Tag Archives: Rent

A 7 Figure Net Worth Sounds Good to Me

In yesterday’s post I shared an incredible article called “How to Make a Million Dollars from Real Estate.”

Well, I actually found the more detailed ebook. I read it on the subway this morning and it is incredible. Seriously. I just wanted to share it with you.

It’s a free PDF—I promise, I don’t know the guy. I just wanted to share it for its intrinsic value.

Click here.

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Was I Naive?

Last month, I discussed my long term goal for the next 5 years. As I do more research and as this becomes more of  reality and less of a theory, I’m learning that my goal needs some tweaking—I just don’t think it’s very realistic.

I’ve recently learned a few things:
1. Real estate investing is extremely difficult.
2. It’s not a “get rick quick” scheme. It takes time.
3. Flipping properties is a lot of work.
4. Wholesaling (read about that here) is also a lot of work.

Was I naive in thinking, “Hey. I’ll just buy a house every year. If I need the capital for the down payments, I’ll just do a few fix and flips and I’ll do some wholesaling. And I’ll do all of this on the side. No problem.”? Yes, I was. But that’s completely okay.

My misconceptions were very common for a newbie.

With that said, there is a lot of money to be made in real estate. You’re probably not going to be able to quit your day job and become a full time investor overnight…but you can make over a million dollars in real estate. According to this strategy, you can do so in 7 years. However, the writer is honest enough to say:

  1. This is not a “get rich quick” plan. It takes place over seven to ten years. It might take longer, it might take less.
  2. This is not the only way to make money in real estate. Just one path that I like.
  3. This is not a guaranteed plan. This works based on ideal numbers. You might find things better or worse, depending on your location.
  4. This is not legal advice.

So check out Brandon Turner’s blog post. It’s a fascinating read.

How to Make a Million Dollars from Real Estate: A Step By Step Path

 

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Should I Diversify?

That’s a good question. If you were to ask 100 different investors, you would get 100 different answers.

Dave Ramsey says not to put all of your eggs in one basket. Warren Buffett says to focus on your “circle of competence”. Mark Cuban says diversifying is for idiots. Kevin O’Leary says diversifying is the only way to ensure any ROI. Simon Black says you are putting all of your eggs in one basket (that basket being the US government) unless you’re investing in global real estate and foreign currencies.

I say investing is an art as well as a science. It’s different for everyone. The most important thing is an education in financial literacy. The way I see it, diversifying your portfolio is an incredibly vague notion for an incredibly complex subject.

To one investor, diversifying might mean investing in raw land and small apartment complexes in addition to single family homes. To another investor, diversifying might mean investing in mutual funds in addition to real estate.

It’s all quite subjective.

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Putting Lipstick on a Pig

There are so, so, so many reasons as to why I love real estate. But I want to clarify one thing:

If someone says “real estate is always a good investment” they are wrong. Real estate is like anything else—there’s good and bad. It’s up to you, the investor, to look at the numbers and ascertain whether or not it’s a good investment.

Of course, there’s plenty of room for creativity but (as the saying goes) “putting lipstick on a pig” is never a good investment strategy.

If you want to flip a property for a quick profit, make sure the numbers add up.

If you want to hold on to a property for cashflow from tenants, make sure the numbers add up.

Your investment strategy should never be as simplistic as “real estate always goes up in value”. That’s false…just look at Detroit.

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Airbnb

It would appear that Astoria is a lot more expensive than I had hoped—about 50% over my ballpark estimate. Yikes.

Needless to say, my wife and I are going to scope out some new neighborhoods. I’ll keep everyone posted on what I find. In fact, this blog is going to be pretty fun (not that it isn’t fun already. Right? RIGHT??) when I start hunting for deals.

On another note, I read a blog post about saving up your down payment. It said that renting out a spare room or a living room (we’d have to go with the latter because we’re in a one bedroom apartment) is a good way to raise some cash. I checked out Airbnb and we could list our living room for $85 a night. Renting out the living room a couple of nights a month (we would probably do it on the weekends) might be a good way to raise some extra cash.

However, I would want to do some more research on this and I would want to take every single precaution before opening up my home. All I’m going to say is…you can take a man out of the South but you can’t take the South out of a man. Your typical Southern man will do whatever it takes to ensure the safety of his family. Whatever it takes.

But with that said, what do you guys think about Airbnb? The only experience I’ve had was when my wife and I stayed in Montauk. From a guest’s perspective, it was wonderful.

Do you have any Airbnb experiences you’d like to share?

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What is Wholesaling

I mentioned wholesaling a few days back. I recently learned about this concept and I’ve ‘gotta say…I could see a lot of benefits in wholesaling.

So what is wholesaling property?

A wholesaler is basically a middle man. He’s the one who links the seller to the investor/buyer.

He creates a contract with the seller. During an agreed upon time (maybe 30 days) the seller can not sell the property to anyone else. The wholesaler finds a buyer/investor. The investor buys the property from the seller and the wholesaler collects a finder’s fee (a nice little commission). It’s a win-win-win situation. The seller sells the property, the investor gets a good deal, and the wholesaler makes a nice commission. Isn’t capitalism great?!

This is a good way for a newbie (like me) to get their feet wet. I would be able to learn my market and learn how to find good deals. Since the wholesaler is flipping contracts instead of flipping houses, he does not need financing.

This is also a good way to network organically. Who knows, if you’re connecting with investors and hooking them up with good deals, they may be interested in becoming equity partners down the road (we can talk about equity partners in another post).

