REAL ESTATE INVESTMENTS – THE BEST WAY TO BUILD YOUR WEALTH!
I can always tell when someone is running a “Get Rich Quick” real estate workshop in the Raleigh Durham (RDU) area. Because I own several investment properties in RDU, I start to receive two or more postcards/letters and four to five blind calls per week asking the same question. “Do I want to sell my real estate?” The postcards and letters go in the recycle bin, before I enter the house. I do not answer calls on my cell phone from unknown numbers- especially NC area codes. And I block the numbers.
I WISH THERE WAS A FAST AND EASY WAY TO GET RICH IN AMERICA!
Everyone wants it fast, easy and cheap. Hence McDonalds was created.
When it comes to building wealth, with the exception of the lottery, I know of ZERO ways to get rich fast. I always wonder, if you have these “perfect systems” for buying real estate, stocks, trading options, breeding mice, etc. on the cheap and doubling your money, why are you teaching versus, sticking to your core competency? My assumption, the webinars and victims offer fast easy money! Hum – maybe I do know a way to make fast and easy money! My advice on those classes, webinars, books, etc. STOP – DO NOT WASTE YOUR HARD MONEY!
INVESTING IN REAL ESTATE REQUIRES SOME INTELLIGENCE AND MONEY – BUT NOT A BASKET FULL! {MONEY THAT IS}
If you lack either of the above, buy a lottery ticket.
You need money to buy, maintain and sell real estate! NOT hundreds of thousands. You can get started, depending on where, with $10,000. If you cannot save $10,000 – buy a lottery ticket!
SAVING FOR FIRST INVESTMENT PROPERTY – FIX AND FLIP
While you can get started with $10,000 investing in real estate, it will be tough but achievable in favorable locations. Locations that are rapidly growing will require more cash. But let’s work an example with $10,000 saved.
BUYING YOUR FIRST INVESTMENT PROPERTY
The fastest way to build equity in real estate is to purchase an undervalued property that needs cosmetic work like: Paint, removing abandoned crap and roaches (not kidding); cleaning; and some renovations. The math is simple, buy low, sell high. However, in a competitive, hot real estate market, such as Raleigh, NC, (where I own rental properties) buying low is difficult and requires patience and LUCK!
Depending on location you may buy a property for $50,000 to $100,000. Ideally you want the home to be inhabitable, so you can live there as you fix it up. Banks require a lower down payment on a home you plan to live in, and you may qualify for ZERO down payment.
Assume 12 Months to complete renovations and flipping/selling the home. If you finish earlier – congratulations.
CONGRATULATIONS YOU FOUND AND PURCHASED YOUR FIRST PROPERTY/HOME
You paid $50,000 for three bedrooms, 1.5 baths, 1200 square feet house and qualified for Zero down payment. You plan to live in the house in a few weeks after you clean it and make it livable. Then the hard work starts, and you make the necessary improvements, to list it for a profit. You will do as much of the work as you are capable to save on labor cost. For those tasks you do not have the skills, watch and assist the professionals and learn.
ELIMINATING OUT OF POCKET CLOSING COST
Closing cost can average three percent or more of the cost of the home.
Home Inspection ~$500: PRIOR to closing, have a qualified home inspector or a good contractor examine the house. Exterior; Roof; Interior; Foundation; Any Signs of Asbestos; Plumbing; HVAC; Appliances; etc. You must identfy what needs to be replaced/repaired and what is good enough you can flip and sell after some renovations.
Appraisal Cost ~$500: Lenders will ask you to pay for the appraisal upfront, but you can ask to have that included as part of your closing costs. Explain to your lender you are getting a seller credit and that you want to discuss interest rates and lender pricing that includes a lender credit.
Other Closing Costs: Escrows; Annual real estate taxes; Title and Recording fees; Survey; Lender fees. Inform your lender all above costs will be paid by a seller/lender credit.
