With tomorrow night’s NFL Draft, 32 young men are set to become millionaires.
According to Sports Illustrated, within two years of the eventual end of their professional football careers, 78 percent of them will have gone bankrupt.
For some it will be an excessive lifestyle. Others will ignore meetings with professional money managers and opt instead to invest in wild inventions and business ideas brought to them by friends.
Imagine, for a moment, if they listened to one small piece of advice, and simply took one million dollars and invested in real estate.
One million dollars is enough for a 25 percent down payment on $4 million in real estate. Most duplex investors I’m working with are getting double digit cash on cash returns on the money they invest. For this exercise, let’s conservatively call it 12 percent.
A cash on cash return of 12 percent per year on a $1 million investment is $120,000– annually.
This is before we calculate the amount of taxes a draft choice would save due to investment property benefits like depreciation and the mortgage interest deduction.
Or that while they’re raking in the cash, their tenants are paying off the mortgage on the property.
Imagine for a moment, that the portfolio of duplexes and investment properties this NFL player acquires never, ever, goes up in value. (For the record, I have not heard one single economist say the real estate market will never recover.)
But rent does by 2.5 percent per year.
At the end of the second year, that NFL player would receive $123,000 in positive cash flow.
According to the NFL Commissioner Roger Goodell, the average length of an NFL career is 6 years.
By the end of the sixth year, our first round draft choice is now getting $135,768.97 a year in positive cash flow from his duplexes and investment properties.
That’s not ridiculous money, but it is enough for most people to live on.
Imagine if our player simply disciplined himself to do the same thing with $1 million every year. According to my math, he would have an annual positive cash flow from his investment property portfolio of $630,759.
And that’s if rents only went up 2.5 percent per year.
I know. Most of us won’t ever experience an opportunity to invest $1 million in real estate in one fell swoop.
But the principles are the same, whether it’s $10,000 or $1 million.
A lot of us aren’t any different than those NFL players.
Our present real estate market is an anomaly. Duplexes are delivering rates of return that neither I, nor investors with decades of experience, have ever seen.
And today, I have to ask myself, and you, whether we intend to be like broke football players as we edge toward retirement, or secure our futures by at least exploring the possibility of investing in the most depressed real estate market of the last 70 years.
Anyone else want to buy a Minneapolis or St Paul duplex?