetermine Acceptable Level of Liquidity Determine MarketabilityDetermine Marketability
- 35. 3535 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 Determine Marketability (continued)Determine Marketability (continued) You Need A Plan! • Beginning to buy real estate without a written plan is akin to deciding to be jet pilot without getting your pilot’s license! • You must assemble your “dream team” – mortgage planner, attorney, CPA, and insurance provider • Starting small and leveraging the future appreciation is where most clients start
- 36. 3636 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 7 Keys to Successful Real Estate Investing7 Keys to Successful Real Estate Investing Determine Acceptable Level of LiquidityDetermine Acceptable Level of Liquidity Determine MarketabilityDetermine Marketability Determine the Impact of LeverageDetermine the Impact of Leverage
- 37. 3737 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 The Impact of LeverageThe Impact of Leverage No Mortgage With Mortgage Home Value $200,000 $200,000 Mortgage Balance $0 $160,000 Home Appreciation 3% 3% Invested Equity $200,000 $40,000 Home Value – 5 Years $232,000 $232,000 Rate of Return on Equity 3.2% 16%
- 38. 3838 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 The Impact of Leverage (continued)The Impact of Leverage (continued) No Mortgage With Mortgage Rent $1,600 $1,600 Mortgage Expense $0 $733 Other Expenses $400 $400 Month Cash Flow $1,200 $467 Annual Cash Flow $14,400 $5,604 Sale Proceeds $32,000 $72000 Initial Investment $200,000 $40,000 Internal Rate of Return 9.8% 24.0%
- 39. 3939 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 7 Keys to Successful Real Estate Investing7 Keys to Successful Real Estate Investing Determine Acceptable Level of LiquidityDetermine Acceptable Level of Liquidity Determine MarketabilityDetermine Marketability Determine the Impact of LeverageDetermine the Impact of Leverage Evaluate Management IssuesEvaluate Management Issues
- 40. 4040 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 7 Keys to Successful Real Estate Investing7 Keys to Successful Real Estate Investing Determine Acceptable Level of LiquidityDetermine Acceptable Level of Liquidity Determine MarketabilityDetermine Marketability Determine the Impact of LeverageDetermine the Impact of Leverage Evaluate Management IssuesEvaluate Management Issues Calculate the Rate of ReturnCalculate the Rate of Return
- 41. 4141 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 Calculate Rate of Return (cont.)Calculate Rate of Return (cont.) Return on Investment w/appreciation: (this is the calculation used while owning the property) The Math: Cash flow before tax+principal reduction+Tax Savings+Appreciation Cash Invested (Current equity position) Example: (see worksheet)
- 42. 4242 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 Calculate Rate of Return (cont.)Calculate Rate of Return (cont.) Internal Rate of Return = The total actual rate of return of an investment when you take into consideration the initial investment, periodic cash flows and net sales proceeds. This is a time value of money calculation. (This is the calculation used when the property is sold) Example: Initial Investment: $50,000 Annual Cash Flow: $5,000 Sales Proceeds: $65,000 IRR: 14.49%
- 43. 4343 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 Calculate Rate of Return (cont.)Calculate Rate of Return (cont.) Internal Rate of Return Calculations (financial calculator): N = Term (number of years that you hold the investment) I% Year = Annual Interest Rate PV = Present Value (initial investment = negative number) PMT = Annual Cash Flow (negative or positive number) FV = Future Value (sales proceeds)
- 44. 4444 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 Calculate Rate of Return (cont.)Calculate Rate of Return (cont.) Internal Rate of Return Calculations: N = 5 I% Year = UNKNOWN PV = (-$50,000) PMT = $5,000 FV = $65,000 Internal Rate of Return (IRR): 14.49%
- 45. 4545 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 7 Keys to Successful Real Estate Investing7 Keys to Successful Real Estate Investing Determine Acceptable Level of LiquidityDetermine Acceptable Level of Liquidity Determine MarketabilityDetermine Marketability Determine the Impact of LeverageDetermine the Impact of Leverage Evaluate Management IssuesEvaluate Management Issues Calculate Rate of ReturnCalculate Rate of Return Consider the Tax ImpactConsider the Tax Impact
