Why A Fourplex Could Be Your Best Investment
In this day and age, there is always speculation what is the best investment. On one side of the coin, wall street is telling us that diversification of our portfolio over many blue chip stocks is our best bet. The government tells us investing in treasury bonds is a sure way to beat inflation and a safeguard for our money. Then there are realtors like myself who are advocating for investing in real estate. But who’s right?
The truth is, all of us. Depending on your financial goals and the amount of assumed risk you want to carry, any one of these options could be great for you. Personally, I got tired of riding the stock waves years ago and cashed out on the upswing by sheer luck. Many of us were not so lucky. I entered the Anchorage Real Estate market not to purchase my first home, but to invest.
Following Robert Kiyosaki’s (author of Rich Dad Poor Dad) model of the “Wealth Building Phase,” I knew that working my corporate job I had to be highly leveraged just starting out in order to create some sort of financial future for myself. I was hard pressed just to save any sum of money every month after my bills were paid. At that time, I lucked into investing because I heard some older gentleman tell me to, “Buy a fourplex and live in it until you’re tired of it, then buy another one.”
I didn’t know that his words carried such wisdom. He was a man I respected and knew he had done well for himself. He was by no means the next Donald Trump or Warren Buffet, but he was not a poor man by any stretch of the imagination. In that one sentence, he ignited my passion in real estate and my mindset shifted. Those words changed my life.
Why Is Investing In A Fourplex So Great?
Rent Free
Aside from being the king or queen of the quarters (if you have a coin-op laundry, you get to collect a kings ransom in arcade funding every month), it enables you to live very cheap. You get to rent out 75% of the units, and can even live rent-free while some one else pays your mortgage. Even if you’re not living entirely rent free, you’re monthly payment to live in a roof-covered-sleeping-place is very low. This enables you to save your money, or pour it back into your investment.
Highly Leveraged
For an FHA loan, you only have to put 3.5% down to get into that property (VA loan – Veterans/Military – is 0%). That’s crazy! In 30 years, you could control half a million dollars in Real Estate by putting down only $17,500! Ok – things will eventually go wrong and you’ll have to put more capital into the building so it doesn’t fall apart, but a man can dream! Even with capital expenses and regular upkeep, your investment and ROI (return on investment) is insane. Not to mention, in 30 years, your building will most likely inflate beyond the initial purchase price.
Inflation or Deflation – Who Cares?
When you invest in treasure bonds, or even stocks for that matter, it can be a race against inflation. With the unregulated printing of U.S. Dollars by the federal reserve, exacerbated by the greed of the government to deficit spend, inflation is a very real threat against protecting your assets. Being so HIGHLY leveraged, you really don’t have to care about inflation, or even deflation for that matter – or a combination of both. I like to use the following example:
Lets say the U.S. Dollar is worth $1 (One Dollar).
You Purchase a home for $100,000. You buy it with an FHA loan, at 3.5% down, investing only $3,500.
Printing U.S. Dollars unregulated inflates the actual cost of goods and commodities, therefor prices of everything goes up, even your home.
Due to this, your home is now worth $200,000 in 30 years.
The Actual Value of a U.S. Dollar is now worth $0.50 (50 Cents). This is because inflation of prices deflated the value of the dollar. Example: They say an ounce of gold has always bought a nice mens’ designer suite. In 1930 that may have been $20 – the price of an ounce of gold. Today, it may cost around $1,300. Prices of goods have inflated, and the true value of a dollar has gone down (deflated).
The Actual Relative Value of your home, in comparison with when you bought it, is $50,000. (Sad I know).
You only spent $3,500 and have made it grow by 1,423%. You’ve managed to leverage your money, and even in the worst conditions of economic management by our governing bodies, you beat the system. Congratulations!
A Roofed Stepping Stone
I tell people live like you are still renting when you move out of your fourplex, and don’t take any income from it. Pretend it’s not there – it’s your magical investment in a far away place where you can’t harm it’s money making potential!
Some day, when you decide you want to move into other endeavors, opening your own business, or getting into more Real Estate investing, you have a little nest egg you can leverage. Take out a HELOC (Home Equity Line Of Credit) to play around with, or sell it and 1031 Tax Exchange into a bigger, better cash-flowing commercial property. The possibilities are really endless.
P.S. You could also buy a fourplex when your kid is 1-5 years old and tuck it away so it pays for their college, and they have a place to stay when they graduate and decide not to work!
Tax Benefits
The tax benefits of home ownership are real. The tax benefits of owning a fourplex are even more real! Interest, depreciation, repairs, legal and professional services just to name a few! I don’t claim to be a CPA, so don’t ask me the specifics here. Ask your accountant about all the amazing things your fourplex can tax shield you from!
These are not all of the amazing things a fourplex can do for you, just scratching the surface. Don’t think you only have to go big. Start with a duplex if that’s your comfort level (though they don’t cash flow as well and are a quasi-investment). Don’t take my word for it, just do some research of your own and you’ll soon see the benefits.
For more information about fourplexes, investment properties, multifamily properties or Real Estate in Alaska, contact our local expert James Cash at (907)-360-7448 or jamesfcash@gmail.com