Chapter Three New financing: 75 percent leverage = $13.5 million ($18 million x 75 percent = $13.5 million) Paid off old loans: $13.5 million - $10.0 million = $3.5 million Return to investors: $3.5 million Net transaction: Kim and I invested $1 million. From the $3.5 million return to investors, we received $1.4 million. $1.4 million is reinvested in a 350-unit property in Oklahoma. Taxes on $1.4 million: 0 Today, Kim, Ken, Ross, and I still own the 252 units in Tucson. We receive monthly income from the property. Since we have zero invested in the property, our ROI (return on investment) is infinite. Over the course of seven years, Kim and I have invested in over 2,500 units with Ken and Ross, using the same investment strategy. Todayâ€™s economic climate has offered us opportunities to buy even more properties because prices are low and, more importantly, interest rates are very low. Low interest rates increase our income as rental income goes up. Rental income is going up because fewer people can afford to buy their own home, so they rent. During the real estate bubble between 2005 and 2007, Kim, Ken, Ross, and I were losing renters because they were using subprime financing to buy homes they could not afford. During that bubble, we actually made less money. But once the bubble burst, the tenants flowed back in, our cash flow increased, and our apartment properties increased in value as the values of residential homes plunged. When banks look at large, multi-million-dollar projects, they focus on the borrowerâ€™s track record and the property itself. They make their lending decision primarily on cash flow, not the borrower. When homeowners buy their home, banks focus on the borrower and the homeownerâ€™s income because there is no income on a personal residence.
by Rich Dad, Robert Kiyosaki