I was browsing through Facebook, wasting valuable work time, when I can across an ad for a real estate investing seminar. It is being hosted by a local Realtor who I am familiar with. Back in the boom days (2005-2007), this same agent would host similar classes to teach "investors" how to purchase fourplexes in the Phoenix area. I attended one of them, it was good information. But I was amazed with the numbers, they were horrible! The very best case scenario (100% occupancy, top rent, low maintenance costs) had these properties selling at a 6-7% cap rate. In some cases, you had to put 30-40% down to make the cash flow look impressive, but at that point the cash on cash return was minute! 

The crazy thing is, everyone was buying! Phoenix area fourplexes were selling for $250,000 to $400,000 when the average rent was only $2,200 to $2,600 per month. The numbers just didn't make sense. But everyone and their mother was buying a fourplex for an obscene amount of money. 

Well, years passed, the bubble burst, and now those same fourplexes are sitting out there vacant, vandalized, and DIRT CHEAP!! But here is the difference, now nobody wants them! Well not everyone, savvy investors are picking them up left and right, but the average Joe, who actually NEEDS to be purchasing cash flowing assets, is sitting on the sideline. WHY?

As Realtors we need to educate our clients. How do they know it's a good time to buy if nobody tells them? All they know that they owe more than their house is worth, foreclosures are everywhere, and the sky is falling. What they don't know is that NOW is the time to plan for the future. NOW is the time where a massive amount of wealth is changing hands. NOW is the time to get a piece of the pie!

We need to get out there and let average Joe know, NOW IS THE TIME! We can help our clients retire more comfortably. We can help our clients leave legacies to their families. We can help our friends and family avoid dying broke. Statistics tell us over HALF of baby boomers will die with no money and living on social security. 

Real estate investing is the best investment out there. It is a tangible, solid asset that provides income as well as appreciation. If you buy a property that makes money from day 1, it is hard to go wrong with real estate. 

Here is an example of an average deal here in the Phoenix market. This is not a specific property but there are many just like it. In this example we will assume this is a short sale and the property is still occupied. 

Central Phoenix Fourplex 

Four - 2 bedrooms, 1 bathroom, 650sf units in 1 building.

Average rent = $600/mo per unit

Purchase price = $100,000

25% down payment = $25,000

New conventional loan = $75,000

Right now, April 2010, rates are very low. Most of my investor clients are getting 6-6.5% interest on their 30 year fixed loans. Here is a conservative look at what the monthly numbers look like. 

$2,400     Monthly rent

-$ 240     10% vacancy 

_________________________________

$2,160     Net rent

-$ 320     Monthly tax/insurance

-$ 216     10% property management fee

-$ 250     water/sewer/trash/landscaping paid by owner

$1,374    NET OPERATING INCOME

$16,488  YEARLY INCOME

So if you do the math, this is just under a 16.5% cap rate! For $100,000 invested your year 1 return is over $16k, not bad. If you look a leveraging the property and putting the 25% down payment, here are the numbers. 

$16,488   Net income

$  5,688   Yearly mortgage payments ($75k at 6.5% interest, 30yr mortgage)

$10,800   NET INCOME

As you can see, leverage is the way to go! Your $25,000 invested has returned $10,800, that is a whopping 43% ROI! These returns are amazing, but the thing to remember is these returns do not include tax deductions, depreciation, or appreciation. You are making money without the asset going up in value!

Your client will have their initial investment back in a little over 2 years, and they will have an asset that will put money in their pockets FOREVER! You never need to sell a property like this. In fact, you might even suggest paying the property as if it were a 10 or 15 year mortgage. That way your clients own free and clear real estate, that will improve their monthly cash flow and eliminate their liability. 

This market makes sense, get out there and let your clients know about it. If you can't find these types of deals where you live, come buy in Phoenix, the weather is great!