Larry is ready to become an active investor. He quit his Valet job. He hits the jackpot from his search for a real estate property. He found a 3 flat across the Harlem River in the Sugar Hill section of Manhattan in bad shape. The price of $800,000 makes it a bargain and diamond in the rough. He put $200,000 down on the building and carried a 3-year short term note with the owner. He moved right into the apartment the owner vacated and went to work. It took him a year and $75,000 in cost to refurbish the place. He did much of the work himself saving money. Next, he gets an appraisal and his 3 flat townhome is now worth $2.2 Million.
Eleven years after he started at ground zero. Larry’s net worth is $1,783,593
His Townhome equity is valued $1,615,000 He invested $275,000 $1.615M/275K = 5.872
5.872 x 100 = 587% Larry made 587% in one year on his real estate purchase
He goes to the bank to refinance his property investment. He gets a 10-year mortgage. The bank said they would give him 65% against the value. $2,200,000 x 65% = $1,430,000
Larry says no, he wants to borrow only $1 Million and he leaves the extra equity in the building. Always give yourself extra elbow room for flexibility. He knows Manhattan real estate will grow faster than most investments. He goes and pays off the original owner, who he now owes $585,000. He paid a year of mortgage payments. He is left with $415,000 cash from the refinance and $168,593 in his investment account, he continues to let his stocks grow at 28% a year. His rate slowed down but still an excellent return.
He decided to spend some money because he felt he deserved a reward.
He took out $27K to have fun.
He gave his parents $10K.
He bought in cash a 3 yr old Ford F-150 truck for $10K (he plans to buy more bldgs).
He bought some electronics and furniture for his new apartment $2500.
He met a new friend and he has been taking her out to shows and to dinner $2500.
He donated to Jr Achievement for young entrepreneurs $2000.
Larry is ready to buy another property. He has $556,593 in cash and stock to hunt for another bargain. His capital is working in 2 different vehicles. He still works a job to pay expenses. His family looks at him in a different light. I think he will make $50M in 20 years.