Wealth Building Through Real Estate

by Dual Income No Kids on March 24, 2007 · 0 comments

In the past, we’ve written about the luck we’ve had real estate investing. Today’s posting is along the same lines. Last week, I read about an interesting procedure in Adriane Berg’s Your Wealth Building Years for accruing real estate. Basically Berg says some simple steps will help you build real estate wealth*.

They are:

1) Buy an investment property.

2) Hold the thing until you have 20 percent equity (either by mortgage pay down or principal appreciation).

3) Take out a loan against the equity.

4) Invest the loan proceeds in another piece of real estate.

5) The cash flow after taxes from both properties must cover all expenses.

6) Repeat steps 1 through 5 as frequently as it is profitable.

There are a couple of ideas Berg should be considered when doing this: 1) The importance of a taxes and 2) whether a property manager should be used.

For my part, this seems like a good plan. The major rub is pricing and cash flow. For example, its not sensible to purchase income producing property if rent won’t cover expenses. My wife and I currently have an investment apartment in DC. With the 5 year run-up in prices, we’d be cash flow negative if we bought another place in Washington with 20% down.

So in short, Berg’s plan will probably work, but it requires some effort and critical thinking.

Best,

James

Berg, A. (1986) Your Wealth Building Years. pp. 151-152.

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