Part Four of Five: “A” = Appreciation
Historically real estate has gone up in value over time. This Appreciation is somewhat predictable depending on the area of the country in which you live. Inflation plays a role and in almost any case, you can force appreciation through improving the property.
Real estate appreciation is what most folks point to as their foundation of lifetime wealth. But they are usually referring to the one property they own — the house they live in. What if you had several houses and/or apartments? That would grow your wealth faster and farther. But we’re not finished yet!
Inflation is a real thing.
Forced Appreciation vs Enjoying Appreciation
Timestamps:
0:01 – Introduction – “ Real estate the I.D.E.A.L. Investment”
0:28 – https://www.LandLordReliefPKG.com – Long-term solution for landlords & tenants
1:20 – Lou’s wins of the week
6:20 – https://www.HouseMonster.com – Teaching you how to find the buyer first before you buy the property
8:12 – Path To Home Ownership Program
9:46 – Ask Lou anything about the real estate business
10:32 – A for Appreciation – Real Estate is the I.D.E.A.L. Investment
15:20 – Next week’s topic: L for Leverage Questions for Lou
15:44 – What is the difference between equity and appreciation?
17:02 – Appreciation a long-term strategy
21:03 – Do you have a preference between gaining an appreciation versus quick cash that can be turned around and reinvested?
22:38 – How can I make my property appreciate more?
24:10 – Additional insights about appreciation.
26:40 – Accumulate Property
27:21 – Is there a sort of “dummies” guide to figuring out which areas will have the greatest level of appreciation?
29:42 – Aug 27th, 28th & 29th – https://millionairejumpstart.com/
If you are JUST getting started in real estate investing, you NEED to attend my ONE-DAY virtual training. I teach it LIVE over ZOOM, and it’s only $1 (yes, one dollar) for SIX HOURS of solid how-to training! https://www.wealthbuilderworkshop.online
If you’re ready for a more in-depth experience, then you owe it to yourself to investigate my THREE- DAY Millionaire Jumpstart Event. I host it four times a year in various locations, and you can attend LIVE and in person. I’m your coach all three days. Find out more at https://millionairejumpstart.com/
Listen to our Podcast:
https://streetsmart.mypodcastworld.com/11228/why-real-estate-is-ideal-a-appreciation-part-4
Why Real Estate Is I.D.E.A.L. – “A” =Appreciation
Lou Brown:
Hey, it’s Lou and we have a big show planned for you today. You’re going to learn about real estate being the IDEAL investment and a whole lot more.
What about that? Well, this is an interesting week that we’ve had, right? There’s been a lot of things occurring and certainly one of the things was the end of the moratorium. So depending upon where you are, that could be good news in terms of getting your property back. If that’s been a challenge and hopefully if it has been a challenge, you have downloaded my LandlordReliefPkg.com so you have some guidance on how to get your money. So if you do have someone occupying your property and not paying, there are solutions for that. And I’ve got a free package, LandlordReliefPkg.com for you, and that’s a gift. And the other thing that I wanted to share with you today is just some amazing wins of the week. Oh my, we are blessed. We are blessed.
It’s a good thing. There were so many great moves occurring. We’ve got one of our clients this week, moving up from the silver level to the gold level. What’s the gold level? The gold level is our in-house financing program. And that means they’re going to pay the differential between what they’ve paid and what they earned at the silver level. And they’re going to pay that differential and go for the gold baby. They’ll then have an agreement-for-deed, an opportunity to now get to the next level of their ownership and the next level of their opportunity to eventually get a new loan from a bank to refinance our loan sometime in the future, if they choose to. Whatever they choose to do, we are here to help. So we’re very excited about that. Also, let’s see here, we had a great Wealth Builder Workshop this past Saturday and full of valuable information, just chockablock for 8 hours, right?
