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Last Updated on March 29, 2023 by Mark Ferguson

It takes a lot of hard work to save $100,000 or you have to be very lucky for $100,000 to fall into your lap. Once you have $100,000 it can be even harder to commit to investing it and not blowing it on material goods. If I had an extra $100,000 to invest I know exactly what I would do with it; invest it in real estate. In fact I invest all of my money into real estate. Whether I invested in fix and flips or rental properties would depend on my current situation.

For others there are a number of factors that determine how and when you should invest $100,000. My specialty is investing in real estate because of the awesome returns rentals and flipping can produce. I am a real estate agent and I have a big advantage over many new real estate investors. This article will describe why I think real estate is such a great investment for me and if it would be for you as well.

Why is real estate my top choice for investing $100,000?

There are many ways to invest money into real estate and that is one reason why I love to buy houses. The main reason I love real estate is the great returns you can get if you are willing to do some work. I own 13 rental properties and fix and flip about 10 houses a year. On my rentals I tend to get 20 percent cash on cash returns or more. On my flips I average over a $30,000 profit on each one.

It is not easy to get those returns on rentals and make that much money on each flip. It helps that I am a real estate agent and I have been investing for many years. That doesn’t mean a novice or beginning investor cannot make great money with real estate if they do their homework, work hard and are patient. When investing money in the stock market it is very hard to get the returns I get and there are even more advantages to investing in real estate that blow the stock market away.

What is the best way to invest $100,000 in real estate?

There are many ways to invest in real estate. Besides flipping and rental properties, there is private money investing, REITs, notes and more. Choosing the best option is not easy, because everyone has different goals and everyone is willing to spend varying amounts of time to learn to invest and complete the investments. Here is a quick break down of the most popular ways to invest in real estate.

  • Flipping: flipping houses takes a lot of work and a lot of experience to make money. A flip is buying a house very cheap, fixing it up and selling it for a profit. Flipping is more of a job than investing and it usually takes a lot of capital to get started.
  • Rental properties: rental property investing can be very involved or very hands off. I like to buy properties below market value and then make repairs, which takes time and money. The cheaper I buy properties the more cash flow I am able to create. If you are looking for an easier way to buy rental properties; turn key rentals take very little time and are mostly hands off.
  • Private money: private money is when one investor lends money to another investor for the purpose of investing in real estate. Private money can be very hands off once you find a great investor. Finding the great investor can take time and if the investor does not follow trough on their promises, private money investing can turn into a nightmare.
  • Notes: buying notes is also mostly hands off, because you are not buying a property. Buying notes involves buying a mortgage and becoming the bank. However if the borrower stops making their payments you may have to foreclose on the home which becomes very hands on.
  • REITs: REITs are more like investing in the stock market than investing in real estate. You buy shares of a REIT, which give you a piece of a real estate trust. With a REIT the management is taken care of by a large company and don’t have to worry about taking responsibly for a property. However, you give up all control of the investment and have to hope you picked a good manager.

Even though there are many ways to invest in real estate, this article is going to focus on investing $100,000 into rental properties and fix and flips, because I think they provide the best returns. They also take the most work which I think is a good thing. If you are investing for your future retirement and livelihood I think it should take some work!

Why are rental properties how I would invest $100,000?

Figuring out the best investment for you depends on how much time you have to learn and implement. The more time you have, usually the more money you can make and the better returns you will get. I think rental properties are the best investment if you have the money and time to learn the correct way to invest in them. Once you buy your rentals and get them set up with great renters or property managers, they take very little work.

I spend about $30,000 to $35,000 in cash on each rental I buy. I finance my rentals with 20 percent down and make repairs to add value. Rentals in my area produce about $500 a month in cash flow which equals $6,000 a year. I buy my properties from $80,000 to $135,000 and rent them from $1,200 to $1,500 a month. A 20 percent cash on cash return is pretty awesome, but it is getting harder and harder to find these types of deals in my area. However, even with much lower returns rentals properties have many advantages besides the cash on cash return.

  • Rentals have great tax advantages.
  • Properties will most likely appreciate over time.
  • I am paying off loans and gaining equity every month.
  • Rents will most likely go up over time.
  • Rentals can be bought below market value giving you instant equity.

