The big opportunity today to create generational wealth is in real estate; not just as a homeowner but also as a real estate investor. Episode 141 of the Martini Mortgage Podcast unpacks just 3 financial benefits of owning an investment property; passive income, tax benefits and appreciation.
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Let’s connect to discuss how to add an investment property to your portfolio or to talk about acquiring your first rental property.
Logan Martini | NMLS 1591485 | Senior Mortgage Strategist | Martini Mortgage Group at PCL Financial Group (powered by Celebrity Home Loans, LLC NMLS 227765) | 507 N Blount St Raleigh, NC 27604 | (919) 238-4934 | www.MartiniMortgageGroup.com | Logan@MartiniMortgageGroup.com | nmlsconsumeraccess.org | Equal Housing Lender
Kevin Martini | NMLS 143962 | Certified Mortgage Advisor and Producing Branch Manager | Martini Mortgage Group at PCL Financial Group (powered by Celebrity Home Loans, LLC NMLS 227765) | 507 N Blount St Raleigh, NC 27604 | (919) 238-4934 | www.MartiniMortgageGroup.com | Kevin@MartiniMortgageGroup.com | nmlsconsumeraccess.org | Equal Housing Lender
Martini Mortgage Podcast Episode 141 Transcript
We all need a roof over our head, every night, when we put our head on the pillow to go to sleep. Some people own that roof and some people rent that roof. Here is the challenge, some people rent because they do not know they can afford to buy and that is sad. Others rent because it is right for them.
It is true, homeownership is not right for everyone and that is OK however, I truly believe, if you want to create wealth and when I say wealth I mean generational wealth, you need to own real estate.
Welcome to episode 141 of the Martini Mortgage Podcast, my name is Kevin Martini and I am a Certified Mortgage Advisor with the Martini Mortgage Group which is located in Raleigh, North Carolina however myself along with my very talented crew of mortgage professionals help families in all 100 counties of North Carolina and pretty much in ever state in the U.S. too. I am calling this special episode of the Martini Mortgage Podcast; The Big Opportunity.
I want to start by sharing there is a time to rent however that time is not now. But as I mentioned homeownership is not right for everyone. I get sad when people rent because they do not think they have options to buy. Let me share this fact. Everyday I help families secure a home loan with less than a 20% down payment…everyday I help families secure a home loan with less than perfect credit and many first time home buyer are eligible for a first-time home buyer tax credit. If you are a renter, you woe it to your self to explore the options and then make a decision if homeownership is right for you after you have all the facts because there is never a substitute for getting educated on your homeownership options.
I share this so you know I am here and it is a big opportunity to explore your homeownership options if you are a renter but an even bigger idea or the ‘ big opportunity’ of this episode is to create generational wealth with a real estate rental portfolio that creates passive income, provides tax benefits and provides asset appreciation.
Passive income, tax benefits and asset appreciation, OH MY! Sound too good to be true but it is for many of the families I work with as their Certified Mortgage Advisor.
Now before you start thinking of all the reasons why this episode of the Martini Mortgage Podcast is not right for you and before you start reciting in your mind all the reason why you cannot afford a piece of investment property let me share this fact with you…it is my opinion you cannot afford not to have a real estate investment portfolio even if it is just for one property. Please give me your ears to expand on this big opportunity.
Let me start with a fact, investors are behind 33% of the purchases of single family homes today in the U.S. so, this means 1 out of 3 single family homes are purchased by investors. Now the Martini Mortgage Group has its headquarters in Raleigh, North Carolina and in Raleigh nearly 1 in every 4 properties are sold to an investor based on the most recent data which is from the 4th quarter of 2021. Yes, this is an amazing stat and it highlights a big opportunity for you and it is not too late for you take advantage of this big opportunity.
I am a real estate investor and I share this not to impress but to impress upon you that I have first hand confirmation it is easier to make one-million dollars with real estate then it is at your 9 to 5 job. To purchase all of my family investment properties I use one of the most powerful tools available and that is leverage.
Simply put, leverage is the use of borrowed money to secure an assets to amplify the potential return on investment. Let me granular, let us say I want to purchase a single family home and make it an investment property…I put a 20% down payment and I secure a 80% mortgage. My 20% down payment means I am leveraging 80%. Oh by the way, the 20% down payment is used only for illustration of purchasing an investment property. If you were purchasing a primary residence you may not even need a down payment or if one is needed it may only be 3 to 5% so your leverage could be as high as 100% to 95%.
Now that you have a working knowledge of leverage…let me start to chat about passive income, tax benefits and asset appreciation.
I believe, to become wealthy and to create generational wealth you need to have multiple forms of income streams. One obviously income source is from your job, this is active income. You have to actively do something like go to work and do your job for active income. Then there is passive income. I define passive income income as income earned outside of your job. One way to earn passive income is by owning a rental property or properties vis-a-vis positive cash flow. Let me illustrate…
You purchase a $250,000 rental property and you leveraged 80% of the purchase which means you put 20% down and that is $50,000 and you secured a $200,000 mortgage. For illustration, let us assume a 7% interest rate for a 30-year fixed. Again, this rate is only for illustration. A $200,000 30-year fixed rate mortgage would have a principal and interest payment of mortgage of $1,331.60 a month. Let us assume that the property tax and the homeowner insurance is $3,000 a year which is $250 a month. This means your total mortgage payment, in this hypothetical example, would be $1,582 a month.
