Hey, guys. Stefan Aarnio, here. Now, we’re going to handle today real estate investing buy and hold.
Now, I’m gonna actually draw over here. If you wanna be rich, if you wanna be wealthy you gotta have three things. So, you need to have cash. That makes sense, money in the bank. You gotta have high yield investments, and the last thing you gotta have is some inventory. Now, this is stuff you sell. Now, what I see all the time with people trying to get rich is they go right into this. They try to go into high yield investments, but they don’t have any cash, or they don’t have any inventory. And the old Jewish wisdom, as I spoke about in some of my other videos, the old Jewish wisdom is to have a third of your net worth in cash, a third in investing, and a third in high yield investments.
I think, this is actually really smart and really brilliant. In my life, I’ve had too much equity in investments, not enough cash, not enough inventory. I’ve had times where I’ve had too much inventory, not enough equity, not enough cash. And I’ve had times where I’ve had just too much cash and none of the other ones.
So, the best thing to do is have a blend so that you can weather the storm or whatever happens. Now, here’s the thing. Cash, this is your income, this is a nice thing. You always want this going up. Income is good when it goes up. High yield investments, this is where you get your growth and your wealth over time. And wealth is important, wealth does not equal cash. Cash is nice. It buys you time, but wealth is where you can stop working and just go live on the beach. That can be cool, if you wanna do that. I get bored of the beach, so that’s why I do what I do.
Now, over here, inventory this is where you get really rich. I would even say ultra rich. This is your business. So, you gotta have all three of these opportunities happen.
Now, coming over to buy and hold real estate, this is your high yield investment. So, let’s say we have a property, and I’m just using easy numbers. Let’s say we have a property here. We have a house. Here’s our house. It’s worth, let’s say, a hundred grand. Now, we go, we buy this house 20 thousand dollars down. That’s our money that we use to buy this house. The bank gives us 80 grand as as mortgage, and we are gonna make money on this house over time. I got year zero, year 25. So, this is how property works, buy and hold real estate. I’m gonna show you how people get rich with buy and hold real estate.
So, equity on day one, here’s your six profit center. I’ll just write here, six profit centers. So, they are equity on day one, which is money in the buy, appreciation, property appreciates over time, depreciation, which is your tax advantages. And then, over here, you got cashflow, which everybody wants. This is your passive income. Then we got mortgage paid down, this is probably my favorite one. This is why I buy real estate, actually, out of everything. I want the mortgage pay down. And number six is leverage, which is you put in one dollar and the bank’s gonna give you at least four. Sometimes you even get one and ten leverage, that’s nice leverage too.
So, check this out. We go and we buy a house here. This is our little house. 20 grand down, 80 thousand dollar mortgage. Did we get any equity on day one? No, let’s say we didn’t. Appreciation, is it gonna appreciate? Let’s say it appreciates 3% a year, which is pretty conservative in most markets. Let’s say we got some depreciation, we got our tax advantages, a little bit of cashflow.
Now, cashflow over time, usually with properties, guys, turns out to be … With all the problems, and let’s just say it nets out to nothing over time, the money we made we spent it maintaining this building. Because, usually over 25 years this building itself is a piece of junk. So, let’s say we put all the cashflow back into the building to maintain it to keep it from being a piece of junk.
Mortgage pay down, this is the beauty of this whole game. And leverage, which is 20 grand down gets us 80 grand to invest. Now, watch this. If we hold this property for, let’s say, 25 years, let’s say it’s worth 100 grand. Now, check out my numbers here. We’re at the 100 grand on day one, times .03 appreciation, one year after you own it it’s worth 103, two years, three years, four years, five year, six years, seven year, eight year, nine, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25. 25 years later it’s worth 209,377.
So, to draw that here on our graph, twice as valuable, 209,977. You gotta wait 25 years. Now, our debt, or mortgage used to be, over here, 80 thousand dollars of debt. So, we used to have debt. But, now we have no debt. The debt is paid off, mortgage pay down, this paid off our debt. It’s now zero.
So, what can we do? This is where people get really rich with real estate. This is how the rich get richer. I’m gonna write that here, the rich get richer. The rich get richer because now that they got this property paid off, they’re gonna go to the bank and borrow 80% of 200 grand. Now, let’s just say that’s 160 thousand for easy money. So, they borrow 160 thousand against a 200 thousand dollar asset. And this money comes out, to them, tax free. You might say, “Well, why is it tax free? They are evading taxes. That’s not right. The rich should pay their fair share.” You can say all that you want, but this is loan, ladies and gentlemen, it’s not earning. It’s a loan, so they’re using accounting to get this money tax free.
Now, imagine you take this money tax free. This 160 thousand dollar, you take it back here and you reinvest in a new building. Now, let’s say we take this 160 grand, we got a new bigger building, here it is, and we put our 160 grand down. Now, let’s say we’re using 20% down and we’re using 80% debt. So, this is now gonna be a 640 thousand dollar building. Building’s now worth, this is the new building, this is building two that you buy after 25 years. Your 160 grand down you borrow from building one, which is still cash flowing over here, you now go buy building number two which is worth 640 grand. And then, in 25 years this is paid off, you take your 640 and you go invest in something that’s like two million bucks.
So, in 50 years you put 20 grand down today. This is your starter investment, that 20 grand. Excuse my dropping my lid, here. That 20 grand that you invest at the beginning, this little 20 grand, over 50 years turns into a 200 thousand dollar asset. This is 25 years, which gets reinvested into. Now at the end of 50 years, let’s say we don’t do anything. At the end of your 50 this is 640 thousand dollar building paid off. This building now is paid of, again, and it’s appreciated as well.
So, somebody with a small amount invested today held over the long term. This is real estate investing, buy and hold. This is how very, very rich people get very, very more rich. You get more and more rich by doing this over and over again, and it only takes a small amount of money invested today to turn into a huge amount of money over time.
So, I’m Stefan Aarnio. That’s real estate investing buy and hold. Respect the grind. Like, share, comment, subscribe to my channel. I’ll see you on the next video.