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| Let’s pretend that there are three little pigs, each with $100,000 to invest (lucky pigs wouldn’t you say). Each pig goes his separate way, looking for a place to invest his money. |
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Pig #1 walks along and soon comes upon a bank. “I’ll invest my money here”, he says. The bank tells him that they will guarantee him a 3% annual return on his money. This seems a bit low to Pig #1, but he is conservative (and a little lazy) and agrees. At the end of 30 years Pig #1 will have exactly $235,656 – no more, no less. This investment required no research or guess work, but the return is minimal and there is nothing that Pig #1 can do to improve it. |
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Meanwhile, Pig #2 is also walking along. He comes upon a bank, but decides he wants more return on his investment and continues to look. Soon after, he sees the office of a financial planner and enters. The planner suggests that he invest his money in the stock market. The two spend some time looking at various companies and make their decision. Pig #2 invests his $100,000 in stocks. How much stock was Pig #2 able to buy with $100,000? It seems like a silly question, don’t you think. Of course Pig #2 was only able to buy $100,000 worth of stock for $100,000. But what kind of return can he get on his investment? Well, the New York Stock Exchange has averaged a return of about 9% over the last 30 years. Pretty good. Is that guaranteed? No, but history has proven that if Pig #2 keeps his money in for the long haul, it is a pretty reasonable assumption. Is there anything he can do to improve his investment? Aside from praying, probably not. In 30 years Pig #2’s $100,000 may be worth $1,217,218. |
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Now let’s not forget about Pig #3. Pig #3 is a PROPERTY PIG and knows that he can do better than the bank or stocks. Using Property Pigs’ Market Hog™ Real Estate Investment Analysis Software, he begins searching for a lucrative investment property in which to invest his $100,000. How much real estate can Pig #3 buy with $100,000? This is no longer a silly question. The fact is, he could very reasonably expect to pay only $10,000 for a property worth $100,000. Lending institutions are happy to loan the remaining $90,000 to him for a relatively small return. So let’s assume that he spends $10,000 for a $100,000 income property. What is the property worth the moment he buys it? The answer is, at LEAST $100,000. The lending institution wouldn’t have lent him the money if it were worth less. However, it could be worth more. Real estate often sells below market value for a variety of reasons. It would not be unreasonable to assume that he could find a good investment property worth $110,000 that someone is willing to sell to him for $100,000, putting him $10,000 ahead of the game from the get-go. But let’s assume that his property of choice is truly worth only the $100,000 selling price that he pays $10,000 for. Is there anything Pig #3 can do to improve its value? The answer is, definitely yes. Unlike the bank or stock market, there are infinite things that can be done to improve the value of his newly acquired real estate (painting, landscaping, garage additions, etc.). Yes you say but now Pig #3 has mortgage payments, property taxes, utilities, and other payments to make. Right you are. But he also has a rentable asset which people are happy to pay him to use – namely, tenants. And because Pig #3 is a PROPERTY PIG and properly analyzed his property prior to purchase, he knows that the many expenses his property incurs are more than paid for by his tenants (with a healthy surplus every month as well). And the good news doesn’t stop here. Let’s not forget that his property is also appreciating in value. The national home appreciation average is 7%. At this rate, in 30 years, Pig #3’s (now paid for) investment is worth $761,225. Pretty impressive. But there’s more. What about the other $90,000 that he had to invest – he only spent $10,000 of the $100,000? What if he had purchased 10 - $100,000 properties instead of only one? In 30 years his investments would now be worth $7,612,255, over 6 times the value of Pig #2’s investment! The real kicker is this; in addition to the substantial 30-year value, Pig #3’s 10 income properties would be generating surplus cash for him every month. |
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If for example his properties each generated $400 surplus cash each month, in 30 years, $1,440,000 would have been at his disposal. If Pig #3 reinvested the surplus in additional assets, the 30-year property value and monthly cash flow would quickly compound – a sure way to make Pig #3 very, very wealthy. Now that’s leveraging your money! |
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