Let us assume that repairs and miscellaneous things like advertising the property cost you 2,400 a year. No me, I factor in 1-moth or mortgage payment to cover for vacancy — so the operation costs would be, let me round up and say $4,000 or $334 a month.
A conservative rental in Raleigh would be, let us just say $2,000 a month, perhaps that is too conservative but let me go with it.
You are paying principal, interest, tax and insurance of $1582 with this high example rent and we are forecasting $334 a month for incidentals so that is $1,916 a month. So worse case with this conservative rent of $2,000 you would have a passive income $84 a month or be positive cash flow of $1,000 a month.
What if the rent was more realistic at 2,250 a month. You would be creating $2,250 a year of passive income vis-a-vis positive cash flow from your rental property.
But as they say in those informercials, but that is not all…
There may be the potential for major tax benefits for owning a rental property. Know that I am a Certified Mortgage Advisor not a Certified Public Accountant so please consult with your tax prepare. With hat aid, for me, owning rental properties allows me to deduct my operating and owner expenses plus I get to depreciate the property and I have capital gain referral.
I do not want to go too deep into this but I do want to talk about the power of the depreciation deduction. You see the current IRS code allows one that owns a rental property to depreciate it over 27 and half years. Let me use that $250,000 rental home I mentioned earlier. $250,000 divided by 27.5 equals $9091. You can use that depreciation to expenses to lower your tax liability along with your other expenses.
Yes, the tenant is paying for your mortgage and providing you with passive income with positive cash-flow, you are getting tax benefits and that is not all, you will also get asset appreciation through appreciation from your rental property.
Before I dive deep into this, let me address two topics that are top of mind for some people are concerned about with real estate today. Number one is some people are concerned that there will be a recession and the recession will impact home values negatively. Some people fear we are approaching a a real estate bubble.
Let me address bubble…today we are in a materially different market than we were in 15-years ago. The demand for homes today is real unlike the artificial demand created by lower lending standards before the great recession. In short, it is my opinion the great recession in real estate was created by many unqualified borrowers being able to secure a home loan and that home loan went into foreclosure. Today, you need more than a pulse to qualify for a mortgage and the bad industry actors have been flushed out however there is going to be a recession. It is not if a recession will come because recessions are a natural part of the economic cycle and it will come however recession does not mean housing crisis nor does inflation mean lower home values.
As I am recording this episode, inflation in the U.S. is at a 40-year high. Owning real estate is a hedge against inflation. In fact, tangible assets, like real estate, tend to increase in periods of high inflation.
Speaking of home values…
I have found the best and most accurate real estate value predictor is the Home Price Expectation Survey. It is done every quarter and it is not one persons opinion on where home values will be headed. A panel of over 100 plus economists, housing market analysis and investment strategist are survey and the result is the Home Price Expectation Survey.
In the most recent survey, basically they are forecasting a cumulative 25% increase in home appreciation through the end of 2026. Let me put share what that means using that $250,000 investment property we talked about earlier. If you would have purchased it in January 2022 then by the end of 2026, according to the Home Price Expectation Survey it would be worth $346,342. So during a period of 5-years, you potential growth in wealth, solely based on appreciation would be over just under $100,000. Then pepper in the passive income received and the tax benefits and you are creating generational wealth.
WOW, that was a lot wasn’t it. Now you know why I called this episode The Big Opportunity
I believe in owning your dream home and I help families secure the the right financing for their dream home. I also believe in investment properties and I help families deploy the right financing strategy for their real estate investment portfolio. I know it should always be home loa n first and then go find your house so with that said, let us connect to talk if investment property is right for you and your family.
My name is Kevin Martini and I am a Certified Mortgage Advisor with the Martini Mortgage Group. I provide trusted advice with a frictionless process that offers great rates and certainty to you and your family. My number is 919.338.4934.
Looking forward to connect, stay safe out there and wishing you peace and blessings.
Now it is time for the disclaimer:
This material has been prepared for marketing purposes only. This is not a loan commitment or guarantee of any kind.
Loan approval and rate are dependent upon borrower credit, collateral, financial history, and program availability at time of origination.
Rates and terms are subject to change without notice.
The Martini Mortgage Group at PCL Financial is a division of Celebrity Home Loans, NMLS # 227765 with a Branch address of 507 N Blount St Raleigh, North Carolina 27604.
You can contract Certified Mortgage Advisor and Producing Branch Manager, Kevin Martini NMLS# 143962 by calling the Branch and that number is 919.238.4934. For a full list and more licensing information please visit: www.NMLSConsumerAccess.org or by visiting www.MartiniMortgageGroup.com – Equal Housing Lender