To see all the advantages of rental properties I will show you the numbers on rental property 7, which I bought two years ago. I bought this house as a short sale and it was a smoking deal.

  • Purchase price                       $113,000
  • Repairs                                    $8,000
  • Closing costs out of pocket $500      (seller paid $2,000)
  • Down payment                      $22,600
  • Commission I made             -$3,000
  • Total cash spent                    $28,100

I rented this house for $1,400 a month shortly after the repairs were made and it has been rented to the same tenants for almost two years.

Not only am I making over 20 percent on the cash I invested from rent, but I bought the home below market and added value with repairs. The home recently appraised for $195,000 and I was able to take out $52,000 in a cash out refinance. Even after the refinance the house cash flows every month (it does make less than $500 a month now).

Many circumstances came together to make this a great rental. These deals are not easy to find and not readily available in every market. However, getting half the return I did would still be a great deal for most people. Here is a look at the total return I have seen in two years on this property.

Returns from buying the home below market

Value of home when purchased and after repairs: $155,000.

Repairs and purchase price plus closing costs: $121,500

Value gained $33,500 which equals 59.6 percent return per year.

Returns from appreciation

Current value of home based on appraisal: $195,000

Appreciation of house over two years: $40,000.

That is a 71 percent return per year over two years.

Returns from rental income received

Rent income per year: $16,800.

Expenses per year: $8,440 (mortgage, taxes, insurance, property management and maintenance)

Profit from the renal property income: $8,360, which equates to a 29.7 percent return.

This number is misleading, because I have been very lucky with these tenants and had no out-of-pocket maintenance, except for the deductible on an insurance claim. We had a major hail storm that damaged the roof, some siding and windows, but my expense was only $500. When I figure cash flow for the future I include much higher expenses for vacancies and maintenance.

What are the total returns of this rental property?

Those returns equal a 160.3 percent return on the initial money I invested each of the first two years. But to be honest, the returns are not that high because you would have selling costs if you sold the house. There are costs to refinance as well when you take cash out. If I sold the house I would have to pay about 6 percent of the selling price in real estate commissions and closing costs (10 percent if I was not a real estate agent). The returns would also go down over time, because the initial benefit of buying below market value would be spread out over more years and we can’t count on 20 percent appreciation each year. A word of warning, I never invest strictly for appreciation.

If you never sell or refinance the property, you will not see those returns from appreciation or buying below market. They would be paper returns which would make your net worth look awesome, but the actual gains would be just the cash on cash returns. Even if you don’t sell or refinance having a lot of equity in homes looks great to banks if you want to get more loans.

When I refinanced the property I had to pay closing costs, which were about $5,000. I will get some of that money back, because the bank collected escrow amounts for taxes and insurance. I already had money in my escrow accounts for my previous loan which I will get back. I also skip one payment with the new loan, which will save me $800. I spent $28,100 buying this property and took out over $52,000 when I refinanced. I still have 25 percent equity since the maximum I can refinance with my lender is 75% of the appraisal. As you can see buying below market coupled with appreciation can make for some great returns when you refinance.

Having said all of that, let’s get back to the entire point of this article. How would I invest $100,000 into real estate? I would buy rental properties, but I would not spend all the money on rentals.

Why do you need to have money in reserves for rental properties?

I may not have had any vacancies or maintenance needed on rental property number 7, but that doesn’t mean I never will or I haven’t had those costs on other rentals. If you are going to buy rentals, you will have to fix things, you will have vacant properties and you will have tenants who don’t pay rent. If you have no money to handle these situations, you will run into some very tough times.

A good rule of thumb is to have at least six months of mortgage payments, taxes and insurance per property in savings. Banks will require this amount as well when you try to get a new loan on a property.

If you bought two rentals using $35,000 cash for each property, you would have $30,000 in cash left. You might be tempted to buy another property with that cash, but you would have no money left for reserves. If you had two rentals and a personal residence, you would need at least $16,000 in reserves assuming you had two $600 payments and a personal house payment of $1,500.

