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How Do You Spell ROI?

 


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Let's reverse roles and pretend you are the potential client. You're looking at this great investment. There are several places you can park your money for a decent return. Which investment gives you the best bang for your buck? There are a lot of investment opportunities available. What is so special about this investment? This is why your product and your service must be appealing and compelling. This is why you need to be educating your clients about the “three R O I amigos". They're simple, straightforward and shoot from the hip.

Let the three amigos of real estate investing do the talking:

1. Cash-on-Cash
2. Principle Reduction
3. Appreciation

I reserve the “7 Profits Centers of Real Estate" for my formal presentations and use the three amigos in casual conversations. Investors simply want to know their bottom line Return On Investment. End of story. My role as educator is to provide clarity and add value to my investor's portfolio.

Amigo One: The merits of Cash-on-Cash was discussed in “What type of Cash Flow are you dealing with?" This must be positive net cash flow as the opposite is unappealing to investors. Unfortunately, most retail investors place their money in negative cash flow investments. This becomes an opportunity to explain how and why real estate is such an attractive investment vehicle. Cash-on-Cash . . . ROI #1.

Amigo Two: Principle reduction is also known as mortgage buydown. This is one of the most commonly overlooked profit centers. Tenants are making the mortgage payments every month. Mortgage payments include interest and principle. The double benefit here is that the interest payments are tax deductible and the principle portion is being paid down by other people's money. The Return On Investment on the principle reduction portion is a conservative 3% on the low end and as high as 6% depending on the prevailing interest rate and the term of the loan. Principle Reduction . . . ROI #2.

Amigo Three: Have you noticed that the value of real estate tends to go up over time? How much did your parents buy their house for, oh, twenty years ago? Ten years ago? Five years ago? The difference in value is staggering. On a national scale, appreciation averages 3% per year. This means that certain areas in the country are experiencing negative appreciation where the value of property has decreased over time and other areas in the country are experiencing higher than average appreciation. The key is to invest in the geographical areas experiencing maximum appreciation. For purposes of calculating an actual dollar figure for my Return On Investment, I use the most conservative rate of 3% appreciation per year with a footnote describing the appreciation rate for the past 2 to 3 years in that particular area. Appreciation . . . ROI #3.

Tally-Ho! Now simply tally up the three amigos and you have a compelling bottom line not to mention the other 4 profit centers. Use your casual conversations to book a formal presentation. This takes the emotion out of real estate. A confused mind always says no. Clarity brings the yes. Now that's how I spell R O I.

July Ono is a real estate investor, educator, mentor, author and millionaire. She is the Founder of On~The~Beach~Education® Corporation a premier real estate education program designed to empower people to live wealthier sooner by creating passive income through real estate investing. On~The~Beach~Education® Corporation offers a range of seminars, workshops, networking and mentorship opportunities to coach entrepreneurs to create their own financial independence. On~The~Beach~Education® Corporation has successfully helped its students invest in millions of dollars in real estate throughout North America since 2006. http://www.onthebeacheducation.com - http://www.julyono.com

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