Tip # 1:
A great property manager will make or break you! Not only will they do a complete credit, employment and background check on your potential tenants, they will handle bookeeping, ordering repairs, and evictions. Do not attempt to manage the properties on your own unless you intend for your full time job to be managing properties! Think about it! The more properties you buy, the more management duties there will be! We all are only granted 24 hours in a day. So, if you are planning to grow a sprawling empire, buy the properties right and hire a good manager to run them so your full time job becomes buying even MORE properties!
Tip # 2:
Instead of doing a plain vanilla rental agreement, consider putting your homes on a "rent to own" program. Not only does this add more value in the eyes of your tenant, but they also treat the home with pride of ownership! Not only that, but most "rent to own" agreements are set up where the tenant takes care of any and all repairs in the home. That means no calls at midnight about general maintenance concerns! Also, most "rent to own" tenants are willing to pay a substantial percentage of the purchase price to secure an option to buy the property in the future. Basically, you are promising not to sell the property until their option expires. Most "rent to own" contracts are anywhere from 1 to 3 years, but all are negotiable.
Tip # 3:
If you opt out of doing a "rent to own" program with your tenants, be sure to find a reputable contractor you can trust! Remember that offering work in volume commands a reduction in prices! So, negotiate with your contractor to cut you some slack on fixing your homes!
Tip # 4:
How much of an annual return do you want to make? Most investors would say, "As much as humanly possible!" But we all have to start from somewhere. For instance, in Oklahoma City, which is the city I purchase homes in, I look for rental properties that generate a MINIMUM of 24% return. Did I pull this number out of the air? Is 24% my lucky or favorite number? The answer is no. How I came up with this number is going to my local real estate investors association and finding the wealthiest property owners who buy the greatest number of homes in my area. I asked the top 3 in my industry what they expect to make each year when they buy a property. Amazingly, they all said 24%. That is what the Oklahoma City market commands for investment properties. This means that it becomes harder and harder after you pass the 24% mark to find properties that will generate more of a return than that (but it is possible!) But you must have a standard to go by! You must know how to purchase your homes!
Tip # 5:
Get that property out of your NAME, including the home you live in (if you own it!) Here is the reason why: If you get sued, the first thing a lawyer is going to do is research and see what type of assets you personally own. If the lawyer goes to county records and cannot find properties in your name or any other assets, chances are, he will not take a clients case without a retainer fee, paid by the person who is suing. But if the lawyer sees you have thousands or millions of dollars in assets, he will go after you free of charge! See how that works?
Tip # 6:
It's not good enough to just get that property out of your name if you are buying multiple investment properties! It is smart to set each individual property up in a separate LLC or land trust. Why? Because if one of your tenants decides to sue the LLC that is holding your investment property, and you have used that same LLC to purchase multiple properties, then ALL of your investment properties will be frozen until the lawsuit is settled. This is why it is so important to set each property up in it's own individual LLC or land trust. This way, if one LLC is sued, your other ten properties are not effected by that LLC because they each have different names.
Tip # 7:
Make rent due on the 25th of each month, and late after the 1st. This gives your tenant a 5 day grace period instead of 5 extra days to not pay their rent on time. And it will also aid in your bookeeping, since most mortgages are also due by the 1st.
Best of luck to you in your new investment endeavor!
Wednesday, November 30, 2011
Tuesday, November 29, 2011
Does It Seem Counter-Productive To Blame This Mess On Mortgage Lenders And Appraisers?
I have a controversial response:
The government was not initially created to absolve the masses of personal responsibility, but this appears to be the direction it is heading.
The government was initially created to serve the public with products and services we all use collectively as a whole, such as the fire department, police department, the local library, etc. But in order for politicians to do mass advertising and marketing campaigns to influence the most amount of people, they have to raise money. And of course, the biggest globs of money come from huge corporations. So of course, these huge corporations are going to donate money to the politician... with a catch. And that is having the laws, rules and regulations written in THEIR favor, not the general population they have helped paid to influence.
