How to Retire from Real Estate
I have had a number of questions regarding the retirement side of my program. In this article, I will try to elaborate with a little more details. As in all money and legal matters, you should consult your legal and money professionals before you proceed with any program…but this is a good one.The most important item to remember in this is retirement depends completely on cash flow. If you have a lump of money, no matter how much, and you think you will be able retire on it, you better have that money working for you or you WILL run out. The size of the “lump” effects the size of the return since the interest paid on that return is multiplied by the principle…the “lump”.
If the one lump is all you have, then you have a finite amount of return. If that lump can replenish itself as it pays interest, then you have the perfect system. It also means the lump can be smaller…much smaller, to get the same or better returns. I like to describe the perfect system as when,
“The front part touches the back”
This way, you can use the same principle over and over again. It’s a repeatable system. This is great for real estate investing since you will need to finance each deal on an individual basis. So. if you can replace the source/principle with each deal, then each deal that follows will be using the same money…over and over again. This is a key. Money is tight, so the fewer times you need to get approved, the better.
If you can find a source, like your insurance policy or Self Directed IRA, then you have the ability to reuse that source over and over again simply by repaying the
loan. How do you do this you ask? First, understand that in the case of using your insurance policy, in most cases you don’t need to define what you are using the
money for. This means there is no direct link to the real estate. In other words, you are buying this for CASH as far as the purchase is concerned. This means right from the start you will have 100% equity in the house. You will have “associated debt” from the I.P., but no lien on the property. This should make refinancing easier after the house is seasoned enough to use the appraised value instead of the purchase price when calculating the LTV.
Once the house is seasoned, repay the loan from the I.P…and start the process all over again. See, you are using the same source of funds from the insurance policy for each purchase. If you have any other source that will do the same thing, then use it. This is only the beginning since this will get you a number of properties under your control, but each house will bring you income equal only to the cash flow of each house. This may only be around $100-150/month. You want to have an income of $5000/month at retirement? If each house gets you $100 – 150/month cash flow, then you need to own, and manage, 50 houses. That’s not my idea of a retirement plan. Then, you have to deal with the tenant, repairs, vacancies and so on. If you want to retire on at least $80k a year (before taxes), then you are going to need to own and manage more houses. I don’t know about you, but my idea of retirement isn’t managing 50 or more rental houses.
NNN SF Homes are a Great Option
This is where the next step comes in. Don’t buy houses you have to manage. Let me repeat this,
“Don’t buy houses you have to manage!”
Yes they do exist. This is where the NNN houses come in. With this program, the lease company does all the management for you, including handling the tenant and their problems, paying all the bills except the debt service (that’s you only responsibility)…and, the payment to you is GUARANTEED. If the house is vacant or needs repairs, the lease company is responsible for the repairs (including the cost) and guarantees the monthly payment to you…each and every month, vacant or not. You also retain all the deductions, and reap the benefit of the equity as it appreciates.
“What a deal!”
This makes it much easier to own 50 houses, but you really wouldn’t need to own that many. This is where the next part of the system steps in. Paying off your mortgage in a fraction of the time. I have mine being paid off in around 10 years, using only the income from these properties. This is a special program that I use for my own house as well as all of my real estate investments. It is a great program that I would recommend for everyone to use as I do…on my own house and other real estate.
Once this program pays off the loan, 10 years later in my case, then you can refinance to take cash out (remember, at this point you have 100% equity since you paid off the loan) tax free. This is in the form of a loan that your tenant is paying off, using guaranteed income.
If you have 20 houses, pair them up in groups of 2 per set, refinance one set per year for 10 years (remember, your fast mortgage payoff program is paying them
off in 10 years) and refinance $50k from each one (that’s $100k per set), and repeat the process every 10 years, you have just set up your retirement program.
The way it ens up is around $100k tax free income every year for as long as you stay with the program…and why would you change if you have no management
duties…just check cashing duties (actually, direct deposit)? All of this, from just your starting point of principle, used over and over again.
I’m writing a book on this system applied to residential investing. I’m almost finished. I have posted part of one of the chapters as well as the Table of Contents.
For more information on the NNN house program you can contact me at firstname.lastname@example.org and I will set you up with the source.