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Everything You Need to Know About Getting a Mortgage for an Investment Property

We have talked about how powerful it can be to invest in real estate with a mortgage loan for leverage. (Missed the article? Read it here.) 

 

That’s all well and good, but how do you get a mortgage loan on an investment property like a turnkey rental house? Is it like getting a mortgage for your personal residence? Is the process different? Are the requirements different?

 

Here’s what you need to know about the process of getting your first mortgage for a turnkey rental or any 1-4 unit investment property:

1. You Will Probably Get a Conventional Loan

A conventional loan conforms with the underwriting requirements of the Federal mortgage banks, FNMA (“Fannie Mae”) and FHMC (“Freddie Mac”). By conforming to these standards, Fannie and Freddie will insure your mortgage, reducing the risk for the lender and opening you up to the best-available terms.

 

FAQ: Are the interest rate and terms different for an investment property loan? 

Yes. The interest rates for an investment property are higher than for a primary residence. That being said, they are quite uniform across lenders. Our preferred lenders will give you the best rates, subject to your credit and qualifications, of course. Your introduction to them is part of our offering. 

2. Investment Properties Aren’t Eligible for a VA, FHA, or USDA Loan

If Fannie/Freddie loans are available for investors, what about the loan programs insured by the Department of Veterans Affairs (VA), Federal Housing Administration (FHA), or the US Department of Agriculture (USDA)? Those loans have even better terms!

 

Unfortunately, they are also available exclusively to people who intend to use the home as their personal residence. In other words, they are off-limits to a turnkey rental or other investment property.

3. You Will Probably Need to Put 20% Down

Depending on the loan program they qualify for, most qualified buyers only need to put 3-5% down on their personal residence. Sometimes it’s as much as 10%. Sometimes, it’s as little as 0% with a VA loan. 

 

With investment properties, however, the lender will almost certainly require you to put 20% down — and the rates get better when you put more down. Duplexes and multi-family properties require at least 25% down.

 

The rationale is that people will work harder and make more sacrifices to keep their personal residence. In contrast, borrowers are more likely to walk away from an investment property if the going gets tough. After all, they don’t live there.

 

As such, lenders want you to have more skin in the game, a bigger equity cushion, and greater security that if they have to foreclose on the house, it won’t be less valuable than the loan balance.

4. You Will Need Stable Income

Lenders only want to write mortgage loans to borrowers with stable incomes. After all, how else can they expect the borrower to make the payments?

 

What about the rental income from the property… does that count? Not really. On paper, you just need the kind of stable income — wages, salary, investments, pensions, annuities, etc. — that makes you look like a qualified borrower for a loan of this size.

 

FAQ: What if I already have a mortgage on my own home? Do I need double the income to get double the mortgages?

Not necessarily. You just need to check the boxes for a borrower on this kind of loan. As you build a relationship with a lender and a track record of success as a landlord, it will get easier. Your lender will start “rubber-stamping” your turnkey rental loans. 

 

But, at some point — a dozen or more properties in — your lender will max you out at 10 conventional loans. At that point,  it will be time to consider refinancing into a portfolio loan or expanding into commercial real estate to grow your empire. 

5. You Will Probably Need a Higher Credit Score

For a personal residence, mortgage lenders can usually get a mortgage loan done with a credit score as low as 620. With FHA loans, the minimum is even lower — in the 500s. The terms may not be the best, but you can still get the loan.

 

For an investment property, you will probably need a higher credit score. 680 or higher is best. If that’s not you, you may need a co-guarantor with a better credit score.

 

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Need help getting approved for your investment property mortgage loan? We can help! Reach out to MartelTurnkey and we’ll get you pointed in the right direction, including an introduction to our preferred lenders who know our business very well.

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Should You Invest in Real Estate with a Mortgage?

When we talk about real estate investing, we almost take it for granted that an investor will use a mortgage to buy the property. After all, many people don’t have the available cash needed to buy or renovate a house or commercial property outright.

