Today, I will cover rental properties for a brand-new first time real estate investor. A real estate investor who is just getting into purchasing rental properties.
The first thing you will do is try to determine what rents are your particular real estate market. There are plenty of tools you can use like Rentometer, Zillow, or Craigslist and see what market rents are. Determine what current landlords are asking, and see what the condition of the property is. If the condition of your rental property is far better or if your rental property has more square footage, then you can charge more for rent. Then you need to start marketing and get a person into your unit. Do you want to list on the MLS? Not a bad option because what you're going to get on the MLS is you're going to have real estate agents go through, take people through that are vetted. Since they are already vetted, you will generally have a little higher-level candidate with a real estate agent. By using a real estate agent, you're going to give way either a full month's rent or a half a month's rent as commission. Depending on what it is, what the cost is, what you're offering there, but it is a good way to get a good solid tenant. The other way to market a vacant rental property is to list it yourself on Zillow, Craigslist, and FaceBook Marketplace. With Zillow, I generally find that I'm getting a little better, higher quality tenant, and I've been getting a lot of millennials lately. They've been very good payers. It seems they want to be mobile. They don't want to own right now, a lot of them. So especially the younger ones in their twenties. They're looking to stay mobile and they're renting and they're generally great payers and very good tenants that take care of the place overall. What costs should you put on your tenant? What duties should you put on your tenant? I'm going to break it up here between a multi-unit property and a single family. Let's start with single family. If you're looking at a single family, you want to put lawnmowing onto them. Maybe you provide them with a lawn mower. Unless you know somebody there in that neighborhood, that's willing to do it very inexpensively for you and you can incorporate that in your rent. You could do that, but otherwise put lawn mowing on the tenants, as well as snow removal. If you're in an area that gets snow, you want to put that kind of maintenance on tenants. Tenants most likely will not want to manage a flower bed. If you have flower beds you may have to maintain the flowers and mulch. You will have to clean the gutters out because that's something no tenant is going to want to get up on a roof and do gutters. That's something you want to do annually, or really depending on where you are and how many trees you have around. Water, sewer, put that on tenants. You could find out what your average charges are per month, and what I do is I let them know what the average cost is per month for water, sewer, and trash. Some boroughs or townships do water, sewer and trash, all in one billing cycle. You want to put these utilities on tenants because otherwise some will use a lot of water and not be careful with it. Same goes for the heating and cooling bill. I know there are instances when there is shared heat in a multiunit, but break that up. Make tenants pay for the heat because there have been tenants that will have the window wide open in the winter with the heat on. Then you are using a lot of oil or gas. And you don't want to run into that. And for your single-family properties have then tenants pay. Generally you're easily able to put those utility costs on tenants. What I like to do, I like to give tenants a spreadsheet or word document that explains what your rent is. Here's what your average utilities costs are and here are your responsibilities. Make them sign that as part of your lease and send it to them via DocuSign. Because if the tenants are not doing their job (following the lease), then you've got something to go back to them with. And the tenants can't say they didn't know because they signed this document. Multi-unit rental properties. I own a few multi-unit rental properties and you are going to be responsible for doing yard maintenance. You're going to be responsible for doing the snow removal and those kinds of things, whether it's a two unit, or a three, four, or five or 12 unit building like I'm renovating right now. All those costs are going to end up being on the landlord. You can build those cost in and any amenities that you add, like onsite laundry in the units. The 12-unit apartment building, we're renovating, we're are putting onsite laundry in each unit. So now we can charge a little bit more for rent compared to if we don't have that. In a multiunit apartment building, many of multi-family properties have shared laundry where it is coin operated. If you have onsite laundry or another amenity, you can justify increasing your rent a little bit accordingly, and