In a nutshell, everybody wants to point the finger at everybody else, and absolve themselves of personal responsibility and blame the latest and greatest politician who was merely paid off by a big corporation to brainwash the public into voting for them.
So, which came first, the chicken or the egg? Do we blame the dumb, unsuspecting chattel we call American citizens? Do we blame the smooth, fast talking, and savvy politician who wins their votes? Or do we blame corporate America for buying the politician to lead the chattel to line their pockets even more?
I'm with John Kennedy. Ask not what your country can do for you, but what you can do for your country. Instead of demanding jobs, create jobs for others. Instead of blaming mortgage lenders, appraisers and corporate America for this big financial mess, see what you can do to be a part of the solution instead of the problem.
The government was not initially created to absolve the masses of personal responsibility, but this appears to be the direction it is heading.
The government was initially created to serve the public with products and services we all use collectively as a whole, such as the fire department, police department, the local library, etc. But in order for politicians to do mass advertising and marketing campaigns to influence the most amount of people, they have to raise money. And of course, the biggest globs of money come from huge corporations. So of course, these huge corporations are going to donate money to the politician... with a catch. And that is having the laws, rules and regulations written in THEIR favor, not the general population they have helped paid to influence.
In a nutshell, everybody wants to point the finger at everybody else, and absolve themselves of personal responsibility and blame the latest and greatest politician who was merely paid off by a big corporation to brainwash the public into voting for them.
So, which came first, the chicken or the egg? Do we blame the dumb, unsuspecting chattel we call American citizens? Do we blame the smooth, fast talking, and savvy politician who wins their votes? Or do we blame corporate America for buying the politician to lead the chattel to line their pockets even more?
I'm with John Kennedy. Ask not what your country can do for you, but what you can do for your country. Instead of demanding jobs, create jobs for others. Instead of blaming mortgage lenders, appraisers and corporate America for this big financial mess, see what you can do to be a part of the solution instead of the problem.
How Much Profit Do Flippers Expect To Make?
Not all flippers / rehabbers are cash buyers. Most of them are bound to the lending criteria of an asset based lender, AKA hard money lender.
A hard money lender will generally not lend more than 50% to 70% of the properties after repair value. (ARV) The total percentage they loan will be the total amount they loan, including setting aside money in an escrow account for construction purposes.
And let me tell you, those folks are not cheap. The average hard money lender charges 3 to 5 points, as well as 14% to 20% interest.
Most savvy investors factor in the cost of construction, the cost of the money, re-listing the property with a Realtor, insurance premiums, title fees, etc when buying the home so they don't have to come with any money out of pocket as a down payment.
The formula I use when I purchase a rehab property is as follows:
1) After Repair Value (ARV) - (minus) Repairs = As-Is Value
2) As- Is Value (divided by) 2 = Offer Price
It's funny when I was in high school I slept through algebra, but now I use it on a regular basis. :-)
Let's use a real life example:
$100,000 (ARV) includes stainless steel appliances, granite, ceiling fans in every room, new paint / carpet
$30,000 (Repairs) Cost to get home up to after repair value, which is top market values standards.
$70,000 (As-is Value) I simply subtract the top market value from the repairs needed
Then I divide the AS-IS figure by 2 and offer 50% of the homes AS-IS value, and that figure is:
$35,000
If my hard money lender agrees to lend me 70% of the ARV, my loan amount will be for $70,000 dollars. Here are how the fees break down:
$35,000 purchase price
$30,000 repair budget
$3,500 5 points to borrow the money
$3,500 $875 dollars per month interest only payments at 15% interest x 4 months holding time for resell
(We are using 15% interest only payments as an example, which would equal $875 per month pre-paid for a $70,000 loan)
$1,000 Insurance
$73,000 Total
In this example, the investor would have to bring $3,000 to closing in cash.