- 46. 4646 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 7 Keys to Successful Real Estate Investing7 Keys to Successful Real Estate Investing Determine Acceptable Level of LiquidityDetermine Acceptable Level of Liquidity Determine MarketabilityDetermine Marketability Determine the Impact of LeverageDetermine the Impact of Leverage Evaluate Management IssuesEvaluate Management Issues Calculate Rate of ReturnCalculate Rate of Return Consider the Tax ImpactConsider the Tax Impact Understand, Calculate and Manage RiskUnderstand, Calculate and Manage Risk
- 47. 4747 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 Understand, Calculate and Manage Risk (cont.)Understand, Calculate and Manage Risk (cont.) Understand the Indexes 1. LIBOR - 1 month LIBOR (follows Fed Funds Rate) - 6 month LIBOR (predictor 6 months from now) - 1 year LIBOR (predictor 12 months from now) 2. MTA - 12 month moving average of the monthly 1 year Treasury Index MTA is more stable and slow moving than LIBOR related indexes
- 48. 4848 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 Understand, Calculate and Manage Risk (cont.)Understand, Calculate and Manage Risk (cont.) 0 1 2 3 4 5 6 7Dec,03 M ar,04June,04 Sep,04 Dec,04 M ar,05 Jun,05 MTA 1 Mo LIBOR Prime Rate
- 49. 4949 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 7 Keys to Successful Real Estate Investing7 Keys to Successful Real Estate Investing Determine Acceptable Level of LiquidityDetermine Acceptable Level of Liquidity Determine MarketabilityDetermine Marketability Determine the Impact of LeverageDetermine the Impact of Leverage Evaluate Management IssuesEvaluate Management Issues Calculate Rate of ReturnCalculate Rate of Return Consider the Tax ImpactConsider the Tax Impact Understand, Calculate and Manage RiskUnderstand, Calculate and Manage Risk
- 50. 5050 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 Example Property Acquisition PlanExample Property Acquisition Plan (see Handout)(see Handout) Background: Client owns two current rental properties currently andBackground: Client owns two current rental properties currently and has a primary residence with a $150,000 15 yr fixed rate mortgage.has a primary residence with a $150,000 15 yr fixed rate mortgage. This home is valued at $250,000.This home is valued at $250,000. This client’s plan called for leveraging the most property for the leastThis client’s plan called for leveraging the most property for the least down payment.down payment. His goalHis goal is to amass $1,000,000 in equity in theis to amass $1,000,000 in equity in the next 10 years, creating enough passive income to pursuenext 10 years, creating enough passive income to pursue investment real estate full time.investment real estate full time. Under this plan, the borrower can leverage $525,000 in rental realUnder this plan, the borrower can leverage $525,000 in rental real estate for $50,000. In addition, the client has created $553 perestate for $50,000. In addition, the client has created $553 per month in passive income, while decreasing their overall monthlymonth in passive income, while decreasing their overall monthly mortgage expense.mortgage expense.
- 51. 5151 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 Our Goal Revisited:Our Goal Revisited: Amass $1,000,000 in equityAmass $1,000,000 in equity $15,000 monthly income$15,000 monthly income Create that 2Create that 2ndnd or 3or 3rdrd income that everyincome that every family needs to achieve their financialfamily needs to achieve their financial goals!goals!
- 52. 5252 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 What’s Next?What’s Next? 1. Decide if Investment Real Estate is right for you. 2. Pull credit report and improve scores (1 in 3 are incorrect) 3. Enroll in our Rate Watch Mortgage Management Program 4. Build your “Dream Team” (give me names!!!) 5. Write Your Plan 6. Start building wealth through Investment Real Estate!
- 53. 5353 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 ““Real Estate Millionaire Club”Real Estate Millionaire Club” Convention -- January, 2017Convention -- January, 2017 I hope to seeI hope to see youyou in Hawaii!in Hawaii!
- 54. 5454 Robert Ratimorszky-StarpointeRobert Ratimorszky-Starpointe MortgageMortgage robertr@starpointechicago.comrobertr@starpointechicago.com 847-774-9657847-774-9657 Thank You!Thank You! Thank you for attending my seminar.Thank you for attending my seminar. Honest, thoughtful feedback is the onlyHonest, thoughtful feedback is the only way I can improve what I do. Please takeway I can improve what I do. Please take five minutes to complete the surveyfive minutes to complete the survey enclosed in your package. All surveysenclosed in your package. All surveys turned in this evening will be entered intoturned in this evening will be entered into a drawing for a complimentarya drawing for a complimentary MissedMissed Fortune 101Fortune 101 book and a Texasbook and a Texas Instruments Business Calculator.Instruments Business Calculator.
