Rags To Riches In Real Estate I From $15K to $800K Made Simple
Did you know that more than 90% of Americans, when they retire, need some form of financial help, whether it’s from the government or Social Security, whether it’s from friends or family, or some other form of assistance? Do you want to increase your net worth? Very simple and without any hassle?
Take, for example, a $15,000 investment and make it into $800,000 with very minimal effort. It may sound too good to be true, but did you know that 90% of all the millionaires in the USA and probably worldwide became so through investing in real estate? So if you are a renter or if you have one home, you may want to buy a second home. But in this video, let’s look at how a $15,000 investment or a down payment and closing cost will net you $800,000 when you have it paid off or as you are paying it off. So let’s dive right into it.
So you may be wondering, How can you make $800,000 from $15,000? It may sound too good to be true. Let’s say you buy a house, and let’s assume you’re going to buy a house for $300,000 and you’re going to put three and a half percent down, only three and a half percent down. There’s a myth out there, or there’s a lie out there, that you have to put 20% down to buy a house. But if you can just put three and a half percent down, which in this case can be as low as $9,000 or $10,000 on a $300,000 home, let’s assume there are $4,000 or $5,000 in closing costs and other costs. So your total investment when you buy a house on a $300,000 house is $15,000 when you buy the house in year zero or year one. One of the things we’re going to assume is actually a fact. But for this specific example, and I’m going to give you another example, we are going to assume that you’re going to buy a $300,000 house. You’re going to put three and a half percent down with an FHA loan, and you have a 30-year mortgage. You want to see a return of $800,000, or you want this house to be worth $800,000 when it’s paid off. So we have to assume that the increase in your house appreciation is going to be about 3.5% per year. But in this case, we’re going to assume that your house appreciates three and a half percent per year. On average, they appreciate anywhere from four to 10% per year, depending on your area. But let’s take an example, which is a fact: home prices have gone up and up and up in the last 20 years; they’ve gone up more than 10% per year.
If you buy a house for $300,000, you put three and a half percent down, and a closing cost of $15,000 is your investment at an appreciation rate of 3.32%. The sale price after 30 years will be $800,000. So let’s say, after 30 years, you decide to sell it and want to buy a bigger house, or you just want to sell it off and cash out. So in this example, based on a down payment of $10,500 that you put in, and if you had put in another $5,000 for your closing cost, your sales price currently would be $800,000. And of course, it’s paid off. So your $15,000 investment is now worth $800,000. You will make a profit of $500,000, which represents a return on investment of over 4800% after 30 years. Simply put, the $15,000 that you put down, which was a down payment and closing cost, and you paid your mortgage payments every year for 30 years, you now have a house worth $800,000 at that appreciation rate. But I’m going to give you better news. And I’m going to show you another example where you can actually pay the same house off in 20 years and make $800,000. So let’s see how that works. So before I show you the next way to pay off your house in 20 years, or how you can make an investment of $15,000 to be worth $800,000 in 20 years, I wanted to show you a chart.
This chart shows the price appreciation of homes from 1991 to 2023. As you can see, for example, California has an average rate of 9% increase per year. It has appreciated by 295%. That means the home that you bought in 1991 today, after 32 years, in this example, will be worth 295% more. In other words, if you bought a house in 1991 for $300,000, it’ll be worth $900,000 today, approximately. If you bought a house in Texas, their appreciation per year was 10% per year. That is astonishing! Mississippi is one of the lowest states of appreciation, but it’s only 6% per year. In my example, I’m being very, very conservative, and I’m using an appreciation rate of 3.5% in case there’s a big recession, a big depression, or something happens. But in the worst-case scenario, your house would appreciate more than double in 20 to 30 years. Let’s look at another example. If you look at Idaho, their appreciation has been 503% in the last 32 years. That’s almost 15% per year. Amazing!
So if you are a renter, and by the way, only 65% of all the people live in a home, the rest of the 35% are renters. I’m not sure why; maybe it’s too expensive or they don’t want to buy it. But whatever the reason, as I mentioned earlier, if you’re a homeowner, then your net worth is 40 times more than that of a renter. So if you’re a renter, not only can you increase your net worth 40 times if you own a house, but you can also increase your appreciation of your home’s value as an asset and your savings. Like I said earlier, more than 90% are almost broke or need financial assistance from the government, friends, or family. So let’s look at another example of the same thing. We’re going to look at a house that’s $300,000. As you can see in this chart, the down payment is three and a half percent, which is approximately $10,000. Plus, I’m going to add $5,000 in closing costs, escrow fees, title fees, lender fees, appraisal fees, whatever. You’re going to need that much, so that’s another $5,000. So you’re going to put $15,000 down, or what we call an investment. And in this example, I’m going to use 5.3% appreciation per year. Remember, that’s still lower than the last average of 30 years nationwide.
