We work with a lot of real estate investors, clients who own anywhere from two to 25 properties, and we’ve noticed some things about them that we wanted to pass on to you to see if you can generate extra wealth for yourself like they do.
And in fact, we’re gonna go over one scenario today, have you can give yourself a 28% raise. It’s really cool. But before that, I wanted to kind of hit on one topic that we get a lot. When clients call in, they seem to fall into two camps.
Home Strategy 1:
The first one is spend every extra dollar that you have on your house. Pay extra, pay your principal down fast, get rid of your home loan as fast as you can, not a bad strategy. In fact, you’re gonna see for my example, it’s a really good strategy.
Strategy 2:
spend as little possible on your primary residence and take the whatever additional money you have and invest it somehow. And today we’re gonna talk about investing in another rental property. Okay? So those are two camps and sometimes people feel really, really strongly about one versus the other. And I’m not trying to necessarily change any minds, state, maybe open, maybe open, um, the, you know, open up the, uh, door to some other ideas that you haven’t considered before that people are using to generate additional wealth. Okay, so you got these two competing, you could say philosophies on home ownership and paying it down with this homeowner B, this let’s just call it homeowner a and homeowner B, if you leverage your primary residence and you possibly buy some other another property, you can realize the, this much additional wealth in a matter of about 16 years.
And I’m gonna show you how that’s possible today. Okay. Um, by the way, one of the things that’s making this so nice is right now, investment property interest rates are about three and a quarter percent. Now, as you know, when you buy an investment property or a property, you’re not going to live in the interest rates higher. And so you have to, you kind of have to just expect that it’s higher than if you were buying your primary residence property. Um, and so, and I, but I am talking a 30 year fix conventional loan. So this is totally normal loan with an APR of about 3.3, 2%. Okay. So that’s why I’m basing some numbers off of that. So you’ve got this real, really, really cool possible outcome. And let me kinda show you how this is realized here. So let’s come over here. If you can still see this, um, this is homeowner a over here.
They want to throw every dime their home every month. Homeowner B I’m assuming an income for both of these is about $75,000 a year. So good income. And I’m assuming they’re gonna put, they’re gonna put into savings about 15% of that income, which is about 8, 870 $5 a month. Okay. So assuming that, and, and for this homeowner, a they’re gonna buy one home. Alright, homeowner B, they’re gonna buy two homes. Okay. So if you, if, and this is about a $500,000 home that I’ve base this on. So homeowner a, let’s say they put 20% down on this home. And then, so they have a $400,000 loan amount. And then they throw that $875. Plus they have a little extra because homeowner B put a little bit, um, less down, they’re gonna have a higher payment. So I’m, I’m assuming that with this extra down payment, that they’re gonna have a lower payment.
So they’re gonna have a little bit more money even to throw their home every month because their monthly payments lower and they don’t have private, private mortgage insurance. So taking all of that into account, they put their extra savings. They put their extra money. They didn’t, they didn’t have to pay on their home loan, cuz they have a smaller home loan. They’re gonna throw all that at their house. Every month. After 16 years, like 16.1 years, they’re gonna have their home paid off. And guess what? In 16 years, according to the salt lake county board of realtors, if you, if in the last, oh, let’s see 20, maybe, maybe, well, since 1995, if you, if you average all the years, it’s about a 5% growth, little bit higher than that actually. But 5% growth in real estate over those years, their home is gonna be worth that 500,000 home is gonna be worth about 1,091,000.
Okay. And they’ve paid it off in that amount of time, 16 years. So homeowner a isn’t a great, they have no home loan and they have a home worth that, that they could let’s say they were gonna downsize or something. They could sell this off and they could realize a lot of wealth that way. So the pro is they’re out of debt with this situation, the con is all of their eggs. All their financial eggs are in one basket. They’ve thrown all their extra money toward, right. And they’re only, they have limited options. They either have to, like I said, sell that home to get that money back or borrow against it. If you borrow against it, you have a monthly payment, right? So they must borrow or sell in order their primary residence. The residents there living at, they may not want to do that.
They may not want to sell it. They might wanna live there still. So they’re a little bit stuck cuz all their money is stuck in one place. All right, come over to here to borrow B, but they are outta debt. So I don’t want to diminish how cool this is, but borrower B or, or homeowner B, they’re gonna buy two homes. So they buy the first home just like these guys did, but they only put 5% down, which means they have PMI. So their payments a little higher. So they, they don’t have as much to throw into savings every month, but they have, they, they didn’t put as much down. So they have this chunk of money about $75,000. They set aside for a future home, their second home purchase, right? And then they save up that 8 75 every month. So you take that 8 75 plus the 75,000 in about three and a half years, they’re gonna have enough for a down payment on a $450,000 home investment property.
And assuming the rates stay about the same as they are today, they get buy that home. And now they have two homes appreciating at 5%, which is really cool. And so what happens after about 16 years, they have real estate investments. You could say equity worth about 1.4, two, one or $1,421,500. Right? So they have outpaced the homeowner, a buy, a substantial margin, you know, 20 to 30% increase in their wealth. And here’s the other cool thing. So you can see the pros and cons down here. The con is they have more to manage. They’re managing two properties instead of one, the pro is they can sell this additional property. If they want to realize some of that in cash to do something else with other investments, whatev what have you, or they can, um, you know, they can keep it riding for much longer and have two properties increasing and then it just gets better and better the numbers.
They also have developed a new skill. They may want to buy additional properties and now they know how to do it. So they develop this skill as an investor and, and uh, I guess you could say landlord, and then they have also opened the door to maybe selling the property and putting, leveraging that money and buying a couple more, two or three more properties. So, which is what a lot of investors do. So this there’s opportunity here that you don’t necessarily have here in the first 16, um, because of the skills you’ve developed and the additional wealth potentially created. So, and that’s all because you’ve leveraged your primary residents a little more and haven’t paid it all off with all of your extra money. So, um, the 28% raise is, you know, you divide this additional wealth by the, uh, amount of income that you’re making $75,000 a year.
And you’re, you know, you’re getting another 20, 20,000 right around $20,000 a year in additional income once that’s all realized. So really cool. Again, I’m not an investment person. I’m not a financial planner. I’m not a, uh, an attorney. I’m not a realist state agent. I’m just seeing what other investors have done. As they’ve worked with us to get their home loans, we would love to help you out as well. So we, these, these investment property rates are as I have on the board, they are available today. And if you’re thinking about that, and if you’re in a position where you’re down the road a little bit and would like to buy an investment property, give us a call. You can go to cash out ideas.com and BU and book a call, or you can call us at (801) 888-7468. We would love to chat with you and help you with your next investment property.
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