Saturday, June 18, 2011

Getting Started with Apartment Building Investments: Lesson Seven: How To Retire Rich

Getting Started with Apartment Building Investments: Lesson Seven: How To Retire Rich

by K-Diddy Rocio
This is not meant to scare you, but according to The Wall Street Journal, the average 35 year old person in the United States will need to have saved a nest egg of at least 3 million dollars by the time they retire at age 65.  That may seem like an astounding number and it basically leaves investors a few choices to build a nest egg of that magnitude.

The first choice would be to play the lottery and hope.  Unfortunately, right now this is the plan that many millions of Americans are undertaking right now.   You might be one of them.

The other, and more common route, is to contribute to your 401k and maximize on your employers matching contributions.  This has worked for some people in the past but as good, high paying, professional careers become more scarce in the United States this route doesn't appear to be a wise choice for most people.  Most people's 401ks are mostly invested in a basket of stocks, mutual funds and bonds.  The problem with putting your nest egg into a 401k is the fact that you are basically counting on the fact that the stock market will be in a bull market when you are ready to retire.  If not, you will end up like many people who in 2008, when the stock market nose dived, were forced postpone their retirement by another decade because the value of their retirement nest egg had dropped so dramatically.

So what is the answer to securing your retirement future?  It just might be a strategic apartment building investment.  Here's why:

1) Other People's Money. As opposed to investments in stocks apartment buildings offer the opportunity to invest with other people's money.  In fact, investing in apartment buildings allows you to purchase the building with up to 100% other people's money by using a combination of partnerships and traditional bank financing.  In addition, the balance of the mortgage is paid off over the life of the loan using other people's money in the form of rent payments made by your tenants. 

2) Scarcity and Demand.  A record low number of multifamily units will be completed this year. The increase in rental housing demand is being met by a sharp reduction in the supply of new apartments. Just to put this into perspective, over the 10-year period from 1998 through 2008, there's an average of about 240,000 new rental completions per year. Last year, there were 160,000. And this year, completions are expected to be below 80,000 units, which would make it a 50-year low. This level of new completions is actually less than the estimated annual loss due to obsolescence, meaning that we're seeing essentially a net zero increase in the stock at a time of strong demandNew starts are not expected to approach historical levels until late next year, 2012, which means it would likely not be until late '13 and into '14 that we'll see completions return to historical levels. And obviously it's the completions that are what's important in affecting the supply demand fundamentals.

3) Demographics.  Roughly 3 million young adults had been living with family during the past five years, according to data from the Census and real-estate investment brokerage firm Marcus & Millichap, and housing experts estimate that they now generate about one-third of rental demand.

4)  Instant Returns.  Factoring in maintenance costs and other variables, an investment property should produce at least a 6% return on the initial cash investment in the first year after it is purchased. For example, an investor who puts down $250,000 in cash on a $750,000 property would need to clear at least $15,000 in the first year.

What does all of this mean to you as an investor?  It means that the time to begin buying apartment buildings is right now.  I am not promising that you will be the next Donald Trump but I certainly believe that apartment building investing now offers one of the safest and securest ways to secure the comfortable retirement that you deserve.

The next step is to get started.  But don't go out today and begin buying apartment buildings unless you are properly prepared.  You need to arm yourself with all of the tools, information and market knowledge to ensure that you are investing in the right property that will not only continue to pay for itself over the years but also offer you a hefty monthly cash flow that will put money in your pocket.
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