Clint Murphy

Clint Murphy

29-10-2022

13:57

Real Estate is the simplest path to become a Millionaire. For beginners, Real Estate can be scary but it doesn't have to be. Here's what you need to know about Real Estate to win:

When you buy real estate, there are four things you need to understand: β€’ location β€’ cash flow β€’ principal paydown β€’ capital appreciation These will determine whether your purchase is successful.

β€’ Location With real estate, nothing matters more than the location. For location, focus on: β€’ product type β€’ relative location β€’ specific location β€’ path of progress

β€’ Product Type There are three product types a first-time investor should consider: β€’ condos β€’ townhomes β€’ single-family homes They move within tight bands. If condo prices are too high, investors flip to townhomes. Pay attention to price changes by product type.

β€’ Relative Location In most cities, there are geographic regions. For example: β€’ urban core β€’ suburban centre β€’ outer suburban sprawl Pay attention to the price movement in the relative areas over time. Target areas with the lowest recent relative growth.

β€’ Specific Location Once you've chosen urban core, suburban centres or the outer suburban sprawl, pick the specific location. Focus on: β€’ shops β€’ schools β€’ walkability β€’ restaurants β€’ transportation β€’ nearby amenities Target the specific area you'd want to live in.

β€’ Path of Progress The path of progress is the key to this. It's how you'll add max value, which you can lever into your next buy. The path of progress is spotting gentrification before it happens. It is being in the hot market before it's hot. It provides the most "lift".

Here's how to spot the Path of Progress: - Walk an area - Talk to the locals - talk to the developers - Where are future transit routes - Where do the hipsters & artists live - Map out the migration of gentrification - If the β€œWest Side” is hot, how far East does it go each year

β€’ Cash Flow Cash Flow in real estate and life, is King. It can be broken down into: β€’ Net operating income β€’ Debt service costs Your net operating income is your rental revenue less your operating expenses. The higher the cash flow, the better.

β€’ Net Operating Income NOI is to real estate as EBITDA is to an operating business. When valuing real estate, investors will divide the NOI by a capitalization rate (CAP rate) to determine value.

In real estate, a nickel is a dollar. With a CAP rate of 5%, if you save 5 cents in operating costs, you increase value of the property by $1. To increase NOI: β€’ Increase revenues β€’ Decrease expenses Increase your rents annually. Understand how to lower operating costs.

β€’ Principal Paydown With zero cash flow, a property increases your net worth. Your tenant is paying your mortgage. If you own a $1 million property with an $800,000 25-year mortgage, in 25 years you will be a millionaire. Real estate creates wealth over long time periods.

β€’ Capital Appreciation Capital appreciation is the icing on the cake. It isn't something you should "count on", but it is valuable. While real estate should track with inflation, it has outperformed inflation in the past.

If you own $1 million in real estate with $200,000 in equity, if the real estate appreciates 5%, your net worth will increase $50,000. This is a 25% levered return on your equity.

TL;DR: If you want to grow wealthy, real estate is your path. Here's what you need to know: β€’ Location β€’ Product Type β€’ Relative Location β€’ Specific Location β€’ Path of Progress β€’ Cash Flow β€’ Principal Paydown β€’ Capital Appreciation

If you enjoyed this thread, please: 1. Share the first tweet 2. Follow @IAmClintMurphy Until tomorrow, Clint


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