Hinweis der Redaktion
- Why do I put this up here? Is this a hollow promise of something good 12 years from now? I can tell you that it is not. My goal is to take 250 of you, build your investment real estate portfolio that has $1 mil in equity in it, is producing a passive income each month of $15,000, and then twelve years from now, we will all go to Hawaii for a week. This is my most favorite place in the world, I spent my honeymoon there, I have spent time with my coworkers and friend there before that, it is part of what drives me to make you successful.
- CRMS – designation granted to less than 1% of the mortgage originators Nationwide. Mortgages under management – see sample rate watch report in your Package with accompanying rate watch sign up form – new concept, Probably have not been offered this before. Real Estate Investor – not going to talk to you tonight about anything I have not done myself, we will talk about real world scenarios
- Does this sound good to anybody? Is $1,000,000 enough, probably not based on most projections, but in a fully diversified range of investments, this can be one huge part! I estimate that it will take 2 years to assemble the group. When we get to the end of the this presentation, you will see what my plans Are for my 250 clients in 2017!
- When I speak about challenging and enlightening your view of Real Estate, I will be testing some things that you may now accept as “givens” or “rules”. Many of these ideas were shaped by your parents and their parents. I hope that you will keep an open mind and, by the end of the seminar, embrace these new ideas!
- OK, let’s be honest for a minute, who has paid Carlton Sheets for his program? Come on, I know some of you have, and I bet a lot of you have not even taken the thing out of its wrapper, right? Well, we are not going to do that tonight. We are simply going to show you how to intelligently invest in Real Estate and build great wealth! Put up illustration of rates and programs of 80/20 investor loan
- This is the first “challenge” of some ideas that you may have in regards to Your home and it’s equity. When I meet with a client, we begin by analyzing the mortgage financing on their primary residence.
- Let’s see why in the following slides!
- Here is the traditional, depression era thinking in regards to your home and it’s equity. Let’s follow the progression . . . . Now, let’s look at this in realistic terms. By the time you get to step 1, paying off your mortgage, you might be pretty old, right? I have one client out of my group of 1200 who has paid off their mortgage in full, she is 72! If we are to follow this model, the model our parents taught us, we will never get to enjoy the kind of life we want while we are younger.
- No Mortgage – -Gives your peace of mind -What your (grand) parents taught you (Depression Era) -May not make financial sense after tax cost of a mortgage is around 4% Liquidity issue Having, but not needing a mortgage – -Gives you same peace of mind -I hope you will see that it makes more financial sense -Ladies and Gentlemen , it is all about Leverage, leverage, leverage! The real meaning of debt free -- -The only way to become debt free is to have no need or dependence on debt -In other words, become debt free by becoming free of the burden of needing to have debt
- Let’s talk about appreciation first – is 3% realistic going forward? In future Examples, I am going to use 5%, but for this discussion, let’s be conservative We need to establish that this is a fair number, everybody agree?. What has been the rate of appreciation been the last few years? 10%?, 15%? Let’s stop a minute and the 800 lb gorilla out of the corner. Anybody heard of a possible Real Estate Bubble? – Let’s be real here for a minute. Housing prices are determined by jobs growth and inflation. - Jobs growth – near all time high - Inflation – near all time low There is no bubble!!!! (finish explaining slide)
- (walk through slide) If we have the $350,000 mortgage, we now have $350,000 to invest. If our Mortgage expense is 6%, and that 6% is tax deductible, you can see what Our after tax cost of that mortgage really is. Now, if we invest that money at 7%, over 5 years we will have amassed $490,893 on our initial $350,000 investment. Our home is still appreciating, So in both examples our home is worth $580,000 5 years from now. But look, because we harvested our “dead equity”, a term I will talk more about In a minute, we are over $140,000 better off than with no mortgage. Everybody get this? Any questions? Please stop me anytime with a question!
- This book will give you an enlightened view of your home and it’s equity. Chapters 1-8 are the best. Please embrace the concept of dead equity! Chapters 9-12 deal with dumping all your money into cash value life insurance, my feeling is that we should never have all our eggs in one basket. Investment Real Estate is a viable alternative to consider for your long term financial plan.
- Positive Cash Flow – We don’t always buy investment real estate for immediate cash flow. Our goal should be to leverage the property, try to break even on the rent vs expenses, and allow our equity to grow, along with our rents. However, an interest only mortgage, or an option arm can improve that cash-flow considerably, let’s look at these examples:
- One of the biggest concepts we will talk about tonight are the alternatives the Traditional 30 yr fixed mortgage. One of my and my client’s favorites is The Option ARM. This product is known by many names, the Neg-Am loan (explain), the guy on WBBM calls it the “Freedom of Choice Loan”. The guy ESPN Sports Radio calls it the “Pay Half” loan. They are all the same thing. I have never had anything but this loan since 1989, and at last check, have Not lost any fingers, toes, or equity because of it!