SELLER AND LENDER CREDITS
Mortgage financing allows the seller to contribute up to 3% of the purchase price towards your closing costs, escrows, etc. You have to negotiate this with the property seller. As long as the appraised value exceeds your mortgage amount, you can increase your agreed price and the seller pays the closing cost and receives the agreed amount of money. Example: The property appraised for $60,000. The seller agrees to sell for $50,000. You structure the contract the sales price and mortgage is $53,000 and the seller pays $3,000 of your closing cost or gives you cash back.
Lender Credit/“Par Plus Pricing” is an above market interest rate which generates additional revenue to the lender. That additional revenue becomes the lender credit that will pay for the rest of your closing costs.
Utilizing seller and lender credits allow you to close without paying closing cost out of your pocket, saving you thousands of dollars.
RENOVATIONS BUDGET – $24,000 plus $2,000 contingency
Kitchen – $15,000: Refresh Cabinets, New Laminate Floor, Granite Countertop and Appliances
Master and Half Baths: $4,000 Repaint cabinets, new hardware, new toilet, sink and shower – $4,000
New Laminate Wood Floors – $4,000 Hardwood – $4,0000
Paint Exterior and Interior – $500
Cleanup Yard– $500
Misc. Cost – $2,000
You will also need an estimate what the house is worth after renovations. Discuss your planned renovations with a real estate agent and get their input where you will get bang for your bucks!
SHOW ME THE MONEY!
Options to generate the $26,000 for construction include: use your savings; or save from your income to cover repairs as you make changes; or Apply for a Construction Loan
CONSTRUCTION/REHAB BANK LOAN
A home construction loan is short-term (approximately 12 months), higher-interest loan that provides the funds required to build or renovate a residential property. Construction loans have variable rates that move up and down with the prime rate, And the rates on this type of loan are higher, than a traditional mortgage.
The lender pays out the money in stages as work progresses. Borrowers are typically only obligated to repay interest on any funds drawn to date until construction is completed. To obtain such a loan, the lender typically needs to see a timetable, detailed plans and a realistic budget.
AFTER RENOVATIONS THE HOME IS NOW APPRAISED AT $130,000
Finished Home Listing Sales Price: $130,000
Sold for $125,000
Sales Cost: 6% real estate fee +2% misc. selling cost = $10,400
PROFIT- $48,600:
$125,000 – $50,000 Mortgage – $10,400 Sales Cost – $16,000 Construction Loan {Recall you had $10,000 saved} = $48,600 – To be used for your next investment property.
REAL ESTATE INVESTMENTS IS THE BEST WAY FOR YOU TO BUILD YOUR WEALTH!
Many if not the majority of U. S. Millionaires, include real estate investments in their portfolio. If you want to join that club, get started today. Educating yourself about all facets of the business will keep the investment income coming, and help you grow your Net-Worth along the way.
To Join Wealth Building Powers BLOG:
PLEASE SIGN UP TO FOLLOW THIS BLOG by providing your email in the subscribe box.
To follow my daily posts on Instagram click: instagram.com/wealth_building_powers
Thank you to my followers and readers, for your likes and comments. All comments, recommendations and feedback is welcomed and utilized to improve this blog.
ABOUT ME
I am a proud nerd (as my beautiful wife and daughter have told me) investment and finance blogger, with a NC State, Chemical Engineering, University Rutgers, MBA and Harvard University, Advanced Management education.
I left a corporate career because I had a desire for making a difference as a speaker and writer, to help others. I was blessed to be coached, and mentored by strong men and women in both my family and professional life. It is time to serve and give back.
DISCLAIMER
I started my first business at ~13 years of age. I am a successful investor in equities and real estate and happy to share my personal finance and investment lessons learned with you. However, I am NOT a licensed financial advisor. Please do not construe my suggestions on this blog, as recommendations for your personal situation. For individual finance advice please seek your own licensed CPA or fiduciary financial advisors.
8 thoughts on “REAL ESTATE INVESTMENTS – THE BEST WAY TO BUILD YOUR WEALTH!”