Now, let's say the investor fixes it up really quick and puts it on the market. Within 60 days, he gets a full price offer:
$100,000 purchase price
(minus)
$73,000 loan pay off (including $3,000 cash invested at the table)
$750 title fees
$6,000 realtor commissions
$3,000 buyers closing costs (common)
$17,250 dollars net
In a nutshell, the investor had to risk $3,000 dollars, his reputation with the hard money lender, manage contractors, deal with marketing concerns, and wait 4 months to get paid back $17,250 dollars. If you break that down to NET profit, that is $14,250 dollars in 4 months. If you break that down to a monthly salary, that is $3,562.50 per month for a great deal of risk.
A hard money lender will generally not lend more than 50% to 70% of the properties after repair value. (ARV) The total percentage they loan will be the total amount they loan, including setting aside money in an escrow account for construction purposes.
And let me tell you, those folks are not cheap. The average hard money lender charges 3 to 5 points, as well as 14% to 20% interest.
Most savvy investors factor in the cost of construction, the cost of the money, re-listing the property with a Realtor, insurance premiums, title fees, etc when buying the home so they don't have to come with any money out of pocket as a down payment.
The formula I use when I purchase a rehab property is as follows:
1) After Repair Value (ARV) - (minus) Repairs = As-Is Value
2) As- Is Value (divided by) 2 = Offer Price
It's funny when I was in high school I slept through algebra, but now I use it on a regular basis. :-)
Let's use a real life example:
$100,000 (ARV) includes stainless steel appliances, granite, ceiling fans in every room, new paint / carpet
$30,000 (Repairs) Cost to get home up to after repair value, which is top market values standards.
$70,000 (As-is Value) I simply subtract the top market value from the repairs needed
Then I divide the AS-IS figure by 2 and offer 50% of the homes AS-IS value, and that figure is:
$35,000
If my hard money lender agrees to lend me 70% of the ARV, my loan amount will be for $70,000 dollars. Here are how the fees break down:
$35,000 purchase price
$30,000 repair budget
$3,500 5 points to borrow the money
$3,500 $875 dollars per month interest only payments at 15% interest x 4 months holding time for resell
(We are using 15% interest only payments as an example, which would equal $875 per month pre-paid for a $70,000 loan)
$1,000 Insurance
$73,000 Total
In this example, the investor would have to bring $3,000 to closing in cash.
Now, let's say the investor fixes it up really quick and puts it on the market. Within 60 days, he gets a full price offer:
$100,000 purchase price
(minus)
$73,000 loan pay off (including $3,000 cash invested at the table)
$750 title fees
$6,000 realtor commissions
$3,000 buyers closing costs (common)
$17,250 dollars net
In a nutshell, the investor had to risk $3,000 dollars, his reputation with the hard money lender, manage contractors, deal with marketing concerns, and wait 4 months to get paid back $17,250 dollars. If you break that down to NET profit, that is $14,250 dollars in 4 months. If you break that down to a monthly salary, that is $3,562.50 per month for a great deal of risk.
Monday, November 28, 2011
What Financing Options Do I Have For Gutting And Renting A 6-Unit Apartment Building?
The rule of thumb in commercial investing is that the property must be 85% occupied and be at least a 10% capitalization rate in order to qualify for bank financing. Since only 2 out of 6 units are occupied, this means you are only sitting at 34% occupancy, which makes this a distressed property in commercial terms.
If you email me, I will send you a cash flow evaluator to analyze a performa you will have to construct. Based on the performa (what the future income / expense will be) you will base your top appraised value.
The formula you will need to use for your offer is:
1) Top appraised value (minus) repairs needed, divided by 2
That formula will be 50% of the AS-IS value.
This is assuming you are using:
A) Hard Money
B) Private Money
C) Cash
Since the seller is distressed, and cannot sell this property to ANYONE but a cash buyer, I would suggest you come up with some owner financing senarios. For instance, if you have the cash and know how to fix the property up, ask the owner to finance you with zero money down.
You can also do a master lease option, where essentially you are leasing the entire 6 unit from the owner with an option to buy it later down the line. You agree to pay the owner more in the future for giving you an option to buy. And you can negotiate in the contract to ask the owner for a construction budget.
Those are just a few ideas. But, once again, this property WILL NOT qualify for traditional commercial financing. This is considered a high risk loan that only a hard money lender or private lender will make.