Many real estate investors will tell you that wholesaling can be a great way to get started (plus you can make some extra cash, which would be great for saving up that down payment).

I need to do my homework and see how an FHA loan works with foreclosures and auctions but, assuming that can work, who knows…maybe I’d know enough to be able to get a good deal at an auction for my first home after I have a few wholesales under my belt.

I’ve been toying with this idea. What do you guys think?

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Possible Changes P. 2

First of all, happy Easter!

Today is part 2 of yesterday’s post:

I will not have a two year post college work history until October (read about it here). I’ve been doing some research and I found that a portfolio lender, as opposed to a traditional mortgage lender, could make an exception to the two year rule (especially when you pass every other requirement with flying colors).

Here’s the main difference between a traditional mortgage lender and a portfolio lender:

Traditional mortgage lender: They often sell their loan (your mortgage) to other investors. By doing this, they make a profit and minimize risk.

Portfolio lender: They hang on to the loan (your mortgage) and collect your payments month after month. I’m not sure specifically as to why, but this gives them more room for creativity and flexibility.

So let’s say someone has a down payment, excellent credit, a good, steady income, two lines of credit, and they are just a few months shy of having a two year (post college) work history…the portfolio lender can give them the loan anyway.

Traditional mortgage lenders just follow the rule book.

I’m not saying I’m in a rush to buy a house just for the sake of buying a house. Nor am I saying that I have the down payment. (I’m getting closer and closer though!)

I’m just saying, if I find a great deal/house at $500,000 and I have $17,500 saved up before October, I might seek financing from a portfolio lender.

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Possible Changes P. 1

There have been a couple of possible changes—plans change and adapt, that’s okay.

This will be a two part series. So let’s start with the first possible change.

My wife and I are open to the possibility of looking into a cheaper area than Astoria. We are also open to looking into Brooklyn (I mean, come one…who wouldn’t want to live in Brooklyn?).

I need to do some research but, supposedly, there are nice/safe areas that sell for $500,000 instead of $600,000—$750,000.

That would only be $17,500 down! That’s much more attractive than $21,000—$26,250, right?!

There are some areas that are still gentrifying whereas Astoria has already been gentrified. This would be great if I want to buy and hold for a few years (rent out to tenants) and then sell it for a profit.

Maybe your wondering, “What they heck is gentrification?”

Some people will tell you it’s when a bunch of white people move in and raise the rents. I suppose there’s some validity to that perspective but let’s not perpetuate stereotypes here.

My overly simplified answer: Young, middle class professionals begin to move into a lower income area. Investors see the opportunity because the perception of value is increasing (perception is often more important than reality). Investors begin to purchase the property. As the perceived value increases, the rents increase. Lower income families can not afford the raising prices so they are forced out of the area. Consequently, crime rates decrease. More young, middle class professionals move out there because it becomes “safe”. Consequently, the rents are raised even more. And so on and so forth.

All I’m going to say about that is…it’s capitalism and I’m a capitalist. I don’t sit and philosophize and debate…I seize opportunities.

(If you want examples of this, look at Astoria, Queens and Williamsburg, Brooklyn.)

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Subprime Logic

This just seems a little crazy to me…

Your typical mortgage lender wants to see a two year work history before he deems you worthy of a mortgage. However, any work while you are a full time student does not count.

They will count post college part time work because you are considered a full time part time worker…even though part time work during school does not count.

Are you confused yet?

They do not count entrepreneurial endeavors, they only count W2 jobs. The year I spent with my tech company does not count.

Post college internships are also a gray area, which is frustrating.

Just like that (snaps fingers) my ten year work history has been reduced to a 1.5 year work history.

In order to qualify for an FHA loan, I’m going to need two lines of credit (check) a good credit score (check: it’s nearly perfect) and a two year work history (crap).

This is coming from the same guys who handed out mortgages like hotcakes a few years ago. (You can read my posts about subprime mortgages here and here.)

The point I am trying to make is that they are about as logical as this lot:

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My Long Term Goal for the Next 5 Years

I’ve been talking about my short term goal a lot:

buying a multi family home, living in one of the sections, renting out the other sections and living rent free.

But what about my long term goal?

That’s a good question. My dream is to be a full time investor and entrepreneur.

I love my current W2 job(s). I love interactive design. But I want to be an entrepreneur…and I’m not talking about being a freelancer. There’s a big difference between freelancers and entrepreneurs.

I’ve been immersing myself in my education: books, blogs, podcasts, forums (specifically from BiggerPockets), and talking to people who are actually doing it. Now that’s an education.

I’ve learned that real estate consists of:
1. Your niche
2. Your strategy

A niche could be anything like:

  • single family homes
  • multi family homes
  • commercial real estate
  • large apartments
  • small apartments
  • REITs (which is basically like a mutual fund for a giant piece of real estate

There are many, many more niches—the list goes on.

Next is your strategy:

  • Buy and hold
  • Flipping
  • Wholesaling

So here’s my long term goal for the next five years: (and of course, goals must adapt over time)

My niche: multi family homes
My strategy: buy and hold (that just means I’ll hold onto it long-term and collect the monthly cashflow)

I want to do this until I am making $4,000 per month in passive income by the time I am 30 years old (I’m currently 25).

During this process I will build my network organically (you can read about that in an earlier post).

I will then launch a fix and flip company. I will then have two niches and two corresponding strategies:

Niche 1: multi family homes
Strategy 1: buy and hold

Niche 2: single family homes
Strategy 2: fix and flip

Another option is to wholesale on the side. Theoretically, this can begin immediately. I will write another post about wholesaling soon.

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