Tag: sell my house quick

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Wealth Acceleration Strategies for Real Estate Investors

We will all agree that real estate is the best way to build wealth. Using real estate helps by using one key method that almost every other investing strategy does not offer. That being Leverage or borrowing against your property to control something more valuable than the amount of money invested. I can hear you yelling; “What about trading stocks on margin?” Yes, you are right that with a trading account you can trade limitedly on margin or only putting a fraction of money up for the stock. But that is very limited compared with real estate. I have done a 100% LTV mortgage on an investment property before. Now since the Sub-prime melt down you will not be able to do that for a while. But still, people routinely buy property with less than 20% of the purchase price down. Assume you are going to buy a single family house to rent out for 5 years and then sell my house. So you buy a $400,000 single family house purchased using a 80/15/5 conventional mortgage. What does that mean? 80% LTV first mortgage, 15% LTV second mortgage and 5% down payment. You bring $20,000 plus closing costs to the escrow company when you buy my house. So for $20,000 you control a $400,000 piece of property. Your monthly payments on your mortgages are $2,100 including your taxes and insurance. You receive $1,800 rent on the house. And it is vacant for 1 month out of every 12 months because of finding new tenants. Now this is a very conventional deal but very realistic in our current market. Let’s take a look at the numbers:

	Monthly	Annually	Total
Costs	$2,100	$25,200	$126,000
Income	$1,800	$19,800	$99,000
Net	($300)	($5,400)	($27,000)

So looking at the numbers this way it does not look like a very good investment. Paying someone to live in your property $27,000 for 5 years. Remember this does not take into account any repairs or tax implications these are just the raw numbers. But let’s look at it a different way. We are going to assume for the sake of argument that the property appreciation is 10% annually using round numbers. This a absolutely achievable in the Seattle market but will vary depending upon area.  Here is really what you are controlling: Purchase Price: => $400,000   Future Value 60 Months 10%annually: => $644,204   Total Equity Growth: => $244,204   Total % => 61% total growth   So your investment of $20,000 plus your additional expenses of $27,000 of holding cost will bring you an additional $197,204 over that same 5 years. How many of you would spend $47,000 to make $244,204 bringing you a rough profit of around $190,000. That is really the true path to wealth in real estate investing. The use of leverage is really what makes this happen for you. If you were to just invest the same $10,000 at a 10% annual interest you would only make $6,105 instead of the more than $190,000. So using the leverage only found in the real estate make you very wealthy when used over time. Now most of you know that I am a big proponent of creative real estate investing and may think that there is something hypocritical about talking about going and getting a loan and investing for the long term. Remember. This is tactics that I use to make money to invest long term for growth. So this is very true of all real estate. So please take the time to develop a strategy to use the best of both worlds.

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Know Your Exit Strategy Before You Buy That House

With the current state of the real estate market around the country it is important to be a little more cautious when you are looking at potential deals. I don’t know about you, but I have been getting leads from motivated sellers. They are putting their houses on the market as well as trying to sell my house quick or their properties themselves. In this market it is more important than ever to do your due diligence by knowing the value of selling a home as well as understanding what your exit strategies can be on an individual basis. Here is a little primer on exit strategies and when to use them. I typically use 5 types of exit strategies when I am investing. When I buy into a deal I want to have as many exit strategies as I can possibly have that will be profitable to me. When I do, I have much more flexibility with the deal.

1. Wholesaling – I would get a property at a discount from the seller, put it under contract and then depending on how much profit there is in a deal I would then wholesale the deal to another investor on my buyers list or if the deal was slim would wholesale it to an end buyer for a finders fee

2. Rehabbing and Retailing– The deal would have to have an upside potential. Being able to get it at a discount or buying it creatively is a good start. Depending on how much of a fixer it was I would do to the property what I could balancing time and cost to maximize the sales price.Typically I don’t like to do ugly houses where I would need to do a major remodeling job. I like to get in and out in a hurry putting my predefined minimum profits to see if the deal is truly a deal.

3. Long Term Buy and Hold– When I am ready to hold houses for long term appreciation and the tax advantages I look at everything combined. The status of my company, do I need immediate cash to run my company?I look at the deal itself, only buying in those areas where the value will either maintain or increase. I also look for the manageability of the property, how much effort is it going to be to find a tenant and to maintain the property long term.

4. Lease Option– This tactic gives me a lot of the advantages of both rehabbing and buying and holding. I can take a property and rehab a profit into it as well as sell it for the same price it will sell for in 12 to 24 months.Tenants can be a challenge finding but they are much less of a management headache. I don’t recommend this as an emergency exit strategy like I have seen so much in the past. You must understand this technique so you don’t put yourself in jeopardy by giving equitable title to the tenant. Do your research and use the proper forms.

5. Last is Seller Financing– Some investors are hesitant to offer this as a solution when selling a house. I like it because I can sell at a higher price to more people. In this tight sub-prime mortgage market it is a great technique as long as you use the right contract and work with the right buyers.You do not have to offer 100% financing but you can carry back a second mortgage to cover some of the buyers down payment. Just make sure that you can get out of all the underlying loans properly so you will not have to make up the deficit with your financing. I want to work with a buyer who can get at least an 80% first mortgage if not more and then I will carry back a not for the difference. This way I am clean of my costs and earning interest on my profits.

This is the first step that I look at when I buy the property. Following this rule I have yet to be burned because I have had at least 2 backup plans. You know what they say about having a good backup plan; it can be the difference between working on your own business or working for your old BOSS. Go out and review your deals in this light and make some good money for yourself.

Alameda County • Contra Costa County • Marin County • Napa County • San Francisco County • San Mateo County • Santa Clara County • Solano County • Sonoma County