If you email me, I will send you a cash flow evaluator to analyze a performa you will have to construct. Based on the performa (what the future income / expense will be) you will base your top appraised value.
The formula you will need to use for your offer is:
1) Top appraised value (minus) repairs needed, divided by 2
That formula will be 50% of the AS-IS value.
This is assuming you are using:
A) Hard Money
B) Private Money
C) Cash
Since the seller is distressed, and cannot sell this property to ANYONE but a cash buyer, I would suggest you come up with some owner financing senarios. For instance, if you have the cash and know how to fix the property up, ask the owner to finance you with zero money down.
You can also do a master lease option, where essentially you are leasing the entire 6 unit from the owner with an option to buy it later down the line. You agree to pay the owner more in the future for giving you an option to buy. And you can negotiate in the contract to ask the owner for a construction budget.
Those are just a few ideas. But, once again, this property WILL NOT qualify for traditional commercial financing. This is considered a high risk loan that only a hard money lender or private lender will make.
Tuesday, February 23, 2010
How Do I Know What To Invest In?
First:
Before you know the quickest path to take, you have to know where you want to go. Do you want to invest in order to pay for your child's college? To retire? Or for reasons that are short term, like going on a trip? Are you looking to quit your job and just live off your investments? These are questions you must ask yourself before you know which vehicle is appropriate for you.
Second:
Once you have a figure in mind about why you are investing and the time line it is going to take to get there, educate yourself as much as possible.
The three types of investments are:
1. Real estate
2. Paper assets
3. Business
The majority of the world will advise you to invest in paper assets, but it is a very slow and risky way to become wealthy.
Look at it this way:
There is a reason why the bank won't lend you money to invest in the stock market, but they will lend you money to buy investment property.
There is also a reason why the insurance company will secure your real estate, but not stocks, bonds and mutual funds. I am sure you've noticed at your bank that mutual funds are not "FDIC" insured.
Banks and insurance companies are the leading financial institutions in the country, if not the world. Part of being a good leader is being a good follower! If you want to get rich, do what rich people do!
Real estate is a very lucrative investment for 3 major reasons:
1. Cash flow
2. Equity
3. Future appreciation
For instance, if I buy a house that appraises for $100,000 for $60,000 dollars, I have created a very lucrative investment for myself.
I can either:
A) Put it on the market for $100,000 dollars and net $80,000 once Realtor fees and closing costs are paid, and make $20,000 using NONE of my own money to buy the real estate in the first place. It is hard to do in this market climate, but still possible.
B) I can offer owner financing on the property to these sea of buyers who are denied bank loans, due to the financial crisis. I can sell the property to them for $100,000 and 20% down - which would be $20,000 upfront. The new balance on the note would be $80,000. And if my original payment on $60,000 dollars was close to $400 dollars - I could charge 9% interest to my owner financed buyer on $80,000, which would be $600 dollars per month.
In this example, I would make $20,000 upfront, and cash flow $200 dollars per month, month after month. And when the buyer refinances, I make an additional $20,000 (without Realtor fees, because you don't need a Realtor to sell an owner financed deal)
C) I could simply rent out the property for let's say $850 per month (if the market warrants that) and cash flow $450 per month and wait to sell when the market conditions improve. Because in 5 years, the property value may appreciate (especially if you live in the Midwest, where real estate markets are not so volitile) So the same property that is worth $100,000 may be worth $110,000 or more in 5 years or so.
I can also take the proceeds of the sale I make, and reinvest them BACK into real estate tax free. It is called a 1031 exchange. So, I can continue to re-invest over and over and over again, using Uncle Sam's money interest free.
And last but not least, you can start your own business.
Right now is the age of the entreprenuer, with all of the jobs going overseas and corporate lay offs - more and more people are starting home based businesses online. It can be something as simple as writing an Ebook one time, and selling it for $20 dollars. Just in case you don't know, an Ebook stands for an "Electronic" book, or a digital product.
