REAL Exclusive Magazine

JOHN’S STORY (Part 2 of 2)

Excerpt from 21st Century Real Estate Investing

By Jeff Riddell

IT’S NO SECRET

Andrew Carnegie said

“More money has been made in real estate than in all industrial investments combined.”

The big boys know all about it and have made fortunes for generations through real estate. Even the railroad barons of the 19th century knew that wealth was in real estate. When they built the transcontinental railroad in the 1860s, the government gave them 640 acres of land for each mile of track they built. They believed they could sell the land for millions as business was drawn to the railroad, and they were right

START EARLY

The earlier you start investing in real estate the better but it’s never too late. As actress Billie Burke once said “age doesn’t matter unless you’re a cheese.” I checked the obituaries in our local newspaper and was surprised to see that, out of 18 people who had died, 15 were 80 or older—and 7 were over 90. My grandfather died in 1954 at the age of 65 and everyone thought that was a ripe old age. We hear about 60 being the new 40 and I think it’s true. I predict that baby boomers—around 60 now—will live into their 90s and many who are under 40 will live past 100. Thirty years have been added to our life expectancy in the last century; whatever your age, you shouldn’t think the real estate investing boat has left the dock without you

Real estate is a long term investment. As John’s story suggests, patient real estate investors will be rewarded. So don’t let age hold you back—there are few investments that will treat you better. Although there are times when the stock market looks inviting, the averages show that the stock market does not outperform real estate over the long haul but we’ll come back to the stock market later.

There are so many real estate success stories. John, for example, was tenacious about his real estate investments—and it paid off. He stayed with real estate investing for forty years, and by then his net worth from real estate was pretty impressive by 1988 standards. It’s the power of leverage and compounding. If you can double your cash investment about every five years and you start with $5,000 like John, you could have $320,000 at the end of 40 years. Mortgaged at 75%, your real estate holdings would be in the neighborhood of $1,280,000.

COMPOUNDING

$5,000 was a lot of money in 1948 when John started his real estate career. Instead of $5,000, think where you would be if you started with $25,000 and kept it invested in real estate for 40 years, doubling every five years. You would end up with $1,600,000. If you had $100,000 to invest instead of $25,000, the result would be $6,400,000. If you started at 25, you would be there by the time you turned 65

The “Rule of 72″—divide 72 by any annual interest rate and it will tell you approximately how many years it will take to double your money—says that you need 15% equity growth each year to double your money in five years. The value of John’s first duplex needed to appreciate about 5% per year for his $5,000 investment to double in five years. It did just that. Although 15% annual return may be higher than the norm, you should strive to do it even if you need to invest some sweat equity like John did. Consider this example: $5,000 compounding at 10% for 30 years equals $87,247 but at 15% the number is $331,059 and at 20% the number is $1,186,882. No, your eyes are not deceiving you—the compounding rate makes a big difference in overall returns over long periods of time, and with leverage (mortgage) it is possible to achieve even higher equity compounding.

BIO

Jefferson F. Riddell is a Florida Board Certified Real Estate attorney with thirty-five years of experience assisting people with a variety of residential and commercial real estate matters. U.S. 1031 Exchange Services, Inc is a 1031 exchange qualified intermediary (QI) and a member of the Federation of Exchange Accommodators (FEA). As President of U.S. 1031 Exchange services Jeff has been facilitating 1031 exchanges for more than twenty years. Jeff has been awarded the Certified Exchange Specialist (CES) certification

As a licensed securities registered representative and real estate broker, Jeff is uniquely qualified to assist those who wish to avail themselves of 1031 and 1033 exchange tax savings and also guides investors in diversifying their portfolios with non-publicly traded REIT, LP and LLC real estate investments. Jeff’s new book, 21st Century Real Estate Investing Featuring 1031 + TIC has recently been published and is available at Amazon.com. Jeff may be reached at 941-366-1300 or via email at jeff@us1031.com www.us1031.com