After looking into the 4HWW, it looks like Real Estate investing would be my ticket towards economic freedom. My parents have gifted me a property that they own, which I am currently working on rehabbing it for a sale/rental. I wanted to share some basic ideas about making Real Estate viable for anyone who might be interested:
- Geography: Make sure you look near your "home" location. Anything beyond an hours drive becomes cumbersome.
- Purchase Price: I am a strong believer in long term value investing, so applying those principles, I put in bids that will allow enough of a cashflow to cover all expenses (Mortgage, Interest, Taxes, Insurance, Maintenance etc). My goal is to break even if making the rental positive cash flow is not possible. These days I run my numbers on a 15 year Mortgage and compare it to the standard 30 yr term, why? because you're paying off more principle in the 15 yr deal. And regardless of the mortgage type, I pay on a bi-weekly basis to shave off additional interest payments. Furthermore, I have designated this first property as my primary residence (its a 2 unit with a basement), by building a small apartment in the basement, separate mailbox etc. This allows me to claim max tax deductions at the year end. I spend a lot of time thinking about financing because a weak situation can break you.
- Property Types: If you're starting out, I would recommend purchasing a single family to 2 family property at most. This will allow you to get in fairly easily and when you rent it, the hassles from tenants will be limited to 2 housing units. Sure you are taking on additional risk if your units sit empty, but we won't let that happen because..
- Types of tenants: Ideal types would be blue collar families or lower middle class folks who make enough money to pay rent on regular basis, yet not so much that they will move out after a year or two. You want long term tenants, vacancies mean lost $$.
- Escrow accounts: I am not talking about the escrow accounts that your bank has for you, but rather setting accounts for yourself to cover maintenance, mortgage payments. For me, having at least $5K in the bank for this purpose is a must. Everything that you think could go wrong in a house has gone wrong for me. I have spent entire paychecks trying to pay the building contractors, buying appliances etc. So trust me, you will need to have the cash in the bank to cover these expenses.
I really believe in the axiom that "see what everyone is doing and do the opposite" (Credit: James Caan), so I am working hard to make this rehab success. Based on my current calculations, I stand to be cashflow positive $300/month per unit or reap $40K in profits if all goes well. Since this property is located in PA (farther away than I'd like), I am already thinking of buying in New England, probably Connecticut or Rhode Island, so that I can check up on the place.
Also, I am taking an appraisal course, not for licensing/career reasons, but to learn the metrics of valuation for properties. With all the bad rep Real Estate has gotten recently, I don't think you can the Wild West of 00's anytime soon. I am glad that the speculators, armchair investors and other less serious folks have exited/are bleeding. You have to do your homework.
I am happy to help anyone in this forum to answer any questions. Far from an expert, yet have lived the hard knock (RE) life.
- Geography: Make sure you look near your "home" location. Anything beyond an hours drive becomes cumbersome.
- Purchase Price: I am a strong believer in long term value investing, so applying those principles, I put in bids that will allow enough of a cashflow to cover all expenses (Mortgage, Interest, Taxes, Insurance, Maintenance etc). My goal is to break even if making the rental positive cash flow is not possible. These days I run my numbers on a 15 year Mortgage and compare it to the standard 30 yr term, why? because you're paying off more principle in the 15 yr deal. And regardless of the mortgage type, I pay on a bi-weekly basis to shave off additional interest payments. Furthermore, I have designated this first property as my primary residence (its a 2 unit with a basement), by building a small apartment in the basement, separate mailbox etc. This allows me to claim max tax deductions at the year end. I spend a lot of time thinking about financing because a weak situation can break you.
- Property Types: If you're starting out, I would recommend purchasing a single family to 2 family property at most. This will allow you to get in fairly easily and when you rent it, the hassles from tenants will be limited to 2 housing units. Sure you are taking on additional risk if your units sit empty, but we won't let that happen because..
- Types of tenants: Ideal types would be blue collar families or lower middle class folks who make enough money to pay rent on regular basis, yet not so much that they will move out after a year or two. You want long term tenants, vacancies mean lost $$.
- Escrow accounts: I am not talking about the escrow accounts that your bank has for you, but rather setting accounts for yourself to cover maintenance, mortgage payments. For me, having at least $5K in the bank for this purpose is a must. Everything that you think could go wrong in a house has gone wrong for me. I have spent entire paychecks trying to pay the building contractors, buying appliances etc. So trust me, you will need to have the cash in the bank to cover these expenses.
I really believe in the axiom that "see what everyone is doing and do the opposite" (Credit: James Caan), so I am working hard to make this rehab success. Based on my current calculations, I stand to be cashflow positive $300/month per unit or reap $40K in profits if all goes well. Since this property is located in PA (farther away than I'd like), I am already thinking of buying in New England, probably Connecticut or Rhode Island, so that I can check up on the place.
Also, I am taking an appraisal course, not for licensing/career reasons, but to learn the metrics of valuation for properties. With all the bad rep Real Estate has gotten recently, I don't think you can the Wild West of 00's anytime soon. I am glad that the speculators, armchair investors and other less serious folks have exited/are bleeding. You have to do your homework.
I am happy to help anyone in this forum to answer any questions. Far from an expert, yet have lived the hard knock (RE) life.