About 15 years ago, I discovered an investment method in real estate, and I’ve been using this method ever since then. I also observed other investors gaining high returns by using this method. However, most people are unwilling to share their method, while I’d like to share my experience with you along with my method that could lead middle-class people to success.
First of all, let me tell you my own story. In 2002, I quit my job as a successful software engineer and became a self-employed real estate agent and mortgage broker. These businesses have brought me enough income, but have also taken up plenty of my time. However, I still managed to squeeze some time in to do my own real estate investments.
A few years later, my real estate and mortgage businesses were stable so I decided to invest more. I already purchased three properties at that time and found out buying real estate was a good way to save money. So in the next few years, I used my $200,000 in savings to purchase a few residential properties that were worth about $1 million at that time with a down payment of 20% ($200,000), and loaned about $800,000 from bank. At the very beginning, those properties didn’t bring me any cash flow and after paying mortgages, tax, insurance and other costs, there were actually causing negative cash flow instead. Luckily, the loss was very minimal and my income was still able to support my investment.
In about 10 years later in 2014, those properties were worth about $1,700,000 and the mortgage balance was about $700,000. Since all mortgages I had were 30-year fixed rate, most of the payments were towards interest so only a very small portion of the principle balance was paid. Fortunately, thanks to appreciation, the real estate value went from $1,000,000 to $1,700,000 and my equity increased from $200,000 to $1,000,000. Every return was about 5% annually, which is also the average appreciation rate of the city I’m living in (Austin) and most other areas of Texas.
What’s my ROI (Return on Investment)? If only based on appreciation, then it’s about 16% every year, and that is without including rent income. Like I mentioned previously, my investment even started out with a little negative cash flow at the beginning, which turned into a positive flow in the next 3 to 4 years. The average rent income can easily go up to 10% of the purchase price, and that’s how the total return ends up being about 20% to 25%.
Those numbers mentioned above are not entirely accurate and my calculation doesn’t take closing costs into consideration, so this is just to give you a rough idea that this method can give you a return of more than 20% on cash flow and appreciation. In my following articles, I’ll give you more details.