Using Money You Make Online To Make Money Offline

This post was guest blogged by Steve at The Property Pundit.

What would you do with $23,448.59?

You really have two options. You can spend it on something that won’t make you money, but may bring you some kind of happiness, like a new car or a HDTV LCD Television. Or, you can use that money to make more money. Much more.

If you would have bought $23,448.59 worth of Warren Buffett’s Berkshire Hathaway stock ten years ago, you would have $70,218.16 right now. You would have made an even higher percentage return by buying Google stock last year. But, after being slapped by Google, I don’t think John would condone that.

Putting your money into something that will make you more money is always a good idea, but what type of investment is the best? We may be at the end of a real estate boom, but my vote is still on real estate. Why? A little bit of knowledge can make you exponential returns.

Let me provide a short hypothetical for you. It’s 1997. You have the same amount that John made last month to invest. Someone approaches you with the opportunity to be a partner with him and another investor on a 12 unit apartment building in, say, Washington DC. You each will put $23,376 in as a down payment and, since real estate offers you a great leverage opportunity, you’re able to buy a building worth $351,729 (20% down payment, 80% loan from the bank).

Over the past ten years the Washington DC market has seen appreciation of 285%. So, in 2007 your building that you bought for $351,729 is now worth $1,002,427.

Since this is a commercial property, you have a professional management company handle it. Your job is simply to make sure that the management company is doing its job. You have to take into account the income you’ve gotten from the tenants. Let’s say the average rent in each unit ten years ago was $500 a month and it has gone to $650 a month today. This makes your average income over the course of the year $78,660 by applying a 95% occupancy level. The best part? That income pays your loan.

But, you don’t owe taxes on very much of this thanks to the great tax savings that apply to real estate. You will write off the interest on your loan, property taxes, management expenses and anything else that is an expense for the property. It’s basically a small business, so that trip to DC you make to visit friends can now be written off as long as you check out the property. Don’t forget to go to a nice restaurant too, and definitely don’t forget to post pictures on your blog.

Okay, this is all fine, but now it’s 2007 and you want to sell out. How much have you actually made on your investment? Hold your breath…. $284,081!

You put in $23,376 and you made $284,081 for a total return of 1,215%. Your partners that split the down payment with you three ways made the same amount. Think about it. If you would have had enough for the entire down payment, you would have made $852,243. Of the money you did make, you made an average of $10,933 each year in net income (money made after all expenses including the loan) and $174,751 of capital gains when you sold. This takes into account all yearly expenses like loan interest payment, property taxes, management expenses, and expected capital expenses (like replacing a roof).

This is why real estate can make you a ton of money: leverage, appreciation, income, and tax savings. Of course if you buy a house to live in you can have even more leverage (5% or less down) and even more tax savings (no capital gains tax).

The real estate market is cyclical and now is a great time to buy a long-term investment in an area that isn’t overbuilt. If you’d like to learn more, check out The Property Pundit. I tell you about my investments and what I’m looking to buy. There may even be an investment opportunity for you in the future. Friends, this isn’t a get rich quick scheme, but if you have ten years to wait and some money to invest, you’ll make an incredible return.

Now all you have to do is find a way to make $23,376…


71 thoughts on “Using Money You Make Online To Make Money Offline”

  1. MoneyNing says:

    Hmm…. The last 10 years was one of the best 10 years for the real estate market but yet with the leverage etc etc, the returns weren’t great, not to mention all the time and money that needs to go into maintaining a $1 million dollar property.

    You should also factor in the 6% commission you have to pay when you buy the house, then another 6% commission when you sell it (assuming you find a buyer now).

    Everyone has their preference on which investments are good but I wouldn’t say that buying real estate would be a good one when someone has $25k to invest.

    1. WebProxyTalk says:

      You would only pay commision if you dont sell it yourself.

    2. bmunch says:

      I agree.

      If you have ONLY $25K to invest on, the property market is not the best choice. Property, unlike shares and stocks, needs to factor in maintenance cost.

    3. Teejay says:

      23k could buy me a good franchised business. Maybe a 7-11.

    4. Mike says:

      You don’t have to pay commission (at least not directly) when you buy the house… as that is already figured in to the purchase price of the house… and yeah if you sell it without an agent, there is no commission..

  2. netgeek06 says:

    Good place to invest offline is real estate there is no doubt about it. And as you said it is the best time to buy now when the market is low. Thanks for sharing the info.