You create the asset, and it is something you can sell over and over again for the rest of your life. You can also sell OTHER PEOPLE'S Ebooks for a commission. This is just one example out of millions for a business you can start online. You can also open a restaurant, or any number of things.
The most important key is to find a person you really admire and respect when it comes to money. Some people have greater ambitions than others. But the most important thing I can tell you is to not take advice from somebody who's driving a Honda if you want to drive a Mercedes.
A lot of people take financial advice from 20 somethings fresh out of college who work at investment firms. They make $40,000 per year, and it is their job to sell you their companies products. So OF COURSE they are going to tell you their companies products match your needs the best!
The best thing to ask your financial advisor is "How much money do you make per year?" And if that is the type of money you want to make yourself, then listen to them. If you want to make one million dollars per year, find a person who has that level of income. (They are more common than you think!) Most of those people hang out at a business that they own, or at the real estate investors association.
Find a person you admire, who has what you want, and let them help you draw up a plan. You have to know what it is that you want before you can make a plan to achieve it. If you want to retire in 5 years, you will have a certain plan. If you are comfortable retiring in 20 years, you may want to invest in mutual funds, CDs, or maybe buy one or two properties per year.
YOU have to decide what is best for your situation, and know that anything is possible.
Before you know the quickest path to take, you have to know where you want to go. Do you want to invest in order to pay for your child's college? To retire? Or for reasons that are short term, like going on a trip? Are you looking to quit your job and just live off your investments? These are questions you must ask yourself before you know which vehicle is appropriate for you.
Second:
Once you have a figure in mind about why you are investing and the time line it is going to take to get there, educate yourself as much as possible.
The three types of investments are:
1. Real estate
2. Paper assets
3. Business
The majority of the world will advise you to invest in paper assets, but it is a very slow and risky way to become wealthy.
Look at it this way:
There is a reason why the bank won't lend you money to invest in the stock market, but they will lend you money to buy investment property.
There is also a reason why the insurance company will secure your real estate, but not stocks, bonds and mutual funds. I am sure you've noticed at your bank that mutual funds are not "FDIC" insured.
Banks and insurance companies are the leading financial institutions in the country, if not the world. Part of being a good leader is being a good follower! If you want to get rich, do what rich people do!
Real estate is a very lucrative investment for 3 major reasons:
1. Cash flow
2. Equity
3. Future appreciation
For instance, if I buy a house that appraises for $100,000 for $60,000 dollars, I have created a very lucrative investment for myself.
I can either:
A) Put it on the market for $100,000 dollars and net $80,000 once Realtor fees and closing costs are paid, and make $20,000 using NONE of my own money to buy the real estate in the first place. It is hard to do in this market climate, but still possible.
B) I can offer owner financing on the property to these sea of buyers who are denied bank loans, due to the financial crisis. I can sell the property to them for $100,000 and 20% down - which would be $20,000 upfront. The new balance on the note would be $80,000. And if my original payment on $60,000 dollars was close to $400 dollars - I could charge 9% interest to my owner financed buyer on $80,000, which would be $600 dollars per month.
In this example, I would make $20,000 upfront, and cash flow $200 dollars per month, month after month. And when the buyer refinances, I make an additional $20,000 (without Realtor fees, because you don't need a Realtor to sell an owner financed deal)
C) I could simply rent out the property for let's say $850 per month (if the market warrants that) and cash flow $450 per month and wait to sell when the market conditions improve. Because in 5 years, the property value may appreciate (especially if you live in the Midwest, where real estate markets are not so volitile) So the same property that is worth $100,000 may be worth $110,000 or more in 5 years or so.
I can also take the proceeds of the sale I make, and reinvest them BACK into real estate tax free. It is called a 1031 exchange. So, I can continue to re-invest over and over and over again, using Uncle Sam's money interest free.
And last but not least, you can start your own business.
Right now is the age of the entreprenuer, with all of the jobs going overseas and corporate lay offs - more and more people are starting home based businesses online. It can be something as simple as writing an Ebook one time, and selling it for $20 dollars. Just in case you don't know, an Ebook stands for an "Electronic" book, or a digital product.