- Here is how this loan works. Each month, you get the “option” to pay the fully amortizing payment, an interest only payment, or a negatively amortizing payment. Let’s compare this to a traditional 30 yr loan of $350,000 at a 6% interest rate, your payment would be $2098 per month. As you can see, the option arm can free up as much as $972 each month, all while your equity continues to grow through appreciation! The full explanation of this program is best done face-to-face in a one-on-one situation. I hope you will each take the time to do that with me next week!
- This illustration is included to simply show you that what goes up must come down, Sir Isaac Newton proved that a long time ago. speaking of up, has anybody noticed what the Federal Reserve and Alan greenspan have been doing lately? Raising rates, right? All rates? No, not all rates. The Fed controls the Fed Funds Rate and Discount Rate. This then transfers over into what you more about, the Prime Rate. Have long term mortgage rates been affected? Only in a very minor way. The Fed wants to get to what they define as a “neutral” position. “Neutral” to them is defined as 1.5% over the rate of inflation. Inflation has been running at about 2.5%, that means the Fed is going to 4% for the Fed Funds rate, maybe 4.25%. Katrina and Oil prices may affect this slightly, but that is where the Fed is going – three more rate hikes, maybe 4.
- So, the Option ARM can do some fantastic things for us. Investment Real Estate - Increase or create positive cash flow - Increase cash on hand and internal rate of return (we will talk about IRR in a few minutes Primary Residence - Increase personal liquidity and/or cash-flow
- Investment Real Estate has two significant tax advantages: - Depreciation - Section 1031 of the IRS Code Let’s talk about these two things in more detail
- Now let’s talk about the second big tax advantage the Investment Real Estate brings to the table, 1031 Exchanges (walk through slide)
- See “Housing as an Investment” handout in your package of information – published by the Nation Association of Realtors in March of this year Housing bubble – we just discussed this, does everyone have a handle on this and is not buying into the “bubble” theory? – discussion?
- Times of high inflation, like the late 70’s (anybody remember Jimmy Carter? are always accompanied by high appreciation for real estate as investors “pull in their horns” and look to “safe investments” During times of low inflation, home prices have continued to climb as Competition in the marketplace increases, always equal to and up to 4 times the rate of inflation
- I am going to quote Sancho Paza here, from Don Quixote” “It is part of a wise man to keep himself today for tomorrow, and not venture all his eggs in one basket” When we buy investment real estate, the lender will require us to have more money “in reserve”, which is prudent, in case we have a month with higher than normal expenses, a vacant month or two, so we must diversify and not have all our money tied up in our real estate. Lenders generally require 6 times the amount of your total monthly payment in a liquid or semi-liquid account for each property that you have. Therefore, we cannot spend all the cashflow that our option arm creates, we need to set some aside!
- Real Estate has the distinct advantage of being able to be touched, felt, lived-in, fixed-up, rented out, admired, and shown off all at once. There is something tangible about owning real estate that is not like owning a stock or bond.
- No other asset can be acquired with such great leverage as Investment Real Estate. Through the use of mortgage financing, just a small percentage of your own money can be leverage into an asset worth 5, 10, or 20 times your initial investment. This is not something you can do with your stocks, our IRA, or your 401(K), yet this is where many people are focusing their efforts at wealth building – does this point make sense???? Discussion
- Liquidity is defined as the relative ease that the value of an asset can be accessed. Things like cash, bank accounts, money market accounts are obviously highly liquid, you can get to them when you want them. On the other hand, Real Estate has relatively low liquidity. The best way to increase liquidity in Real Estate is to leverage that asset with mortgage financing. The less of your own funds used to acquire the Real Estate, the better, leaving more “liquid” assets liquid.
- Other than using traditional methods of establishing marketability like appraisals, comparative market analyses done by Realtors, and your previous experience, the best way to “market” your investment real estate is to have a set entrance and exit strategy for each property you acquire.
