I was talking with my brother today and he told me about an excellent way to be able to invest in rental property, live in an up-scale neighborhood and add additional cash flow into your wallet each month without a high level of income.
He knows a girl who traveled across the country for a job only to find that the real estate market was a little outside her price range. She wants to have a nice home, close to downtown and work but could never afford something like this on her own.
Her solution is ingenious.
Invest Where You Can
Let’s say that this girl saved herself a $10,000 down payment for her home. In any city market, $10,000 is not going to amount to much of a down payment – especially in a market where prices are in the $350,000 to $500,000 average range. What this girl did was to look for property in the range that she could afford in the town that she had just moved out of.
With $10,000 cash, she was able to purchase 2 properties for $50,000 each (putting 10% down on each one) and now rents them for a positive cash flow of about $150 per month each. (I’m not sure of the actual figures but these are about right.)
Rent What You Want
Since she was already planning to spend about $600 per month on rent (based on a $100,000 mortgage) and adding in the two monthly deposits of $150, she can now afford to spend about $900 per month on her rent. That’s the difference between finding a little apartment on the fringe to finding a nice apartment downtown!
She’s able to live much more comfortably than her colleagues who are also aiming to spend the $600 and she’s making about $200 in equity each month plus any appreciation on the property. At the end of a year, she will be over $5400 dollars wealthier than her equally ‘rich’ colleagues (assuming an appreciation of 3%) After ten years she’ll have an extra $54,000 in equity!
Buy Assets That Generate Cash Flow For Material Purchases
In my posting What To Think About Rich Dad I talk about buying Assets that generate cash flow to pay off the purchase of Depreciating Liabilities. This is a prime example. Rather than paying the $600 per month towards a poorly located apartment, she is creating enough cash flow and equity growth from the investments to support her desired lifestyle.
Get your money to work for you. It’s not doing anything just sitting in a bank.
As I mentioned previously, I’m going to be removing some equity from my home to do the exact same thing. I’ll keep you posted on my progress.
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