How To Create Wealth In Real Estate
This post will explain How To Create Wealth In Real Estate. The method is easy to navigate and will take less time than you think. It will also be much, much safer than investing in the stock market. Had I known of this tool back in my younger days no telling how wealthy I could have been?
Real estate has been around since man has become civilized and built dwellings to live in. Having a roof over our heads is a necessity, so regardless of our economic well-being, houses will always be in demand. Real estate is as good for the consumer as it is for the property owner. It is the American dream to have your own home, to raise your family, and have a place to grow old.
Some people learned how to buy and sell these properties, and like any other commodity, became quite good at it. These selected few became known as Realtors. The realtor buys and sells properties to the consumer and generates millions of dollars for the economy. The properties have value and appreciate in value over time.
Real Estate property is a very safe investment because it is a tangible asset. You can touch it. It is real. Stock, on the other hand, is just a piece of paper representing a piece of ownership of a company.
Real Estate Investing doesn’t take a lot of training or a lot of money to start with. The old adage, “it takes money, to make money”, doesn’t always apply. I can show you proof. Just follow along to see how to create wealth with real estate.
How To Buy Real Estate
Real estate properties can be a blessing to you if you buy them right. Have you ever heard the term, buy low, sell high? This term is especially true when buying property for investment. For personal usage of property, it is always wiser to buy what you can afford, instead of opting for the more expensive property. Overbuying will leave you cash poor and ownership will be more of a curse, instead of a blessing.
Knowing how to buy property was never taught in school. Finance, like how to balance a checkbook, for example, should have been a requirement to learn in school. This is self-evident, just look at our national Congress. There is a right way to buy a property and the biggest hurdle to overcome is emotion. Emotion can wreak havoc and influence decision-making in determining the best price to pay for a property. Don’t fall in love with something you have just seen once.
Today, you will find thousands of self-appointed experts online to guide you through the financing part of buying properties. There are also hundreds of real estate platforms that show what properties are available. There are even virtual tours, where you can perform a self-directed tour of a property online. You can search anywhere, anytime, and filter by price, square footage, the number of rooms, bathrooms, and the size of the lot. Don’t let distance interfere with finding a deal.
Since the pandemic in 2020, once all the government shutdowns were abolished and people were allowed to leave their homes, there has been a buying frenzy of real estate properties. There is such a demand for houses that sellers were sometimes getting multiple offers from buyers almost on a daily basis. Appreciation of property values was escalating at a very fast pace.
It had become a true seller’s market. Sellers were selling their homes in a week instead of the normal forty-five to eighty-eight days on market. The small supply of inventory also made buying houses that much more difficult. When buyers begin bidding against one another to buy, only the sellers will prosper. With more and more people flooding into real estate, finding low-priced properties is getting very hard.
I am a part-time real estate investor and I only spend a few hours every week searching through the available inventory of properties for sale. There is a reason I am a part-time real estate investor. If I can earn a ten-thousand-dollar profit on one property, how many of these properties do I need to buy and sell each month to replace my job?
How many properties do you need in your portfolio to be able to quit your full-time job? One, or two a month, only you can answer that question. For me, I only need one a month. Oh, it gets even better. There is also a way you can buy these properties, buy and hold, or sell, and all the profit is tax-free!
There are a number of formulas that people used to try to find the optimum price point of a property. There are two formulas that can be used to find the correct buy price on an investment property. One of the formulas I use is ARV minus repairs times seventy percent = MAO. MAO is a real estate term meaning Maximum Allowable Offer. The ARV means After Repair Value. The ARV is the value that the property will sell for when it is in pristine condition. This formula is ideal when you are looking at property that needs repairs, or even a full rehab.
An example of this formula is as follows… A particular property at 123 main street has three bedrooms, two bathrooms, and eighteen hundred seventy square feet of living space. The ARV is arrived at by looking at comps of other very similar houses in the same area that sold within the last six months to twelve months. If three comps are used, find the average selling price. Use this average as a basis point in your formula.
ARV ($325,000) minus repairs ($10,000) times seventy percent (70%) = MAO ($225,500). This formula gives enough wiggle room for most unexpected expenses that can destroy any probability of earning a profit. Why would you rehab a house, spend all that time, effort, and sweat, and not make a profit when you sell? Guessing wrong with two of these properties in a year could put you out of business. It is better to walk away from a property than spend too much on the buy.
