Seminar for Realtor Partners and Investors

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Robert Ratimorszky-Starpointe Robert Ratimorszky-Starpointe Mortgage Mortgage

[email protected] [email protected] 847-774-9657847-774-9657

““Real Estate Millionaire Club” Real Estate Millionaire Club” Convention -- January, 2006Convention -- January, 2006

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Mortgage & Real Estate Investment Strategies to Build Wealth

Presents:

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Robert Ratimorszky – Starpointe Robert Ratimorszky – Starpointe MortgageMortgage

My Experience:My Experience:

5 years as a Practicing Mortgage 5 years as a Practicing Mortgage PlannerPlanner

Illinois Licensed Mortgage Loan Illinois Licensed Mortgage Loan OriginatorOriginator

50 Millions Dollars in loans under 50 Millions Dollars in loans under managementmanagement

Real Estate InvestorReal Estate Investor

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– – Starpointe MortgageStarpointe Mortgage

Why I am here tonight:Why I am here tonight:

Partner with 250 clients (like you) Partner with 250 clients (like you) and, over the next 10 years, help and, over the next 10 years, help them create $1,000,000 or more in them create $1,000,000 or more in equity that produces a monthly equity that produces a monthly passive income of $15,000.passive income of $15,000.

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Tonight’s ObjectivesTonight’s Objectives

• Challenge/Enlighten

• Review the 7 main reasons to invest in Real Estate

• Learn the 7 keys to successful Real Estate investing

• Learn the basics of an Investment Real Estate Business Plan

• Start to build Wealth Through Real Estate

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What we won’t do tonight!What we won’t do tonight!

Try to sell you any books, tapes, or Try to sell you any books, tapes, or seminars!seminars!

Blow smoke at you about “investing in real Blow smoke at you about “investing in real estate with no money down”!estate with no money down”!

Promise or promote any idea we have not Promise or promote any idea we have not used ourselves!used ourselves!

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Your Home and It’s EquityYour Home and It’s Equity

No Mortgage is good, right?No Mortgage is good, right?

I “should” always pay extra on my mortgage, I “should” always pay extra on my mortgage, right?right?

I “should” get a 15 year, fixed rate mortgage, I “should” get a 15 year, fixed rate mortgage, right?right?

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Wrong!Wrong!

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The “Meaning” of The “Meaning” of Debt Debt FreeFree

Pay off Mortgage

Become Debt Free

Achieve Financial Freedom

Make your life dreams come true

Make a difference in the lives of

your loved ones

Care for elderly parents

Provide education &

opportunities for children

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The Meaning of The Meaning of Debt FreeDebt Free

Having no mortgage (traditional thinking)

Having, but not needing to have a mortgage (new paradigm thinking)

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The Impact of Leverage on The Impact of Leverage on Your HomeYour Home

No Mortgage With Mortgage

Home Value $500,000 $500,000

Mortgage Balance - $350,000

Home Appreciation

3% 3%

Invested Equity $500,000 $150,000

Home Value – 5 Years

$580,000 $580,000

Rate of Return onEquity

3% 10.7%

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The Impact of Leverage on The Impact of Leverage on Your HomeYour Home


Investment Assets - $350,000

Interest @ 6% - $21,000

Tax Ded. @ 31% - $6,510

After-tax Interest - $14,490

7% Invest. Yield - $24,500

Invest. - 5 Yrs - $490,893

Home Value - 5 Yrs $580,000 $580,000

Mortgage - 5 Yrs - $350,000

Net Worth - 5 Yrs $580,000 $720,893

Extra Wealth - $140,893

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Recommended Reading:Recommended Reading:

““Missed Fortune 101” by Doug AndrewMissed Fortune 101” by Doug Andrew

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Why Invest in Real Estate?Why Invest in Real Estate?

1.1. Positive Cash FlowPositive Cash Flow

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The Option ARMThe Option ARM

Option ARMOption ARM 2.90 Index

+ 3.10 Margin

= 6.00% Interest Rate

Option ARMOption ARM 3.10 Index

+ 3.60 Margin

= 6.70% Interest Rate

Primary Residence – 80% Financing:

Investment Property–90% Financing (No PMI):

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The Option ARMThe Option ARM

Deferred InterestDeferred Interest Interest Only Fully Amortizing

Option #1Option #1 Option #2 Option #3

1.375% 1.375% 6.00% 6.00%

$1187 $1750 $2098

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The Power of Deferred Interest!The Power of Deferred Interest!

Since 1970, homes in our market have achieved Since 1970, homes in our market have achieved average appreciation of 5% per year.average appreciation of 5% per year.In the preceding example, you could potentially defer In the preceding example, you could potentially defer $563 per month ($1750 interest only payment minus $563 per month ($1750 interest only payment minus $1187 minimum payment) to your mortgage balance, $1187 minimum payment) to your mortgage balance, which would equal $6756 in a 12 month period.which would equal $6756 in a 12 month period.During that same 12 months, if your $500,000 home During that same 12 months, if your $500,000 home appreciated 5%, you would gain $25,000 in new equity.appreciated 5%, you would gain $25,000 in new equity.Subtracting the deferred interest, you have still realized a Subtracting the deferred interest, you have still realized a net gain of $18244, plus you have leveraged the $6756 net gain of $18244, plus you have leveraged the $6756 into another higher and better use! into another higher and better use!