If you’re in Texas, you are at almost 10%. California, you are at 9%. Mississippi, you are at 6%. But let’s be conservative again and use 5%. Then, in 20 years, your target sales price will be around $800,000. And the reason is because of the appreciation. If you buy a house today at $300,000 and based on an average appreciation of 5%, your house value will be $800,000. Of course, it’s only been 20 years, and your mortgage was for 30 years, so you will still have ten more years to go. But yet, your house, or the property that you bought 20 years ago, is now worth $800,000. You do have a mortgage payment on it. But imagine that for the next ten years, you’re going to have more growth. So your property maybe is going to be definitely over a million dollars. So it’s a very simple thing. The easiest thing for you to do, like 90% of millionaires do, is buy property. If you have one property, buy another property, and keep paying your mortgage. And just like that, you have tax deductions, you have appreciation, and it’s for savings.
And let me give you another example of what you have to do to save money, or how much you have to save every month to have $800,000 after 20 years or 30 years. So I’m going to show you that example next. One of the things I wanted to mention to you is that, yes, I’m thinking about this scenario. In this example, it’s an investment. But the thing is, you’re going to buy a house anyway. If you’re renting, you’re going to be paying your mortgage anyway. So let’s say you rent for 20 or 30 years, and you’re paying $3,000 a month. In Orange County, California, where I’m at, a two-bedroom, two-and-a-half-bath condo costs an average of $2,500 a month just to rent. So if you buy a house, an average home’s medium sales price in Anine Hills, Orange County, is about a million dollars. If you put 20% down, your payment is going to be about $5,000. Regardless, what I’m trying to say is that you’re going to make those payments anyway, so you might as well buy a house and let the appreciation do the work for you. Because every month that you’re paying, you are building equity number one because you’re paying your mortgage down at the same time every month. If the appreciation is 5% per year every month, you have a little percentage going up every year or every month.
So, as you are renting, as you are buying your house, and as you are enjoying your house, your lifestyle, and your backyard, you are not doing anything extra to make that net worth higher. From $300 to $800, from a million-dollar home to a $3 million home, or from a $3 million home to a $10 million home What I’m saying is that you’re going to live anyway. You’re going to have mortgage payments or rent anyway, so you might as well buy, start early, and get it going. But the other thing I want to show you is that 1 may argue, Well, why should I buy a house and pay property taxes and have maintenance, et cetera, et cetera, et cetera? Why don’t I just save? Well, statistically, most Americans don’t save enough. If you talk to financial planners, and by the way, I’m not a financial planner, so any questions you have regarding accounting, et cetera, or financial planning, please refer to your professional. But one may argue that why should I just save money?
Statistically, most Americans don’t save money. First of all, they don’t have the habit of saving. And it takes a lot of money to save money. So let’s say, in this example, you want to have a net worth of $800,000.20 in savings. Years from now, it’s 2023—almost 2024. How much is it going to be worth in 2044? How much do I need to save, or how much do I have to save every month, so that in 2044 I have $800,000? Well, I went to our good friend Chad GPT, and I asked Chad GPT the question, as you can see on the chart. I asked, How much do I have to save today to have $800,000 in 20 years? And it did a calculation for me. So the future value is $800,000, and it’s taking a rate of 5%. So if you are getting a 5% return, maybe you put it in a mutual fund or a savings account on a CD, or you have some form of investment where you’re going to get an average of 5% per year. That’s an assumption. So if you want $800,000 and if you’re getting a return of 5%, you will have to save every month, one $741.33 every month just to make $800,000, versus if you buy a house today and just put $15,000.01 in it and then pay your mortgage every month because you’re enjoying living in it, you’re enjoying renting in it. If you’re renting, then you will have $800,000 worth of value. Plus, if you had extra money, and I’m assuming you’re a homeowner, you have extra money, you could have saved extra on top of paying your mortgage payments. So the fastest way to riches is through real estate. In this example, you can see how easy it is to make $800,000 or a million dollars or $10 million by investing in real estate and either renting it out and letting the renters pay your mortgage, or you yourself pay the mortgage and let the portfolio, your asset, or your net worth grow. If you have any questions about how you can buy or save money, feel free to contact me.