How To Earn Tax-Free Profit
Ah yes, the best of both worlds. Earning a profit and not having to share with Uncle Sam (the IRS). Believe it or not, it is possible to earn profit without paying taxes on the profit. Would you like to know how this is possible?
Most companies in the United States will have some form of retirement plan for their employees to join. If your company doesn’t provide a retirement plan, you can always open an IRA (individual Retirement Account) with many private providers, like banks, Investment firms, etc. Most of these retirement plans are 401K plans. The money that an individual contributes to a 401K goes in tax-free, but when the individual withdraws this money, a twenty percent tax will be subtracted before distribution.
But there is a better way. There is a much better return you can receive when you use a self-directed IRA. If you make this IRA a ROTH, then the proceeds from all the money in this account will be tax-free forever! Just think about that for a moment. Just think of the implications this will do to your return if NO TAXES are ever owed or paid from this account.
To give you an idea of how fast a Roth IRA can grow, look at some of these numbers. Then multiply them by the number of houses bought to see how fast this account can grow. Purchase a house on terms (which is what I do), which means I buy the house with no money down, with payments for a period of time (term), then pay off the seller with a balloon payment. An example below will show how this is accomplished.
Buy a $300,000 house, with a $0 down payment, and pay the $1050 monthly mortgage payment for a five-year term. Find a tenant buyer that will pay a big down payment, pay a $1550 monthly mortgage payment for five years, then have the tenant-buyer get a new mortgage for $310,000.
The down payment is a non-refundable consignment fee you keep, plus the $500 month in mortgage overage, plus $10,000 back end on the new mortgage = $30,000 down plus $500 month for five years plus $10,000 back end = $30,000 + $30,000 + $10,000 = $70,000 profit in five years. The house is a safer investment because the house is used as collateral to secure the initial investment. Would owning stock in the stock market grow to $70,000 in five years? That is $14,000 per year. That is just one house. What if this was multiplied by 10, or 20?
Compound this with all the available money from the retirement of all the baby boomers. There are about 10,000 people retiring every day. They need to do something with their retirement accounts. With the stock market’s big correction going on right now, many people, including myself, are losing money faster than we are gaining, but are too close to retirement to wait for the stock market to recover.
What other choices are there to earn a decent return on your investment funds? Besides the stock market, there are not many places to invest money to allow the money to grow. Banks are paying, what, 1% a year interest? People are actually losing money in bank accounts because inflation is over 4% a year!
That makes opening a self-directed Roth IRA that much more important. Did I already say it was safer? YES! It is. Let me explain why. When you invest money into the stock market, you’ve immediately lost some money. How do you ask? Because you are charged management fees, so not all of your money is invested to earn a profit. Secondly, what happens to money invested in say, risky investments, and the company that you have no control over loses money?
Your account balance is reduced. With the ongoing fluctuations in the stock market right now there is only one real investment opportunity and that is real estate. My 401K account has lost around $20K since this time last year. I am 65 years old. I can’t wait for the stock market to recover. I will be pulling my investment out of the stock market and rolling it over to a self-directed IRA. I am using Equity Trust as my self-directed IRA provider.
Another article that should also go with this article is
What Is Private Lending?
One of the best ways to continue to earn a good return on your retirement account is by becoming a private Lender. A PML is a person who has an account with a large sum of money that is looking to invest money for a safe, guaranteed return on the investment. Real Estate is that platform because the money is invested into a tangible asset with a 65 – 70 to 1 loan-to-value ratio.
The PML (private money lender) money is secured by the property used as collateral. The Pml will get a mortgagee, and a deed of trust, and they will also be listed on the insurance policy, so in a worst-case scenario, they will always be able to collect their principal. Their money will also gain interest anywhere from 6 to 8%.
To give you an example of how a loan from a pml will be used, an investor finds a house for sale at a good discount because it needs repair. The investor gets a loan from the pml of $140,000. The $100,000 is used to purchase the property. The remaining $40,000 is used to rehab the property. It will earn 8% interest. The terms of the loan are negotiable but usually designed so that the principal continues to stay invested to ensure the maximum amount of interest.
The interest can be paid in monthly installments to the pml, or the total amount, interest plus principal is paid when the property is completed and sold. The original $140,000 borrowed earns $11,200 in interest in one year, or $933.33 a month. As you can see from this example, the numbers don’t lie. Real estate is the BEST, SAFEST, investment anyone can make with their retirement income.
If you would like to learn more about how private money can grow your nest egg significantly more than the stock market AND be a safer platform to invest in, click on the link below for more information. I would love to show you how you can also benefit from becoming a PML.