I assume you already know the value of real estate as an investment tool, There's simply no other way to earn so much high returns so consistently. Ask The Donald, or someone in your local real estate income investment clubs, which there are many in most cities.
You don't have to be a billionaire to make your complete investment with real estate. If you know what you're doing, you can acquire income producing properties, such as single-family homes, apartments, office buildings and strip shopping centers, at little (or no) cost to you -- I want to stress that's its possible -- there are persons in our local club as young as 14, ex offenders, ministers which are several, policemen and women. Just start, real estate is like fisher-men, they will come, with small and large tales. Some helpful tips used by the pros to start you on your way
Use other people's money. Take out a loan to buy income property, using the property itself as security. You don't have to put your personal assets at risk, and potential lenders range from commercial banks, S&Ls and credit unions to corporations and private pension funds.
Always remember that lenders want to be in the lending business, not the real estate business. Once a loan is made, they'll do what they can (everything they can) to help you keep making payments so they won't have to foreclose on your property. In fact, a good source of income properties may be real estate owned by lenders through foreclosure action. (most real estate clubs have a number of persons who have been foreclosed on, we have 6)
Only buy income producing real estate. Whether buying a house or an apartment, an office or a storefront, make sure rents are income.
Be sure that the rent you take in generates "positive cash flow." This means, simply, that the amount of money you take in should exceed the amount you pay for debt services, interest, operating expenses, etc. A "paper profit" won't help you - you want real cash income, (it is possible, to convert negative cash flow to positive. ) You might, for example, raise rents if the traffic will bear .. or you could take out an improvement loan, fix the property, and then raise rents. Lowering expenses is another viable plan to increase income. If, however, none of these appears feasible, find another property.) Always make your income on the buying end.
Don't buy just for tax purposes. You make income in real estate by selling a property for more than you paid. Tax savings may enhance a deal but should never be your prime motivation. In any case, the tax code changes with such alarming regularity that today's tax break may prove to be tomorrow's tax penalty.
Buy wholesale. If you acquire your properties at less than market prices, you have a better chance of selling at a profit. For example, you might buy distressed property that has been seized for non-payment of taxes or property situated in a "blighted" neighborhood. Just make sure your "wholesale" property has the ability to generate positive cash flow. (Flip That House)
Pyramid you gains. Once you've turned a profit on one deal, use the proceeds to buy a more valuable property or two more of equal value. Keep doing this until you're wealthy.
If you're going to try to make income in real estate, it's always a good idea to buy with little or no cash down. You start this process by looking for income real estate advertisements stating "optional owner financing." "creative financing." "must sell." "no cash down," etc. These properties may have been foreclosed, may be distressed, or may simply be held by owners who want out for reasons of their own.
Suppose, for instance, that a government agency holds a house last appraised for $100,000. An amateur investor might buy that property for $40,000, paying $5,000 down with the balance financed by an S&L.
A pro, on the other hand, would have done the home work necessary to find that appraisal and with a copy in hand might have found an S&L willing to provide an 80 percent "loan to value" mortgage for $80,000. The investor then could pay $40,000 cash for the house and still have $40,000 of the S&L's money to restore the house to its $100,000 value.
Refinance an existing mortgage for a larger amount, with the excess cash going to the seller as a down payment.
Persuade the seller to take back a 100 percent mortgage by agreeing to a high price or higher interest rate.
Persuade the seller to accept your promissory note as a down payment.
Find a business partner who - for a small share in the income - will advance the down payment needed.
The anatomy of a no-cash home purchase
No-cash home purchase are, first of all, easier to accomplish than you might think ... mainly because they offer incentives to sellers.
Here's one way to put such a deal together:
Remember, you can buy anything with no money down provided you're willing to pay enough for it.
Let us assume, for example, that a seller has a house for sale for $80,000. The first mortgage on this house is for $60,000. You offer this seller $85,000 and, of course, the seller jumps at the offer. Then, you drop your "bombshell" telling the seller you're really interested in the house but have no money to make a down payment. You then hurry and tell him not to worry ... all he needs do is refinance his home for $72,500. He'll then have an extra $12,500 to pocket. -- If he agrees to take back a second mortgage for $12,500, with payments to start in six months, at an interest rate you and he agree upon.
You end up, in this case, with a new home, a $72,500 first mortgage (payment to start immediately), and a $12,500 second mortgage (payment to start in six months). The buyer sells his home at a good price that includes a cash lump-sum payment immediately.
You have the choice, after putting together a deal like this, of either living in the home (if that is your plan) or finding a new buyer at a higher price, ideally within the first six months of ownership before payments on the second mortgage kick in.
This deal works best with someone wanting to retire to Florida!