 

But some do. Some investors do have that much cash. So why do so many of them still take on heavy debt to buy their real estate investments?

 

We don’t like to take anything for granted, so let’s interrogate the assumption — should you invest in real estate with a mortgage? What are the pros and cons?

Pros of Investing with a Mortgage

 

Less Money Down. For investors who don’t have the money for a 20% down payment or renovation costs, the ability to borrow money to buy investment property is a godsend.

 

Diversify. What if you do have the cash to buy the investment outright? Should you? Most investors don’t. If they have $200,000, they won’t buy a $200,000 property outright; they might buy five properties with $40,000 down payments.

 

That way, the risk is spread out. Even if one property underperforms, the others will probably do fine and one might even overperform expectations, pulling up the portfolio overall. But what if you just buy the one property outright and it underperforms? That’s the danger of putting all your eggs in one basket.

 

Leverage. Investors talk about real estate debt as leverage. It can be a tricky concept to grasp, but once you do it’s extremely powerful. Here’s the gist — you put less money down, but the property still appreciates as much as it’s going to appreciate. If you buy a $200,000 property outright and the property appreciates $40,000, you have increased your wealth by 20%. But if you only put $40,000 down and it appreciates $40,000, you have doubled your money. The property got more valuable, but the debt stayed the same size. You can build wealth incredibly quickly by using a mortgage as leverage.

 

Deductible Expenses. Your mortgage interest is a deductible expense. Additionally, your depreciation expense is the same size whether you mortgage the property or not, so you might as well get the most property cost basis you can.

 

Principal Paydown. Over time, your loan balance gets smaller as you pay down the principal with your mortgage payments, increasing your ownership interest in the property even as the mortgage payments stay the same.

Cons of Investing with a Mortgage

 

More Risk. Once you take on a mortgage, you are responsible for the repayment of the debt. If you hit financial hard times and can’t make the mortgage payment, you risk a total loss of the investment in foreclosure. Investing in real estate always entails risk, but there’s no denying that the less you borrow, the less risk you assume.

 

Less Cash Flow. Even if you don’t hit hard times, a mortgage payment is a big expense that takes a big bite out of your cash flow. It might still be positive cash flow … but if your goal is financial freedom, it might take longer to achieve with the smaller cash flow. However, this reduced cash flow can often be offset by the tax advantages of leveraging real estate.

 

 

Overall, we believe the hype — the pros of leveraging investment property with a mortgage far outweigh the cons. MartelTurnkey can help you identify the right mix of property selection, strategy, and financing to generate cash flow from Day One … and then rinse and repeat until you don’t just have one rental property — you have a whole portfolio!

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What Happens at the Title Office When You Buy an Investment Property

If you have bought a home before, you probably have some impression of a title office — an attractive storefront where you sit at a big conference table, sign a stack of documents, your realtor pops champagne, hands you a gift basket and maybe balloons, maybe asks you to pose with the keys or a gigantic “sold” sign. It’s like Chuck E. Cheese for adults.

 

Believe it or not, champagne is not required to close a real estate transaction. It’s as much for the realtor to celebrate her own commission as to celebrate your new home.

 

The closing process on an investment property is a lot different. At MartelTurnkey, for example, we’re often helping someone in Ft. Lauderdale buy a house in St. Louis. The buyer won’t fly out for the closing. For them, the “closing” is positively anticlimactic — signing a stack of documents in front of the notary public at their local bank branch. If they want to pop champagne, they probably have to bring it themselves and do it in the car.

 

So is the title office just theatre? Not in the least. Whether or not you ever visit it and get the gift basket, many people work behind the scenes at the title office to make your deal close without a hitch, nipping a dozen or more problems in the bud before you ever have to worry about them. 

 

To understand better, let’s look at some of the most important roles in a title office and how they contribute to a successful closing, whether or not you ever get to meet them.