it's going to help you rent that property a lot easier as well. Water, sewer, etc, you could divide that up. If you have 12 units, if they're all two bedrooms or three bedrooms, it's very easy to do and you just divide it up and average it and put those costs on them as much as possible. On a 12-unit building, I'm probably going to have to incur that expense and just incorporate that into my rental cost analysis. If you have separate meters, tenants in multi-family can be responsible for gas and electric. You want to put all those utilities in the tenant’s name and you want to make sure you let the utility company know that you are the owner of the building and tenants will responsible for paying the utilities. When the tenants move out, ask it to automatically transfers into your name. So the utility company does not shut it off. Then you don't have to make that phone call and get them to come back out there and turn the electric on or off again. I've been there done that. You don't want to deal with it. It's just a waste of your time. That's basically how you're going to determine what you have tenants pay for and what you pay for. You want to maximize your profits as much as possible and you want to make it desirable so tenants will stay there for as long as possible. One little difference between the multiunit and single-family properties, for single family people generally stay longer in single-family than a multi-unit building. That is something to think about as well. Although the cashflow isn't going to as good as multi-family and the maintenance is much higher. Both are great investments for long-term buy and hold. I hope you guys got a lot out of this. To learn visit our YT Channel https://youtu.be/DufeaDffnLg
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I will discuss what is a good rental property? For me, a good rental property is, a property that I can purchase for $50,000 and I know the After Repair Value (ARV) is $150,000 or greater. My property renovations are $25,000. My objective is can I pull all my cash out when I refinance? If so then the rental property is a keeper. Because I'm into the property for nothing. It's very important though that it must generate cash flow. If it doesn't bring a positive cash flow in, then it does not help you as much.
What I am looking for personally, on a single family, at least $200 bottom line net positive cashflow. In other words, if my mortgage, taxes, insurance, utilities and maintenance is $1,100 a month, I needed the rental property to rent for at least $1,300 per month. Now there are exceptions and I'll give you an example. I have a few properties, the only rentals I want now are where I can pull cash out, where I will be net cash neutral. In other words, I don't have anything into the rental property. If I had nothing into the rental property, or if I've pulled cash out (refinance), I don't mind if the rental property brings me in only $100 per month. Because I've already taken my profits out. An example. I purchased a rental property in Souderton, Pennsylvania this past year. I was able to refinance and pull out about $25,000 cash out of the rental property. This is non-taxable, a great benefits of real estate investing. The non-taxable income of $25,000 and put $10,000 or $15,000 into another rental property. And now you've got your down money again for the next rental property. To find and fund another rental property deal. Then maybe that deal generates another $100 or $200 or $300 per month cash flow. You're increasing your wealth through real estate investing. You're taking your profits, rolling them and putting it into another investment property. That's what I personally look for in a rental property. If I have cash sunk into a property or an accidental rental and I have had a couple of those, which I'm selling in this real estate market now. Because I want to take the cash out. I have $20,00 in the one and I have $25,000 in another. These rental properties don't generate cashflow. I want that money out of these properties so I could put it into something that's even more profitable for me. That's one of the objectives I have personally for my rental property philosophy. When you have a great real estate market like this, it's a great time to sell below average rental properties and get your cash out of them and move on to the next real estate investment property. If you're new to real estate investing, try to do that as often as possible. Try to get in there, where you're into a rental property for next to nothing. Then you're just building cashflow. Have a separate account. Your extra cash flow goes into a separate account. Try not to use that for income unless you have to. Otherwise put the cash flow into the separate account, save it for renovations or repairs or your next investment property. That's my advice on how to pick up a rental property. To learn more https://youtu.be/AZi0bJHMNLI What is Transactional Funding?
