Why Your Cash Flow Will Increase Even When Cost of Living Rises

 

Our clients are familiar with our Remote Control Retirement Riches formula. This is among the best and more reliable ways to create wealth for yourself and your family, and to secure your financial future. Real estate is, in a sense, an investment that pays for itself. When you take out a loan and buy a house, you then rent it out. The rental income generated then helps you repay the mortgage. Over time it generates a profit. So what is the right way to use these cash inflows?

Two ways to use your cash inflows.

If your investment is not generating a profit for you right now, it will do so in the future. This is because as the cost of living goes up, rental incomes do the same. However, your mortgage payment amounts will remain the same over the years because you're going to have the benefit of the 30-year fixed-rate loan. So you will have surplus cash. What do I do with this cash flow, my clients and people on social media sometimes ask me.
Well, one option is to create an emergency fund for expenses that may crop up for you as a landlord: maintenance, breakage, repairs, replacements etc. So you can put aside some money for this. On the other hand, you can accumulate your cash inflows and invest in more houses. You can buy more homes and further secure your financial future.

How I used my cash inflows.

There was a time when I was also putting money away for emergencies and contingencies. I would do this because I felt that as a landlord, I should have a way to defray expenses such as house maintenance, repairs and so on.  I soon realized, however, that this was not helping me meet my goal – which was to buy as many homes as possible. I was not making the best use of my liquid assets by parking them in a contingency fund.
The better option was to use the money and accumulate my cash flows to buy more homes, and then generate higher incomes. And what about the times when those expenses cropped up? I found that it made sense to open up a line of credit with the bank – to be used as and when needed. This is also what I would advise investors to do with the cash flow that their investments generate.
It makes sense to create wealth, for a more secure, prosperous future. For this to happen, you cannot afford to let your cash flows stagnate. You have to put them to the best use possible. If you would like to know more about our investment strategies, visit us at icgre.com. To get more real estate investing tips, check out my podcasts and videos.
How Does Inflation Impact Real Estate Investments? It's Not What You Expect

What amount of cash flow can you expect from a $200,000 home when you put 20% down payment? This is a question that I was asked just recently by someone looking to invest in real estate. I would have answered this question differently, and with a different set of numbers just six months ago. Now, however, the prospect has changed significantly. Read on to know why, or watch this short video.

Recent changes in the economy and their impact.

The economy has seen some significant changes in recent times. I've said for a while that inflation is coming, and that turned out to be true! So this question about cash flow that an investor can expect from a $200,000 home and a 20% downpayment – it had a different answer just six months ago. At the time, you could get a nice new single-family home for $200,000, whereas now you would probably have to pay in the region of $260,000 for something comparable. Of course the numbers differ from market to market, state to state, but I'm giving you some ballpark figures here.
So six months ago, after you had made your mortgage and other payments, you would still be able to net a few hundred dollars from your rental income for a $260,000 home. Now however, interest rates have gone up too. So your 30-year fixed-rate loan is that much costlier. Now you can expect to just break even or make a small profit. 

Why real estate investors need not worry.

However, it isn't all bad news. In fact, if you have been a smart real estate investor and bought single family, brand new homes, you are probably in the best position. Right now, people looking to rent, prefer single family homes over anything else. The home with a yard, extra space for a home office perhaps – that is the sort of thing people want. And since the demand is high, rental incomes are also on the rise. So right now, there is a shortage in the property market: more people looking to rent than there are houses available for rent.
And in the coming days, as rent incomes continue to go up, your outflow or your mortgage payments are going to remain the same. With the gift that is the 30-year fixed-rate loan, you're going to find it easier to repay your loan as time goes by, while your rental income will continue to rise. In my book, that is a great deal!
If you have a question about real estate investments, feel free to ask me about it. You can reach us at our Toll Free number (800) 324-3983 or at (415) 927-7504, or you can email us at info@icgre.com. Who knows, the next time you watch my real estate videos, I may well be answering the question you asked!

Should You As A Landlord Worry About Meeting Unforeseen Expenses?

How much emergency cash should I have for each rental property for unforeseen maintenance and repair expenses? Is there a percentage? These are some of the questions that our current investors or would-be investors ask me at times. After all, as a landlord one has to be prepared for things to break, need replacement or regular maintenance, right? However, I have some tips for people who don’t want to park thousands of dollars of their hard-earned money in some emergency/ reserve fund.

