Huh. I recently watched a video by Meet Kevin. He mentioned a Delaware statutory trust, which I thought was a dividend stock, which would have been relevant. He talked about it paying out 7% annually. Apparently it just lets you let someone else manage your real estate investments while still receiving cashflow. He mentioned it in this video:
He says that you can start with $0, earn $3,000,000 over three years, put it in a DST, and retire. He seems to say the same stuff in every video, because I still am not doing it?
He says you get a side job, save up $20,000, buy a cosmetic fixer-upper for below market value, fix it up, and live in it [instead of renting]. The next year you save another $20,000, buy another cosmetic fixer-upper for below market value, fix it up, and rent it out. He says that you save up $20,000 and buy a house to rent out every year.
He previously said to put 3.5% down. It may not flow cash, but it will once you pay off the mortgage insurance? He has a video saying that if you break even, but build equity, you come out ahead.
$20,000 is 3.5% of $571,428.57, so you buy a house for about that much for yourself the first year, you buy one to rent out the second year, and then each year you buy a more expensive investment property. If you collect eleven months of rent the first year and twelve each following year, clearing 10% more than you pay in mortgage, the ninth year you would purchase a $2,333,735.71 home. The nine properties would be worth $13 million in total and would bring in $81,568.85 in rent annually.
He has never given a rule of thumb for how much of a discount you should be able to get on cosmetic fixer-uppers. I understand that every deal will be different, but let's say that if you cannot get a 10% discount it isn't a good deal, if you get more than a 20% discount it is too much work. For example, after improvements, you should pay 5% below market value, but increase the value 5% above market value.
The other thing is that I have heard time and again that you never profit from improvements, you just sell faster, so I really want to know how those two concepts reconcile.
Since I do not know the math for cosmetic fixer-uppers and he never said where you get the money for improvements, I calculated based on the market value. The worst-case scenario is that I am off by 10-11%.
I feel like I should have calculated mortgage insurance. You break even until you pay that off and then you start making money, but all of this math already took me hours, and if you only break even, the whole plan falls apart. Besides, if the market drops fast enough, you may not get out of mortgage insurance before it goes back up.
There are worse things than buying a $571,428.57 house every year, but if it takes you eight years to get out of mortgage insurance, you will only show a tiny profit after nine years. You definitely would not be buying two-million-dollar homes.
The thing is, even if you were able to purchase $13 million in real estate in nine years, I calculated that you would only have $1,132,043.70 in equity. I could not find a calculator, so I did it in Excel for nine different mortgages.
Good times.
So, you go from $0 to $1.1 million in nine years, and receive over $80,000 a year in return on a total of $180,000. That sounds great, but he talked about a 7% return on $3,000,000, which is $210,000 annually. Maybe you would get there in another three to five years, but that maybe 50% longer than advertised.
If you scale $81,568.85 in rents from $1,132,043.70 in equity, in theory you receive $216,163.51 a year--almost 3% more than the goal, which seems especially small when you consider that your return will undoubtedly go down when you put someone else in charge of it.
If this is really a fourteen-year-plan to go from $0 to $3,000,000 in equity and retire, well, that sounds great, but I can think of all kinds of ways that this would work out worse.
Well, all of that was a great deal of work, and I skipped many details, so this was the short version. However, Calculator.net says that if you invest $20,000 a year at 7%, after 14 years you would have $502,580.44.
Today
Other popular topics in this forum...
