Retire Wealthy with Monthly Income

Part 2 of “Rescue Your Retirement” from May 2011 Canadian Real Estate Magazine   By Gord Lemon

Welcome back to Retire Wealthy Part 2 where this strategy gets fun. We will continue with Year 4.

Year 4

Purchase: $266,000

25% Down payment: $66,000

Mortgage amount: $200,000

Income: $2300

Expenses: $825                  Mortgage Pmt: $1067                    Net cashflow: $408

Summary: $2291+$408 = $2699 to mortgage 1 ($1632 extra toward principal)

Year 5

Purchase: $266,000

25% Down payment: $66,000

Mortgage amount: $200,000

Income: $2300

Expenses: $825                  Mortgage Pmt: $1067                    Net cashflow: $408

Summary: $2699+$408 = $3107 to mortgage 1 ($2040 extra toward principal)

Now you can rest easy and let the program work for 3 more years.

Property 1 results – Year 8:

The mortgage from Property 1 is paid off! With no mortgage payment, you now receive the entire cash flow, minus the $825 in expenses. You have also saved over $170,000 of interest by paying this off in 8 years!

This gets even more interesting as you use the net income amount of $1475 from Property 1, combine it with the other cash flow and target the mortgage on Property 2. Let’s recap our new numbers:

Income: $2300

Expenses: $825

Mortgage Pmt: $0.00

Net cashflow: $1067+ ($408×5) =$3,107.00

Our new target is the mortgage on Property 2. This means: $1067 (the regular mortgage payment on Property 2 which began month 13) is being paid, plus $3,107 cash flow from the other properties is going towards principal pay down on Property 2’s mortgage.

Property 2 results – Year 11.8

The mortgage from Property 2 is paid off. We now have another $1067.00 to add to our cash flow which now will be targeting the mortgage of Property 3. You have also saved $152,862 of interest!

Income: $2300

Expenses: $825

Mortgage Pmt: $0.00

Net cashflow: $1067+$3,107= $4,174.00

We now target the mortgage on Property 3. This means: $1067 (the regular mortgage payment on Property 3 which began in month 25) is being paid, plus $4,174.00 of cash flow from the other properties is going towards principal pay down on Property 3’s mortgage.

Property 3 results- Year 14.2.

The mortgage from Property 3 is paid off. We now have another $1067.00 to add to our cash flow which now will be targeting the mortgage of Property 4. You have also saved $137,946 of interest!

Income: $2300

Expenses: $825

Mortgage Pmt: $0.00

Net cashflow: $1067+$4,174 = $5,241.00

We now target the mortgage on Property 4. This means: $1067 (the regular mortgage payment on Property 4 which began in month 37) is being paid, plus $5,241.00 of cash flow from the other properties is going towards principal pay down on Property 4’s mortgage.

Property 4 results –  Year 16.

The mortgage from Property 4 is paid off. We now have another $1067.00 to add to our cash flow which now will be targeting the mortgage of Property 5. You have also saved $125,945 of interest!

Income: $2300

Expenses: $825

Mortgage Pmt: $0.00

Net cashflow: $1067+$5,241 = $6,308.00

We now target the mortgage on Property 5. This means: $1067 (the regular mortgage payment on Property 4 which began in month 49) is being paid, plus $6,308 of cash flow from the other properties is going towards principal pay down on Property 5’s mortgage.

Property 5 results- Year 17.4.

The mortgage from Property 5 is paid off. You have also saved $115,728of interest!

Income: $2300

Expenses: $825

Mortgage Pmt: $0.00

Net cashflow: $1067+$6,308 = $7,376.00

So let’s go over the results of what 17 years have brought us starting with the down side.

Our total out of pocket expenses for down payments and closing costs on 5 properties will be approximately $350,000, which spread out over 5 years is not bad. If you don’t have all the money or the qualifying capabilities, get a JV partner that has the same philosophy and share the wealth.

The other downside, if you can call it that, is the program takes over 17 years to complete. For most of us, 17 years will come and go anyway, so you might as well be creating this retirement plan, and using the advanced program, this timeline can be shortened even further.

Let’s look at the upside of the plan. In 17 years, you now have 5 paid off properties once worth $266,000 each that without appreciation total $1,330,000 in equity. By using this program you have also saved $703,259 of interest! That’s tax-free earnings and a great retirement nest egg!

In 17 years these properties could double in value, but let’s be conservative and say they only appreciate 50%. That’s almost $2 million in free and clear real estate!

What about the income? Without inflation, you are making $7,376.00 per month. Most retirees can live quite comfortably off such an income.

Will the numbers program fluctuate? Of course they will. Expenses will go up with inflation, but so will your rents. Will you have vacancies? Yes, but you have allotted for vacancy in your expenses. Will you have repairs? Naturally things will happen that will alter this example but you have seen that utilizing this program can eliminate interest and build equity twice as fast as normal. The fully optimized version of this program will have the mortgages paid off in less than 10 years and will save over $1 million of interest!

Don’t forget, this program can be going on while you do many other real estate transactions and it can be used to pay off your home faster as well. Of course, buying significantly undervalued properties like those we are buying in Phoenix AZ today make your investment smaller so your wealth can grow that much faster.

If you would like more information
email me at info@propertyprohets.ca.

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#realestateapprentice
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Retire Wealthy