What you need:
– A decent credit score: 680 and above ( 700s are best with not crazy history of defaults and so on, this way its easier to get good rates)
– Cash for a down payment: 20% is solid ( this way you have no private mortgage insurance)
– Job to show income ( and low debt, to be able to qualify) – amount depends on the area you’ll be buying property – it doesn’t matter if you have a great score but no source of income.
Buy: you have to buy a property that the mortgage is no more than 1/3 of your income, that way if things go left you can still manage.
– Remember we’re looking for a property with cosmetic issues that can be fixed easily ( if you don’t know what you’re looking at, bring a contractor with you or a buddy to help you out )
– You also want to buy in areas with good ROI and that have a growing population ( why would you buy somewhere where everyone is leaving)
– One strategy I’ve seen a lot is from graham Stephan, because buying in prime areas is very expensive he tends to buy 5-10M around from that area for a discount, but as the area grows, so does the value for the property.
Tip: this doesn’t work is you buy a property that’s too expensive, in a bad area, and ends up costing you money. ( this usually happens when you use your feelings and not your head and numbers, don’t fall, love, this is a very expensive investment) – I think it’s like you look at 50-100 deals to find a solid one, so be patient.
– this is by far the hardest part and is something you’ll need to learn by going to a lot of open houses, taking courses and reading books, and also calling contractors before you even have a house ( a rehab can quickly go from let’s fix this, to now we found something and we have to redo everything) –
– is not as simple as it sounds, if you get into that strategy, you could overspend and it could mess up all your numbers
– The key is getting a good return on the money that you used for the down payments, anything less than 5% and your money is dead.
– What would I do: cosmetic fix are a good way to wedge deals/discounts on real estate ( but you need to expertise to get started) – I would recommend a course by Meet Kevin, he breaks down everything and more, I think he has well over 5M in real estate and started when he was 19.
Tip: Always have a safety net of money just in case.
Rent: the idea is to have the rent cover your mortgage plus give you some money to have a decent return on your capital. ( for example, you buy a house its 160k fix it for 40k and then your total mortgage with the money you borrowed is maybe around $757) – because you put down 40k as a down payment: well if you rent for $1,100-$757 mortgage you have left $343: or $4116 per year ( that’s a 10% return on your $40k investments ) – that’s a great deal
Refinance: This is what you do after you are done the remodel, you have the bank Appraise the property. And they might say well this property is now worth 250k (so you refinance the property and since you bought it for 160k, the bank can give you the difference in cash for 90k)
Repeat: that 90k use it as down payment money and also rehab money, but keep mind, your mortgage will be higher ( just make sure its not over 1/3 of your income)
Books: The Book on Rental Property Investing ( Brandon Turner)
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