 

1. Escrow Officer

Remember, escrow is a designated “middleman” service that makes sure both parties to a contract fulfill the duties of the contract. The buyer wires all the necessary funds, the seller signs over the title, and no one gets stiffed by someone else skipping out before their end of the contract is done. 

 

The escrow officer has fiduciary duty over funds held in escrow. Fiduciary duty means acting in someone else’s interest rather than your own. 

 

Say you wire a $50,000 down payment to escrow. That money is out of your bank account and inside a bank account controlled by the escrow officer. What’s to stop the escrow officer from flipping around and using your $50k to buy a Tesla Model S for himself rather than closing your real estate transaction? His fiduciary duty, which he agrees to in the escrow contract and can be sued for if he violates. 

2. Title Agent

The title agent is a specialized kind of insurance agent who procures title insurance for the transaction. The premium for this insurance is one of the closing costs on the transaction.

 

What does this policy insure against? The possibility that you might hand over the entire purchase price to the seller … only to discover that you get no property in return. The seller might have no right to sell that property. Maybe there’s a competing title. Maybe the seller is just a charlatan trying to sell the Brooklyn Bridge, take the money, and run.

 

This kind of thing is rare, but it does happen, and a lot of money is at stake. Attorneys and researchers at the title office are supposed to catch these problems before money leaves escrow, but in the event that the title company makes a mistake, the buyer and the lender can claim any losses against the title insurance policy. 

3. Closing Agent

As I mentioned above, attorneys and researchers at the title office are tasked with making sure the property has a clean title and the seller has the right to sell the property, before any money leaves escrow. The buyer must also wire enough funds to escrow to cover the purchase price and all closing costs needed to complete the transaction. 

 

The closing agent (or settlement agent) is the person responsible for reviewing all this title work and the settlement statement to make sure everything is in order before the transaction closes. She is the “last mile,” the final stamp of approval on the documents before they are presented to the buyer. 

 

If you go to your closing in person, the closing agent will be the one presenting you the documents at that big conference table. If not, the agent will courier the documents to you with indications of where to sign and notarize them.

 

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Ideally, the title office takes most of the legal hassle of buying real estate off your plate. If you want even more of the hassle off your plate, reach out to MartelTurnkey. We cover not only the legal due diligence but also the physical and financial due diligence for you. It’s the easiest way to build a portfolio of profitable real estate investments. We’ll even pop some champagne with you if you’re in town!

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A Tale of Two Investors (Apple vs Real Estate) Part 3 of 3

Welcome back to our third installment of A Tale of Two Investors. Make sure that you read Part 1 and Part 2 if you haven’t already.

2012

In Part 2, our investors survived 2 major financial crisis’ and here is a comparison of their equity position.

 


In 2012, the housing prices nationwide stopped going down and investors began to slowly warm up to investing again. Interest rates were low, the banks and the auto industry were saved. At the end of 2012, Mr Moore had accumulated a significant amount of cash as shown by the table below so he decides to refinance his portfolio and use his cash to acquire 80 more rental units.

 

Mr McIntosh also has some amazing news. The Apple stock soars to $700. Here is a comparison of our 2 investors.

 


Our two investors appear to have very similar returns but let’s not forget that Mr. Moore is receiving positive cashflow as shown below.

2014

In 2012, Apple started paying dividends again and Mr McIntosh reinvested his dividends at the end of each year by purchasing additional shares. When Apple announced a 7 for 1 stock split in 2014, Mr McIntosh had accumulated 1802 shares. The price price per share after the split is $93.70. Mr McIntosh is extremely pleased with the result of his investments so far.

 

 

During 2013, Mr Moore acquires 30 more rental units and at the end of 2014 he is able to acquire an additional 47 rental units.