  3. Mayo says:

    The usual talk “if i/you had XX amount of cash back then…”, the story is pretty lame! He should put an interesting story on how to make money tomorrow and yes the housing market is still profitable but it compares nothing to global hedge funds(20-40% return p.a.) and internet business, remember John invested under 100 $ and fair amount of time – still part time though… and now is making > 20K

    1. Mubin says:

      I was going to say exactly what you wrote, thank God you did it before me so now I dont have to.

      Posts that say IF you had this amount of money in 1992 you would be a millionaire.

      If you had 2 million in 92′ you could buy a office building in central manhattan. Just because you know things are great now you shouldnt be trying to pretned you are now an expert in the field.

    2. WebProxyTalk says:

      This is very relevant as the real estate market is currently a buyers market in most of the states.

  4. Mayo says:

    The usual talk “if i/you had XX amount of cash back then…”, the story is pretty lame 🙄 ! He should put an interesting story on how to make money tomorrow and yes the housing market is still profitable but it compares nothing to global hedge funds(20-40% return p.a.) and internet business, remember John invested under 100 $ and fair amount of time – still part time though… and now is making > 20K 😈

  5. Mayo says:

    oh forgot to say for hedge funds: 20-40% compoundable…. 😈

    1. Teejay says:

      Yes and compounding rocks!

  6. Mike says:

    Interesting post and there are so many possibilities! Real Estate seems to be a good investment but to me, prices seem so high right now..

  7. Thanks for the guest post, John.
    MoneyNing- thanks for the comment. You would only pay the commission when you sell, though. When you buy, the seller would pay it. Also, as a commercial property, commissions are usually lower than with a residential property. They are much more open to negotiation. The money for upkeep and management fees were factored in. You wouldn’t be managing an apartment building. You hire someone to do that for you.
    Anon- It always pays to have some diversified assets. I’m not saying to put all your money into real estate, just like you shouldn’t have all your money in a hedge fund (especially with the current sub-prime mess!) Don’t forget about your passive income of more than $10,000 a year as well.

    1. Steven says:

      I don’t think being slapped by Google has anything to do with John wanting to invest in their stocks or not. The general idea here is to push how much money you can make. As long as their stocks continue to sky rocket, love them, hate them, or whatever, its not going to stop someone from buying their stock, let alone think that John wouldn’t condone this.

      That aside, I am a real estate investor and own multiple properties. While the general consensus is that on average, property value increases, there are numerous factors that come into play and yes, you can leverage your income and everything else you mentioned, however the market ten years ago is different than the market today. And depending on where you’re from, there is a national market crisis in the US right now. Horrible time to sell, okay time to buy, hardly affects rental. There are numberous factors to consider on all sides including the hold, rent, and sell angle. I feel that this post is too skewed.

    2. DeboHobo says:

      👿 “You would have made an even higher percentage return by buying Google stock last year. But, after being slapped by Google, I don’t think John would condone that.”

      John didn’t write this post why does it say written by John Chow? Who wrote this post? I’d like to know that before I follow any of their advise.

  8. bloggernoob says:

    You have a nice blog. im in real estate also. Even tho the market is bad right now, real estate is always a sound investment. If i was making the type of money john was making by blogging all of it would go into real estate. When the market is bad buy rental properties, when the market is good condo conversions.

  9. ROI says:

    You didn’t factor in the interest rate changes and many other transaction costs associated with a commercial property. There are also many places in the US where property values have declined. Have you also considered what a headache it would be to own this property with so many other partners? You would constantly have to worry about their financial status and whether or not they will renege on their obligations. Furthermore, you would not be able to sell it at any time of your choosing; any sale would be a consensus decision arrived at collectively by your partnership.

    Also, putting 20% down means you have to pay a huge amount of interest. Most people who want a property to pay off itself have to put in 60% for rental revenue to be on par with monthly payments.

    I understand your article is hypothetical, but it’s also quite misleading to John’s readers. Hindsight is always 20/20.

    1. Kenric says:

      If you’re putting down 60% just to cashflow you’re buying the wrong property.