Transactional funding is a short-term loan that is borrowed and paid back quickly, usually within the same day, and sometimes as long as a week. Access to this kind of short-term financing allows real estate wholesalers to buy and resell properties quickly without using any of their own money. Transactional funding is almost exclusively used to wholesale properties through the double close method. It gives real estate investors the cash they need to buy a property from a home seller and allows the real estate investor to resell it for a profit in a separate transaction. Why Would a Real Estate Wholesaler Used Transactional Funding? Real Estate transactional funding serves as a replacement for when assigning contacts isn’t permitted. Such as wholesaling bank REO properties or if you do not want to disclose how much profit you are making to the seller and buyer. When it’s not possible to assign a contract or if you choose not too, investors may then turn to transactional lending to complete a wholesale deal. As a result, transactional lending enables investors to conduct legal back-to-back closings in a matter of days, if not hours. This is how Paul and I have wholesaled REO properties in 44 states. While transactional funding has proven invaluable to seasoned wholesalers, there’s one caveat: transactional funding for real estate wholesale deals usually requires an end buyer to be lined up prior to receiving funds. A transactional lender will typically require borrowers to have already found a subsequent buyer for the property. If you know the wholesale property is a deal but don’t have a buyer lined up or if you are selling to a conventional loan buyer and they won’t be ready for another month then you want to close with a non-transactional loan. Such as a private lender or hard money lender and not a transactional lender. How Does Transactional Funding Work? Transactional funding is only used when there is an established end buyer in place. This end buyer should be ready to buy the subject property from the real estate wholesaler immediately after the wholesaler purchases the property from the original seller, and the sale proceeds from the end buyer are used to pay back the transactional funding loan. Transactional funding can be used with any type of real estate, provided the closing agent is willing to facilitate both transactions and the lender can verify all the important details before dispersing the funds. Here’s how transactional funding works:
For example: If a real estate wholesaler gets a property under contract at $100,000 and then finds an end-buyer that will purchase the property for $120,000. The wholesaler reaches out to a transactional lender and the transactional will review the deal. If all is OK, the transactional lender will lend $100,000 plus closing costs for the wholesaler to purchase the property. Then the same day or next day, the end-buyer purchases purchase the property for $120,000. The transactional lender will receive $100,000 plus their fee. The wholesaler will receive $20,000 minus closing costs minus transactional lender fee. Benefits of Using Transactional Funding
Limitations of Transactional Funding
How Much Does Transactional Funding Cost? The cost of transactional funding can vary from lender to lender. Most lenders will charge somewhere in the neighborhood of 1% to 3% of the loan amount. To put things into perspective, a $100,000 loan could end up costing wholesalers anywhere from $1,000 to $3,000. The fees associated with a transactional funding loan can vary based on the loan amount, the length of the term, and how risky the lender perceives the deal to be. It can cost more if the term extends longer or other risks come into the picture. It ultimately depends on what the lender and borrower negotiate. A transactional lender typically expects to be repaid within 1 to 3 days (sometimes up to a full week), although there are some lenders who offer extended transactional loans for longer. For example, when I have done transactional lending for people that I know, I have charged a flat fee or a percentage plus 12% annualized interest. If an investor borrows $150,000, the cost of the loan would be $3,000 plus $49.50 per day in interest. For more on transactional funding check out our video https://youtu.be/kCbwtS3VKw4 Hello, everyone. Paul here from REO auction Academy. I was going over great articles, really good data from Redfin. Home prices increased 13% last year. Really high number and pending sales increased 38%. New listings were up 7% and total active listings were down 32%. When you have that few listings, home prices will increase because it is basic macroeconomics (limited supply = increase in price). Pretty simple.