You create the asset, and it is something you can sell over and over again for the rest of your life. You can also sell OTHER PEOPLE'S Ebooks for a commission. This is just one example out of millions for a business you can start online. You can also open a restaurant, or any number of things.
The most important key is to find a person you really admire and respect when it comes to money. Some people have greater ambitions than others. But the most important thing I can tell you is to not take advice from somebody who's driving a Honda if you want to drive a Mercedes.
A lot of people take financial advice from 20 somethings fresh out of college who work at investment firms. They make $40,000 per year, and it is their job to sell you their companies products. So OF COURSE they are going to tell you their companies products match your needs the best!
The best thing to ask your financial advisor is "How much money do you make per year?" And if that is the type of money you want to make yourself, then listen to them. If you want to make one million dollars per year, find a person who has that level of income. (They are more common than you think!) Most of those people hang out at a business that they own, or at the real estate investors association.
Find a person you admire, who has what you want, and let them help you draw up a plan. You have to know what it is that you want before you can make a plan to achieve it. If you want to retire in 5 years, you will have a certain plan. If you are comfortable retiring in 20 years, you may want to invest in mutual funds, CDs, or maybe buy one or two properties per year.
YOU have to decide what is best for your situation, and know that anything is possible.
What Are Some Good Investments With Quick Returns?
This question reminds me of the genie who grants 3 wishes. What would your wishes be?
Hopefully, one of your wishes... would be to wish for more wishes! ;-)
There are courses available online about "How To Raise Private Money" which cost anywhere from $500 dollars to $2,000 dollars. Basically, you can learn how to get other people to lend you money to buy steeply discounted real estate, and it is a great time to buy in this market!
There is no limit to the amount of private money you can raise. You can raise millions of dollars, if you'd like. Then, you can buy great deals on real estate that are 50% or less value. If the house doesn't sell, you can offer owner financing or lease option as an exit strategy and partner with people who have money to invest.
There is a reason why the bank won't lend you money to speculate on the stock market, yet they will lend you money all day long to buy real estate.
There is also a reason why real estate is insured, but stocks, bonds and mutual funds are NOT secured by the FDIC.
Banks and insurance companies are the two most powerful institutions in America. Part of being a great leader is being a great follower!
Why invest your own money into something that is not secure?
With real estate, the loans are collateralized by the real estate itself. Which is why it is so easy for you to get backing on good real estate deals, because even if you fail to sell it - your investors have a steeply discounted piece of real estate to show for it.
If you fail in the stock market, you may as well flush it down the toilet.
Also, you can't rent stocks and make a monthly, residual income off of them.
If my property doesn't sell, I always have the option to offer owner financing or rent it out.
Let's say I find a house worth $100,000 for $60,000 because the owner is motivated to sell.
I have a private investor back me on the purchase for $60,000 and pay them 12% interest on the loan. They want to lend me the money, because they know it is a great deal, based on the appraisal.
My payment is $600 per month. And let's say that during the 6 month period, I can't find a pre-qualified buyer. Well, I have several options:
1. I can offer owner financing, and get 10% down from a buyer. This is in very high demand, because banks aren't lending money right now.
2. I can lease out the property, and cover my mortgage payment.
If I rent the property for $850 per month, I make $250 per month cash flow, plus I have $40,000 equity in the property. But best of all, I never used a dime of my own money.
If I want to go to the bank and refinance it (if you have good credit) you can pull out between $10,000 to $20,000 cash and refinance your investor out of the loan. Or, your investor will be as happy as ever to get a 12% return while your new buyer or tenant keeps on making the monthly payment.
Also, in certain areas you can expect the property to appreciate in value, especially in the midwest. So, that same property that appraises for $100,000 now may be worth $105,000 to $110,000 in the next two or three years.
Hopefully, one of your wishes... would be to wish for more wishes! ;-)
There are courses available online about "How To Raise Private Money" which cost anywhere from $500 dollars to $2,000 dollars. Basically, you can learn how to get other people to lend you money to buy steeply discounted real estate, and it is a great time to buy in this market!