2018

As Apple continues to pay dividends every quarter, at the end of each year Mr McIntosh uses the proceeds to acquire more shares and in 2018 Mr McIntosh managed to accumulate 13,411 shares of Apple. Currently, each quarter Apple pays $0.63/shares so Mr McIntosh receives annual cashflow of $34,000. We put a question mark beside that cash flow number because this cashflow is uncertain since Apple decides how much it will pay in dividends. In fact, Apple can decide to stop paying dividends altogether like it did in 1995.

 

To summarize Mr McIntosh’s equity position increased from $4,400 to $2,264,000 over 37 years which represents an annualized returns near 18%. This is a much more significant return than the S&P which is 11.3% with dividend reinvestment (See calculator here).

 

 

On the other hand Mr Moore has achieved financial freedom and beyond. He continued to reinvest his cashflow every year and at the end of 2018 Mr Moore is the CEO of a Real Estate empire holding $27M in assets. Mr Moore not only generated $10M in equity with a 22% annualized returns he also has created a company that generates almost half a million a year in net cash flow.

Next 10 years


Above is the hypothetical equity position of our two investors today. Now really put yourself in their shoes. If you are Mr. McIntosh, do you continue to hold? What will happen to Apple in the next 10 years? Will they continue their dividend program? Will the revenue continue to rise at the same rate? Where do you get your information? How do you affect the direction of the company? I think we all agree that the future is uncertain for Mr. McIntosh and most of us would sell at least some of the portfolio. Remember that this is not the strategy he used to get these unusual results.

 

Now put yourself in Mr. Moore’s sandals. What do you do next? I think many of us would be thinking of how to allocate the cash flow. More acquisitions, more loan payout, more vacations.

Conclusion

It should be clear by now that even an investor who choses a stock that they knew would be a winner is no match for a disciplined real estate investor. No investors know in advance that a stock will be worth 534 times more 37 years later. As we’ve demonstrated not many investors would stick to the same investment for 37 years considering that the company changed CEO, started to lose money and market share, on top of the regular ups and downs of the market and the economy. We’ve seen that a real estate investor:
– has choices over the direction of his investments because he is the CEO of his enterprise
– can leverage his cash to accelerate the equity growth and net cash flow with consistent reinvestment strategy
– can easily survive the worst financial crisis and could even take advantage of such crisis to acquire strategically
– can obtain financial freedom with positive cashflow
– can build an enterprise with significant asset that can be passed on to his descendents

 

If you want to get started on your real estate portfolio just like Mr. Moore then check out our current inventory and schedule an advisor call with us.

Sources:

Housing Price Index
History of Apple
Mortgage rate history
Inflation Calculator
Consumer Price Index

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A Tale of Two Investors (Apple vs Real Estate) Part 2 of 3

Welcome to part 2 of A Tale of Two Investors (Apple vs Real Estate).  If you didn’t read part 1 please click here.

 

Part 1 ends in December 2000, Mr. McIntosh benefited from a stock split back in June, while Mr. Moore reinvested his passive income and acquired additional properties. The table shows the equity difference between our two investors.

 

 

At the end of 2000

Only a few months after their meeting, Mr. McIntosh’s financial picture has changed significantly. The stock market crash of 2000 saw Apple stock price go down to $14.80 by the end of December. Mr. McIntosh’s equity goes from $48,611 to $12,935 which is significantly lower than what it was in 1987. This is a significant blow to Mr McIntosh finances. He doesn’t have too many choices, he could sell and realize a loss, invest more but he doesn’t have the money. For the purpose of our story, he continues to hold on. Many investors moved out of the stock market and headed for bonds or Real Estate.

 

Mr Moore on the other hand is unaffected by the crash and decides to take advantage of the low mortgage rate to refinance his rental units and use the cash to acquire additional rental units. Mr Moore can get a loan for about $435kk (80% of $544,620). The net proceeds of the loan would be about $117k (435k – existing loan 318k). So Mr Moore now has $138k ($117k plus cash on hand $21k) to acquire additional rental units. The current price of the units are about $39,000. Mr Moore needs to put a down payment of $7,780 for each rental unit. Since Mr Moore has $138k cash he can purchase 17 rental units! At the end of the transaction Mr Moore’s balance sheet looks something like this.