With $100,000 to invest, you could buy two rental properties which would give you great returns on $70,000 of your money. Some may argue the stock market is a better investment because you could invest all $100,000, but no matter what you invest in you should have an emergency fund or safety net. It is more important to have a safety net with rentals because you may have to put more money into then for repairs or to make mortgage payments. Where the stock market you would not need more money, unless you are buying on margin (one of the few advantages of the stock market).

How your goals and personal situation will affect investing the $100,000

There is more to consider then just the $100,000 investment you have. How did you get the money? How much do you save? How old are you? Are you investing from an IRA?

If you make $500,000 a year and it is not difficult to save $100,000, then maybe you are okay taking more risk and buying three rentals. If you make $50,000 a year and it took ten years to save $100,000 maybe you only want two or even one rental. If you are retiring in five years maybe one rental paid with all cash would make you more comfortable. Personally I think leverage is the way to with rental properties as long as they cash flow and I explain why here. If you are in a market with more expensive houses it will also affect how you invest and how much money you need.

If you happened to inherit $100,000 and have no prospect for saving more money, be very careful when investing in anything! It is vitally important you have reserves in savings if you buy rentals.

How much time you have to invest will also play a big role in how you spend the money. If you have no extra time to learn about rentals and buy properties, my strategy will not work well. You have to know your market well, be patient to find great deals, and take time to hire great managers and contractors. Turn-key rentals are a better option for those with no time, but will not provide nearly the same results.

If you have a lot of time to invest, you might even consider flipping to boost your rental property purchasing! If you want help with learning how to invest in rentals, I offer a great program to get you jump started.

How can fix and flipping increase the returns on $100,000?

Fix and flipping can provide a great income, but will take a lot of direct involvement. It is more of a job, because once you sell the property it will no longer make you any money. It takes a lot of money to get started flipping unless you use hard money or have a partner. Having $100,000 to start a flipping business would be a great start,but you are taking on a lot of risk. I love to use flipping to make more money to invest in my rentals.

This article is already way too long to start going into the details of flipping, but here is a great article that describes the process and how much money you can make.

Conclusion

I have invested much more than $100,000 into rental properties and fix and flips. My investments have built up over time and I was not able to put a large chunk of money into the investments in the beginning. If you have $100,000 or $50,000 or one million to invest, don’t dump it all into the business at once. Make sure you know what you are doing, have done the proper research and have a safety net. The returns I show in this article are not typical, but show the incredible power rentals can have. If you have questions or comments for me, be sure to check out the discussion forums!

Build a Rental Property Empire

Categories Real Estate

Source: investfourmore.com

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By Peter Anderson 2 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited February 11, 2017.

I‘ve been writing about peer to peer lending on this site for some time now, mainly in reference to the P2P lending company called Lending Club. I’ve been lending money with the site for around 2 years, and to date I’ve enjoyed some pretty amazing returns. Right now my net annualized return with Lending Club is sitting at about 11.13%, which would be tough to equal in the stock market right now.

My returns have only been increasing since I’ve started following advice from a variety of other sites like nickelsteamroller.com and SocialLending.net. I’ve increased my returns from about the 8.5-9% range to the 11.13% that I’m sitting at now. I’m starting to come around to the idea that diversifying some of your holdings and putting it into P2P lending may be a much more solid proposition than some had thought in the past. I think it can be an important component of a well diversified portfolio.

Because I’m becoming more interested in social lending through sites like Lending Club and Prosper I’ve also been looking into places where I can educate myself a bit more about how this whole peer to peer lending paradigm works, and how to maximize my earnings.

While doing some research on the topic I came across a variety of good educational resources that I thought I’d share today.

Peer To Peer Lending Educational Resources

First, there are a ton of great blogs out there that focus mainly on the social lending sphere. Many of these sites have been extremely helpful for me. Here are a few of my favorites:

As with any topic, it’s a good idea to read a variety of sources, and then bring together the best of what they’re all telling you and apply it to your situation.

Video Education On P2P Lending

While the blogs mentioned above are great resources, to some degree they only scratch the surface of what’s going on when you sign up to become a P2P lender. They also tend to jump from topic to topic without giving a comprehensive guide or tutorial on how social lending works. There really is so much more depth to the strategy of P2P lending.

