Your Best Real Estate Investment
We like brand new duplexes as an investment for their superior cash flow, and the security of owning real estate. From 1986 through 2011, I invested in Orange County properties that I could drive by and show off to friends and family. They were good buys for the area; but in December of 2011, I discovered a better Southern California real estate investment. I met a developer buying tear-down lots, and building brand new duplexes in Los Angeles that provide a better return on investment. I exchanged my Orange County duplex for 2 of these brand new duplexes, and immediately improved my cash flow. I purchased my third new duplex in June of 2016 – and a fourth new LA duplex in October, 2016. I feel these new duplexes are safer and less volatile than the stock market. I also find they offer better cash on cash return. These new duplexes are like a very safe stock that pays attractive and steady monthly dividends. With a 25% down payment; we are currently averaging an 8% cash on cash return.
I closed escrow on my fourth duplex October 28, 2016. In addition to purchasing these new duplexes for myself; I am also securing them for my friends and clients for their investment portfolio. 14 of my clients and friends purchased our new duplexes in 2016; and another 15 purchased new duplexes in 2017. 30 more friends and clients closed escrow on their new duplexes in 2018; and another 30 in 2019.
My clients are often purchasing one or two duplexes; and then coming back to purchase more after comparing their returns with other investment options. They are also referring their friends and family to purchase our new duplexes too. This is why we currently have a waiting list for completions. Our client’s new duplexes averaged $5,800 in monthly rental income for 2018. Most of our recently purchased duplexes are receiving $3,000 per month for each unit. Some tenants are leasing the whole duplex at $6,000 per month, and pay the monthly water service for both units. This increases the duplex owner’s monthly cash flow an additional $325 per month.
These Brand New duplexes are currently averaging a 12XGRM – and a 5.8 CAP Rate at the current purchase price of $850,000 with $6,000 monthly rental income.
Gross Rent Multiplier (GRM) is the ratio of the price of a real estate investment to its annual rental income before accounting for expenses such as property taxes, insurance, utilities, etc. To sum up Gross Rent Multiplier, it is the number of years the property would take to pay for itself in gross received rent. For the investor considering a purchase; a higher GRM (perhaps over 16) is a poorer opportunity; whereas a lower GRM (perhaps under 13) is better.
The GRM is useful for comparing and selecting investment properties where depreciation effects, periodic costs (such as property taxes and insurance) and costs to the investor incurred by a potential renter (such as utilities and repairs) can be expected to be uniform for comparable properties.
The Capitalization Rate (Cap Rate) of an investment may be calculated by dividing the investment’s net operating income (NOI) by the current market value of the property, where NOI is the annual return on the property minus all operating costs. The formula for calculating the capitalization rate can be expressed in the following way: Capitalization Rate = Net Operating Income / Current Market Value
If you would like to have real estate as part of your investment portfolio; I feel these new duplexes are the best combination of positive cash flow; potential for appreciation; and ease of ownership. I believe it is important to hold real estate in our investment portfolios. I have found these duplexes to be the best real estate investment in Southern California – and I think in the long run; pretty much better than anywhere else in the country because of LA’s potential for appreciation. I also love the full service management; which means I have none of the hassle of being a landlord and still enjoy 100% ownership, and the full profits and control.
Obviously averaging over 50 home sales each of the past two years, I come across a lot of good real estate buys for myself. I just haven’t found anything else that currently compares to these duplexes. That’s why I purchased four of these new duplexes for myself. I have also helped secure over 60 of these duplexes for my clients and friends. We closed escrow for another family that purchased last year, and they liked their returns and now are purchasing two more duplexes. We have also had duplex buyers from as far away as New Jersey referred to us. They flew out and purchase two duplexes. We also just had two other families each purchase their second duplex after purchasing new duplexes a year ago.
Real estate is one of the strongest hedges against inflation you can own. If you saved $1,000 in your cookie jar in 1960 – it would only buy $200 worth of goods and services 40 year later in 2000. Over this time, inflation eroded 80% of the value of those dollars. During the same period, Los Angeles real estate beat inflation. A home in Southern California that sold for $17,000 in 1960 was worth $220,000 in 2000 – a 12 times increase. Plus the real estate generated additional rental profit over that time period making it an even better investment. (By the way; the home that sold for $17,000 in 1960 is selling around $600,000 today). We can look at a different time period. This same home sold for $140,000 in 1987, and is selling around $600,000 in 2017. If you purchased this property with 25% down ($35,000) in 1987; your return on profit was 1,300%. In addition, you were averaging another $10,000 per year ($300,000) net profit on rents – bringing your total return on your original investment to over 2,100%. And of course your cash flow just gets better every year as rents rise and the loan is paid off. Real estate is a long term investment that will take care of you forever.
The best hedges against inflation are real estate and precious metals. Real estate gives you the advantage of a monthly income in addition to rising in value with inflation. You can’t rent out precious metals. They are not going to provide monthly income for your family.
We have included a financing example with 25% down Payment. Of course there are additional options to purchase with a larger down payment or all cash.
Estimated Expense & Profit with 10/1 fixed rate loan:
Purchase price: $850,000
25% down Pmt: $220,000
Closing costs: $5,000
Loan balance: $630,000
Mortgage Pmt: $3,053 (4.125% 10/1 fixed)
Prop. Taxes: $885
Est. Vacancy: $80
Total Mo Expense: $4,908
These Brand New duplexes are estimated to average 11.9XGRM with a 5.8 CAP Rate.
Estimated monthly gross income: $6,000
Estimated monthly positive cash flow: $1,092
Plus $887 of the loan payment is applied toward your loan balance raising your total return on investment to $1,979 per month. This is $23,748 per year return on your initial $225,000 cash investment. This gives you a 10% cash on cash annual return. And this is before adding potential appreciation – or your depreciation tax write-off savings. These are current average estimates. Your costs and returns may vary.
With investment property in your retirement plan, you no longer have to fear outliving your money.
The wonderful thing about real estate is rental income tends to rise with inflation. If inflation doubles – the duplex’s value and rental income can also double and match the rate of inflation. Real estate is the hedge against inflation that we all know and understand – in addition to its valuable function as shelter.
Cash in the bank today will generate some interest; but as an asset it provides zero appreciation. In fact inflation causes the value of our cash in the bank to depreciate each year. Our duplexes offer the added benefit that property tends to increase in value with inflation – the exact opposite of depreciating cash. This increases the already great return on investment of these duplexes.
Feel free to call me direct at: 1-800-944-2441 with any questions.