 

 

 

With this kind of cash flow and considering that he needs $8,300 as down payment, Mr Moore continues to acquire rental units very rapidly. In fact he is accelerating the pace of his acquisitions.

2001 to 2005

Things are going well for Apple during that time. Apple introduces the iPod in 2001, opens retail stores and iTunes in 2003. On February 28th, 2005, Apple announces a 2 for 1 stock split. The stock closes at 44.86 after the split. Mr McIntosh ’s equity position now looks like this.

 

Mr Moore uses his net cash flow to acquire additional rental units. At the end of 2001 his $27k of cash flow allows him to acquire 5 more rental units with a down payment of $41,881. The net cash flow increases every year and by the end of 2005 Mr Moore has 54 rental units in his portfolio with $84k of cash on hand and a net cash flow of almost $60k per year. Below is a table comparing each investor’s equity and their respective annualized returns.

 

 

At the end of 2005 Mr Moore decides to refinance and reinvest the cash by acquiring additional rental units. Each rental unit needs about $11,000 in down payment so Mr Moore acquire 14 rental units. The table below outlines his position before refinance, after refinance, and after refinance and acquisition.

 


After this acquisition, Mr Moore’s net cash flow is raised to $25k (as shown below).

 

 

At the end of 2005, Mr Moore continues to reinvest in his business. He uses the $10k in cash left after the acquisition in addition to the $25k of cashflow to acquire 5 more rental units.

 

Financial Crisis 2008

We started seeing the effect of the Financial crisis in 2007 where the real estate values went down by 5.6%. In 2008 the housing value went down by 8.5%. These reductions were the sparks that ignited the financial crisis. The reduction in asset value along with subprime mortgages, Mark-to-Market rule, derivatives valuation, and other factors brought the biggest financial crisis ever seen.

 

Mr Moore didn’t escape the crisis. The table below illustrates how the Mr Moore’s asset was impacted with the first column showing the balance sheet at the end of 2006 representing the highest asset valuation while the next 2 columns shows how the drop in real estate affected his equity. You will notice that the reduction in equity is dampened by the positive net cashflow and the principal payment on existing mortgage.

 

Like all investors, Mr Moore is concerned by the events unfolding and he does not acquire additional properties until 2012 when the real estate market started recovering. This very conservative assumption means that Mr Moore will not be able to acquire assets at a lower price. Mr Moore could also use the cash to pay down his loans but he just sits on his cash at 0% interest. Some homeowners seeing their property value underwater decided to stop paying their mortgage, and the banks began widespread foreclosure. This is the impact to Mr. Moore’s equity between 2006 and at the bottom of the market in 2012.

 

 

 

As you can see from the table above, the asset value was reduced by almost 20%. The negative of housing value was dampened by positive net cash flow, and normal reduction in principal from mortgage payment. The tenants renting Mr Moore’s apartments still needed a place to live so the rental income was not affected by the crisis, Mr Moore continued to pay his mortgages even if some of his properties were under water so the bank didn’t foreclose on him. As you can see below Mr Moore is still generating strong positive cashflow.

 

 

Mr McIntosh is jubilating at how well Apple stock is doing. Only a few years ago his position was worth $78k and his equity nearly doubled every year in 2006 and 2007. By the end of 2008 however Mr McIntosh saw the value of his portfolio cut in half only to see astronomical growth until 2012. We’ll get to that in the next section.

 

Conclusion for Part 2

In this article we reviewed the impact of 2 major financial crisis on the equity position of our 2 investors.

 

Once again it is pretty clear that Mr. McIntosh is at the mercy of the stock market, the economy, the news, the banks, the government, the federal reserves.  Mr. Moore is still impacted by the same entities but has more flexibility to protect his assets or take advantage of an opportunity.

