#70 - My Newest 34% ROI Investment Property Deal

Hey everyone, Kirk here again and welcome back to the daily call. On today’s daily call, I want to talk about our investing activities outside of the stock market and how we invest in rental property, particularly the newest 34% ROI investment property deal that we just picked up literally last night, so this is fresh on my mind. But many people have often asked and we often do talk about what we do on the outside of options trading, although the vast majority of what we do is obviously tied up into options trading. What we have done previously and have continued to do for I think like going on seven years now, we’ve continued to buy rental property at really all stages of our life. When me and my wife first got engaged and we’re engaged to be married, we actually bought one of our first rental properties. The first property that we truly own together as a married couple eventually which was just a small condo outside of DC and then just have continued to buy rental property here and there as we find good deals. For me, it’s always about transitioning income and eventually becoming just a little bit more diversified in everything that you do. I always tell people I have the vast majority of my wealth tied up into options trading and to the markets and my trading account. But then I’ll slowly take money from that account every year and maybe buy a property or two, depending on what kind of deals we find. For me though, it’s really a self-fulfilling thing. When we started investing in rental property, I consider it really like a snowball investment. We put a significant amount of money into it initially and I guess that’s significant because that’s pretty much all we had at the time as we subsidize a little bit of the income from trading and took some of that money and some of those profits and rolled it into our first two deals. But then really from there, we’ve self-funded deals going forward in the future. As we generate more cash flow from those properties, we don't use that money to live off of. We just use that money to save up and buy the next sequential properly. Again, it’s like a self-fulfilling prophecy in the sense that the first deal or the first two deals have basically funded the next subsequent deals and then we’re able to buy property faster and faster and faster as we generate more cash flow. This property that we buy was actually a little bit different. It’s the first time we’ve ever done this where we bought a property literally at auction. There’s a property in our town, a duplex which was probably about two miles away from our house, so a good location as far as being able to manage it and my wife does all the management of property and she does all that. But we bought our first property at auction. We actually had to go there and literally bid against other people. We’ve seen this property up before. It was listed last year for about $120,000, never sold and then subsequently, it went up for auction. I had no idea what it would be going for. But we also had an opportunity to see the place. It was a really decent place. It wasn’t actually a dump which I think I don’t know, maybe most auction properties are. I don’t know. This was our first experience with it. We were able to go in and take a look at the property. It’s in really good condition actually. They just need a really quick sale. That’s what the sellers needed for a business thing that they were doing. We didn’t know what to expect, but we ended up getting the property for $88,000 which is I think a steal in our town and definitely a discount to the market value or potential market value. Maybe the market value is around $100,000, $105,000, somewhere in there. I don’t think it’s up around $120,000 or the property would've sold way back when. But the property right now generates about $725 on each unit that is rented out already. It’s about $1,450 in cash flow. All the utilities are split. Then when you factor out taxes and stuff like that, I mean, you’re looking at a properly that just on the outside basis with no cash or with no loan, just basically if we were to pay full cash for the property, it’s about an 18%, 19% return on investment just cash on cash, like cash return on income generated from the properly divided by basically the $88,000 purchase price which is not too shabby at all. Now, our plan is to refinance the property shortly after we go through the process to actually fund the rest of the purchase and take out a lot of cash like do a cash out refinance and basically get a lot of our cash back, leave some cash invested in the property, so that we have a decent amount of equity, but that we also are smart about using a little bit of leverage and finances a little bit over the course of 30 years on just like a standard 30 year term. That should bump up the ROI to about 35%, 34% as far as we’re concerned. Again, I think the reason I bring this up is not that I obviously think that it's a really decent return obviously. It’s not something that we can totally replicate across like 85 properties right now. I think the replication phase of this is really hard to do. We’re pretty picky about the investments that we get into and the properties and condition, location, etcetera. But this is just I think another way that you could potentially diversify what you do with options trading. I’ve told people this a lot and we have actually a lot of real estate investors and investors in the community already who do this. It’s just taking a little bit of your income from that and starting to diversify and get something like this when it’s a really good deal that comes up. A 34% return on investment property. I’d love to have a lot of these and that would obviously potentially be better long-term than maybe some of the options trading that we’re doing. It’s just the replication phase of it is really hard. What I try to do is generate money with options trading and then pull a little bit of money into that to feed these seeds of investment property and use them to self-fund the next sequential property. Obviously the income that we generate from this property, we’ll then just save up and use that income as the next down payment or purchase on the subsequent properties after that. We’re not really like adding more money to our portfolio of rental properties. Again, the first two deals have basically funded everything that we have at this point, but I consider it still an investment. It’s coming from our separate account that we have for investment property that we do. I know this is a little bit off-topic, but I figured it might be a little bit helpful in trying to understand what we do obviously. Again, it’s not totally options trading specific, but it is investing specific and I think it might help out. If you guys enjoyed this, let me know. Shoot me an email or hit me up on Facebook and Twitter. Otherwise, until next time, happy trading!

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