A while ago I would listen to real estate investing audio books while on long drives required by my profession. One book named " The ABCs of Real estate Investing",part of the Rich Dad series, was one of my favorite to listen to over and over. I like it because it went into depth about the inter workings of taxes and wealth building in general. One thing that stands out to me every time I listen is an example of how to build your money through units.
The example goes something like this. Buy a 50k property and hold it for 2 years and then borrow out the "appreciation" buy another property and then do the same every 2 years. Then he goes on to say " This is a way of increasing the velocity of your money".
Is this actually possible with only 2 years time? And wouldn't a property not appreciate enough to borrow it out for another?
Wouldn't it make sense to borrow out the equity? or is that the same thing?
If this works is this common practice for buy and hold investors?
Wouldn't you want to pay off a property? or does it help to keep a loan on it?
Are the banks or lenders ok with this?
This seems like a good idea if the appreciation is enough to keep building with. I would think it wouldn't take long to build a mini empire off of this method. Im still learning how this all works so I would love some feed back.
It works if you buy low enough compared to the properties market value.
That strategy generally works well in an appreciating market. But with every market and sub-market, there are ups and downs so while it looks good on paper, real-world experience may be different. Just something to consider. There may be other ways to increase velocity e.g., HML, Note Investing, etc.
I have been able to do this on several of my apartment properties. It does help to be in an appreciating market. However, the great thing about commercial real estate (5 units or more), is that you can force appreciation on your properties by increasing your income and lowering your expenses. The value of commercial real estate is determined by your Net Operating Income and Cap Rate for the area, not comparables.
We purchased a 37unit in 2009 with $150k down. In 2014 we were able to cash-out refinance and pull out our original $150 investment, along with an additional $110,500. And we still own the property!
I wrote about this in one of my blog posts. Here's a link:
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