Lenders are so anxious to lend money that they've come up with an amazing variety of mortgages - so many, in fact, that a savvy home buyer can pretty much tailor a deal to his own advantage (and to suit his wallet)
Mortgage
Best Use
30-year fixed rate
For buyers interested in stable payments - most attractive when rates drop below 10 percent.
Fixed-rate biweekly
For paying off a loan quickly without higher monthly payments.
7-year balloon
For buyers who expect to move or refinance within seven years, paying off the loan.
1-year adjustable
For a low initial rate if you think (Treasury index) rates will soon fall.
15-year adjustable
For low initial rate plus later rates (cost of funds index) with less volatility than Treasury adjustable.
30-year graduated
For a low initial rate (if you can afford higher payments in later years).
Smart income producer buyers consider the Internal Revenue Service their "silent partner" in the business of purchasing a new home since many of the costs associated with the purchase (and ownership) of a home are fully or partly deductible.
A short course in home-buying tax fundamentals:
Your mortgage interest is deductible if the home is your primary residence or a second residence for your personal use, the total mortgage debt to buy your home is not in excess of $1 million, and the home loan is secured by the house itself.
All points, or loan-origination fees, are deductible on a principal residence, provided your points are comparable to what is charged by local financial institutions. At the same time, points must represent an interest charge, not a fee for bank services.
Your share of property taxes and mortgage interest you pay in escrow at the time of purchase is deductible. (You cannot deduct the seller's share, though, even if you make the payment as part of the deal.)
A variety of moving expenses can be deductible if your move was job related, provided your new job is at least 35 miles father from your previous home than your old job was from that home and you work at your new job at least 39 weeks in the 12 months following the move. If these criteria are met, you can deduct the cost of house hunting trips, the cost of shipping household goods, and even $3,000 in expenses incurred for such items as temporary housing.
About 3 percent of the homes sold in the United States thus far this year were sold at auction - 3 percent amounts to about 433,000 in a typical year.
The reasons for the increase in home auctions are easy to identify: spotty housing markets, an increasing number of home foreclosures, and an economic slowing that, at least in some areas, compels homeowners to sell and to sell quickly.
What this can mean for you is a discount of 25 percent or more. The auction market, though, can be fraught with pitfalls.
Here, then are some tips to help you find and buy your next income producing home at an auction
Do your homework. Before the auction, determine what homes similar to the one you're interested in have recently sold for on the market. Inspect the home or, better yet, pay any home inspector ($200-$300) to inspect the house for you and give you a written report.
Also before the auction, ask the seller for a copy of the prospective contract and have it checked by your attorney. If you want to make any changes, they'll have to be made prior to the auction.
Determine which bidding method will be used. There are two: In a so called "absolute auction," the property goes to the final bidder no matter how low the winning offer. In a so-called "reserve auction," either a minimum price is established or the seller has a set time period (usually 48 hours) to decide whether or not to accept the final bid.
Obviously, you stand a better chance of getting a real bargain at an absolute auction. On the other hand, new bidders sometimes overpay thinking that every sale at an absolute auction is an income steal.
Determine the availability of financing. The best financing bargains can often be found when developers are forced to sell houses in overdeveloped regions, since the developers will extend financing at below market rates.
Learn what method of payment is acceptable. Typically, at an auction, you must be prepared to give an "earnest money" payment of 5 or 10 percent (usually in the form of a check) the lower the better. Usually, the buyer has about two months to obtain the remainder of the down payment and close. Since speed is obviously important in closing the deal, you may - if you have a good enough relationship with a local lender - want to line up financing in advance by telling the lender what you anticipate paying and filling out an application.
Don't go above a price determined prior to the auction ... that's the most usual (terrible) mistake made by bidders. Remember you're investing in income producers
If you decide to rent a second home, investment property or your vacation cottage, expect some headaches - they really do go with the territory. There are some ways you can reduce the headaches, largely by planning in advance and making sure to get everything in writing.
Use a legal lease form - they're available at most office supply and stationery stores and only cost pennies.
Use the standard lease and simply cross out any sections that don't apply to your situation. Be sure to have the lease-signed witnessed, ideally by a lawyer, real estate agent or other notary.
Include in the lease a list of all property furnished and its condition as well as a description of the cleanliness and condition of such household items as carpets, window screens, etc. (take pictures)
Tell renter, in writing, about any recurrent problems he may encounter, such as summer floods or anything else that could make the property less than habitable. Failure to do so could invalidate the lease.
Have printed a page of "house rules," including such items as local noise requirements and, if applicable, the tenant's responsibilities if the plumbing or appliances are damaged by tenant negligence.
Also list any specific areas of tenant's responsibility, such as lawn care.
Ask for - and check - both personal and business references. Don't rely on your own judgment call based on the way the prospective tenant looked.
Make sure your insurance covers any burglary, fire, accident or other problems that could arise while your property is rented.