It's like when tickle me Elmo comes out and they limit the supply. People are paying ridiculous prices to get these things. It's the same with housing. People still want to move. They want to move out of the city. They're still scared about the whole pandemic. So, because of that, they're willing to spend more on housing. They're going to do it, especially with the record, low interest rates. I think we are going to see this through at least a first quarter of 2021, potentially into the second quarter. I don't know whether we see a plateau or decrease in home prices after that. Really mortgage rates are a big dependency on that. If we have more the moratorium on foreclosures lifted and more foreclosure start to come into play, which will increase the house inventory and then stabilized home pricing. The home pricing can't be stabilized because there's more housing demand (pent up demand) and not enough housing inventory. And that's why we're seeing these housing numbers. 38% of homes went under contract and had an accepted offer in the first two weeks. That is a seller’s housing market. This is well above the 25% rate during the same period a year ago. About a year ago, we were learning about COVID. It is different times. And again, I think that's going to continue. But it's crazy to see what has happened with the home pricing. The current medium home price is now $319,000. That is a staggering number. Median homes are affordable only because of interest rates being historically low. Historic low rates make your monthly payment more affordable, which means people pay more. But the second that mortgage interest rates start to increase, the fed is going to try to make sure that interest rates don’t increase, but when interest rates do increase home prices are going to come back down. They could fall rather quickly if there was any kind of a major increase in an interest rate. And again, I don't think there will be, I think it would be more minor. I don't think you'll have to deal with that, but just seeing what's going on with home prices right now and values, I just want to reiterate if you're thinking about selling, Do it now. Whether it's your primary residence, you want to move and you got an opportunity to move. Now's a good time to do it. If you have rental properties, I'm going to be selling some of my rental properties because the real estate market is what it is. I'm going to be able to get good pricing for my rental properties. I’ll take that home price appreciation, use the cash from the proceeds of the home sale, and put it into the next asset. It can be cryptos or more investment properties in a better area, or stash the cash and be ready for the crash. That's our motto here at REO Auction Academy. We are stashing the cash right now and preparing for the housing crash. A big part of what I'm doing personally, and this isn't financial advice to anybody. But a big part of what I am doing is I'm holding a lot of my cash in cryptocurrencies. The significant increase in cryptocurrencies recently has really helped. I will continue to monitor and if I need to reallocate my money from cryptocurrencies into a stable coin or put it into the dollar and go back and forth finding the right asset class to go into. But to recap I am waiting for the end of the year and maybe into 2022 for the increase in housing inventory and the decrease in housing prices. We will see, I cannot tell you when that will be, because I now the Biden would like to have more stimulus, more money in a market, more inflation. You will see everything start to go up in price. The federal reserve wants some inflation. This is something that the Fed is trying to do. We'll see what ends up happening, but that could end up prolonging this bull market run here in real estate. Personally, we are probably putting our house on to the market here in the spring and don't know where we're going yet. We're looking at potentially your low-income tax states. Whether it is Texas, Wyoming, Tennessee, Florida, who knows, I don't really like the weather in Florida. We need to figure out exactly where we want to be the whole family and the best spot for us to base. With your job, if you can transfer to another location, that is something to look into at this point. If you can go to a place where there is a lower cost of living and lower income taxes, why not move there and put more money in your pocket? Hopefully you guys got some good information from this. Thank you. See this video for more on this article https://youtu.be/iichAA7lNOQ Hey everyone. Paul here, REO auction Academy, just looking at this new article came out today. 2020 home sales hit the highest level since 2006.
And if you remember 2006, that led up to the crisis of 2008 and I was busy doing a lot of fix and flip store in this time period here in 2006 and getting record numbers. And we're kind of seeing some of the same things. Now that's far, far, far different, and I'll go over some of the similarities and differences. What led up to that is all the easy loans, they call them the liar loans. Where if you were alive, you did not need to have to prove you had a job. You had strippers getting houses. It was totally insane, and totally different thing, which led up to the financial crisis. What we have now is that we're being pushed in this direction because of COVID. That really push people to move. That is why you're seeing a 22.2% increased year over year in existing home sales. What COVID did, everybody decided I'm moving. For people who are thinking about moving, COVID pushed people that direction. For people that weren't thinking about moving, they wanted to get out of the city. They wanted to get out of the major metropolitan areas. And it wasn't just the COVID shutdowns in the cities, it was also due to the rioting and other