- Let’s talk about one example of having a planned entrance and exit strategy. Many of my investors use a rent to own, or lease to own, strategy. They find a client who cannot buy right now for an isolated reason like a recent bankruptcy, recent divorce, they then take them home shopping, buy the property, sometimes using the renter’s money!, sign a 2 or 3 yr lease with an option to purchase at a set future price. Most of these renters will need the full 2-3 years to get their credit to an acceptable level to where they can get a mortgage in their name. By doing what we just talked about, we have a set entrance and exit strategy, thereby creating a “plan” for this property. FYI, only 28% of all options ever exercise their option, the agreement is typically structured very much in your favor, retaining all option monies
- In this example, we look at having a mortgage vs. not having a mortgage from an investment standpoint. Let’s discuss (walk through slide)
- As you can see, we have a smaller monthly cash-flow when we have carry a mortgage, but when we look at all the factors involved, which make up the Internal Rate of Return calculation, our return is increased significantly by leveraging the property with a mortgage! We will discuss internal rate of return in a minute, just play along for now.
- There are two distinct management issues we need to discuss. Asset Management – you need to assemble your dream team of a Mortgage planner (I would be an excellent part of your team!), your CPA, our Real Estate Attorney, and your insurance agent. You may also need to address trust issues with your trust attorney as well. Property Management – this is the number 1 area where Real Estate Investors are simply not prepared, not having a plan for day to day management issues that arise with a property. You have to prepare you and your tenant to deal with this adequately be defining what is paid by you, what is reimbursed by you, what they are supposed to fix, what they have to call you about, etc. If you are not the “handy” type, then your need the “B” dream team: your “available” handyman, your “available” plumber, etc
- Finally, we get to the number crunching. Is anybody a math nerd out there? If you are, this is the area you have been waiting for! Seriously, these calculations are how you determine whether Investment Real Estate is better than other investments, work it by the numbers!
- Follow along with me on the “example” worksheet. (Go through worksheet) Look at the power of leverage! Not only are you leveraging assets, You are significantly increasing your rate of return on investment!
- This is the big one, the only way to compare your overall, true rate of return on investment real estate.
- You will need a financial calculator as part of your investment real estate tool kit. (show them mine) (walk through slide)
- Find a trusted advisor who can intelligently and conservatively advise you on capital gains, tax credits, deductibility, and the associated subjects. I have also have extensive knowledge in this area, and can at least share my experiences. As stated however, the two main advantages the investment real estate bring to the table are the ability to depreciate the improvements and the ability to defer paying taxes on capital gains through the use of 1031 exchanges
- The first area that we need to discuss under risk is hedging interest rate risk When we talk about your primary residence, if you are using an option arm in conjunction with proper investment strategies, the yields on your investments should go up as the interest rate on your mortgage goes up. When we talk about investment real estate, as rates go up, tenants should be paying more rent because purchasing a home becomes harder for them We have to diverge a minute into indexes. Most adjustable rate mortgages Are now tied to two main indexes. The LIBOR family of indexes mirrors the Fed Funds Rate, the Treasury Bond family of indexes follow the US Treasury Bond yields.
- I have included in your package a 10 year history of all major mortgage indexes,
- Now we have to discuss property risk. Buying investment Real Estate is not Like buying a mutual fund, although given the recent Enron, K-Mart, and even Fannie Mae accounting scandals, it might be safer! You must do your due diligence!!! - Have a home inspection - Have a professional appraisal (not a yes man) - Do the math - Have a plan (entrance and exit strategy) - Rent Loss Insurance - Umbrella liability policy
- In your package of information, there is an example of property acquisition plan that I recently prepared for a client using my “equity multiplier strategy” When I first meet with a client, most are not sitting with loads of cash to invest in Real Estate, but many are sitting on a lot of dead equity that can be harvested. This example does just that.
- (walk through slide)
- I have included a complimentary credit review consent form in your package I have also included information on the Rate Watch Program, if you are Currently not having your mortgage “managed”, that is the equivalent of Not having your annual physical with your doctor, or your annual check-up Meeting with your financial advisor. Your mortgage is your single biggest Expense every month, doesn’t it make sense to have it actively managed?
- Why do I put this up here? Is this a hollow promise of something good 12 years from now? I can tell you that it is not. My goal is to take 250 of you, build your investment real estate portfolio that has $1 mil in equity in it, is producing a passive income each month of $15,000, and then twelve years from now, we will all go to Hawaii for a week. This is my most favorite place in the world, I spent my honeymoon there, I have spent time with my coworkers and friend there before that, it is part of what drives me to make you successful.
- I hope to meet each and every one of you soon. I will be repeating this seminar each month. Please encourage your family, friends, your circle of influence to attend. You can also attend again, free of charge, if you desire a refresher. I look forward to meeting you all for your private consultation soon, that Concludes our seminar, I will be available for questions for a few minutes, Please feel free to call or email me tomorrow!