Category : Blogs
Two Stream Theory
I received a telephone call yesterday from a potential borrower,who had a unique way of maximizing his rate of return on real estate. His strategy involved rental income as well as debt income. He has managed overtime, to develop a portfolio of rental properties as well as lines of credit on said rental. His philosophy boiled down to maximizing his rate of return on each and every rental property.
Over time, he was able to develop two income streams per rental by extending money from his lines of credit to flippers(people buying investment properties and rehabbing to flip) at a rate of return of 18%. The cost of his lines of credit was roughly 8%, whereby leaving him a net rate of return of 10%. The average on his rental properties was roughly $1750 per month, and his average line of credit per property was roughly $100,000. This allowed him to rent the line of credit for approximately $10,000 per year resulting in an additional income stream per property of roughly $833 per month. Now instead of making $1750,he is making $2583 per month on the exact same property.
I’ve always been fascinated in the different ways people approach the development of income streams, and this is a classic example. This guy not only used the rental income of his real estate, but he also used his equity position gained from the development of his real estate and managed to put that to work. I guess it holds true, the reason some people make money with real estate, while others see it as an albatross is predicated in their ability to see how income streams can develop.
To be a good asset manager, you must realize the potential of the asset as well as how to move forward in order to maximize your returns safely. The good news, if you’re successful, your real estate will always be in the same place and willing to produce without any additional expectations. Making fora great relationship in perpetuity.
– Nathaniel Fulford V