I am teaching this class on October 20th, 2016 in Fort Collins. Once I am done teaching it, I will be posting up the video of it here.
Over the last week or so I’ve working hard on getting prepared for a special class I am doing on How to Acquire a Multi-Million Dollar Real Estate Portfolio with Just $3,000.
This morning I made a number of new charts which I’ll be sharing with you in the near future. However, one thing came up from my class last week on Young Professional Nomad Overview. During that class I was pointing out how much money Nomads set aside with each rent check received to budget for Maintenance on the property.
I had put up the following chart.
However, during class I realized as I was explaining the chart that there is an error on it. Now, the error does NOT really affect the prior presentations I’ve done nor the rest of the math for Nomad. But, I am deeply concerned about getting the math entirely right for all Nomads, so I made a correction.
In the chart above I am showing that you are setting aside maintenance money in the first year. In fact, with Nomad, since you are not renting the property in the first year, we are not modeling you setting aside maintenance on the property. You will need to pay for maintenance but it is maintenance on the house that you’re living in that first year. So, unless you have roommates and are collecting boarder income, you will not be setting aside maintenance.
Now, the Nomad Calculator Classic should correctly calculate no maintenance collected in the first year and the chart should show the following instead.
Thanks and I’m excited to sharing with you the new charts (and series of books) on the class I am teaching this Thursday. Here’s a sneak peek at the chart for maintenance from that presentation.
In a recent article on USA Today, it discusses a survey done that shows the top fears of Americans for this year.
Here they are:
- Corruption of government officials (same top fear as 2015) — 60.6%
- Terrorist attacks — 41%
- Not having enough money for the future — 39.9%
- Being a victim of terror — 38.5%
- Government restrictions on firearms and ammunition — 38.5%
- People I love dying — 38.1%
- Economic or financial collapse — 37.5%
- Identity theft — 37.1%
- People I love becoming seriously ill — 35.9%
- The Affordable Health Care Act/”Obamacare” — 35.5%
What I found most interesting about them is that implementing the Nomad investing model can help easily with a fear felt by almost 40% of all Americans: Not having enough money for the future. And, with some financial resources Nomad can also help with a fear felt by another 35%: People I love becoming seriously ill.
Yet additional compelling reasons to start Nomading today.
The following is the presentation I gave on Thursday, October 13 in Fort Collins, CO on the Young Professional Nomad.
What is the Young Professional Nomad?
The Young Professional Nomad (often abbreviated Young Nomad) is usually a young college graduate that has their first job out of college. They’re used to moving every year while at college and, for the right reason, they’re willing to continue to move each year. They see the opportunity to complete the Nomad model as the right reason.
The following is a recording I did on Young Professional Nomad on June 27, 2015.
In its simplest form, the Nomad investing model has you buy a home as an owner occupant, move into the home and live there for a year, then buy another home and convert the first home into a rental property.
Repeat this process until you have 10 homes.
It sounds so simple and it is. But, the financial results are nothing short of amazing.
- People behind on what they need for retirement. We call them Catch Up Nomads.
- People interested in passing on wealth to their kids or grand kids. We call them Legacy Nomads.
- Parents saving for college with young children. We call them College Nomads.
- People who have limited down payment and want to get started investing in real estate. We call them Little Down Nomads.
- Young professionals looking to build massive wealth. We call them Young Nomads.
Nomad Process Overview
Nomad, in slightly more thoroughly explained form, is to buy a home as an owner occupant.
Then, live in that property for at least a year. Sometimes more.
After living there for at least a year, buy a new home (again as an owner occupant).
Convert the previous home to a rental property. Sometimes you offer the property as a rental; sometimes you offer it as a rent to own.
Repeat the process until you reach your financial goals.
There are five types of Nomads, but we will be focusing on explaining the Young Professional Nomad here.
Young Professional Nomads
The Young Professional Nomad is typically a Nomad that is under 25 years of age, has a job with great income and is willing to move 10 times in the next 10 years if it is worthwhile to do so. They’ll then keep the 10 properties they acquired as rentals until they’re ready to retire, 40 years from when they bought their first property.
I will show you some of the financial benefits of moving 10 times in the next 10 years and keeping those properties for 40 years below. Then, Young Professionals that might consider being a Nomad can make an educated decision.
Nomad Model Assumptions
For this particular Nomad model we will be using the following assumptions. I do model Nomad using a wide range of assumptions in other classes and posts that show how the model changes based on things that could happen in the future.
