A presentation on real estate appreciation using a Monte Carlo simulation for part of it.

1. Understanding Appreciation:
A Guide To Building Wealth In
Real Estate
James Orr

2. Upcoming Classes
• Property Management: Leases – BrianWilliams
• Wednesday February 11th, 2015 6 PM to 8 PM
• ContractTo Buy and Sell Real Estate – James Orr
• Wednesday February 18th, 2015 6 PM to 8 PM
• Property Management Mastery – Brian Williams
• Wednesday February 25th, 2015 6 PM to 8 PM
• House Selling Strategies – James Orr
• Wednesday March 4th, 2015 6 PM to 8 PM

3. Upcoming Classes
Please RSVP early since seating is limited:
• http://NCREIG.com
• http://Facebook.com/ncreig
IMPORTANT NOTE: If you’re not going to attend, please remove your
RSVP so someone else can attend.

4. Introductions
• How long will it take a $250,000 property to be worth $1,000,000 in
our local market?
• BONUS QUESTION: If you put 20% down ($50,000) what is your
average return on investment per year once it gets to $1,000,000

5. Wealth
• This presentation is called “A GuideTo Building Wealth”
• What is wealth?
• an abundance of valuable possessions or money.
• the state of being rich; material prosperity.
• plentiful supplies of a particular resource.
• Rich Dad’s definition ofWealth:
• The definition of wealth is the number of days you can survive without physically
working (or anyone in your household physically working) and still maintain your
standard of living.
• For example, if your monthly expenses are $5,000 and you have $20,000 in savings, your
wealth is approximately four months or 120 days.
• Wealth is measured in time, not dollars.

6. Wealth
• So, using Rich Dad’s definition there are two ways to build wealth:
• Cash Flow and/or
• Appreciation
• To “use” appreciation, you need to:
• Refinance and pull cash out, or
• Sell the property

7. What do you call it when you buy
something hoping that it goes up in value?
Speculation

8. So… isn’t that what appreciation is?

9. Which ones of these are speculative?
Appreciation Cash Flow
Debt Pay Down Tax Benefits
ROI

10. Buying Conventional 20% Down
Appreciation ≈ 15% Cash Flow ≈ 5%
Debt Pay Down ≈ 5.5% Tax Benefits ≈ 14.55%
ROI ≈ 40%

11. Assumptions
Mean
3.500%
2.000%
2.000%
2.000%
2.000%
2.000%
2.000%
2.000%
2.000%
Monte Carlo
RTO Rent Appreciation Rate:
Rent Appreciation Rate:
Utilities Inflation Rate:
HOA Inflation Rate:
Property Taxes Infl Rate:
Repair Inflation Rate:
Yearly Appreciation Rate:
RTO Purchase Price Increase Rate:
Hazard Insurance Inflation Rate:
250,000$
250,000$
20.0%
50,000$
200,000$
5.000%
(1,073.64)$
1,600$
-$
1,500$
1,200$
-$
-$
-$
-$
2,000$
4,000$
56,000$
256,000$
3
3.00%
0.00%
12.00%
2.00%
5,000$
2.00%
2,000$
7.00%
Tenant Buyer Turnover Cost:
Seller Concessions:
Subsequent TB Down Payment %:
Maintenance Reserve:
Property Management:
Vacancy Percentage:
Years Between Tenant Buyers:
Initial Tenant Buyer Down Payment $:
Suggest Initial Maintenance Account:
Yearly Property Taxes:
First Mortgage Rate:
Yearly Hazard Insurance:
Yearly HOA:
First Mortgage PI Payment:
Extra Monthly Option Fee:
Total Investment Buying ALL CASH:
Initial Tenant Buyer Down Payment %:
ARV:
Purchase Price:
Down Payment %:
Down Payment $:
First Mortgage:
Traditional Sell With Agent Cost:
Traditional Loan Closing Costs:
Total Initial Investment:
First Make Ready:
Monthly Owner Utilities:
Fund Initial Reserve Account:
Fair Market Rent:
Basic Assumptions

