Our biblical king by the name of Solomon was born too early for Elvis, the blues, or the laid-back lure of riverboats winding their way down the Mississippi River. But there’s one thing about Memphis he would have loved – an excellent return on investment. The foreclosure crisis that stampeded through much of the country hit the mid-south hard also, turning many former homeowners into renters. An unfortunate turn of events for them, to be sure, but sitting on the sidelines feeling sorry won’t magically bring their houses back. Investors with money should seize the day.
Memphis is an interesting city for income property investors right now. When we say interesting we mean great for investment! The foreclosure crisis of the past few years hit this mid-south area particularly hard, leaving a healthy selection of properties still in pretty good condition for sale. Add to that reality the fact that prices in the nation’s interior (away from the east and west coast) tend to be lower anyway, and you’ve got yourself the makings of a pretty good deal.
Frequently, we like to mix in cold, hard facts with our more general articles about income property investing. Nothing quite makes the case for why this investing style beats Wall Street to heck and back like looking at real world numbers. If you have cash sitting on the sidelines, pay attention. We’re going to show you a way to earn a 28% total return on investment and a positive cash flow of $251 monthly. The great thing is this isn’t a one shot deal. We see numbers like this all the time.
Today’s property is a 3 bedroom, 2.5 bath, two story, red brick construction, built in 1983. Square footage is 2,331. The purchase price is $98,000. For $26,307 cash it could be yours, which includes the downpayment, loan origination fees, and depreciable closing costs. Rents in that area (the Hickory Hills neighborhood) run about $1,195, a level of operating income that nicely covers all expenses, including the mortgage payment and leaves a $251 positive cash flow in your pocket each month. This adds up to an 11% cash-on-cash return and a 28% return on your investment.
If you or anyone you know on Wall Street who is not named Bernie Madoff can generate those kinds of returns year in and year out from stocks, we’d like to know about it. The reality is that the Jason Hartman style of real estate investing is more conservative and more profitable than anything else you’re going to find. Why? The secret lies in a little thing called leverage. Some stock traders use a form of leverage called margin, but unseasoned investors can get into trouble REALLY fast with a margin call.
Leverage, the way it is used in real estate investing, is an entirely different animal. If you’re interested into delving into our Memphis example a little more deeply, the link to all the property information is here.
The Solomon Success Team