Real Estate Investing

Hello everyone, welcome to this episode of the Xillion Master Class. I'm Gagan Sandhu, host of this master class and the co-founder and CEO of Xillion. Xillion is a financial platform that helps you make great financial decisions and become financially independent in 10 years or less.

Today's topic is real estate. We will do a deep dive into how to think about investing in real estate, including the steps, factors to consider, and how to make the best possible decision. Let's jump right in.

This is Xillion, and we offer a variety of products that help you reach financial independence on your own terms. For instance, we help you improve your 401K, make better investment decisions, plan for retirement, manage your expenses and debt, and more. One of our key products is Real Estate, which helps you make the best real estate investment decisions.

To access this, log in to Xillion, create an account (the first month is free), and then go to the Real Estate product. If you've already created some properties, you'll see them; otherwise, you can start right here.

Before we jump into the specifics, let's address a common myth: some people think that real estate is the fastest way to build wealth. I would counter that by saying real estate is one of the ways to build wealth, but not necessarily the fastest. In general, real estate yields about 4-5% per year returns. If you have excellent information and skills, it can yield up to 6%, but the stock market typically returns 8-10% annually. Keep that in mind as we dive deeper.

Real estate is a slow and steady game. You build your portfolio over the years, and it takes decades for it to become significant. My own experience started in 2008-2009 when I bought my first home, followed by a couple of other properties. It takes a long time for properties to appreciate and build enough equity to cover the costs involved in buying and managing real estate.

How should you go about it? Let's say someone presents you with a great deal and you need to evaluate it. We used to manage all that in spreadsheets, but we've now converted those spreadsheets into an online tool available on Xillion. Go to Xillion, log in, and go to the Real Estate product to get started.

I'll walk you through an example. Suppose you're thinking of buying a property. You can start by clicking "Add Property." Make sure your income is reflected accurately because your tax rate plays a role in these calculations. Let’s say your income is $140K, and your federal tax rate is 28%. Update that information.

Now, add the property. For this example, let's call it "123 Main Street," located in California. The property area is about 1,400 square feet, and the purchase value is $1.15 million. I'm not a veteran or a first-time homebuyer, so I'll skip those options. I'll get a loan with a 20% down payment, which is typical. The interest rate is about 7% right now, and I'll take a 30-year loan. The monthly rent in San Francisco might be around $5,200.

HOA fees are about 10%, based on our research across various cities and states. Property tax in California is about 1.25%, and insurance costs are around 0.25%. Closing costs are typically 3%, but you might get a discount from your bank, so let’s set it to 2.5%.

Maintenance and management costs are significant factors. Maintenance typically costs about 10% of the rent. Managing the property might cost around 7% if you hire someone, which is advisable if you don't want to handle tenant issues yourself.

After inputting all the numbers, our algorithm will calculate the potential returns. For example, annual cash inflow might be around $96,000, with cash outflow around $115,000. This results in a net cash loss, but considering property appreciation and non-cash returns, the overall ROI might still be positive.

Real estate appreciates over time, typically between 2-4% annually. In desirable places like San Francisco, long-term appreciation is closer to 4%. Factoring in non-cash components like appreciation and time investment, you can get a clearer picture of the investment's value.

Compare any real estate investment returns with the gold standard of investing, which is the S&P 500. Long-term, the S&P 500 returns about 10% annually without requiring much effort.

You can adjust variables like interest rates, rent, and property price to see how changes affect the investment's viability. This tool allows you to play with different scenarios and make informed decisions.

If you want to explore this further, create an account on Xillion, go to the Real Estate product, and start evaluating potential investments. It takes less than five minutes to run the numbers and make a well-informed decision.

Thank you for joining this master class. Don’t forget to join us every Tuesday and Thursday at 3 p.m. Pacific Time. You can also catch us on YouTube. Enjoy using the tool and making smart real estate investment decisions. Thank you.