Have you ever wondered how to make money in real estate even if you have no money yourself? Is it even possible? Absolutely! In this short article, I’m going to tell you exactly how it’s done and how you can get started yourself today. Let’s begin.
There are some important considerations for a good deal.
Location, Location, Location:
The area you are buying in will dictate the strategies that make the most sense. So, if it’s a fixer upper = Wholesale or Rehab. Rental = Rent, Lease-Option, or Owner-Financing. Other considerations to account for:
How bad of a fixer upper?
Are prices going up in the area?
Do they need all cash?
Can the seller be the Bank?
Are rents higher in the area?
Is it a good deal?:
How you take down a deal isn’t as important as if it’s a good deal. When it’s a good deal, there is a margin that makes it work. The property should have good bones. The seller is the one that we should look to to solve their problem.
As much as it may seem harsh, you didn’t get them into this situation but you can solve it. They can’t afford their mortgage anymore. If you can help them see the truth of the situation you’ve got a deal. Always record details in the moment, you might forget later on.
Organization of information can give you the clearer picture of the deal. Some of the critical analysis you’ll want to have is a Property Research Form, Property Inspection Sheet, and an All Cash Offer worksheet. You might want Repair values, qualifying the seller, and financing. The judgements you make will all be made from this process. Use it wisely. You can’t spend your gains until you sell, make sure you buy right.
The deals you do are only as good as the clarity of your paperwork. The lawyer you use is only as good as their reputation, so find one that you hear good things about. There will be aspects of the contracts that you want to tweak to your advantage. Your local real estate agent probably will want to fill it out to the advantage of the seller, so become familiar with how to write addendums that put you back in the driver’s seat.
(OPM) Other People’s Money:
Leveraging other people’s money is a great way to get into an investment that otherwise you couldn’t do. Does the seller care where the money came from? Let me give you some ideas of other people’s money:
Banks/Other Investors/Friends/Subordination/Substitution Of Collateral
The Title Company where you choose to close the real estate transaction is important. If the title has hidden liens, you are on the hook for them. Always get title insurance for this very reason.
You can get some Cash Monthly from owning single family houses long term but not as much and not as fast as owning smaller apartment houses. And it’s a lot riskier to have all of your money in single family houses.
What happens if you lose your tenant in your single family house? You lose all of your income. You’re going to have to dip into your own savings to pay the mortgage until you get a new tenant. That hurts!
If you loose a tenant in a three family house, you’ve only lost one third of your income. The other two floors will cover your mortgage until you get another tenant.
That’s just one of many reasons that owning small apartment houses is smarter that owning single family houses, but that’s another article all together.
3. CASH LATER
Cash Flow Investing Riches
Now that you have Cash Now and Cash Monthly, Cash Later takes care of itself. It comes when you sell, exchange or refinance those apartment houses somewhere in the future.
You see, with apartment houses you have an appreciating asset.
No only is it appreciating every month but your tenants are paying off your mortgage.
So between the appreciation and the mortgage pay down, your equity just gets bigger and bigger!
You can sell your property and get a boat load of cash.
If it’s creating a lot of Cash Monthly, you may want to keep those checks coming in. If so then you will want refinance to get you cash out.
Not 100% of your cash, which will only get you in trouble.
You should take out about 75% of your cash leaving 25% equity in the building, that way if there is a down turn in the market, your protected. Not only that, at 75%, you should still have a decent positive cash flow. Did you know that you do not pay tax on any of the money that you take out during a refinance?
Now take that money and go buy some more apartment houses and get some more Cash Monthly! In doing so, these apartment houses will start appreciating and the tenants will begin to pay down your mortgage for you.
You’ve just increased your net worth because you have increasing equity in one or two more buildings instead of the building that you started with.
Do you see a kingdom forming?
How quick can this happen for you? Warren Bufffet said if he could he would invest in single family homes. Apartment housing can make you the king of the kingdom! What’s in your kingdom?