How investing in property can pay for your Porsche

PREPs. Kim and I like to invest in private real estate partnerships, or what we call PREPs. No one else calls them that. It is simply a code name we gave to this form of real estate investing. A PREP is more often called a real estate syndication and is simply a private partnership that is formed to buy a large real estate investment.

The following is an example of a PREP In an earlier book I wrote about wanting to buy a new Porsche for $50,000. Instead of wasting my money on the Porsche, which is a liability, Kim and I pooled our money with nine other investors, raising $500,000 equity, and purchased a mini-storage warehouse with the mortgage financing coming from a bank.

That warehouse paid each partner approximately $1,000 to $1,400 a month in cash flow I do not know what the other partners did with their monthly cash flow check but Kim and I used our checks to make the monthly payments for the Porsche. After three years, the mini-storage warehouse was refinanced. We then got our initial $50,000 back, which we reinvested in another PREP. And we continue to receive our monthly cash flow; which has grown to approximately $2,000 a month, since the rents went up. If the property were sold today we stand to make an additional $l00,000 to $200,000 from capital gains… and I still have the Porsche. This is an example of an asset buying our liability and helping us with our early retirement. Since we no longer have any money in the investment, and we still receive our $2,000 a month, what is our new ROI (return on investment)? Infinite.

Kim and I invest in one or two of these types of PREPs a year. Our average returns are 15 percent to 25 percent cash-on-cash returns, plus the off-setting depreciation deductions, which are not really losses but phantom cash flow. This can easily put our returns in the 50 percent or more range. Try doing that with most mutual funds.

We like these investments because the risk is shared, we use our banker’s money the investment is secured to real estate, we receive monthly cash flow, there is a strong potential for capital gains if the property goes up in value, the income is tax-advantaged, and the capital gains are tax-advantaged at the time of sale. Most stocks and mutual funds do not offer such tax advantages, steady cash flow or security.

The latest PREP Kim and I invested in was a 240-unit apartment building that pays a 15 percent tax-advantaged retum, which is comparable to a 30 percent taxable return, with capital gains potential. We are in this partnership with three other investors. But best of all, in a little over three years we will have all of our initial investment back, we will still own the property still receive the monthly cash flow, and then be able to go out and use the same initial investment money to do it all again on another property!

Rich Dad’s Prophecy, Chapter 14, Robert Kiyosaki & Sharon Lechter

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3 Responses to “How investing in property can pay for your Porsche”

  1. Singapore Watch » Blog Archive » How investing in property can pay … | Distressed Marketplace Says:

    […] here to see the original: Singapore Watch » Blog Archive » How investing in property can pay … Categories : AREA Property Partners, Real Estate […]

  2. Property Investing Says:

    A great example of how wise property investing can pay dividends.

  3. Kartini Says:

    Any such lobang recently?

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