When I 1st heard about the concept of infinite return, my thought on it was nothing but bogus. You have to invest money to make money right? However, one of the beautiful thing about real estate is that you can actually take out the money you invested while still owning that property, and it is still generating cash flow. While this method is very popular in commercial real estate since the value of the property is based on its income, it will be harder to make infinite return in single family house (SFH) since the value of SFH is based solely on comparable sale. It is hard but definitely doable with proper planning and patience.
I am the cash flow investor by heart and I have not bet on any appreciation play. But when the market turns into my favor, I will take full advantage of it.
In this article I will use an example of a house I bought above market price 3 years ago but yet still able to get all the original capital out, plus more. I will also round up the number to simplify the calculation.
Locating the property:
You have to locate the property at a discount or at least have a vision in the future that the area will appreciate. In this example. This is a house I bought in Houston Texas for 80k in 2012. Appraised value for it at the time is 76k, so I ended up putting in 4k more to close the deal. Most people would think paying more than appraisal price for a property is not a good deal. However, as a cash flow investor I donâ€™t really care about the value of the property as long as it has good cash flow. To close the deal, I ended up putting in 20% of the sale price plus closing cost (20k) and amortize the 60k mortgage into 30 years.
Managing the property for a coupleâ€¦years
Simply lease it out and managing it yourself or hire a property manager. With PITI at 600$ and lease at 1100$. You are netting around 500$ per month. If the market turned to your favor then great, you can refinance, If not keep leasing it out and collect the cash flow.
Keeping tap on the value of the property each year is a must. You can either get your real estate license to do it yourself or leverage a good realtor to do this for you. This year, we are having a price surge in Houston and I knocked myself of my own chair when I ran the number and see all the comparable sale was around 120k. Itâ€™s time to refinance!
By this time, you should have built a very good relationship with a mortgage broker if not more. He or she is the key to your success. Anybody that went through a loan process can tell you how crazy it is right now to get a loan. Long story short, I went through hell to get my loan approved. I also recommended you to readÂ this book, especially on the Appraisal Section. For me itâ€™s a must read book.
The math is pretty simple after all then. With the property appraised at 120k, The bank is willing to lend me 75% of that which is 90k. I used that to pay off the existing 60k mortgage and left with 30k in the Bank, My PITI increase by a $100 to $700. Luckily my rent also went up by $100 to $1200 to cover the different.
Thatâ€™s it, I’m still netting 500$ per month with all the original investment back plus 10k more. How cool was that? I wish I can do it overÂ again and again and again!