So you want to retire early

So you want to retire early enough to enjoy it. Borrow yourself into an early retirement.

When you deposit money into a retirement fund, (such as 401K's, annuities, IRAs etc.), the institution holding the money invests that money in income producing investments. A large portion of that money goes into income producing real estate investments. The more conservative the retirement fund managers are, the more they will invest in real estate or bonds instead of stocks.

Income producing real estate is one of the safest investments you can make. Because this type of investment is so safe, banks are willing to lend 70% to 80% of the cost of the property. Because you can raise rents, you are protected against increasing expenses and inflation. Because of these facts, you can borrow yourself into an early retirement income.

This example assumes you have the money for a down payment. Lets just suppose you went into your bank and told them you found a 16 unit apartment building that you want to buy for $640,000 with the rental income at $7,200 per month.

The banker would tell you that the property would have to appraise for that amount, and you will need 30%, or $192,000, down payment in cash. If you can get a 25% down loan you only need $160,000. There are loan brokers that can get you in for as little as 15% to 20% down.

The first thing for you to do is to find out how much cash you can raise. Find out how much cash you can raise by cashing in all of your IRA's, annuities, stocks, life insurance policies etc. Triple the amount of cash you can raise and you will know how exspensive a rental property you can afford.

Start reading books on real estate investing and learning how to evaluate a deal. Keep in mind there are plenty of professionals who can help you. Once you know how much you can borrow, and how much cash you can raise, start looking for a property that is under priced because of it's cosmetic condition and because the rents are not up to market rates. There are plenty of properties out there that need sprucing up that have rents that have not been increased to the going market rates.

Do not rely only on real estate agents. Advertise that you are looking. For example run a classified ad that says "Wanted 12 to 16 unit apartment building, fax details to 555-5555"

Using our example above, a building that cost $640,000 and has a 30 year mortgage at a 7% interest rate would have payments of $3,000 per month. Assuming you did not raise the rents you would have a gross income, after making your payment, of $4,200.00 a month.

From that gross income you pay insurance, taxes and maintenance. The amount left is your net operating income (NOI). If the expenses added up to $1,500 per month you would have left an income of $2,700.00 per month. A 17% return on your $192,000 down payment.

Spruce up the place and raise the rents 20% and your income goes to $8,640.00 per month, less payments, taxes and maintenance of $4,500.00 per month, and your return goes up to $4,140.00 per month, or a 26% annual return, cash on cash.

Every time you make an improvement, or raise the rents, your properties value increases. Every time you make a payment, your net worth increases by the amount of the principal you paid down.

If you put cash in the bank at a 5% interest rate and wanted the same monthly income of $4,140.00 you would need a cash deposit of $828,000.00.

Think out of the box and you can get very rich.

http://www.pueblo.gsa.gov

Federal information center: Super site about money, saving and investing, retirement, wills, credit and much more.

"Getting ahead is easy, so few people are really trying"
Jim Glasgow