 |
| By Nilus Mattive |
As we walked up the driveway, a booming voice from the front porch next door yelled out, “Can you believe they want more than a million bucks for that piece of crap?”
This was during my very first look at the house I bought almost exactly seven years ago.
Today, it’s worth roughly $2 million MORE than I paid — handing me the biggest, fastest gain I’ve ever had from any single investment.
And my neighbor — who was renting the property next door for roughly 30 years — was forced to move into a mobile home after his landlord cashed out on short notice.
I’m not telling you this story to gloat.
Honestly, it was pretty easy to understand the neighbor’s point of view.
The house was just 1,068 square feet. Built in 1953, it had been well maintained but was never really updated much at all. One of the eaves had visible termite damage. The backyard was a dirt hill sliding into some patchy grass. The kitchen still sported the original 1950’s Wedgewood stove.
How could this property possibly be worth the $1.2 million asking price? Especially considering how much it had already risen over the years?
See, like that skeptical neighbor, I had spent most of my adult life as a renter.
In my early 20s … it was largely because I just didn’t have enough of a down payment to buy some of the properties I was looking at in New York City.
And in my early 30s, it was because I was living in South Florida where the housing bubble was painfully obvious.
But everything changed for me once the housing crash happened.
I finally had both the money AND a good entry point.
First, I bought a beautiful riverfront property in a very upscale area outside of Philadelphia …
Then I bought a vacation house at the beach in Cape May, New Jersey …
And after both had appreciated quite nicely, my wife and I made the decision to move out to California — something we had been talking about doing for quite a long time.
We rented for a year to become familiar with Santa Barbara, our new target area.
That due diligence — and all my other experiences through more than two decades of ups and downs — said the house we were looking at was still a great opportunity despite its previous appreciation … high price of entry … and obvious flaws.
Seven years later that has proven more correct than I could have possibly imagined, and it has further reinforced my belief that every investor should own at least some property.
Why Buying Individual Properties Can Be So Lucrative
Plenty of people have written entire books about investing in real estate, and there’s no way we can possibly cover everything in this single monthly issue.
However, we can at least talk about some of the basic concepts that are most important to most of us — starting with the idea of buying an entire property.
I consider this to be the most advantageous way to invest in real estate for several reasons.
First, you decide exactly what, where and when you’re buying.
Take my Santa Barbara house …
I chose it because it was located in a very desirable neighborhood, with a great elementary school and good shopping all within walking distance.
Better yet, we have access to a terrific beach just a few short blocks away … with the Santa Barbara harbor down below us.
And because of our area’s geography, as well as its extremely strict building codes, housing inventory is perpetually constrained.
All of that has driven values relentlessly higher, especially in the wake of COVID-19 as more people are looking to live in areas with great weather and a wide array of amenities.
So, when you pick the right “location, location, location,” especially at the right time, you set yourself up for a high probability of success.
Second, you can harness the power of leverage.
Leverage — the idea of using borrowed money to control more of something than you might be able to afford otherwise — gets a bad rap in the investment world.
But like any tool, it all depends on how you use it.
If you use leverage in a short-term trading account, it’s very easy to end up owing more than you borrowed.
Meanwhile, anyone with a mortgage is using leverage, too. That was a bad thing for people who were putting almost nothing down and speculating wildly during the housing bubble. But overall, real estate tends to go up in value over time, so the vast majority of borrowers end up coming out way ahead.
In recent years, most have come out WAY ahead.
Consider my particular case to see the difference.
Let’s say I had paid $1.169 million in cash back in 2016.
Putting aside all the improvements and additional investments I’ve made — more on those in a minute — I figure the same exact house would be worth about $2.6 million right now.
If I sold, I’d make $1,431,000 on my initial investment — a 122% gain in less than seven years!
Pretty spectacular and certainly more than I would have expected based on historical norms.
However, I put 20% down on my house and borrowed the rest.
That means my up-front investment was just $234,000. So, the same $1,431,000 profit represents a return of 612%!
Obviously, I’m not factoring in things like frictional costs, additional mortgage payments and taxes to keep this simple. Nor am I considering all the rent I saved by occupying the house over the past seven years, either.
The important takeaway is that leverage amplified my short-term return almost five times over.
And that’s still just the beginning …
Third, you can make smart improvements whenever you’re ready.
My house is up on an elevated ocean-view lot with a two-car garage down at street level.
I knew that we could easily convert that garage to a separate guest unit. We recently completed it at a cost of roughly $200,000. However, based on square footage prices in my town, the unit is already worth about $600,000 on paper … in addition to solid income potential of $30,000 or more annually.
I also added a modern studio shed in the backyard, which got me a 120-square-foot standalone home office for little more than $20,000.
Plus, we just completed updating the main residence — bringing it up to modern standards, adding another bathroom and building a large ocean-view deck in the process.
These improvements have only supercharged the capital appreciation I’ve enjoyed since my original purchase back in 2016 — easily adding another 50% or 60% of extra value on top of my original purchase price.
So, when you own a piece of real estate outright, it’s possible to unlock quite a lot of extra value over time.
Fourth, you can get many tax breaks and other special benefits.
This is another one of those dense topics that would require many pages of insights from accountants, attorneys and other types of specialists.
But even some of the very well-known benefits are worth mentioning right now.
Take the idea of deducting your mortgage interest every tax year. While it’s not a good standalone reason to take on a loan, it CAN save you many thousands of dollars annually.
Or what about the ability to deduct property taxes? Even though that deduction was capped at $10,000 per year back in 2016, it still provides yet another nice income offset for millions of Americans.
And if you sell a primary residence, you may very well be able to exclude as much as $500,000 in capital gains from federal taxation as well.
For pure investment properties, there are additional things like depreciation, too.
Through so-called 1031 exchanges, you can even sell one investment or business property and use the proceeds to buy another of equal or higher value … essentially steamrolling the full amount of one good investment into another.
With real estate located in a foreign country you can also get other benefits like protection against a falling dollar … more financial privacy and flexibility … and maybe even a second passport.
Bottom line: Owning the right individual properties can literally set you up for life.
In fact, for a VERY limited time, you have the chance to join the most exclusive project I’ve ever been involved in. More importantly, you can gain immediate first-mover access to a limited number of individual properties in an international location that offers a terrific combination of affordability, capital appreciation potential and a ready-made “plan B” for anyone worried about what could happen next here in the United States.
Heck, it offers even better oceanfront access than my current home in Santa Barbara at a mere fraction of the price. That alone makes it worth investigating a little further!
Click here for the full details.
Best wishes,
Nilus Mattive