14. What is “Normal”
Appreciation?

15. Source: National Association of Realtors
http://www.realestateabc.com/graphs/natlmedian.htm

16. National Data Summarized
• From 1968 through 2004
• My Fort Collins, Loveland andWindsor data is 1996 to present
• See reference slide at end to see my data
• From data on previous slide:
• Average = 6.41
• Median = 5.85
• Standard Deviation = 3.30
• Case-Schiller claims 3.4% annually from 1987 to 2009
• Another website claiming National Association of Realtors as source
claims 5.4% annually from 1968 to 2009

17. Median Sales Price/Total Sq Ft 2014
$125+7.31%
$112+9.91%
$109+11.52%
Fort Collins Loveland Windsor
http://jamesorr.com/appreciation-rates/

20. 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
% Change for Average 0 3.71% 8.99% 11.14% 10.43% 0.53% 5.12% 3.65% 6.98% 1.51% 0.80% -3.17% -4.51% 4.97% 1.47% 2.70% 6.92% 8.10%
% Change for Median 0 5.07% 8.40% 8.46% 10.71% 2.06% 5.36% 4.34% 3.51% 0.72% 0.67% -1.85% -0.91% 3.29% -0.91% 5.50% 6.52% 8.98%
Average $ $155,158 $160,907 $175,370 $194,902 $215,228 $216,360 $227,432 $235,733 $252,197 $256,000 $258,050 $249,882 $238,612 $250,469 $254,155 $261,018 $279,083 $301,682
Median $ $136,000 $142,900 $154,900 $168,000 $186,000 $189,825 $200,000 $208,675 $216,000 $217,549 $219,000 $214,950 $213,000 $220,000 $218,000 $230,000 $245,000 $267,000
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
$120
$140
$160
$180
$200
$220
$240
$260
$280
$300
$320
PercentChangeYearOverYear
SoldPriceinThousands
Fort Collins Appreciation Rates

21. $60
$70
$80
$90
$100
$110
$120
$130
$140
$150
$120,000
$140,000
$160,000
$180,000
$200,000
$220,000
$240,000
$260,000
$280,000
$300,000
$320,000
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
SoldPrice/TotalSqFt
SoldPrice
Fort Collins Appreciation Rates
Average $ Median $ Average $/Sq Ft Median $/Sq Ft

22. New Assumptions
Mean Standard Deviation Low 25th %ile Average Median 75th %ile High
3.500% 2.000% -3.18% 2.19% 3.54% 3.55% 4.92% 10.47%
2.000%
2.000% 2.000% -6.50% 0.70% 2.02% 2.06% 3.39% 8.57%
2.000%
3.000% 2.000% -3.58% 1.68% 3.00% 3.02% 4.33% 10.45%
3.000% 2.000% -5.07% 1.63% 2.99% 2.99% 4.32% 10.77%
3.000% 2.000% -3.84% 1.67% 3.04% 3.03% 4.42% 10.73%
3.000% 2.000% -3.33% 1.70% 3.04% 3.05% 4.37% 9.99%
3.000% 2.000% -5.06% 1.65% 2.99% 3.01% 4.33% 9.97%
Monte Carlo
Coming Soon
Coming SoonRTO Rent Appreciation Rate:
Rent Appreciation Rate:
Utilities Inflation Rate:
HOA Inflation Rate:
Property Taxes Infl Rate:
Repair Inflation Rate:
Yearly Appreciation Rate:
RTO Purchase Price Increase Rate:
Hazard Insurance Inflation Rate:

27. From “The Intelligent Investor” by Benjamin Graham

28. James Orr
Phone: (970) 225-6989
Fax: (888) 714-4596
jamesorr@gmail.com
http://JamesOrr.com

29. References
• http://jamesorr.com/appreciation/
• By City:
• http://jamesorr.com/fort-collins-appreciation-rate/
• http://jamesorr.com/loveland-appreciation-rate/
• http://jamesorr.com/windsor-appreciation-rate/