Secrets to Making Money with Real Estate – Part 4

Analyze and find the right real estate offers:

First of all, please read my other article on how to buy property at a discount, this one will cover the basics of how to buy property for less than market value. This is very important because it can completely change the aspects and financing of the deal. It is also good to have more equity than just your deposit in the house because you have created instant wealth and because you will now have more equity compared to debt than the bank had planned for the loan, allowing you to take out more and more. faster loans. You’ll also be able to borrow money against your home to help you 100% finance the property if needed.

So, in addition to buying the rental property below market value, you need to consider several other factors. Such as rental income, interest rates and amount borrowed, expected growth, potential improvements, and other expenses.

Rent can be found by asking people who live in the area, real estate agents, and property management companies.

Growth can be found by finding previous property valuations which are usually done by the government department in charge of housing, it varies from country to country. If you can see how much the property’s value increases from year to year, you can usually get a good indication of what your capital gains percentage is.

Expenses will include property insurance, mortgage interest payments, taxes you may need to pay, unexpected repairs like a broken toilet, property management fees, closing costs when you purchase the property and maintenance fees, such as electricity (can be passed on to tenant).

Renewal can be used to increase equity and weekly rent. Look here for some great home improvement ideas. This is important because if you can increase the weekly rent, the numbers will change.

let’s see this example

Find a motivated seller selling a three-bedroom, two-bathroom property.

Because the seller is going overseas and needs the money fast, he is trying to sell it for a negotiable price of more than $140,000.

You now get an independent appraisal that finds the property worth $155,000.

Go and find out how much the property has increased in value over the years. It also researches what new buildings, such as shopping malls, are being built in the area that could increase nearby property values. However, you determine that capital growth is a minimum of 5%.

Now find out what the average rent is for a three-bedroom, two-bathroom property in the area of ​​the property. You find out that it costs $220 per week.

You now make an offer on the property for $125,000. The seller does not exempt.

Three weeks later, the seller is abroad and counteroffers $130,000.

Before accepting, you go to several banks and find that the best offer you can get is 80% financing with 6% interest. The mortgage will be for $104,000 with a down payment of $26,000. The annual interest payment will only be $104,000*0.06 = $6240

Then you establish your other costs, such as insurance, which is $500 per year, property taxes, which are $1,200 per year, the cost of a property manager, $1,300 per year.

You do your math to find out the cash flow from the property. The income will be $220 per week, which is equivalent to $11,440 per year. Your expenses which are $500 + $1200 + $1300 + $6240 = $9240. $11,400 – $9,240 = Positive cash flow per year of $2,200, excluding any potential tax breaks you may receive. The positive cash flow will be enough to cover any unexpected repairs, closing cost attorneys’ fees, and any vacancy costs.

Realizing how good the figures are, he accepts the seller’s offer.

Then he paints and remodels the kitchen, a job worth $15,000.

You get the property reappraised to see that it is now worth $170,000. You have increased your capital by $40,000.

Because the value of the property has increased, you can now collect more rent from your tenants. The new rent is $265 per week. This will increase your positive annual cash flow to $4,540!

The key now is… Don’t get excited:

I’m sure you noticed how each figure in the previous paragraph is in bold. This is because as long as the numbers work for you to make money, EMOTIONS DON’T MATTER A BIT! Just because the property has a really nice garden, don’t show that you think so and are willing to pay more for it. You are not going to live in the house, so don’t buy a house that you want to meet your life expectations. You will also lose your bargaining edge when you get excited.

One of the worst times to show your emotions is if you are trying to buy the property at auction. Auctions are designed to put pressure on buyers. Never go over your limit because of a quick emotional decision, this could lead to major financial disasters. Also, with auctions, don’t make any bids until you are very close to the “Third and Final Call”.

Settlements and contracts:

The two most important things when it comes to drafting a sales contract or agreement are that you have someone with legal advice and property experience helping you draft it (an attorney), and that you always have a legal way out of a possible misdeal. .

If you are looking to put the property in an asset protection structure, a good idea is to write your contracts under “As Nominee” instead of your real name. This will allow you to legally purchase it and place it in the asset protection structure.

One of the best things about real estate is that the contracts you can enter into can be very flexible if necessary. Sales contracts can be drawn up for purposes such as renewal or finding tenants. Let’s say, for example, that you could include a clause saying you have six months to work on the house before paying the money, or one month to find a tenant before paying for the house to avoid a loss of income.

Due diligence is a way for both parties, the buyer and the seller, to get out of the deal. If you can write a due diligence period of a few days into the contract, you’ll have a few days to review the property and, if you’re not happy with what you bought, walk out on the deal.

Property manager or must you manage your own property?

Now is the time to decide if you want to use a property manager. I always use one because I can’t be bothered to fix a toilet or shower at three in the morning. Property managers will take care of almost everything for you so you have more time. Some will even find tenants for you. Property managers usually charge a small percentage of commission. Some people argue that you shouldn’t pay someone to manage your asset. I disagree because if you spend most of your time repairing and taking care of a rental property, you won’t have time to find new property deals.

If you choose to manage your own property, keep these few points in mind:

Be sure to check the rent every six months because rent prices tend to go up.

Finding the right tenants will require some screening skills on your part. Make sure the tenant is trustworthy, honest, and can pay the rent. Check your previous rental history with other landlords if possible.

Can you take care of the tenants?

If you have to evict a tenant, do you know the exact process to follow in your area?

Can you keep track of all rent payments? You must file a tax return and have a good record of what you are earning from a property, especially if you want to be ineligible for tax breaks.

Your time is your most important asset, want to commit to just one rental property?