disruptive things that were going on in the city. You have a big transient push out of the cities and into the suburbs and into more rural areas is what we're seeing here. I think that's going to continue for a little while and that's the way the trend is going right now. I do think this year we will start to see an uptake housing inventory. I think we'll start to see that probably in all likelihood towards the second half of the year. Maybe towards September, October, November, December timeframe. Late Q3 or Q4 is when we'll start to see housing inventory increase. Biden spoke about putting a moratorium until end of September. That's only on federally backed loans, government backed mortgages, Fannie, Freddie, and HUD. It's not going to be on your conventional mortgages so the non-government back loans could still go into foreclosure. But it will still reduce housing inventory. What else is pushing existing home sales higher? Record low interest rates. As you can see here, they're projected to stay 3% or below for the foreseeable future. The federal reserve is just buying up these ten-year T-bills to keep the record rates low artificially. I was talking to some people who think the interest rates are going to increase, but the Fed will attempt to keep interest rate low. The Fed may not be able to keep interest rate fully down, but I believe the Fed is going to do everything in their power to keep interest rates low. Where are people migrating? Currently, Tennessee's number one, Texas is number two. Nevada is up there, as is Florida. Basically where people are migrating to is to low or no income tax states and warmer climates. Also, to red states. Red states have lower taxes. You're seeing a lot of that currently happening. I think the blue states are going to have a major drop in population over the next year. Looking at home prices from their lows right after the 2008 financial crisis. In June of 2012, $198,768. That when you start seeing the increase from the low of $195,000. The low was March of 2012 and then home prices started to increase from there. Fast forward to June 2020. the median home price went from $198,768 in June of 2012 to $278,621 in June of 2020. And of course, home prices have increased since June 2020. It is probably closer to $286,000 currently. That means you had a $79,853 increased over an eight-year period, roughly just under $10,000 per year. People gained in home equity which was a 40% increase, which is a staggering increase. We really been helped by everybody moving from the big cities to suburbs and rural areas and record low interest rates. We have matched or just slightly exceeded, the all-time medium home price highs. I think that's going to continue into this year, but how far into this year? I don't know, but I'll tell you what my plan is. My plan is to sell off my dog rental properties and keep my good rental properties. I have rental properties that I've purchased for $80,000. It is a short-term rental (Airbnb) and I put about $10,000 of renovations into it. I am $90,000 into the property. I then got a mortgage for roughly $80,000. This property rents for $3,000 a month on average as a short-term rental (Airbnb). Minus property expenses and mortgage, I am netting somewhere around $1,100 a month. It's a real good cash flow rental property for me. So I'm will keep this property. Plus the value right now is probably around $175,000. These types of properties that I have where I have no more of my money into them, they are just producing cashflow, I'm will keep these rental properties. Other rental properties that are either more difficult or have issues with them, I'm going to sell those properties. If you're thinking about your poor performing rental properties right now, you should probably sell them right now. Get these poor performing rental properties on a market ASAP before home prices reach their peak. I do believe we are at or near our peak. I don't know how much longer the rising of medium home prices will continue. I know the government will keep printing money into oblivion. We'll see what happens, if that continues to inflate home prices a little bit further. If you're on the fence, definitely sell the poor performing rental properties. Those are my plans. Hopefully you got a lot out of this article. If you want more check out https://youtu.be/tCJO2zd2OgQ Structuring an Owner Finance Property
- have the applicant (potential borrower) fill out a 1003 (mortgage application) - copy of drivers license - 2 months bank statements - 2 months recent pay stubs - run their D/I (debt to income) ratio. Keep at 0.45 or less meaning their debt cannot be more than 45% of their gross income with the new mortgage payment included - contact their employers and verify employment - find a RLO (residential loan mortgage officer) to underwrite (charge $500 to $1,000 to underwrite) Sample Owner Finance Property Deal #1 - $29,000 sales price with $2,000 cash down. Borrower has decent credit. Mortgage rate at 12% due to lower down payment and lower credit - 5 year term with a principle and interest payments of $600.60 - Total payments received $36,036 plus $2,000 down payment = $38,036 - Purchased the property for $11,996.93 - net profit over 5 years = $24,039.07 - ROI = 200% and annual