Welcome back. Aired Freeman here again
today. I want to talk about a really neat way
that you can build wealth without paying tax
or at least very little tax. I want to go over an example
in terms of real estate on how this works. But essentially,
let's say you've just identified a property and I'm just going to make it
an even number. Let's just call it a million bucks. Let's say you can find a way to pay
for this property for $1,000,000. This is your purchase price. And let's say that's property, as it says
you've identified based on the market, the rents are low. Maybe there are some costs you can cut. The bottom
line is you can increase the income. So let's just say you do a 75%
loan to value. You got to come up with two or
if 50,000 of balance, is there a loan, 70 or 50 K and you're going to move forward
immediately after this. As leases are expiring,
you start increasing the rents to the market
and all of a sudden, after a year of doing these increases, you've
now changed the value of the property. And let's say it's worth now $1.5 million. So at this point, you started with 250,000
of equity, which was money you put in. The other was bank financing. Now that's worth 1.5 because of what
you've done to the property. They 750,000 in equity to 50
you being an investment, 500 being gain. So now you go back to the bank
and you get that same 75% loan to value. Well, that would be a note
new loan of 1,125,000. So that if you do that
in your original loan with simplicity, we're going to say
you did a paid out at any principal, although you probably pay down
a sum depending on the terms. So you take your difference. Your new loan of 1,145,000, and you can take out cash. And that brings you to 375,000 of cash. You can now pull out of this investment. So not only does that pay back
your original investment of 250,000, but you out another hundred
25,000 on top of that, that represents your profit
or equity in here. And so now you're moving forward and the most important part here,
you know, other than cash in your pocket, but is the refinance is tax free as you're not paying any tax,
even though you've just increase the value of the property by half a million
if take it out, 375,000 and pay no tax, they move for your equity in this building
after this obviously is the difference between the million five
and your new loan of a million. 125 That's the equity
sitting in here again, not taxed. And then you have 375 and I can just rinse
and repeat and do this over. If you do this effective early, along with depreciation deductions
that are offsetting your cash flow all of a sudden
and you make good investments, you're going to grow your
wealth tax free over time.
