Investment Return projections:

Historically, Real Estate increases in value over time, at about 5% per year.  The difference between the good investment and the great investment is the appreciation rate, with the superior property appreciating faster than the average property. We will attempt to compound investment funds at 15% to 30% per year using a combination of the following 4 methods:

1. Leverage:

Example: You purchase a house for $100,000 cash. The home increases in value to $110,000. You have made 10% on your money. You purchase the same home for $100,000 using a 10% down payment, and the home increases in value to $110,000. You have made 100% on your money.

2. Rent Increases:

Basically, we are looking for buildings that have not maximized their rent potential. Apartment buildings are priced based on the rent multiplier: for each rental dollar collected in a year the apartment sells for 8 times, 9 times, 10 times that amount. If we increase the rent on one unit $100.00 per month x 12 months equals $1,200 dollars a year, times a 10 multiplier, we have increased our equity $12,000. This can happen in one month or 5 years depending on the building. 

 3. Refinancing:  
Refinance and buy more property, or pay out as a dividend. Example: Safari Partners IV LLC purchases a basket of apartment buildings today for $1,500,000, ($500,000 down and a $1,000,000 loan). We forecast a 5% appreciation rate.  Ten years hence, we refinance our $2,443,000 worth of buildings using a 75% Loan to Value Ratio, yielding a new loan of $1,832,000. We pay off your old loan of $1,000,000 and have $832,000 cash-out proceeds to buy an additional $3,329,000 of apartment buildings using 25% down payments.  We now own a total of $5,773,000 worth of apartment buildings, and our net worth has grown from $500,000 to $1,445,000 in 10 years.  Our equity has compounded at 12.28% per year.  This is the power of leverage

Leap forward 10 more years, 20 years from today: Using a 5% appreciation rate, our buildings are now worth $9,403,000. We re-finance and employ the $7,052,000 cash-out proceeds (75% LTV); we pay off your old loan of $4,328,000, and have $2,724,700 cash-out proceeds to buy an additional $10,898,800 of new buildings. We now own $20,300,000 of apartment buildings ($9,043,000 plus $10,898,000). We owe $15,226,000, and have turned $500,000 into $5,073,000 in equity in 20 years.

4. The 1031 Exchange option:

The IRS gives a special tax break to real estate transactions: the 1031 Tax Deferred Exchange. Essentially, if you sell an apartment building and buy another apartment building, you pay no tax on the gain. This gives us the ability to roll our gains into ever-larger projects without losing 30% or more in taxes on each rollover.  When selling, Safari Realtors will market our properties for a $1,000 listing fee, versus the standard 2.5%. This will save us $15,000 on a $600,000 property. The combination of a 1031 tax deferred exchange, and saving the standard 2.5% listing fee gives us more equity to invest on each property, accelerating our yield.