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Interest Rate HistoryInterest Rate History

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How This Strategy Can Work For YouHow This Strategy Can Work For You

• Investment Real Estate

• Primary Residence

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2.2. Tax AdvantagesTax Advantages

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Tax Advantage #1Tax Advantage #1DepreciationDepreciation

Depreciation allows you to deduct a certain portion of thepurchase price of an investment. This effectively offsets some of the income that you receive from the investment and allows you to achieve a greater after-tax yield.

Only the value of the improvements, not the value of the land can be depreciated. With residential properties (both single and multi-family), you can depreciate the value of the improvements over 27.5 years.

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Depreciation at WorkDepreciation at WorkDepreciation on a Residential Property

Purchase Price/Initial Investment: $250,000

Value of Improvements (75%): $187,500

Annual Depreciation (27.5 years): $6,818

Net Income (10% cap rate): $25,000Taxable Income: $18,182Income Taxes @ 35%: $6,364After-tax Income: $18,636

After-tax Return on Investment: 7.45% w/depreciation vs. 6.5% without depreciation

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Depreciation at WorkDepreciation at Work

Additionally, you may be able to “bifurcate” Additionally, you may be able to “bifurcate” the property, dividing the purchase price the property, dividing the purchase price into land value, improvements value, land into land value, improvements value, land improvements value, and personal improvements value, and personal property value.property value.

The advantage in doing this is that land The advantage in doing this is that land improvements and personal property are improvements and personal property are depreciated at a faster rate.depreciated at a faster rate.

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Tax Advantage #2 Tax Advantage #2 1031 Exchanges1031 Exchanges

Section 1031 of the Internal Revenue Code allows you to avoid paying capital gains tax on the sale of your

investment if you “exchange” the investment for another of “like-kind”. In other words, if you use the sales proceeds of a real estate investment property to purchase another real estate investment property of equal or greater value, you will not be obligated to pay capital gains tax on the

proceeds of the sale.

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Tax Advantage #2 Tax Advantage #2 1031 Exchanges1031 Exchanges

1. Roll Over Investments Indefinitely

2. Step-up in Basis Upon Inheritance

3. Time Limitations to Identify Property and Consummate the Transaction - see a CPA for details

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1031 Exchanges at Work1031 Exchanges at Work1031 Exchange of a Real Estate Investment Property

Purchase Price/Initial Investment: $250,000Sales Price/Net Proceeds: $300,000Profit: $50,000Re-invested Funds: $300,000Capital Gains Tax @ 15%: $0

Sale of Investment Without 1031 Exchange Capabilities

Purchase Price/Initial Investment: $250,000Sales Price/Net Proceeds: $300,000Profit: $50,000Capital Gains Tax @ 15%: $12,500

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3.3. Property AppreciationProperty Appreciation

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4.4. Hedge Against InflationHedge Against Inflation

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5.5. Investment DiversificationInvestment Diversification

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6.6. Psychological AssetPsychological Asset

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6. Psychological Asset6. Psychological Asset

Which has more appeal to you?Which has more appeal to you?

This?This? Or This? Or This?

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6.6. Psychological AssetPsychological Asset

7.7. Positive LeveragePositive Leverage

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7 Keys to Successful Real Estate Investing7 Keys to Successful Real Estate Investing

Determine Acceptable Level of LiquidityDetermine Acceptable Level of Liquidity

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Determine MarketabilityDetermine Marketability

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Determine Marketability (continued)Determine Marketability (continued)

You Need A Plan!

• Beginning to buy real estate without a written plan is akin to deciding to be jet pilot without getting your pilot’s license!

• You must assemble your “dream team” – mortgage planner, attorney, CPA, and insurance provider

• Starting small and leveraging the future appreciation is where most clients start

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Determine the Impact of LeverageDetermine the Impact of Leverage

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The Impact of LeverageThe Impact of Leverage


Home Value $200,000 $200,000

Mortgage Balance $0 $160,000

Home Appreciation

3% 3%

Invested Equity $200,000 $40,000

Home Value – 5 Years

$232,000 $232,000

Rate of Return onEquity

3.2% 16%

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The Impact of Leverage (continued)The Impact of Leverage (continued)


Rent $1,600 $1,600

Mortgage Expense $0 $733

Other Expenses $400 $400

Month Cash Flow $1,200 $467

Annual Cash Flow $14,400 $5,604

Sale Proceeds $32,000 $72000

Initial Investment $200,000 $40,000

Internal Rate of Return

9.8% 24.0%

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Evaluate Management IssuesEvaluate Management Issues

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Calculate the Rate of ReturnCalculate the Rate of Return

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Calculate Rate of Return (cont.)Calculate Rate of Return (cont.)