return of 60% ($7,207.20 / $11,996.93) Sample Owner Finance Property Deal #2 - $69,900 sales price with $7,000 cash down and $62,900 mortgage payable over 15 years at 5.50% (decent credit and income) - Principle and interest payment of $682.63 plus escrow of taxes and insurance $162.03 and loan servicing fee of $30 per month - Principle and interest over 180 months = $122,873.40 - Servicing fee of $30 over 180 months = $5,400.00 Total payments received $36,036 plus $2,000 down payment = $38,036 - Purchased the property and rehab costs = $33,500 - ROI over 15 years = 367% and annual return of 24.45% ($8,191.56 / $33,500) Sample Owner Finance Property Deal #3 - Purchased the property for $16,218.44 - Sold for $35,000 with $20,000 cash down (after closing costs costs had $1,723.32 profit not including the mortgage) - No money into the deal, immediate profit after back to back closing - Created a $15,000 mortgage at 8% payable over 24 months for a monthly payment of $678.41. Total payments received is (24 months) = $16,2891.84 - ROI = 111% and annual return of 55.55% ($9,002.58 / $16,218.44) Sample Owner Finance Property Deal #4 - Purchased price (all in) for property for $10,569.30 - $11,200 down, so profitable from the start ($884.74 after closing costs costs() - Sold for $30,000 with $20,000 mortgage payable over 5 years at 10% for a monthly payment of $424.94 - Total payments received is (60 months) = $25,496.40 plus $884.74 = $26,381.14 - ROI = 250% and annual return of 48.2% ($5,099.28 / $10,569.30) Sample Owner Finance Property Deal #5 - Purchased price for property plus repairs = $5,657.81 - Sold for $25,000 with $5,000 down (out of pocket $657.81) - $20,000 mortgage at 9% payable over 5 years $415.17 plus tax and insurance escrow - Total payments received is (60 months) = $24,910.20 - ROI = 529% and annual return of 88% For more details on this topic please see our video: https://youtu.be/vBy4EF6EUSQ Seller Financing or Owner Financing a House
Deed of Trust States
Installment Land Contract
Tax Advantages of Seller Financing - Tax benefits of Installment Sale are not all of the gains are realized in that year and may lower your tax burden - Seller does pay ordinary income tax on interest paid each year - Principal payment is taxed at a long term capital gains rate - Downside of installment sale is the depreciation recapture which requires you to pay 25% tax on the amount of depreciation you have taken on that property. In an installment sale you may end up having to pay more than you bring in initially that way. Wet Funds vs. Dry Fund States - AZ, NV, AK, CA, HI, ID, NM, OR, LA are dry fund states - All remaining are wet fund states - For dry fund states if you are doing a back to back closing you can use your buyers funds to fund the deal - Great for beginning investors with limited funds. You won't need transactional funding which typically runs at least $2,500 per deal Watch at https://youtu.be/osnOG5Cfg9Y In this article, I will answer a question I see asked all the time...
Can I wholesale REO Properties? The short answer is YES you can. We have done this in 44 states. The seller is the Bank and The Bank’s contracts are not assignable. That means you need to actually buy the property. Now once it is under contract with the bank you can start marketing the property. Best case scenario would be to find a buyer before you close on the property and you can do a double close. A double close is Buy a property and sell the property the same day. If you don’t have a buyer before you close but you know it is still a deal, still close on the property (buy it) and then continue to market to sell it. If you don’t have the funds you may need a transactional funder or private lender. We actually purchase almost all of our wholesale deals (REO and non-REO) so we can maximize profits. Whether it is to sell for cash, owner financing, or wholetailing (light renovations). Video on this article visit https://youtu.be/2QTSGftDAEU How Does Private Lending Work? This post will be a Q&A format to answer common questions.
First What is Private Lending? Private money lending serves as an alternative to traditional lending institutions, like big banks. Private money lending is when individuals lend their own capital to other investors or professionally managed real estate funds, while securing the loan with a mortgage against real estate. Why Would Someone be a Private Lender? Leaving your hard-earned money in a savings account that is earning 10 to 60 basis points is no way to grow your assets. Private money lending allows you to earn 8 to 15% interest and be secured by a loan with real estate that is worth much more than the loan. It’s important to familiarize yourself with the real estate financing options available to today’s investors. Why Would Real Estate Investors Use a Private Lender instead of a bank? It is easier to fund a property using a private lender than applying for a bank loan. Banks have a list of strict requirements and longer timelines. So a need for alternative lending sources quickly developed. Private money lending is a critical component to the real estate investment industry. Its presence makes it more possible for the average investor to run and maintain a sustainable business. Who Is a Private Lender?