Who needs an emergency fund?

If you follow what we call the “Remote Control Retirement Riches” formula that we have perfected over the years, you don’t need to worry about all of this. The first thing to do is to remember – only brand new homes! I will always advise my investors to invest in brand new, single-family homes. Single-family homes fetch the best rent, and buying brand new has several other benefits. For one, you are far less likely to have breakdowns or breakages in a brand new home. A brand new roof is less likely to spring a leak and a brand new air conditioning system is far less likely to malfunction, for instance.
Plus, there is the builder's warranty that protects you in the unlikely event of such expenses as well. So if you decide to opt for a brand new home – wisely – then you are much less likely to need a reserve or emergency fund for your rental home. By the time a few years go by, your cash flows start to improve – while your mortgage payments remain the same, your rental income increases. So you are able to maintain better liquidity.

Why a bank credit line makes more sense.

Back in the day, I would park thousands of dollars in an emergency or a repair fund, meant to be used when a rental property of mine needed repairs or maintenance and so on. Soon I realized the futility of jamming my hard-earned money for so long. My aim was to invest in as many houses as possible and having to maintain some emergency fund or account spoiled my chances of doing this. So I decided to take another route.
Instead of keeping money aside in some emergency fund, what I did was start a line of credit with my bank. I didn’t even need to use it, but it was there in the event I needed it. If there were repairs to be made or things to be replaced, that line of credit would take care of the expenses. I find that this makes more sense than maintaining an emergency fund. Watch this video for details. 
It is all a part of the Remote Control Retirement Riches formula that we at icgre.com have developed and refined over the years. You too can benefit from it at no added cost to you. 

Inflation Means Higher Interest Rates – But This Need Not Impact Your Investment

“Now that interest rates have gone up by 3% relatively quickly, home prices are up significantly from a couple of years ago. So, is buying single family rental homes still worth it?” This is a top-of-the-mind question for a lot of investors right now. This is something that I get asked on social media, by people reaching out to us at icgre.com or people who attend our quarterly online expo events. And to these people I have one simple, straight answer – Yes! It is worth it. Investing in real estate using the formula we have perfected at ICG Real Estate is always worth it. I have also explained this at some length in this article.

Inflation is rising, but this is not necessarily a bad thing.

I have been shouting from the rooftops about the inflation that is going to come, and come it has! Everything is more expensive right now and your hard earned dollar is simply not going as far as it used to. Rising inflation inevitably means that interest rates are going to go up, and that is what we have seen as well. Where, until recently loans were available at the lowest ever interest rates – as low as 2% in cases – all that has changed. Rates were between 2% and 4% and now that figure has climbed to about 7%. This has alarmed a lot of people and made them wonder whether or not to invest in real estate.
So here’s the thing: if interest rates are at 7%, they are still lower than the inflation rate, which is hovering in the region of 8.5%. And when I look back at my long investing career, that 7% is still an astoundingly low rate. Investors – and myself, I must add – have grown very wealthy with the help of investments made in times when those rates were a lot higher. In fact, when I first started to buy property back in the 1980s, interest rates were as high as 14%. And I still was able to create positive cash flows and keep buying more and more houses.

Why you don’t have to worry about 7% interest.

I get calls and emails from investors who are happily wealthy, having invested maybe fifteen years ago when interest rates were 7% or 8%. These investors went on to buy multiple homes. They did this by first generating a positive cash flow from rental income and then buying more homes. And then some years down the line, when there were still some years left on the loans, they sold off a couple of the homes. They then paid capital gains and repaid the remaining loans, and now enjoy their investments, free and clear!
So, don’t worry about the 7% interest rate. Your real trump card is the 30-year fixed-rate loan – which Warren Buffet also recommends. With this loan, inflation is your best friend! With inflation, cost of living will rise, and hence your rental income will increase as well.  However, with the 30-year loan, your mortgage repayment is never going to change. And that amount is going to look smaller and smaller as the years go by while your rental income will continue to rise.
I have a lot of stories about successful investors who were buying real estate when interest rates were much higher than they are right now. I will be sharing some of these stories in the upcoming expo and will also go into the details of rising interest rates. To know more, you can check out this article or watch this video.
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