Make 20% a Year in the World's Worst Real Estate Markets

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Make 20% a Year in the World's Worst Real Estate Markets

By Tom Dyson, publisher, The Palm Beach Letter
Wednesday, January 21, 2009

Andrew Kuhn is 25 years old. He comes from a small town in the Midwest. Cornfields and cow pastures surround his town. His father works in a local car factory. So do many of his relatives.

In college, Andrew studied medicine. During his senior year, a friend sent him a copy of Rich Dad, Poor Dad, by Robert Kiyosaki. The book persuaded him to ditch medicine and pursue business opportunities. Andrew moved to Detroit...

"The book literally, changed my life," he says.

Andrew started flipping houses. He'd gather the gloomiest articles about Detroit real estate. He'd mail these articles to loan officers at the local banks. Then, he'd offer to buy their foreclosed properties for pennies on the dollar. Andrew's strategy worked. He'd pay a Polish cleaning crew to overhaul the houses and then resell them for a profit.

Now, Andrew has found a new business in Detroit. He says this business is "the most fundamentally sound cash-flowing businesses in the nation right now."

Investing in apartment buildings is Andrew's new business. He buys buildings with between 30 and 200 units. He says these buildings are too big for the average owner but too small for institutions and hedge funds. Andrew says there's "very little competition" for these buildings since the credit crunch struck Detroit.

The Detroit rental market is one of the strongest in the nation. The people in Detroit see home ownership as a risk. They think it's impossible to sell property quickly... or get a decent price. Besides, Detroit has the nation's highest unemployment. Many people can't afford to buy houses. Even if they could, there's no credit available in Detroit. Detroit also has the nation's highest foreclosure rates. So renter demand also comes from people who have lost their homes.

Right now, Andrew is buying a building with 110 units for $4.5 million. He'll invest $900,000 and assume the existing mortgage. Andrew pays 5.5% interest on the mortgage.

Andrew says this building will generate $745,000 per year in rent. After all his expenses (for his management team, utilities, maintenance, interest, the mortgage payment, etc.), he'll end up with $180,000 in cash.

That's a 20% cash return on his investment. His rental income will rise with inflation. In 15 years, his tenants will have paid off his debts and he'll keep all the cash flow.

Andrew's building is in a residential area, opposite a city park, close to the mall and the police and fire departments. The high school and middle school are within one mile. Most important, it's not in a downtown Detroit "war zone."

"I could make 40% returns in a war zone," he says, "but I'd need to hire an off-duty cop and wear a bullet-proof vest to visit the property."

Cash flow is the key to making a fortune from real estate... not rising market value. This is why the most depressed markets are always the best places to invest in real estate. Prices can't fall and you get higher rental yields. Detroit is the most depressed market in the country. Andrew is getting rich. Meanwhile, in the "best" locations – New York, California, and Florida – real estate investors are losing fortunes.

Right now, some of the world's best opportunities in real estate are in Rust Belt cities like Detroit, Cleveland, Akron, and Flint. If you want to make a fortune from real estate, I suggest you visit these cities immediately.

Good investing,

Tom

P.S. If you'd like to learn more about investing in Detroit real estate, Andrew gave me permission to publish his e-mail address. He will answer your questions. Send him a note at: andrewdkuhn@gmail.com.

Further Reading:

Detroit Has the Best Cash-Flow Business in the Nation

How to Invest in Detroit

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THE LATEST BUY SIGNAL FOR GOLD AND SILVER

Place today's Market Notes in the "buy gold and silver" file. The IYF has broken the $34 line in the sand we highlighted last week.

To recap, we follow the iShares U.S. Financial Fund (IYF) to keep tabs on the likes of Bank of America, Citigroup, American Express, Visa, and Goldman Sachs. These are the most important financiers in the country. They live and breathe along with the public's ability to earn money, invest money, launch businesses, and generally just "get along." Yesterday, their stock prices plunged past panic lows set in November.

The stock market typically looks six to 12 months ahead and bakes future conditions into current prices. If IYF continues on this new leg lower, it's a sign the government's "reflation" efforts aren't working... that more intervention (money printing) is going to be thrown at the banking system.

We can't know where all this will go. But we can say there's a good chance it won't be pretty... And it could send crisis-hedge assets like gold and silver through the roof.

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