How Does Private Lending Work? The concept of a private money loan is relatively simple. You have a borrower, a lender, and paperwork. While they seem to serve the same purpose as traditional lending institutions, there are several key differences. Private money loans typically charge higher rates than banks, but they are also more available in cases an average bank would pass on. Additionally, private lending offers speed that allows an investor to make a strong offer by closing fast. How To Become a Private Money Lender? Networking. Meet successful real estate agents and investors. Talk to others that do private lending. What Type of Properties do I Private Lend? With private money lending, you will be confronted with several types of real estate investors. Here are a few scenarios you may encounter:
How Do I Get Paid? Private lending is very flexible on how you structure your deal.
To wrap up this video, Private money lending can represent an attractive opportunity for both parties involved. Real Estate Investors seeking alternative financing sources will find the benefits include a faster approval process, increased access to funding, which will lead to strong offers on properties. On the other hand, those lending may find they have unique access to potential investments and deals. No matter which side of the transaction you are on, private money lending is a viable option for expanding your financial portfolio. For a video on this article visit https://youtu.be/gLMIUHSKF8k I see the question on real estate forums or have people ask me all the time, “I found a property deal, but where do I get the money to purchase a property?” If you're not looking to assign a real estate contract, or you know the house is a real estate deal but might take a few weeks to sell, then you want to buy the property. Where do you get money to purchase this property?
I’ll discuss a few examples of ways to use your own money and other people's money that we've utilized in the past. First one is ways to purchase properties using your own money. You might have a self directed IRA that you could use. In your IRA most people purchase mutual funds, stocks and bonds. Maybe you subscribe to a self directed IRA where you can invest in anything such as real estate. A lot of people utilize this, and it's a great way to grow your retirement accounts. Another way is if you don't have much debt on your personal property and it's worth a lot of money, you could pull out a home equity line of credit through a bank. $50,000, $100,000, $200,000, whatever your equity is on your property. Interest rates are real low rates right now and it's interest only payments when you use your HELOC. So you could utilize six figures from your own personal property to purchase investment properties that you can purchase and quickly wholesale, or maybe do renovations and resell, or buy them as rentals. If wholesaling or rehabbing, when you sell your property you can repay the HELOC and get ready for the next deal. If you purchase the investment as a rental, then after you fix it up and have it rented, you can refinance and pay back your home equity line of credit. You might have savings accounts that you can use to purchase properties. If you have permanent life insurance, there's usually cash value within your policy. That's a quick way you can get money in a few days. It's the savings account within your permanent life insurance product. So those are a few examples just from your own money that you might have access to purchase properties to wholesale or as an investment property. Now let's discuss other people's money. So some of the ways that we have utilized is transactional funding. Transactional funding is used when you purchase the property and a week later, or same day or a month later, you resell the property. It varies with what people or companies charge. Anywhere from $500 to $1,500 to use transactional funding on a short term basis for a few days or a few weeks. Another way to use other people’s money is hard money lenders. They're going to cost a little bit more, however, you're going to still make money on it. Hard money lenders usually charge points and there's going to be higher interest rates. Anywhere from 10% to 15% on average. And another example to use other people’s money is to get a business line of credit in your business that you have as an opportunity to purchase properties. And then finally one that we utilize a lot is private lenders. Private Lenders are just individuals that have plenty of money in savings, and they don't want to earn 0% interest in a bank account somewhere. You meet these people through networking such as real estate investment groups, country clubs, cocktail parties. We just talked to people about what we do and people are interested and they want opportunities to get into real estate without actually actively managing projects. This is a great way for them to diversify their portfolio and invest with real estate investors such as ourselves. These private lending deals vary significantly. It could be tied to an individual house where you use a mortgage and note on the deal to protect the private lender's investment. Some private lenders are okay with receiving quarterly interest payments from us. They lend us $X amount of dollars and they receive quarterly interest only payments. There are several ways that you could utilize your own money or other people's money to purchase real estate properties, whether it is for wholesaling REO properties, where you can't assign a contract, or if you are purchasing from a homeowner and you can't find that buyer right away, but you know, it's a deal and you don't want the contract expire. You could close on the property and then resell it a little bit later and still make money on the property and not have that contract expired with the buyer. So hopefully these ideas are helpful and better answer the question I Found a Property Deal But Where Do I Get Money to Purchase the Property? If you want to learn more visit a video on this topic at https://youtu.be/84HFqN_m9eY. |
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