How Often Should You Bathe Your 2 Month Old Baby The Absolute Beauty of Real Estate Investing

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The Absolute Beauty of Real Estate Investing

There are many investment options these days. From cash to treasury bills, stocks, bonds, gold, emerging markets, art, start-ups, own businesses, outstanding debt, etc. The options are almost endless and for every type of investment there is a trader or two who will tell you why their chosen investment the best type of investment. It makes sense that wherever you put your investment dollars, you should be fairly well-versed and knowledgeable. You’ve been diligently saving money for something, haven’t you? It would have been nice to know that you had some control over the outcome of your cash outing in those post day grind years.

The sad truth is that most have worked hard for their money for years but are too tired to really invest the time and effort in understanding their investment options and strategies and simply stop at a portfolio advisor who was able to sell their company a plan or the first decent the person who walks through the door with an investment strategy. Some actually go the distance to seek a referral from a friend or colleague. The real litmus test is whether you’ve ever had someone go out of their way to tell you about an advisor who really blew their socks off, and I mean someone who isn’t related to that person or has a financial incentive to get you on board . There is a subtle but very important difference between someone who is happy with their advisor and someone who goes on and on about how great their advisor is for half an hour at lunch. The vast majority fall into category one, and probably the vast majority of category one probably tell themselves they’re happy simply because they don’t want to feel stupid for putting so much trust and their financial future into someone they’re not really excited about. .

Let’s talk about Real Estate. Some of the huge advantages of real estate over other investment options are as follows.

1) It is a tangible, tangible, tangible, felt, inhabitable asset,

2) is insurable,

3) It is leveraged,

4) It is depreciable,

5) The value can be increased in several ways,

6) ROI can be achieved by increasing equity and cash flow,

7) It is not illegal to buy or sell rights using inside information,

Here is an example of how you can take advantage of all these benefits on one property.

I got a tip the other day about a man who inherited property but had personal money problems. Real estate did not do a person good because it was illiquid at the time. He needed cash within days, and no matter how nice this inherited house was, it was actually a burden to the man, simply because one, the other didn’t solve his problem, two was something else he had to take care of . This is a little bit of what you would call inside information. The general public does not know about this man’s situation, nor will it be in any newspapers, nor do I plan to share this information with anyone, and that is great news for me and perfectly legal. As Martha Stewart might argue, that’s not how the stock market works.

Now I did a little research and found out that the house is worth about $175,000. I called this man and explained that I was a real estate investor and had heard that he had recently inherited a property that he may have no use for and I wanted to see if he would discuss possibly selling the property to me. He said yes and started explaining the details of the property to me. I simply asked a few more questions about why he would sell such a nice house and he came out and told me about his financial struggles and how the property was like a huge weight on his shoulders. I sympathized with the man and got him to tell me that we buy properties for cash, we can close very quickly if needed at a discount. I further explained that we needed to be able to sell the house quickly ourselves and make a profit to make the deal work for us. He said he needed about $75,000 to cure his financial woes and give him some breathing room, and hoped to sell the house to give him a fresh start. I let him know that based on what he told me about the property, we could offer him $100,000 in cash and we could close as quickly as the title was clear and he jumped at it all. To be fair, I probably could have said $75,000, which was his number, and he would have jumped on that, too, but we’re not in the business of taking advantage of people. No matter what the situation was, that would be my offer because that is a fair margin for the property for our business.

So just by having good inside information, we GENERATE $75,000 on stock day one. To make matters worse, his property was an older house and had three bedrooms and one bath. Updated three-bed, two-bath homes in the area, preferably one in the master bedroom, sell for $225,000. So for about $15,000 in paint, carpeting, relatively minor kitchen and bathroom modifications (mostly just reglazing the tiles to a more modern white) and reconfiguring some odd space on the first floor, I was able to turn this property into a fresh and clean triple. a spa house that was in demand in the area. With a little vision and $15,000, I was able to create an additional $50,000 in equity, a net positive impact on my $35,000 profit in less than a month. So far we have $110,000 in assets and we’re about $115,000 financially, plus taxes and insurance costs of a few thousand dollars.