  10. Nabloid.com says:

    Starting January 1, 2008, the first of over 78 million people will begin to retire. As the baby boomer’s retire, many will begin selling their homes and/or eventually retiring from life (if you know what I mean). In the last ten years, the baby boomers began to make more money as they entered the height of their careers and earning potentials. I think the economy will look quite different when they aren’t earning top dollars and are instead demanding social programs and medicare. The point I’m trying to make is that a large segment of the population will no longer be BUYERS in real estate and will also become sellers. In short, I think there will be many opportunities to buy MUCH cheaper than what the prices are today and I don’t think RE will be a good investment over the next ten years, though there will be exceptions and it greatly varies from place to place. I mean, a place where a nice 2,500 sq foot home only costs $150 grand is a lot different than a place where the same home costs $600,000 to $1 mill +. With commodities soaring, the dollar falling, jobs being outsourced, and an aging population that is currently the backbone of the economy, I’m thinking you must be VERY careful if you try and buy expensive RE with 0% down or 5% down…. If you ain’t careful, you could become part of the problem.

    1. Nabloid.com says:

      For those of you that don’t know, the top accountant in the U.S. is currently going around to conferences SCREAMING about how bad things can get if the country’s financial house doesn’t get in order real quick. He’s not political and is selling nothing, and he’s done the numbers. There is a problem, and we can overcome it, but we must FACE THE FACTS real quick to do so. Either way, regardless of what the nation does, there are going to be some very turbulent times ahead and you can begin to see that happening now.

      Go watch the video of the top accountant in the U.S. from the accountability office. 11 minute video, 162 megs: http://www.grandich.com/video/60min.162mb.wvx

      Then tell try and tell us the economy will repeat what has happened over the last ten years and that we should all jump into real estate with the biggest mortgages we can find to leverage ourselves… There may be some opportunities, no… there WILL be some opportunities in every segment, but just giving out generic advice using the past (which is a MUCH different economic climate than today) may harm more people than it helps. Food for thought. PS> watch the video! Then do some of your own research. Don’t just blindly follow what I’m saying or what the author of the article is saying.

  11. Zac Johnson says:

    I just picked up 10 more shares of Google stock today. As high as it is, I can settle for losing $7,500 if it goes to $0 a share… but I can’t bear to see it go to $2000 a share and had not buy any more. 😐

    1. whydowork says:

      @Zac Johnson:

      Really?!

      I personally bought in at $300 and had all my friends laugh at me

      😆 –> that’s me laughing at them now!

      I’d love to buy more but I can’t help but think there will be a correction soon.

      (Remember this comment so you can laugh at me if it goes to $2000)

      1. WebProxyTalk says:

        And everyone can laugh at me if it splits 😯

      2. MoneyNing says:

        I agree with you. It will correct in 2 months so maybe you want to buy some now first and sell it before year end.

      3. Zac Johnson says:

        I bought in at $170… but still felt the need to buy more today at $735!

  12. Vishal says:

    real estate in overseas markets that are growing faster is better. Look towards India… the year-on-year growth is at rates that far surpass most western nations. if you had invested in property in many areas in Mumbai (bombay) about 2 years ago – your investment would on average double. people have made a killing here… and the real estate market is still going up…. even the stock markets are on a roll… so the clever thing is to put your money in other overseas markets that are growing faster. forget the US market for now. i’m zligging this post since its related to making money … if you’ve got other “make money online” posts – come zligg them, and see them rise in rank. also, embed the zligg widget for extra traffic votes….. zligg.com

    1. WebProxyTalk says:

      Thats a good Idea, I think Ill go buy a few thousand acres in Iraq while lands cheap? 😉

      If you dont live near the area or visit it often its a little harder to own land so there are extra costs if you buy in an area you dont often travel.

      1. now that would just be ridiculous

    2. Yes by all accounts, India is the new promised land!

    1. TJ says:

      …and I would have gone for business.com, stockquotes.com and evil johnchow.com 😈

  13. I agree with Vishal, Costa Rica is also a nice place to buy property and it’s very close to the US

  14. KNau says:

    Correct me if I’m wrong but don’t you lose a lot of the benefits if you’re buying a primary residence? Not the least of which being that your mortgage, tax and maintenance costs come out of your paycheque rather than someone else’s (a tenant).

    1. WebProxyTalk says:

      If its your primary residence, you get different tax benefits such as homestead exemptions.

    2. Kenric says:

      You dont lose any primary residence benefits buy buying an investment property. You still get to deduct your interest and taxes and keep your 2 year cap gains exemption (this is for US residents).

      For your investment property you still get to deduct those too.