If you recall, there are five types of Nomads. In this relatively short (and by relatively short I mean short compared to Harry Potter and the Order of the Phoenix) overview, we will be focusing on what I consider to be the largest group of Nomads: the Catch Up for Retirement Nomads.
Catch Up Nomads
BAM! You wake up one morning and realize, “HOLY CRAP! I’m 40 and behind on saving for retirement. What do I do?”
The Catch Up Nomad is typically middle aged with a good to great job and wants to save more for retirement than they have in the past. Or, maybe they’re recovering from some financial setback and need to catch up from that setback.
While they’re typically comfortable, if it makes sense financially they’re willing to move 10 times in the next 10 years. Often they can rationalize this by buying brand new properties each year. They will convert each property they buy to a rental after living in it for a year until they have 10 rental properties. They’ll probably buy an 11th property to live in after they get 10 rentals.
Below, I’ll show you some of the math behind working the Catch Up Nomad model and specifically how it is far better than investing in stocks or more traditional retirement models if you’re willing to move 10 times.
Catch Up Nomad Model Assumptions
In order to model the Catch Up Nomad strategy, I had to make some assumptions. I’ll share with you these assumptions so you can see if you beleive them to be as reasonable as I do. I do also change these assumptions to run a variety of “What If” scenarios which I gladly share in the classes I do.
I sincerely believe that the assumptions are very conservative but let me know if you’d like me to run it with a different set of assumptions.
In our Catch Up Nomad model we will be buying 10 houses over 10 years. Catch Up Nomads may be tempted to buy new construction which might have slightly different assumptions that we can discuss. I did NOT model that here.
Is this a real property? Yes. This is a real property for sale at the time of this writing in Northern Colorado.
Our first property is for sale such that you could buy it for $238,875 and get enough in Seller Concessions to cover about 2% in closing costs/fees.
In our model, I do assume that we are buying more expensive properties each year as property values go up. How much are we assuming property values are going up each year? How about 3.0% per year? Seem fair?
That means that the house we bought in the first year would be worth $246,041 in year two. It also means that the second house we buy would be purchased for that same $246,041.
Here’s a chart that shows the values of the properties as we buy them over the first 5 years.
Why are we moving into each of the properties instead of just buying rental properties? One of the main reasons we are moving into the properties is the benefit of owner occupant financing. Financing varies depending on whether you’re buying the property to live in or buying it as an investment.
If you’re a candidate for the Save For College Nomad model, you’re probably short on sleep so I’ll try to keep this short. It is just one of the five types of Nomads.
Save For College Nomads
The Save For College Nomad is typically a strategic thinking parent of young children with a good to great job who realizes that they need to be planning now to be able to pay for college for their kids while they’re still relatively young. The sooner you start, the easier (and less expensive) it will be.
In the most vanilla of versions (and there are lots of variations), you would be buying a property, moving in and living there for one year before converting it to a rental property. You’ll repeat this 10 times.
In an ideal world, you start this plan the year your first child is born (or earlier). I’ll show you the math if you start a little later below (towards the end).
Save For College Nomad Model Assumptions
I’ve made some assumptions to create this model for you and I’ll be explaining what my assumptions are. We can evaluate the Save For College Nomad model with other assumptions to see how that affects it as well and I will do that in the future for you.
I will tell you that I believe, deep down, that the assumptions I use are very conservative but let me know if you’d like me to run it with different assumptions.
I’ve modeled buying 10 houses over 10 years in this example. I am using an actual property that is currently for sale in Northern Colorado as of July, 2015. So, yes, these numbers are real.
You’ll be buying the first property for $238,875. That price would include 2% in closing costs in the form of Seller Concessions.
In a recent USA Today article, referencing a study done by the Employee Benefits Research Institute, said that:
There’s a substantial gulf between the amount of money Americans have actually saved for retirement and what they might need to last throughout their golden years. Nearly three in five people surveyed in a recent study from the Employee Benefits Research Institute had saved $25,000 or less for their retirement, with more than a quarter having saved less than $1,000. Yet plenty of financial experts think you’ll need $1 million, $2 million, or even more in order to sustain the lifestyle you want for your retirement years.
That means that over 60% of those surveyed had less than $25,000 in their retirement and will need to catch up to get anywhere near the amount that is estimated they’ll need for retirement.
The Catch Up Nomad model is designed specifically to help people that start late get caught up and be ready for retirement.