Please continue reading Part 3

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A Tale of Two Investors (Apple vs Real Estate) Part 1 of 3

We were discussing the other day how rich one would be if they had invested in Apple stock as soon as it became publicly available on December 12, 1980.  Many articles have been written on the subject highlighting the astronomical returns an investor would have made on this iconic company.  Some articles compare Apple returns against the “investment” one would make in their home over the same period.  As we know being a homeowner is very different than being a real estate investor.  I want to go beyond the numbers in this article. Looking back at 1980, it is an easy decision to invest in Apple.  Which of today’s stock is the Apple of the future? Welcome to a tale of two investors…

 

I thought it would be fun to contrast how a real estate investor would have faired against a hard core Apple investor who would keep the stock for 37 years no matter what.  Remember Apple had its share of problems: product failure, market share decline, change in CEO, poor acquisitions, financial issues, lawsuits, Microsoft bailing them out, stock market crash, financial crisis, etc.  By the end of this article you will able to determine the best investment for the next 37 years.  To better illustrate the two investment strategies, let me introduce our two investors.  Mr. McIntosh who will be investing in Apple Stock and Mr. Moore who will be investing in real estate.

 

Our story begins in December 1980, when Mr McIntosh tells Mr Moore of a hot tip he received from his stock broker (remember those) about this new company, Apple. They have been making and selling personal computers for about 3 years and they were about to launch their initial public offering (IPO which means that they issue stocks to the public for the first time). It was not clear at that time if PC had any use beside playing games.  (Check the PC landscape of the 80’s here ).  Both investors believe that computers will be the wave of the future even though neither of them have any idea why people would use a personal computer at home.

 

In order to be fair I setup some guiding principles for our investors:

 

  • Their ultimate goal is to maximize net equity.
  • They can reinvest the revenues derived from their investment.
  • They are not speculators so do not profit directly from the ups and downs of the market or interest rate.
  • They cannot use what we know today to take advantage of the market, or the economy.
  • We also included the depreciation tax advantage in our calculations.

 

1980

On December 12, 1980, Apple stock hits the market and Mr. McIntosh decides to purchase 200 shares at $22/share ($4,400 total or about $14,000 in today’s dollar) and tries to convince Mr. Moore to do the same.  I chose $4,400 as initial investment so that Mr. McIntosh would start with 200 shares even.  Mr. Moore is a more traditional investor and purchases a single family rental for $17,000 and uses his $4,400 as a down payment (25.8% down).  Mr. Moore optimized his house purchase so it would provide a small positive cashflow annually. Mr. Moore manages to secure a mortgage at 13.74% (Source: FreddieMac).  The house is rented for $250/month. After all expenses, property management costs, and the mortgage are paid Mr. Moore basically breaks even with a small Net Cash Flow of $10.  This represents a 10% capitalization rate (CapRate) which is the average of the properties that we sell on our site.

At the end of the day, our two investors meet for dinner and discuss their respective investments.  As shown in the table above, both investors have $4,400 in equity.  Mr. Moore was able to use leverage to secure a bigger asset position.  A few days later, Apple’s share price dropped to $19.40.  On paper, Mr. McIntosh lost $500 in equity but he continues to hold the stock because he is a value investor and is not concerned by these short term fluctuations in stock price.

 

1985

Mr. McIntosh was seriously concerned to read in the financial newspapers that Apple CEO, Steve Jobs, was kicked out of Apple.  Steve Jobs retaliated by starting a new company, NeXT that will compete directly with Apple.  What will happen to Apple without its co-founder?  How will it affect the stock price?  How big a threat is NeXT?  Mr McIntosh has a lot of questions but no one can really answer.  He continues to hold on to the stock.