  15. Play it at a casino :)) haha

    1. Poker Sharks says:

      Haha, yeah all on Red or Black.

      Quickest double your money or bust thats for sure.

  16. Natasha says:

    I would go on a wild african safari! 😛

  17. Domtan says:

    John, do tell what you are actually planing to invest on. This should be interesting.

  18. MoneyNing says:

    I couldn’t stand it any longer and bought 7 shares of Google at $615 🙂 It’s been a nice and easy 15% since then. It probably won’t correct until the beginning of next year since everyone is moving money into Tech and it’s year end, meaning everyone will buy winners to look good on paper (window dressing).

    As for real estate, everyone is definitely right about the comissions being only when you sell (my mistake there). However, I dare to say that the next 10 years or even 15 years will provide the same returns since it will take 5 years just to stop all the credit problem bleeding.

  19. Rhonda says:

    John, right now is the WORSE POSSIBLE TIME to invest in Real Estate! I cannot believe that you would even suggest this!

    The prices of real estate have been falling for months with no end in site, the sub-prime market is tanking, forclosures are at an all time high (there even more default notices going out). At least wait until the number of default notices going out each month is less than the numbers of foreclosures. Last month there were four times the number of default notices issued than foreclosures and its predicted that 88% of the people who receive these notices will also face foreclosure. Over the next 12 months an increasing number of subprime teaser loans, and option ARMs will adjust and even more people won’t be able to afford their payments. These people will get foreclosed on, slaughter their credit, and won’t be able to buy back into the market.

    Prices will continue to fall. No one knows where the bottom of the real estate market will be so it makes sense to wait. Rule 1 of investing in anything: DO NOT TRY TO CATCH A FALLING KNIFE.

    Wait for real estate prices to hit the bottom and remain flat for several months before investing. When the market hits the bottom it won’t immediately rebound, there will be a several month span when prices remain flat. This would be the time to buy, but it won’t be for another 18-24 months IMHO. Yet, there are still people in denial about this. But sit back wait and grab some popcorn cause this show is just getting started.

  20. Last time I looked at DC apartment numbers, I thought there were some 19,000 vacant apartments in the district. I don’t know how good of an example that is

  21. Madonna says:

    Nice investment Ning :). After the real estate collapse, tech sector is getting loads of investments. So no wonder Google stock is sky rocketing. But still every sector has a ‘roof’ and it can’t go beyond that.

    Offline money making suggested by Steve would have been a killer investment perhaps 10 years ago. But now investing in real estate is same like buying junk bonds and wishing to make higher profits on them.

  22. Chad says:

    It’s not a good time to buy real estate if it continues to keep going down another year as most are predicting. Personally, I would hate to buy something and immediately lose 20% of my investment. Long term the stock market has always outperformed real estate. Just Google “stocks vs real estate”.

  23. Tawny says:

    Chad, that is only true if you look at the USA for the last 60 or so years. If you look at the stock markets of other nations, Real Estate has been the biggest winner over time.

  24. MoneyNing says:

    I bet the john cow hacked thing is them trying to pull something else to gain more publicity. If they really want it back they can easily call the hosting company to get it rectified quickly.

  25. iamned.com says:

    While this article does make some good points regarding the profitability of real estate, it isn’t that simple nor is real estate always a sound investment. Here is my blog article: Good needs to buyout facebook for 30 billion

  26. iamned.com says:

    hmm comment didnt post

  27. Chad- stocks outperform real estate on average without leverage. Don’t forget that if you’re buying an investment building, you’re only putting 20% down, and only 5% for your home. You’re also getting tax benefits not taken into account.

  28. Steve says:

    Very interesting post – I took a while to get onto the Property Pundit Page – must have received a large amount of traffic from here.

    I follow the real esate market, with some holdings across North America – it’s a good place to be, but definately not where I’d put all of my money.

    Right now, I’m trying the bulk candy vending business model as something a little different.

  29. Mike Huang says:

    There are a lot of these investment sites/programs…but it’s very hard to choose the right one that won’t leave you. 😥

    …yes, it has happen to me before even when there were guarantees and verifications on the site itself.

