Did you know that based on the Federal Reserve’s Sept 2020 bulletin report, the average net worth for a US household is $749,000 while the median net worth for a US household is $121,700? The main difference between the median and average numbers is because median value looks at the middle value of the full set of numbers which is more indicative of a typical household. This also represented the huge disparity of wealth in our country. Furthermore, according to the report, homeowners have a median net worth of $255,000 which is four times more than the renters’ median net worth of $6,300. So why wouldn’t you become a homeowner or a real estate investor if you are seeking for greater financial security?
In my previous articles, I had shared a strategy to flip an apartment building without selling it which had earned me over one million dollars in equity within five years. I went from not having even $5,000 in my bank account to having over one million dollars in equity and it continued to grow thereafter. Some may think that you have to buy a large building or own many units in order to achieve this result. The fact is, you can do this with as little as a five-unit apartment building because once your residential building has five or more units, the valuation method is based on the net operating income of the property.
Let’s use two different scenarios and see how you can use net operating income valuation method to gain one million in value:
As you see, you can increase the potential value of a property in a five-unit building by one million dollars just as easily as a 15-unit building. These types of buildings are commonly owned by a small investor or a very small number of investor partners! Can you imagine becoming a millionaire in five years just by investing in one building? What are the missed opportunities if you do not do this now? I am not teaching you a get rich quick investment strategy, what I am about to demonstrate to you is how to select the right property in the right location, so you can increase the property value and become a millionaire in a short horizon of your future.
So, the two most common questions from new investors are, “How do I start?” which I had addressed in my previous article and “Where should I invest?”.
Let’s discuss where you should invest so you might be able to shorten the five year time frame to achieve your one million dollar increase in equity. In the last 10 years, I have always advised my clients to explore emerging markets, which are not the same as the hot markets being reported on the internet. To identify emerging markets, you should examine a few characteristics. The property should be located:
- Within one hour from a high job growth area.
- Within one hour from a high housing cost growth area.
- Within a county with a net increase in wealth and money.
- In a city where its leadership offers strong incentives which include tax credits, comprehensive redevelopment plans, and creative ways to attract investors and keep residents.
There are emerging markets everywhere, and many people overlook the emerging markets in their own backyard. Our company is located in Silicon Valley, which is one of the most expensive cities (and the lowest cap rate) in the country. When we started recommending the city of Stockton (which is located around 1.5 hours away from the Silicon Valley) to our investors back in 2016, other real estate agents thought we were out of our minds. All they have heard was the bankruptcy it had experienced during the downturn and it was known as the capital of foreclosures during the mortgage crisis. However, Stockton fit our criteria as an emerging market because:
- Stockton was located approximately one hour from the San Francisco/Oakland area, Sacramento (the capital of California) and Modesto which have all been experiencing high job growth.
- The housing cost—including home prices and rental rates—had exploded over the years for those three surrounding cities.
- Stockton is located within San Joaquin county, where it experienced a gain of 1.55 billion dollars in annual AGI.
- The City of Stockton offered Universal Basic Income of $500 per month for 125 Residents in 2017. Although this is a small sample, it was a tremendous effort to regain Stockton’s economic empowerment. Also, their comprehensive 2040 General Plan laid out specific development plans for the downtown area.
After our research, we helped our clients secure a 12-unit building for $630,000 in 2016. He was able to increase rents and eventually sold it for 1.1 million dollars in just 18 months. If he repeats the process, he could earn one million dollars in equity in less than five years. In 2017, Stockton was named one of the top five cities in the US to invest. Per-unit price has gone from $50,000 per-unit in 2016 to over $100,000 per-unit by 2019. This is the power in understanding the benefits of investing in an emerging market.
If you have read through this article, you must be fascinated at the opportunity to create one million dollars in wealth through real estate investing. Remember, you hold the Power To Change Your Life, and you just need to apply the concept I have shared with you here. You are the one who shall let your excitement move you towards your goal. Through my articles, videos, webinars, and my consultative service, I hope one of these channels can change your life and allow me to be part of your real estate investing journey! Happy investing!