 

1987

Our two investors stay in touch over the years, and on June 6th, 1987 Mr. McIntosh invites Mr. Moore for dinner to celebrate the $0.12/share dividend he had received a few weeks earlier and the recent Apple stock split.  After the split, Mr. McIntosh has 400 shares valued at $41.50/share and decides to reinvest his $48 dividend by buying one additional share of Apple.  Mr. McIntosh’s equity is now valued at $16,641.50 representing almost 21% annualized return which is significantly higher than S&P or Dow Jones estimated returns.  Below is a comparison of our investors’ positions at the end of 1987.  Please note that Mr Moore’s asset number includes the value of his property ($24,078) and $3,058 of cash accumulation (without interest) of net cash flow and the tax impact of depreciation.


However, Mr. Moore has built more than just equity, he also created a passive stream of income (Net Cash Flow) from his rental property.


Mr Moore explains that his house value appreciated at the same rate per year as the US national House pricing index.  His property manager always kept the rent current and increased them annually based on inflation.  The next day, Mr. Moore decides to take advantage of the much lower mortgage rate 10.34% to refinance his property for 80% of its value or $19,262 and pays back the balance of his previous mortgage of $11,973 leaving Mr. Moore with net proceeds of $7,289.   Coupled with his $3,058 in cash, Mr. Moore has $10,347 cash and he decided to purchase 2 more identical rental houses for the current market price of $24,078 each.  He finances the two houses and put 20% down or $9,631.  After these transactions are completed, Mr. Moore is left with $716 in cash and the details of these transaction to his balance sheet are printed below.

From 1988 to 2000

During that period, Apple stock went up and down as stocks do and Apple continued paying dividends until November 1995.  Mr McIntosh stays abreast of what Apple is doing by reading newspapers and news on the internet.  Apple announces multiple acquisitions including the acquisition of Steve Jobs’ company NeXT in December 1996. Apple retains Mr. Jobs as an advisor and in 1997 Steve Jobs steps in as interim CEO.  The company is near bankruptcy and is bailed out by Microsoft in an astonishing deal.  In the face of all this uncertainty, poor company performance, product failures, change in leadership, Microsoft bail out, etc Mr. McIntosh not only continues to hold Apple stock but reinvest the dividends by purchasing 36 more shares of Apple.  In June 2000, Apple splits again and the price after the split is $55.62.  Here is the Mr. McIntosh’s position after the split.

Mr. Moore on the other hand continues to receive positive cashflow and uses the cash flow as down payment to acquire additional properties.  To illustrate, in 1990, Mr. Moore owned 3 properties for a total rent of $12,940 a year which provides a net cashflow of $1,360 once all expenses and mortgage are paid.  The 3 properties also give Mr Moore a tax credit for depreciation of $710.

 

At the end of 1990, Mr Moore has $5,800 in cash when you include the $3,700 in cash he already had at the beginning of the year.  Mr Moore has enough cash to acquire another rental property at $27,911 ($5,582 as down payment).

 

At the end of 1991, Mr Moore receives $1,924 in net cash flow.  At the end of 1992, Mr Moore receives another $2,248 in net cash flow and when combined with $1,924 in previous year’s cash flow and cash left at the end of 1990, Mr Moore now has $6,415 which affords him the down payment for another rental unit.

 

Mr Moore continues to acquire as many rental units as he can afford each year and at the end of 2000 Mr Moore managed to acquire a total of 14 units in his portfolio.

When comparing the $247k in equity created by Mr Moore’s with the $48k created by Apple for Mr McIntosh’s, there is no denying that Mr Moore is in a better position. This comparison does not even consider the present value of future cash flow for Mr. Moore.

Mr. McIntosh continues to follow the hot tip that was give by his stock broker 20 years ago.

 

Conclusion Part 1

I hope that at this point you already feel that Mr. McIntosh had to endure a lot of drama.  It was not easy for him to stay with the Apple stock.  I believe that Mr. Moore’s life was a little bit more stable. We are ending Part 1 a few months away from the stock market crash of 2000 so this is when we will start in Part 2.