“Most millionaires I know made more money from owning real estate than any other investment. Real estate consistently increases in value over time and outperforms other investments."
-Peter Hernandez
President of Western Union, Founder & President of Teles Properties
It is no secret that real estate can make you wealthy. So if you're looking to take a dive into the market & invest, here is where you start:
Decide on a long-term or short-term investment.
Are you looking to flip & sell a property right away? Or are you wanting to purchase a rental property and collect cash flow on it for years to come?
The answer to this question is totally up to you. When deciding, here are some things to keep in mind:
You must own a property for 2 years in the state of Arizona in order to sell it tax free.
The cost of building materials for a remodel.
The responsibility of being a landlord.
The cost of hiring a property management company if desired.
Both flipping & renting properties out are great ways to create wealth through real estate, but which one would you like to choose for your first investment property? Decide that first.
Secure Down Payment
Since this is not your primary residence, you will be required to put at least 20% down on your new investment property. This is because mortgage insurance is not applicable on investment properties.
Sure, you can purchase a home with 3% down (which you probably already did), but you will need some more cash out-of-pocket for this investment.
Calculate Expenses Before Buying
If you are looking to renovate and sell, calculate the expense it will cost to remodel the property. In addition, calculate the operation costs. Don't be scared to over exaggerate on these costs - it is better to be safe than sorry.
My advice -
Bring a licensed General Contractor with you when first viewing the property. Discuss with them what needs to be done, then discuss what you want to be done. This is who is going to charge you for the renovation process, so their advice is crucial.
Discuss with your Realtor what the estimated list price will be for the property when it is ready to hit the market. This cost will be based off of a market analysis of the surrounding area.
Finally, the last additional cost that needs to be considered, if you're not a Realtor, is commission costs that is paid to the Realtor when the home sells.
Add up all of these costs and subtract them from the list price and you will get your estimated profit amount.
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If you are looking to purchase a property and rent it out, have your realtor run a market analysis of rentals in the area to determine what your home will rent for.
Be sure that after making your monthly mortgage payment on the property, the remaining cash flow left over is enough to profit on.
Keep in mind that as a landlord, it is your responsibility to financially maintain any necessary repairs.
It is highly recommended to stay away from "fixer uppers" for your first investment property.
Stay On the Low-Cost Side of the Market
Regardless of the dollar amount you have to invest, it is safer to stay on the lower- to mid-range price brackets. There are more buyers who can afford a $400,000 home than buyers who can afford a $2 million home. Remember, this is an investment so always consider supply and demand.
Staying on the lower- to mid- range price brackets allows you to maintain a safe zone for your first investment property.
Take Title Accordingly
When owning an investment property, it is highly recommended to protect your assets by taking ownership of the property under a Trust or LLC name.
This is for your protection. After making such a big & expensive purchase, you want to be sure that you do everything in your power to protect it. This helps separate your personal assets from your business assets. It also helps avoid probate and minimize estate taxes.
Choose Your Team
Your trusting team will need to consist of the following:
Realtor
General Contractor
Designer
Property Manager
It is super important to be sure that you have a trustworthy team. Do your research on each team member so that you can confidently say your team is going to help you win profit in your investment.
Get referrals from family & friends. Interview them. Read their reviews. Pick team members that you can connect with.
Stay Logical
When it comes to real estate investing, keep your emotions out of the mix.
If the property needs a new roof, new sewer & new HVAC, in addition to renovation costs, just walk away. (Unless you get it for superrrrrr cheap - which doesn't happen much anymore)
If the property is on a busy street and will likely sit on the market for awhile regardless of how nice the remodel is, just walk away.
If the numbers seem tight and you're concerned the monthly rent won't supply you with enough cash flow to maintain the future tenant's needs, just walk away.
Always use logic when purchasing an investment property. It is very easy to let your emotions take over when buying a home. Maybe its close to where you grew up or you can already imagine how perfect the new kitchen island would look, but these types of things don't always make it worth the purchase.
Remember - numbers matter. You can NET the same profit from a $400K remodel as you can from a $1 million remodel.
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Real estate has been proven to be the best avenue to create wealth for yourself. You can setup your own 401K by investing in real estate throughout your years.
If you are looking to do so & don't know where to begin, I am here for you!
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