A lot of great information. So all of you who joined us for that, congratulations, hopefully you got a lot of value. We had a lot of people join us as new members of the House Monster program, new licensees of the House Monster. And so we appreciate that very much. Let’s see another win of the week is we had licensees, Brad and Chris Treganowan join us on this Saturday event. And they just shared a great story about what our program really is all about. So what they did was they turned their House Monster on, they began marketing, they got a great lead from a real estate agent who saw their marketing and said, “You know what? I’ve got a unique client. I’ve got somebody that I can’t sell a property to. Maybe you can.” And sure enough, this client comes along with the real estate agent.
So this client had $50,000 that started out as $20,000 to put down, and then over time continued to build the downpayment that she had to work with, built up to a $50,000 down payment. So that’s an awesome, awesome example of how the House Monster works because here’s what happened. So the client breeds dogs and has certain requirements. Well, number one, could not qualify for a loan at a traditional bank. She did have income, she did have a downpayment, but the bank doesn’t love her. So what do we need? We need a unique property because of the dogs, the barking, all the noise, etc. So she needed a certain rural property. We don’t want to be right next to your neighbors. The dogs are making a lot of noise. So that was the opportunity now to go find a property for her.
And that’s exactly how the House Monster is designed: you get the customer first, you’d find out how much downpayment they have, then you completely qualify them. Then you go about finding a property that you can buy and now have them as a customer for you. So sure enough, the real estate agent that brought the client then started looking with the client for a property that would work and they put several under contract and those fell through, but eventually they were able to get a property that would work. And when you did all the math with what the Treganowans did with this client, they’re going to make over a hundred thousand dollars. In fact, about $120,000 on this particular example. So, sometimes people say, “Well, I’m not patient enough.” Well, are you patient enough to find a property and then fix it up and then have all the breakdowns with the contractor, then put it on the market, then wait for a client to come along and then eventually get a client, put it under contract and then get them qualified for a loan and then eventually close on the property?
Well, that takes time, too. So just know that you’re a lot safer, don’t you think if you already had a customer with the down payment, with the qualifications, for you to now go find a replacement property that matches what they’re looking for. So I challenge you to learn more about that. You can go to HouseMonster.com, and that’ll give you some insight into how we have restructured the typical real estate transaction to find the buyer first.
All right, let’s see what else. Let’s see another win of the week that is a training opportunity inside your House Monster is actually a letter to foundations. And one of the great things that foundations can do is to help people. And so of course, they typically have programs, gifting programs, philanthropy programs, where the person does something, and then the foundation does part of whatever. So imagine what our business is. Now for a $230,000 house, someone only needs about $10,000 for that property when it’s our rent-to-own level, meaning our silver level. And that’s what they need for their option fee, which purchases them a 3-year option to buy that property. Well, sure enough, when a foundation can come along with matching funds, let’s say the client has 5,000 and the foundation has another 5,000, then it’s a pretty cool thing.
And imagine that you are the one that found the foundation and gave them the idea to do downpayment assistance, beginning with the people that work for them already. And with your program, with what we call the Path To Home Ownership, that’s just what we do as Certified Affordable Housing Providers. We help people to end up with home ownership regardless of credit or financial background. So another challenge that I have for you for the week is go find the foundations in your area, and my goodness, any successful business that understands about taxation and understands that there are tax benefits to a foundation is going to have a foundation. But many times they don’t even know how to run that thing. They don’t have any programs. Imagine that you bring them a program, which is downpayment assistance. So an idea, maybe you know foundations, but certainly big businesses in your area.
As I got into it, I found that, my gosh, law firms have foundations. Home Depot has a foundation. Lowe’s has a foundation. Just about any large corporation, locally-owned. So think local first, before we go global, but think local, and you might be surprised to find that there are foundations out there. I’ve got the letter in the House Monster. Send it to those foundations, open the door, start the conversation. Possibilities are endless. And imagine that you’ve got a downpayment assistance program in your back pocket for every client that you bring the possibility of home ownership to. So that’s another idea for you for today.