Return on Investment w/appreciation:(this is the calculation used while owning the property)

The Math:Cash flow before tax+principal reduction+Tax Savings+AppreciationCash Invested (Current equity position)

Example: (see worksheet)

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Internal Rate of Return = The total actual rate of return of an investment when you take into consideration the initial investment, periodic cash flows and net sales proceeds. This is a time value of money calculation.

(This is the calculation used when the property is sold)

Example:

Initial Investment: $50,000Annual Cash Flow: $5,000Sales Proceeds: $65,000IRR: 14.49%

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Internal Rate of Return Calculations (financial calculator):

N = Term (number of years that you hold the investment)

I% Year = Annual Interest Rate

PV = Present Value (initial investment = negative number)

PMT = Annual Cash Flow (negative or positive number)

FV = Future Value (sales proceeds)

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Internal Rate of Return Calculations:

N = 5

I% Year = UNKNOWN

PV = (-$50,000)

PMT = $5,000

FV = $65,000

Internal Rate of Return (IRR): 14.49%

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Calculate Rate of ReturnCalculate Rate of Return

Consider the Tax ImpactConsider the Tax Impact

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Understand, Calculate and Manage RiskUnderstand, Calculate and Manage Risk

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Understand, Calculate and Manage Risk (cont.)Understand, Calculate and Manage Risk (cont.)

Understand the Indexes1. LIBOR

- 1 month LIBOR (follows Fed Funds Rate)

- 6 month LIBOR (predictor 6 months from now)

- 1 year LIBOR (predictor 12 months from now)

2. MTA

- 12 month moving average of the monthly 1 year Treasury Index

MTA is more stable and slow moving than LIBOR related indexes

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Understand, Calculate and Manage Risk (cont.)Understand, Calculate and Manage Risk (cont.)

0

1

2

3

4

5

6

7

Dec, 0

3

Mar

, 04

June,

04

Sep, 0

4

Dec, 0

4

Mar

, 05

Jun, 0

5

MTA

1 Mo LIBOR

Prime Rate

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Understand, Calculate and Manage RiskUnderstand, Calculate and Manage Risk

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Example Property Acquisition PlanExample Property Acquisition Plan

(see Handout)(see Handout)Background: Client owns two current rental properties currently and Background: Client owns two current rental properties currently and

has a primary residence with a $150,000 15 yr fixed rate mortgage. has a primary residence with a $150,000 15 yr fixed rate mortgage. This home is valued at $250,000.This home is valued at $250,000.

This client’s plan called for leveraging the most property for the least This client’s plan called for leveraging the most property for the least down payment. down payment. His goalHis goal is to amass $1,000,000 in equity in the is to amass $1,000,000 in equity in the next 10 years, creating enough passive income to pursue next 10 years, creating enough passive income to pursue investment real estate full time. investment real estate full time.

Under this plan, the borrower can leverage $525,000 in rental real Under this plan, the borrower can leverage $525,000 in rental real estate for $50,000. In addition, the client has created $553 per estate for $50,000. In addition, the client has created $553 per month in passive income, while decreasing their overall monthly month in passive income, while decreasing their overall monthly mortgage expense.mortgage expense.

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Our Goal Revisited:Our Goal Revisited:

Amass $1,000,000 in equityAmass $1,000,000 in equity

$15,000 monthly income $15,000 monthly income

Create that 2Create that 2ndnd or 3 or 3rdrd income that every income that every family needs to achieve their financial family needs to achieve their financial goals!goals!

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What’s Next?What’s Next?

1. Decide if Investment Real Estate is right for you.

2. Pull credit report and improve scores (1 in 3 are incorrect)

3. Enroll in our Rate Watch Mortgage Management Program

4. Build your “Dream Team” (give me names!!!)

5. Write Your Plan

6. Start building wealth through Investment Real Estate!

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““Real Estate Millionaire Club” Real Estate Millionaire Club” Convention -- January, 2017Convention -- January, 2017

I hope to see I hope to see youyou in Hawaii! in Hawaii!

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Thank You!Thank You!

Thank you for attending my seminar. Thank you for attending my seminar. Honest, thoughtful feedback is the only Honest, thoughtful feedback is the only way I can improve what I do. Please take way I can improve what I do. Please take five minutes to complete the survey five minutes to complete the survey enclosed in your package. All surveys enclosed in your package. All surveys turned in this evening will be entered into a turned in this evening will be entered into a drawing for a complimentary drawing for a complimentary Missed Missed Fortune 101Fortune 101 book and a Texas book and a Texas Instruments Business Calculator.Instruments Business Calculator.

Seminar for Realtor Partners and Investors

Real Estate

Transcript of Seminar for Realtor Partners and Investors