  30. Jason says:

    I found that real estate was a great way to go. I worked with a guy that deals mainly in government foreclosures and he has helped me and my family get to where we are today. Just a few of these properties a year and we turned $20k into over $500k in just over 3 years. So less time, more money and we’re loving it. His book is available at http://www.hudebook.com his last name is McCall. I haven’t seen another book like it on the market. And because Real estate is so hot right now (in both good and bad regards) it’s a great time to get into investing…

  31. ONwebCHECK says:

    maybe I would invest some money in John Chow´s web Site – or do you have already some stocks?

  32. Chris says:

    Look no further for a concrete example of what happens when you don’t re-invest your profits in marketing, than the Million Dollar Wiki.
    He earns $100k very quickly, then the site stalls because it’s lost the “buzz”. If Graham took half of the money he’s pocketed so far and invested in some marketing/PR, he’d be well on his way to getting the rest of the $900k he seeks. As it is, he’ll spend the first $100k elsewhere, and might slowly pickup another $50k over the next year. But if he’d re-invested the early profits in marketing, his long term return would be doubled or tripled.

    1. MoneyNing says:

      It’s quite hard to keep the buzz level up unless the owner is motivated and brilliant. I just feel bad for the people that paid $100 hoping that it will be a very popular site (which it won’t since it parallels getting a .blogspot.com address), only that the blogspot.com is free.

  33. Hrvoje says:

    Well, I wouldn’t do it. At least not in my country. It’s much better to invest into stock market and mutual funds that give me the return of around 30-40% per year and make cash NOW and not in the xy years.

    Laws in my country are for shit and that’s why I wouldn’t do it. 😈
    I’m not saying it’s not profitable, it is. But start up investments and needs from bank are too much for some small player. with the cash you said I can’t buy a dump here 😆

    Hrvoje

  34. Ryan says:

    You’ve demonstrated that the right real estate investment can yield great results, but what about the average or below-average investment I’d be making as someone without experience in real estate?

  35. Tom says:

    apparently, the cow has been hacked. Website defaced.

    I bet it’s a trick.

  36. Danny says:

    It’s one of cow’s stunts lol he’s silly.

    Danny…

  37. Teejay says:

    LOL. It must be a trick.

  38. simon says:

    John
    The link for HDTV LCD Television in article is not correct!

  39. $23,448? Buy 2,344 pages at OneBuckWiki… 🙂

  40. Brandon- I don’t know what the number of vacancies are, but the rate is 8.4%, which is pretty good on average. See here.
    Debohobo- that was tongue in cheek
    Vishal- I agree, the overseas market is good to buy in if you know the market, but given the weakness of the dollar, it would be better for a foreignor to buy in America.
    I don’t know of the tax laws in other countries. I can only speak of American laws.

  41. Sell your US dollars before they are worthless. I made 10% already this year just because of that plus interest.

  42. I thought you were a dot com moghul? Well i suppose you are not just “the god of small things”

  43. John says:

    Wow. Just…wow.

    Plenty of people have already pointed out the fallacy of “hindsight” investing, so I’ll leave that alone. I will say that I lived in the DC area 10 years ago (back when DC was the per-capita murder capital of the US), and I worked in commercial real estate. I’d hate to see the 12-unit building you could buy for $350k back then. You would have had to factor in costs of an armored car and armed escort just to visit the property (assuming your hired property managers took it from there). And properties in that particular neighborhood are pretty much immune to the 285% growth factor you used.

    Any room for Brooklyn Bridge Limited Partners REIT in your portfolio? It’s trading OTC in Nigeria. If you’d invested $23k in it 10 years ago…

  44. John of consulting rules- Okay, let’s change the scenerio up. View my post today and you will see that I made more than $100,000 on a $5,000 investment from four years ago. You could have gone that route too. Yes, it was an atypical time with appreciation, but these things repeat themselves every 10 to 15 years as the real estate cycle goes. That’s my point, to buy when undervalued.

    Hindsight is 20/20, but you can’t blame luck when the same thing happens ever 10-15 years. You also shouldn’t kick yourself for missing out, when there is an opportunity to invest again. Whether it’s stocks, real estate, or a different investment, the time to look at buying is when others are selling, and the time to look at selling is when others are hyped up about buying.

    1. MoneyNing says:

      $5000 investment to gain $100k is great no matter how you look at it. It’s just that if I buy now and have to wait another 10-15 years (maybe 9-14 now that the market slowed down for a year already), that’s too long to have an investment that has an upkeep cost and losing value at the same time.

  45. David says:

    I would love to get into the housing market in Vancouver…but it’s really hard!!! I’ll do it one day though 😈

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