I’m far from done with this. I have a handful of investors who understand the power of real estate and want to get in on the action but don’t want to get their hands dirty. They will lend me up to 70% of the ARV of the property, $157,500 ($225,000 x 70%), using either cash they have available or money from their IRA, see the IRA Investing chapter . As a practical matter, we will only take up to 70% of the value after the property has been repaired, as this will give everyone a 30% cushion should there be market shocks or something unforeseen happen, there is still enough capital from the trade to make a profit. Additionally, I insure the property for the full ARV in case an act of God completely destroys the property, so everyone gets their money and profit back as promised. Our investors also get the first mortgage position recorded with the region.

Moreover, for the privilege of having access to my investors’ funds at short notice and to entice them to remain satisfied as a passive investor, we pay a nice return of 12% simple interest, provided the investor accepts full repayment of his outstanding amount. the balance once the property sells or is refinanced, usually no more than a few years, or 10% if they want monthly payments. I pay a 2% convenience fee to not have to pull out a big old checkbook every month and send a check and put it in my book and quickbooks, etc. Are my investors happy? It earns 12% on a tangible asset that is loaded with a maximum of 70% loan-to-value (“LTV”), its investments and returns are insured against catastrophe, it is a first lien on the property, and the maturity period is relatively short, no more than a few years, and plus, he knows this is all I do, so once that investment is out of the way, he can jump to the next one. I’m joking, worst/best case scenario is that I don’t pay him back. Instead of 12%, he occupies a full 30% of the stock position.

However, we are still not finished. I happen to know that there are people in this market whose credit cards have lowered their limits, the cracking economy has caused a late payment or two and maybe a move, and whose credit has gone down a bit. These are people who, if they were born a year earlier, would have been first-time home buyers, but they just happened to be in a financial meltdown and simply can’t qualify in the traditional way. The good news is I’m happy to help. Eager to own their own home, these people scour the newspaper and online classifieds looking for three things: 1) a decent 3 bedroom, 2 bath home, 2) in a good area with 3) an owner who will finance. I happen to have exactly that. My ad says, Attractive 3 bed 2 bath home, great neighborhood, $235,000, owner will finance with reasonable down payment. They call me, come see the house, which I have partially staged with the bare minimum of a few nice towels in the kitchens and bathrooms, some fresh cut flowers scattered around the house, a pot of fresh coffee when they walk in, and a little radio playing some soothing music. It’s everything they wanted.

We set it up as a lease with an option to buy, put 3% down, which happens to be the 3% they saved to already qualify for an FHA loan, and I gave them a two year lease (time to get their credit in order , so they can buy the property directly from me using conventional financing) and their lease payment is exactly the same as the monthly payment on a 6.5% loan for 97% of $235,000 amortized over 30 years plus taxes and insurance, or $1,774. In addition, the terms of my contract with them are as follows, they will handle all repairs and maintenance on the property under $1000 and when they exercise the option to purchase the property from me in two years, I will credit them with their down payment as and what their principal reduction would be if we actually had a loan vs . leasing. Basically in every way, but they are homeowners by title. They will have equity on the first day of ownership. If they decide not to buy the property, I have their deposit plus the 6.5% interest I effectively charged them for two years. Just to compare, I borrowed $120,000 at 12%, which is $14,400 per year, my lease option tenants pay me $14,817 per year in effective interest. All expenses on the property are covered, I can put $400 in the bank every year and by the way, did you notice that by offering owner financing I was able to increase the price by $10,000?

I’m still not done. Being a real estate professional, I can deduct all my expenses associated with this property for tax purposes, newspaper ads, vehicle expenses and preferably depreciation. Since I still own the property, I can also depreciate the property for additional tax savings. Plus, if I wait a year, the gain will be taxed at the capital gains rate over ordinary income, which is another $20,000 that goes into my pocket.

Since I haven’t gone over the 70% ARV mark on this investment, my returns are infinite because I haven’t put a single dollar into this property. Unlike the banks, my investor would probably feel cheated if I didn’t take full advantage of his investment to make him as much money as possible. I could have sold the property immediately for $225,000 and put $110,000 in the bank after taxes, but I decided to go the other way and put a few deserving people in the house for another $10,000 with no extra effort plus reap the tax benefits of holding real estate for in the short term. It’s hard not to really like the benefits of real estate. When you find the right people and work with them, the sky’s the limit.

I win a lot, but it takes some work. My private investors win huge sums, achieve significant returns with protection you cannot get in any other type of investment. We were able to take advantage of many of the benefits of real estate investing with just one property. That doesn’t even take into account the benefits of multi-family housing or commercial real estate, of which there are as many as the above.

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