Real Estate Investing For Cash Flow First

And Appreciation Second

4 Questions:

• Has the market reached a bottom?• Are prices headed up or down?• Will there be more or fewer distressed

houses in the future?• What effect will the government’s actions

have on real estate?

1 Answer:

No one knows.

But This is OK Because In Real Estate You Invest On The

Numbers…

When you BUY.

When you sell .

More On This In A Second

But First…

What About Stocks and Bonds?

Stocks

In May of 2010 the Dow Jones Industrial Average was at 10,500. In May of 2000, ten years earlier, it was at 10,500 .

10 Year US Treasury Bonds

Is a 2% to 3% return acceptable to you?

What effect will the ballooning national deficit have?

10 Year Municipal Bonds

Is a 3% to 5% return, without appreciation, acceptable to you?

Are any municipalities at risk of defaulting ?

Back To Real Estate

• The tremendous upheaval in the real estate markets has created once-in-a-generation opportunities.

• But with the wrong investment strategy you will miss out on properties that yield annual CASH FLOWS of 3% to 5% in addition to the possibility of appreciation.

What Do We Mean?

Making money when you SELL…

Buying a property and hoping the price will go up in the future.

What Do We Mean?

Making money when you SELL…

This strategy only works if you can time market lows and highs AND if real estate appreciates during the time that YOU own it.

Prediction = Risk

Instead, invest based on what you know TODAY

What Do We Mean?

Making money when you BUY…

• As soon as you buy, you profit from rental income that is higher than your mortgage and operating expenses.

• You know from day one what your profit will be.

• You don’t have to risk predicting appreciation. It will be a very welcome increase on your investment.

For Example• 3 bedroom, 2 bath house. 2,181 Square Feet, Listed at $149,000.

• We offer $143,900.

• Sold for $453,000 in 2006.

• 20% down, $28,700.

• 5.25% interest rate for a mortgage of $635/ month, or $7,629/ year.

For Example

• Rent for comparable properties in the same neighborhood are $1,400 per month, or $16,800 per year.

• 45% of rent you receive will pay for expenses such as property management, insurance, property tax, maintenance, and vacancy and rent collection loss. Without a property management company your expenses are 35% of rents.

• 45% X $15,960 in rents = $7,323.

How Do We Know If This Is A Good Investment?

“Cash -on-Cash Return”(To measure profit)

“Debt-Service Coverage Ratio”(To measure risk)

✔

✔

What Do These Numbers Mean?How Do We Derive These?

Let’s Do Some Math…

Our investment (Down payment) of $28,700 yields an annual profit of $1,612.

Measuring Profit

“Cash-On-Cash Return”

What Do These Numbers Mean?

• The Cash on Cash return allows you to measure the annual investment return of your down payment against other investments such as stocks and bonds.

• This does not even factor in possible future appreciation.

How does our 6% return compare?

Measuring Risk

“Debt-Service Coverage Ratio”

What Do These Numbers Mean?

The Debt Service Coverage Ratio (DSCR) measures monthly rent vs. monthly mortgage . It allows us to gauge the margin of profits to cover our expenses.

1.00 1.21<

>

.83

Negative Cash Flow

Break-even Positive Cash Flow

Would You Buy This Property?

• 6% Annual return on your investment (Down payment).

• $770 Monthly netincome to cover a $635 monthly mortgage.

This is money you make when you BUY . And IF it appreciates…Bonus!

Why Buy Now?

Unsustainable historic low interest rates that WILL rise to control inflation.

So what?

Small Changes In Mortgage Rates Have A Dramatic Effect On Investment Returns

$10,307

$11,511

$12,774

$14,088

$15,449

$8,000

$9,000

$10,000

$11,000

$12,000

$13,000

$14,000

$15,000

$16,000

5.0% 6.0% 7.0% 8.0% 9.0%

Interest Rate

Interest Rate Effect on Mortgage

Mortgage

Net Income

A 2% rise in interest rates increases your annual mortgage by $2,000!

Small Changes In Mortgage Rates Have A Dramatic Effect On Investment Returns

9.3%

6.3%

3.2%

-0.1%

-3.5%-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

5.0% 6.0% 7.0% 8.0% 9.0%

Interest Rate

Cash on Cash Return

A 2% rise in interest rates decreases your cash-on-cash return by 6%!

What We Offer

• Pre-screened properties that offer positive Cash-on-Cash returns and safe Debt Service Coverage Ratios.

• “Turn Key” services for financing, purchasing, and property management.

Contact us for current properties:Sold@TiaRealEstate.com

Turn

on theCASH

FLOWContact us for current properties:

Sold@TiaRealEstate.com