Kill the Zombies in your Investment Graveyard!

Slap yourself really hard... Twice....

Good, now we can get started. Nothing has made me happier that to see the American love affair with the stock market end in a nasty divorce by the end of 2008. It has always bothered me that Americans would blindly invest in the stock market and get returns near 10% and sometimes greater without a clue as to what was really going on. Unfortunately, corporate America had to rob you of 40% or your retirement to get the point across.

Welcome to the future. You must now pay attention to your investment capital. This will require that you educate yourself and it will definitely require that you work much harder. I'm not attempting to be sarcastic and callous and for the majority of my life I didn't even have investments. What I want to do is SLAP you out of your denial and get you to change your behavior now that the 12 years of easy money is over.

My major objection to the stock market (other than it is full of crooks) is the lack of control that an individual has over his or her investment. This is why I love investing in single family home rentals. The case I'm going to make today does require work but I don't need to sell this. This sells itself.

In Detroit you can buy a nice house in a nice area and rehab it for about $40,000. This house will rent for $800-$900 a month. Taxes will run you about $2,800 a year and insurance will cost around $800 a year. Then you have to hold a reserve for Property Management, Maintenance, and Vacancy (the time when your property isn't rented) and we will hold 10% of rent a month for each of these.

This is a WORST CASE SCENERIO!!

Total Investment: $40,000

Total Annual Income: $9,600

Total Annual Expenses: $6,480

Annual Taxes: $2,800

Annual Insurance: $800

Annual Maintenance Reserve: $960

Annual Property Management fee: $960

Annual Vacancy Reserve: $960

Annual Cash on Cash Return: 7.8%

This is before equity in the property is considered and the tax benefits are calculated!

Annual Tax Write off for Property: $1394

Adjusted Annual Cash on Cash Return: 11.3%

You still have 50% equity in the property ($40,000). When you sell the property in 10 years, assuming values haven't increased, you have additional profit to capture.

Sell Property for $80,000

Realtor Fee: $4,800

Closing Costs: $4,800

Original Investment: $40,000

Long Term Capital gains: $4,560

Total Profit of Sale: $30,400

Total 10 Year Income Triple Net: $31,200

Total 10 Year Tax Write off: $13,940

Total 10 Year Profit: $75,540

Adjusted Annual Cash on Cash Return: 18.9%

How many of you would be happy making 18.9% a year on your money?

I just painted a very conservative picture that is very unlikely to happen. You will more than likely do even better. We didn't even look at leverage and see what that would do to your returns (this will increase your cash on cash returns in to the 30%'s!!!).

Unlike stocks that require a PHD and some luck to avoid the crooks, everyone can do the example above. It does require some effort and you might be surprised by how quick you pick it up.

If you are willing to roll the dice Vegas style with your retirement and your kids college funds in the stock market, then NOW is time to draw the line in the sand.

It's time to take out your shotgun and KILL the ZOMBIES in your investments and turn that graveyard into a nice park ala real estate style.

Make your life uncomfortable,

Jeremy Burgess

Detroit Market Expert

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