There is no limit to the amount of private money you can raise. You can raise millions of dollars, if you'd like. Then, you can buy great deals on real estate that are 50% or less value. If the house doesn't sell, you can offer owner financing or lease option as an exit strategy and partner with people who have money to invest.
There is a reason why the bank won't lend you money to speculate on the stock market, yet they will lend you money all day long to buy real estate.
There is also a reason why real estate is insured, but stocks, bonds and mutual funds are NOT secured by the FDIC.
Banks and insurance companies are the two most powerful institutions in America. Part of being a great leader is being a great follower!
Why invest your own money into something that is not secure?
With real estate, the loans are collateralized by the real estate itself. Which is why it is so easy for you to get backing on good real estate deals, because even if you fail to sell it - your investors have a steeply discounted piece of real estate to show for it.
If you fail in the stock market, you may as well flush it down the toilet.
Also, you can't rent stocks and make a monthly, residual income off of them.
If my property doesn't sell, I always have the option to offer owner financing or rent it out.
Let's say I find a house worth $100,000 for $60,000 because the owner is motivated to sell.
I have a private investor back me on the purchase for $60,000 and pay them 12% interest on the loan. They want to lend me the money, because they know it is a great deal, based on the appraisal.
My payment is $600 per month. And let's say that during the 6 month period, I can't find a pre-qualified buyer. Well, I have several options:
1. I can offer owner financing, and get 10% down from a buyer. This is in very high demand, because banks aren't lending money right now.
2. I can lease out the property, and cover my mortgage payment.
If I rent the property for $850 per month, I make $250 per month cash flow, plus I have $40,000 equity in the property. But best of all, I never used a dime of my own money.
If I want to go to the bank and refinance it (if you have good credit) you can pull out between $10,000 to $20,000 cash and refinance your investor out of the loan. Or, your investor will be as happy as ever to get a 12% return while your new buyer or tenant keeps on making the monthly payment.
Also, in certain areas you can expect the property to appreciate in value, especially in the midwest. So, that same property that appraises for $100,000 now may be worth $105,000 to $110,000 in the next two or three years.
Friday, February 5, 2010
Stocks Versus Real Estate - Which One Is Best?
The leading financial institutions in America are banks and insurance companies. Part of being a good leader is being a good follower.
What I mean by this is that a bank won't lend you money to speculate on the stock market, nor could you obtain an insurance policy to guarantee your stocks will be secure. In fact, most banks disclose that mutual funds and other stock certificates are not backed by the FDIC.
In contrast, a bank will lend you money to buy real estate all day long, and I'm sure everyone has heard of home insurance.
The reason why banks and insurance companies are so eager to lend and insure real estate is because real estate is tangible, where business (stocks are shares of a business) is more of an intangible idea.
Also, with real estate you have more control.
If you cannot sell your property, you can always rent it out for a passive income. Also, there are three ways to make money in real estate:
1. Cash flow - residual income off of renters. Whatever you get above and beyond your principle, interest, taxes, and insurance is yours to keep.
2. Equity - If you buy a house for $50,000 that actually appraises for $100,000, you can either sell the house for $100,000 and collect a $50,000 pay check, or you can go to the bank to refinance the equity out of the property.
3. Appreciation - There is only so much land available on the Earth. There are booms and busts in real estate, but everyone agrees that there is only so much space on this planet to buy. So, the same property you bought for $50,000 that is worth $100,000 today - may be worth $125,000 in 3 to 5 years.
I have not even mentioned the tax breaks you get by investing in real estate. Here is just an example of what I mean:
There are three types of income:
1. Earned
2. Portfolio
3. Passive (Residual)
Earned income (doctors, lawyers, attorneys) are taxed in the highest brackets, and have to give 50% of their income to Uncle Sam.
Portfolio income is equity, or what your assets are worth but haven't sold for. Once you sell, you can be taxed up to 20% of your proceeds.
Passive is generated from royalties, copyrights or real estate rentals, and is only taxed up to 10% in most cases.
