Investing can be a scary proposition. Questions like, “Where to begin?” and “What to look for?” are on the forefront of my mind. My current investing strategy is to earn passive income along with the ability to sell a property to increase my capital. In other words, it pays to be smarter than the average bear. Must Haves
You must have are at least one good realtor in your corner. A Realtor who understands investing and what a potential investor can bring to the table, as a business resource. A good investor should understand CMA's, ARV's, potential cost of rehab and not leave anything to chance ...YOU MUST know your numbers. If you don’t, I have some ocean front property in Arizona that I will sell you…CHEAP! You can't and should not do this alone. It’s important to have a good team made up of seasoned professionals like general contractors, lenders, and title companies.
The Strategy
A real estate investor can employ a few different strategies. The first would be to purchase via a conventional loan. This might be the easiest and least complicated option, however with this strategy -- unless you have a very large bankroll -- you will blow through your reserves pretty quickly.
Example
If you buy a $60,000 property that would be worth $100,000 after rehab, you would need 20 percent down and budget for closing costs, putting your “all in” investment around $14,000. Of course, using this example you understand that most properties at this price point are not pristine. Now, on top of your $14,000 you are adding another $10,000 to get it up to speed, raising your investment to over $24,000 for that $100,000 property. As you can guess, that can quickly become quite a bit of money out of pocket in order to simply get started.
Hard What?
Me? I invest using hard money. A third party lender gives me a short term loan to purchase and rehab property. Even though there are higher fees with this type of financing, and higher interest rates, you have much more flexibility.
Example
Using the same $60,000 loan with the $10,000 in rehab costs from above, a hard money lender would give you $70,000. This is when your $100,000 value comes into play. Your fees on this property are now around $4,600 dollars (cash out of pocket), but if you understand your numbers you can roll your re-fi costs info the second loan, essentially getting you a $100,000 worth of real estate for $4,600.
BAM!!!
Another way to invest -- and I will be devoting and entire blog to this -- is using a Self-Directed IRA.
But Wait…There’s More
This is not really a passive income strategy, but it is an option for someone who wants to take control of their retirement. Self-Directed IRAs are non-traditional IRAs that allow you to invest in any number of things including Real Estate. You can roll in an existing IRA, then hire a company to act as a custodian or trustee for your investments. These companies are there to manage the paperwork and sign off on investments, but they do not give advice on the soundness of your investment. The same rules as traditional IRAs apply, and there are also several other rules that you need to be aware of with this option -- things I will explain in detail in my future blogs. Essentially, you are loaning yourself tax deferred money. ( And seriously, who better than ME to loan money to?)
But Wait…There’s More
This is not really a passive income strategy, but it is an option for someone who wants to take control of their retirement. Self-Directed IRAs are non-traditional IRAs that allow you to invest in any number of things including Real Estate. You can roll in an existing IRA, then hire a company to act as a custodian or trustee for your investments. These companies are there to manage the paperwork and sign off on investments, but they do not give advice on the soundness of your investment. The same rules as traditional IRAs apply, and there are also several other rules that you need to be aware of with this option -- things I will explain in detail in my future blogs. Essentially, you are loaning yourself tax deferred money. ( And seriously, who better than ME to loan money to?)
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