By: Joe Love
One of the best roads to financial freedom and wealth has and always will be the acquisition of good, solid, income producing real estate. Before you can successfully invest in real estate you have to become educated as to how the real estate market works.
Over the last 20 years I’ve bought, sold, and leased real estate in the United States and other countries. I’ve made a lot of money and lost a lot of money by making what I thought were good decisions but turned out to be bad when economic conditions changed unexpectedly.
Becoming educated in real estate requires a lot of work and experience. You can’t just take a class or attend a weekend seminar and become an expert. Real estate professionals who make money are some of the smartest, most educated, and most experienced business professionals in the world, but even the professionals loose millions of dollars. It is not an easy profession.
To be successful in real estate investing you first have to define what real estate is. Real Estate is its future earning power. The value of any piece of real estate is determined by the income that can be generated by that property when it’s developed to its highest and best use from today and into the indefinite future.
The value of a home is determined by the value that the person who wants to live in that home will pay. The value of a rental property in turn is determined by how much people will pay to rent that property. For any piece of real estate to have any value it must be able to be developed so that it can either provide housing or produce income.
Before you make the final decision on whether or not to purchase a piece of real estate you should always ask this question: “When and how will income or wealth be generated on or by this piece of property?” The answer to this question will tell you how much the property is worth today and how much it is likely to be worth in the future.
Here is a six step system that will help you to become a successful real estate investor:
1. Do market research to find a house that is under priced relative to the neighborhood because it is run down and needs a lot of work. A house that is under priced is one that is selling for 20% or more below what similar houses are selling for in the same area based on the costs or sales price per square foot.
2. Purchase the house for the lowest possible down payment and get the seller to carry back a 2nd mortgage or Deed Of Trust on the property. You always want to get the very best price and terms. Price and terms are very often more important than any other factor when buying a property. If you can buy at a low-enough price and terms you can make any property into a successful investment.
3. Move into the house so you can work on weekends and in your spare time to refurbish it.
4. Once you’ve fixed up the house you can do one of three things:
- A. You can sell it for more than you paid for it and take the profits from the house and buy another house to renovate.
- B. You can rent out the house in an amount that covers your mortgage payment and gives you additional cash flow each month.
- C. You can refinance the house and get a higher mortgage amount that is based on the additional rental cash flow so that you have no money of your own invested in the property and still have positive cash flow each month from rent.
5. Keep repeating this process with more houses that you fix up and sell, rent, or refinance. If you can get to the point where you can buy a house every six months, in ten years you could not only have a substantial positive cash flow each month and you could also have a large investment portfolio with little or no money of your own invested in it.
6. As you increase you experience, assets, and cash flow then you move up to buying duplexes, multi-unit properties, and eventually apartment buildings.
The advantages of this six step system are that you can do it while you keep your full time job which enables you to generate cash flow for repairs and renovation on the property you purchase. You can start small with little or no money or risk and buy more investment properties as you gain more knowledge and experience.
One of the keys to successful real estate investing is that you have to be willing to commit, because it takes an enormous amount of time to find the types of properties that are right for what you want to do. If you have lots of time but very little money real estate is where you should start investing for your financial independence.