With real estate, you can sell that $50,000 for $100,000 then take that $50,000 proceed and RE-INVEST that money into more real estate, tax free. In other words, you can use Uncle Sam's money legally to invest and buy more real estate. The technical terminology for this is called a 1031 exchange.
There are NUMEROUS ways to invest in real estate, regardless if you want to buy rental properties, rehab and flip houses, or become a partner with a real estate investor like me and provide the funding while I find the deals, manage the contractors, secure a buyer, and do all of the leg work to make the business a success.
You can partner with an investor who buys steeply discounted properties, set up a self directed IRA where the money continuously rolls back into your account tax free, and your money is secured by a 1st position promisory note. In other words, if the venture fails and the house doesn't sell for full appraised value- you own a house that is at least 50% of the appraised value that you can either rent out or sell to get your money out of.
All you have to make sure of is that the title on the real estate is clear, which an attorney will provide for you for very little cost. And your money will be secured by the real estate.
You can form a partnership with me, own the real estate with me, and I will do all the leg work as far as finding the deals, finding a buyer or renting them out for a profit. We can show recent sales in the neighborhood, and provide contracting bids to show how much work each property needs.
What I mean by this is that a bank won't lend you money to speculate on the stock market, nor could you obtain an insurance policy to guarantee your stocks will be secure. In fact, most banks disclose that mutual funds and other stock certificates are not backed by the FDIC.
In contrast, a bank will lend you money to buy real estate all day long, and I'm sure everyone has heard of home insurance.
The reason why banks and insurance companies are so eager to lend and insure real estate is because real estate is tangible, where business (stocks are shares of a business) is more of an intangible idea.
Also, with real estate you have more control.
If you cannot sell your property, you can always rent it out for a passive income. Also, there are three ways to make money in real estate:
1. Cash flow - residual income off of renters. Whatever you get above and beyond your principle, interest, taxes, and insurance is yours to keep.
2. Equity - If you buy a house for $50,000 that actually appraises for $100,000, you can either sell the house for $100,000 and collect a $50,000 pay check, or you can go to the bank to refinance the equity out of the property.
3. Appreciation - There is only so much land available on the Earth. There are booms and busts in real estate, but everyone agrees that there is only so much space on this planet to buy. So, the same property you bought for $50,000 that is worth $100,000 today - may be worth $125,000 in 3 to 5 years.
I have not even mentioned the tax breaks you get by investing in real estate. Here is just an example of what I mean:
There are three types of income:
1. Earned
2. Portfolio
3. Passive (Residual)
Earned income (doctors, lawyers, attorneys) are taxed in the highest brackets, and have to give 50% of their income to Uncle Sam.
Portfolio income is equity, or what your assets are worth but haven't sold for. Once you sell, you can be taxed up to 20% of your proceeds.
Passive is generated from royalties, copyrights or real estate rentals, and is only taxed up to 10% in most cases.
With real estate, you can sell that $50,000 for $100,000 then take that $50,000 proceed and RE-INVEST that money into more real estate, tax free. In other words, you can use Uncle Sam's money legally to invest and buy more real estate. The technical terminology for this is called a 1031 exchange.
There are NUMEROUS ways to invest in real estate, regardless if you want to buy rental properties, rehab and flip houses, or become a partner with a real estate investor like me and provide the funding while I find the deals, manage the contractors, secure a buyer, and do all of the leg work to make the business a success.
You can partner with an investor who buys steeply discounted properties, set up a self directed IRA where the money continuously rolls back into your account tax free, and your money is secured by a 1st position promisory note. In other words, if the venture fails and the house doesn't sell for full appraised value- you own a house that is at least 50% of the appraised value that you can either rent out or sell to get your money out of.
All you have to make sure of is that the title on the real estate is clear, which an attorney will provide for you for very little cost. And your money will be secured by the real estate.
You can form a partnership with me, own the real estate with me, and I will do all the leg work as far as finding the deals, finding a buyer or renting them out for a profit. We can show recent sales in the neighborhood, and provide contracting bids to show how much work each property needs.
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