A Road map for Making $1,000,000 in Real Estate!
Friday, June 5, 2009 | Ethan RobertsRating:
Tycoon readers, when my editor asked me to write something this week about how to make a million dollars in real estate, I knew my task would be fairly easy. After all, I live, breathe, and eat real estate 24/7. That's right, even when I'm sleeping, I'm dreaming about making money in real estate.
Ethan catches 40 winks after a tough day of looking at houses...
Making a million dollars in Real Estate has more to do with establishing a successful method for yourself, and then honing that method to perfection, than it does with the cyclical ups and downs of the Real Estate market.
For example, many people say that right now you can't make money in real estate, because the values are still dropping. To that I say,
" $^##^$&^%!!! (censored) "
Mark my words:
2009-2010 will be remembered many years from now as the era when smart investors made a killing by buying real estate for 20-50% of what that same real estate cost someone else in the over inflated period of 2005-2006.
In fact, when I hear someone say that right now you can't make money in real estate because of declining values, I smile, and remember another time, not so long ago. In fact, right now I feel myself falling, falling back in time ...
It's 1996, and after inheriting about $60,000 cash, my wife and I buy our first investment property - a small condo on a lake that is getting ready to go into foreclosure. I will never forget how a gentleman approached us while we were working on it, to inquire if we were the new owners. We said we were in fact the new owners, but that it was going to be a rental.
The man shook his head, and proceeded to tell us how "one can't make money in real estate any more since they changed the tax laws in 1987." Apparently he was an embittered old investor, who felt like the tax breaks he once enjoyed just weren't there any more.
We thanked him politely for his advice, and continued with our painting, cleaning, and sprucing up. We rented that condo for awhile, then sold it, bought two small patio homes with our profits, then sold one of those, bought another, sold it, bought another, etc.
A decade after that first condo purchase, and despite the changes in the 1987 tax codes that meant one could "no longer make money in real estate", we had somehow turned $60,000 into $1.3 million of real estate equity and cash!
Obviously, I'm very happy that I did not listen to that man, and I urge all of you not to listen to people who will tell you why you can't do something that you feel in your heart that you can do. Don't ever let anyone step on your dream!
You see, in every cycle of the real estate market, there is always a way to make money. You just need to identify the current cycle, then take advantage of it. When recessions hit and the home values decline (like right now), that's the time to be a buyer on discounted properties.
But even if you lack the cash to be a buyer right now, you can at least put more money in your pocket every month by refinancing your existing real estate (assuming you have sufficient equity in it) into lower interest rates. Then take the money saved each month and put it toward a down payment on an investment property or second home! You may also find that when home values drop, your homeowner taxes will decline as well, saving you even more money.
During boom times, that's when you should be selling the real estate that you purchase during the lean years, and then stash the cash and wait for the next recession to come about. We sold five homes during the period of time from 2005-2006. It didn't take a genius to figure out that the peak was near. Alan Greenspan was making statements about irrational exuberance in the real estate markets ... newspapers and magazines were constantly asking, "How long can this home boom last?"
As I have mentioned in previous Tycoon Report articles, when every other show on cable is showing you how to "flip" a house, and people are bragging about quitting their jobs to rehab homes, then you know the bloom is off the rose:
The 2006 Florida housing market...
One of the best things about real estate is that it is an investment for all ages. When you are young and don't have a lot of money, you can use the principle of leverage to buy real estate with a small down payment, and build your wealth over time. However, if you are older and have substantial savings, you can buy real estate with cash to generate an income stream that will easily beat the return you typically get from fixed investments.
The other day, I'm talking with my buddy, who like myself is a landlord. We're discussing tenants, and he's telling me about some tenants he has - a couple of 20 something bachelors. These guys don't make a lot of money, their credit isn't too good, and they make the actors in those "Harold and Kumar" movies look like a couple of world renowned brain surgeons.
But my friend says they take decent care of the house, pay their rent on or near the first every month and they'll probably never move out, simply because they can't put a down payment together or improve their credit enough to buy a home. In other words, he's found the perfect tenants, and is taking advantage of a market in which it's not easy to buy a home!
The other day, I'm talking with my buddy, who like myself is a landlord. We're discussing tenants, and he's telling me about some tenants he has - a couple of 20 something bachelors. These guys don't make a lot of money, their credit isn't too good, and they make the actors in those "Harold and Kumar" movies look like a couple of world renowned brain surgeons.
But my friend says they take decent care of the house, pay their rent on or near the first every month and they'll probably never move out, simply because they can't put a down payment together or improve their credit enough to buy a home. In other words, he's found the perfect tenants, and is taking advantage of a market in which it's not easy to buy a home!
A couple of Brain surgeons enjoy a quiet, nutritious lunch...
Because so many people are still renting, while waiting for the real estate market to hit bottom, right now is a great time to be a landlord. Yes, there are problems with a high inventory of unsold homes now being rented, and job layoffs affecting tenants' ability to pay rent on time. But on the other hand, tougher mortgage standards may now guarantee a good supply of renters for years to come.
I believe that I've made a lot of money in real estate over the years because I've developed a method for myself that is very consistent. It surprises people to learn that I have flipped only three properties in 13 years of investing. Most of the time, I buy foreclosures, and rent them out for at least a few years or longer, before I decide to sell. Often I will sell the homes to the tenants who have been renting from me, because that saves money on advertising, commissions (yes, even a Realtor has to pay the other agent who brings the buyer 3%), and the down time that comes from having a vacant property.
When I first began buying properties, I must admit I bought a few that were just ghastly to look at. If I wasn't all covered in filth and grease when I got home from rehabbing, I wasn't happy. But as I get older, I find myself looking for properties with less work to do. Keep in mind that it's the "clunkers" that will usually give you the most amount of sweat equity, but with so many foreclosures on the market, you can still find substantial bargains, buying foreclosures that are in surprisingly excellent condition. Here is a foreclosure that I bought six months ago. This home was absolutely pristine inside and out, and needed very little in repairs:
Exterior and interior photos of a recent foreclosure purchase
Clearly, it's all about the method. Some investors like to buy apartment complexes, others prefer to buy duplexes, and others will buy mobile homes. I even hear stories about people buying and selling raw land on ebay. Myself, I like the newer single family homes that I can find at a huge discount. They are the easiest to rent and sell of all types of properties.
Again, don't let anyone tell you what you can't do. Can't never could, as they say. If you decide you would like to invest in real estate, talk to a Realtor and a mortgage broker and find out how to get started. You will need to have good credit, low debt, and some money for a down payment. But even if you don't have the 20-25% down that is currently being required on investment property, you can begin by buying your first home with an FHA loan of only 3.5% down. Live in it for two years, then sell it if you can make a profit, or rent it out and go buy another home for yourself with a 5% down conventional mortgage (you are only allowed to have one FHA loan at a time).
So get on the road to real estate riches today!
I did it, and so can you.
Again, don't let anyone tell you what you can't do. Can't never could, as they say. If you decide you would like to invest in real estate, talk to a Realtor and a mortgage broker and find out how to get started. You will need to have good credit, low debt, and some money for a down payment. But even if you don't have the 20-25% down that is currently being required on investment property, you can begin by buying your first home with an FHA loan of only 3.5% down. Live in it for two years, then sell it if you can make a profit, or rent it out and go buy another home for yourself with a 5% down conventional mortgage (you are only allowed to have one FHA loan at a time).
So get on the road to real estate riches today!
I did it, and so can you.
See you next week!
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Ethan Roberts
Contributing Editor
The Tycoon Report