Let’s see here. All right. So I’ve given you several things here and some ideas to work with. We also open these Tuesday sessions up for the opportunity for you to ask questions. Now, you know that I’ve been at this game for over 40 years buying, holding, and selling property. So you could pretty much throw any kind of real estate question you’ve got at me. I’m more than happy to see if I’ve got an answer for that. And so at the end, I am going to be answering questions. So get your questions ready for that. And then today, or this week, we have been doing a series and this series is on “Real Estate as the IDEAL Investment.”
Real estate is the IDEAL Investment. Over the series, I’ve been talking about the 5 letters in the word, “ideal.” “I” is for “Income.” “D” is for “Depreciation.” “E” is for “Equity.” Equity build up, Equity opportunity, earning money off of equity. “A” is for “Appreciation.” So today we’re covering A – Appreciation and we believe that real estate is the ideal investment because you gain something that you would not otherwise get if you were to flip property. You don’t get the benefit of appreciation of the asset. Now, something you gotta be aware of is that every year, every dollar is worth less. And the reason it’s worth less is because of a thing called “Inflation.” Inflation is a real thing. According to the government, if you believe anything from the government, but this is something on the government website, that is the Bureau of Labor Statistics says that our inflation has been about 3% per year over the last 20 years.
But what does that mean? That means a dollar in January is worth 97 cents in December. So that means that that dollar will be worth less. Well, that also creates an opportunity for those that own property. So whether that’s your own house, whether you’ve got several rental properties, maybe you are offering the Path To Home Ownership to your clients as I suggest that you do to solve a whole bunch of problems. Well, one of the benefits that you get by holding property is you get the benefit of appreciation. So as the dollar is worth less, the value of that property goes up. But another thing that happens is that income goes up as well. So in other words, the property taxes, insurance, things like that, well, that’s going to be going up, too, but the other thing that’s going to be going up is the rent, the rent to cover that particular property.
It’s going to go up according to inflation. So there’s your opportunity to take advantage of a great thing that exists right here. And that is to always know that your property is going to be worth more. Now that does not mean that in certain parts of the country, there’s not depreciating assets because of a recession or a depression in a certain part of the country, meaning that maybe a lot of people are moving out of that state or that city. There might be some good reasons to do that after what we’ve been through over the last several months. You might want to relocate, but in any case, you look at the states and some states are growing and cities are growing and some states are dying and cities are dying. Well, that doesn’t mean you can’t make money there.
Oh yes, you can. There are amazing opportunities, even in depressed markets. Even in depopulated markets, there’s amazing opportunities. And when you get those deals because you used the House Monster, you already got customers in those areas. Well, you’re now able to move them into those properties, regardless of whether it’s inflating or deflating. But keep in mind about that word “appreciation.” That appreciation that can happen in a stable market, and certainly because of the fact that the dollar is worth less, that’s already going to create that about 3% because of inflation in your rents and inflation in the value of the property. And then you can have other market factors cause it to appreciate even more. So appreciation is our “A” of the word, “IDEAL.” And the final one that I’m going to do next week is “L,” “Leverage” the ability to leverage that asset and be able to purchase more assets. [inaudible]
Scott Paton:
Lou, we have some questions and one from an audience member that I put in the chat for us is, “What is the difference between equity and appreciation?”
Lou Brown:
What’s the difference between equity and appreciation because that’s two different things, isn’t it? Equity is the difference between what you owe on a property and what that property is worth in today’s market. That difference is a thing called equity. So you simply take the value of the property, you deduct from it what you owe on that property, and that difference what’s left over, that’s your equity, or also known as profit that you have available in that particular transaction. Now, appreciation is something completely different. That means because of the fact that you own the property and you keep the property, then through inflation, maybe it’s appreciation that you caused to the property by fixing it up and causing things to appreciate that way, or just natural appreciation with inflation. Those are the differences between equity and appreciation.
Scott Paton:
Cool. So appreciation is a long-term strategy, correct?
Lou Brown:
Yes. Appreciation is something that you’re going to get because you have purchased the property and now you’re going to keep that property for an extended period of time. Those of you who have been following me and learning the unique way that we do real estate, one of the things that we offer in the marketplace is for our clients to have the ability to eventually purchase the property. In the meantime, while they’re living there, I’m getting the benefit of appreciation on that property, as well as an increase in rents on that property until they eventually buy that property. Now they have the option to purchase an option on the property. And if they purchase that option, then they can secure what that value of that property is, based upon their purchase price of the property. Meaning that we go ahead and set that purchase price.
And then we set a period of time that they have the opportunity to exercise that option. So the benefit to the client is the fact that they have secured the price. And that has been very valuable for a lot of clients over these years, as things have appreciated quite a bit in certain markets. Well, because they were smart enough to purchase that option, to purchase the property, then they’ve been able to get the benefit. In fact, the one I was just telling you about that’s upgrading earlier, I was telling you about wins of the week, and we’ve got someone upgrading from his option to the in-house financing program that we offer. Well, that differential for him is about $30,000. So in other words, the value of the property is much higher than what his price is when he exercises his option with us. So he’s exercising his option to move into the owner finance or in-house financing program. And that because of the fact that almost 3 years ago he purchased that option, he’s getting the benefit of the appreciation in the marketplace. So we love that. That’s what we live for, for our clients to move up the Path To Home Ownership and take advantage of exactly what we offered them years ago. And now they’re moving on with the program as it’s designed. So, that excites us a lot.
Scott Paton:
So what you’re saying is someone who rented would have lost out on that $30,000 in appreciation because they’re renting, they’re not owning. But because you’ve turned that renter into an owner, they’re an even better client in the house because they’ll think, “Hey, if I screw this up, I’m going to be out $30,000, where if I just pay on time and I do all the things that I’m supposed to be doing, I get a $30,000 windfall.” That sounds like a win-win-win to me.
Lou Brown:
It sounds like equity, right? So because they actually purchased the option to purchase, they gained equity in that property over time. And because the market is hot in Atlanta, that means they even got the benefit of the growth of the equity as well. So if they had just up and walked out or moved to another property, they would have lost that equity. And so we love the fact that when people get with us and stick with us and do what they’re supposed to do, they have an amazing opportunity to grow with us and have equity at the time that they exercise their option to buy.
Scott Paton:
Lou, we have a great question from Tony. “Do you have a preference between gaining appreciation versus quick cash that can be turned around and reinvested?” So I guess he’s talking about holding on to the house for a longer period of time versus a quick flip.
Lou Brown:
Well, quick flips, that’s always a challenge because let’s say that you got money just sitting in the bank. Well, now you’ve got to go chase another deal until you find that deal and put that money back to work. I love that each one of our properties to me is a bank. So each property is its own bank. It has its own equity and it’s earning its own return on investment on that particular property. So there are ways to get money out of property that doesn’t require you to sell it once you own that property. And let’s say that we’ve moved a client into that property. Well, that equity that’s in that property, I can now borrow against that with a third party lender. In our case, we teach people how to borrow money from private money sources, so that private money that’s being used on that particular deal. Well, that is money that now I can take that equity from that property using private money and go purchase another property. So another way of saying that is you can have your cake and you can eat it, too.
Scott Paton:
That’s beautiful. And so we have another question from the audience. I put it up here cause they didn’t want their name. How can I make my property appreciate more?
Lou Brown :
How could I make my property appreciate more? Well, there’s a great question. You actually fix it up. So you cause appreciation in your property. And when you actually create that equity in the property by updating it, upgrading it, adding on rooms, taking a garage, converting it into one or two more bedrooms, adding another bathroom or taking a half bath and making it a full bath. Those are all things that can cause your property to appreciate. And one of the things you can do is look at the comparables, the comparable properties in the area that have sold, and look at what sold, look how much it sold for. It’s got three bedrooms, it’s got two bathrooms. It’s got a two car garage. It’s got a basement. Okay. How much per square foot did that property sell for? All right. Now, if I fixed my property up like that property, am I going to get a benefit by going ahead and spending that kind of money on my property and causing that appreciation? Great question.
Scott Paton
Awesome. So that comes to the end of our questions. Lou, any last comments on appreciation before we move on.
Lou Brown:
Buy property. Cause I should tell you that people who don’t own property are not getting any appreciation. All they’re getting is paying more for things because of the thing called “inflation.” So if you’ve got assets, then you’ve got the ability to benefit from inflation as it appreciates, so you’ve got market forces working in your favor instead of working against you. So no matter what you do, even if you paid retail, oh my God, this is not what I think. But for some people, they’ve got full-time jobs, they got everything going on in their life. They might come to somebody like me and say, look, I don’t have time to find properties at value prices. I’ll pay you retail for a property. Do you know they still can be smart at doing that? And the reason is not only do they get that property and they get the benefit of future appreciation hedging against inflation, but they also get the benefit of depreciation write-offs that we talked about in an earlier part of the series. So there’s tax benefits that can come just from property ownership. So when you take the combination of all these things, it’s enormous. It’s absolutely huge. And I encourage everybody as my last thought for today is just buy more property. Yeah baby!
Scott Paton:
Lou, you reminded me of a friend of mine and he was talking to an elderly Chinese man who was incredibly wealthy. And he said to the fellow like, “What is your advice?” And he looked at him and he said, “Buy property.” And so my friend looked at him and said, “Okay, once I buy the property, what do I do?” And the guy said, “Buy property.” And the third time, like, “Then what do I do?” The Chinese man replied, “Buy property.” And finally my friend said, “When do I get rid of the property?” And the guy looks up at him and says, “Never.”
Lou Brown:
Never, ever. Yeah. We offer that slightly by giving our clients the opportunity to someday buy that property. But other than that I 100% agree. In fact, those of you who have heard my story about the Aunt Mabel story, one of the things that I talk about is she told me 2 words when I was a young man. At 16 years old, she told me, “Accumulate property.” She said to accumulate property because she had just moved into a brand new home, on a corner lot, all brick home two-story house. It was terrific. And she had actually called me to help her move. And I said, “How did you do this, Aunt Mabel?” And she said, “There’s two words: accumulate property.” So my wish for you is to accumulate property and enjoy appreciation.
Scott Paton:
We have one last question. Is there a sort of dummies guide to figuring out which areas will have the greatest level of appreciation?
Lou Brown:
I love this guy. So yeah, there actually are. There’s all kinds of studies that are available online. And the government actually provides a number of documents or a number of studies, as well as HUD, the Housing and Urban Development. They’ve got all kinds of studies and you can drill down on their site, but I encourage people to keep more of a macro view of things rather than sometimes saying, “Oh, I’ve got to go to this market because the crystal ball says it’s going to appreciate more than that market.” I don’t worry about that stuff. Here’s what I worry about: Do I have a customer? Is this a good market for a customer? And when that customer shows up, listen, they’re willing to do amazing things. Number one, they’re willing to give you their money. Number two, they’re willing to work on the property.
They’re willing to do some or all of the repairs to the property. Well, to me, that’s everything. That’s what we’re looking for is somebody that’ll come in and do some or all of the repairs to the property and earn that money actually towards their down payment. So it’s a real opportunity for people to look at their life from a different point of view and end up with a big win. So I don’t worry too much about “the place” to buy. I say that every community in the entire country is a potential deal location that you can actually focus your business on. Again, what we teach in House Monster is to create that target market and then focus on that target market, which are all the little ‘burbs and communities around the country. There’s enough business for everybody because of what we do and how we do it.
We appreciate all of you, as today’s word was appreciation. So we appreciate all of our customers. We appreciate all of you who have invested in us and given us an opportunity to teach and train you about what we do and how we do it as I appreciate you, Scott, for all you do to cause all of this to happen. So lots of appreciation in my world. I appreciate my team for all that they do. They cause a lot of great things to occur for a lot of folks, not just me, but for a lot of folks that we serve, so I’m full of appreciation for them.
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