This past week a blogging colleague of mine, Peter Renton over at Social Lending Network, launched a new educational resource for people wanting to take their social lending experience to the next level – and set themselves up to succeed.

He launched his new video course called P2P Lending Wealth System that is designed to help investors get the most out of their P2P lending investments. It goes over both the Lending Club and Prosper platforms, and looks at how to best use their tools, as well as outside tools to improve your returns.

From an email he sent out last week, Peter describes the course:

Next week I will be launching the world’s first ever video course dedicated to p2p lending. It will be called the P2P Lending Wealth System. It is a practical, hands-on course that provides investors with everything they need to be successful.

The P2P Lending Wealth System digs deeply into the investment platforms of Lending Club and Prosper. We talk a lot about loan filtering on both platforms and we also show investors how to leverage p2p lending statistics sites Lendstats.com and Nickelsteamroller.com.

The course will have some informational slides but I really wanted to leverage the power of screencasts where I take investors through the most important components on the various websites.

He goes on to talk about some of the topics that are covered in the video program. Among them:

  • An Introduction to Peer to Peer Lending: He gives a background and overview of the P2P lending space talking about it’s dramatic growth and why it’s done so well.
  • Risks of P2P lending: He discusses some of the risks involved in social lending and what to look out for. He also talks about some of the government regulations involved.
  • Investing with Lending Club: He goes over the Lending Club site in depth talking about their tools they have available to you, as well as some site specific things to be aware of.
  • Investing with Prosper: A tutorial of the Prosper site and tools, as well as strategies to make the best of Prosper.
  • Maximizing your ROI: To me this is the meat of the class as it talks about how to improve your returns when lending with Prosper and Lending Club. Important stuff!
  • Note Trading Platforms: He goes into how to use the note trading platforms at Lending Club and Prosper and how to use them to maximize returns.
  • Peter’s investment strategies: Peter goes into some of his own strategies for making the best of social lending, and gives some of the tools and spreadsheets he uses to maximize his returns.

As mentioned previously I’ve already been using some of the strategies espoused by Peter, and my returns thus far have been awesome. I’ve now been watching the videos in Peter’s course, and it really extremely helpful, even for someone who’s been using Lending Club for a while like myself.

If you’re seriously considering adding P2P lending to your investment portfolio (and you should!), I’d highly recommend checking out Peter’s video course and the hours of training contained therein. You’ll be setting yourself up to have the best chance at succeeding in this new and exciting investment arena. Want to hear more about the course first hand from Peter? Click on the banner or link below to check it out.

Related Posts

Source: biblemoneymatters.com

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Interior design goes beyond simply accessorizing a house with decorations. Anyone can decorate a home or property, but learning how to design an interior properly is a different skill set altogether.

Interior design enhances the beauty, functionality, and style of a property with the intent of making it instantly more appealing to guests and visitors.

For a real estate investor, interior design functions as a hook; a well-designed property entices visitors and makes it easier to picture themselves living in the property. It pulls potential buyers in, and makes them go, “Aha! I could live here!”

In this short article, we’ll look at four uses of interior design for the real estate investor. These are all ideas that you’ll be able to apply to your own investments. We’ll conclude with a short list of practical tips and tricks.

Add value

A simple real estate rule applies across the board: a well-designed interior adds value to your property.

Some of this may come in the form of actual furnishings with a tangible value that has been added to the residence; it may also come in an intangible form — your ability to sell the property for more because of the well-designed interior.

Apply beauty strategically

A beautiful interior can increase your home’s value, but it has to be a well-applied beauty. Interior design isn’t a matter of filling your property with all the pretty things you can find.

Apply the beauty strategically to gain the most benefit and have the most significant impact on potential buyers. 

Think strategically. One interior designer recommends always repainting the front door of the property. A fresh, clean-looking door makes a great statement even before your clients have entered.

That is the key to understanding interior design; be selective in the beautiful elements you incorporate to receive the maximum benefit.

Enhance appeal

If you’ve added value by incorporating strategically beautiful elements into your home, you’ll succeed in increasing the immediate appeal of the property to any potential buyers.

From the pictures in advertisements to their first impressions on entering the property, potential clients will see a beautiful and well-thought-out interior.

Good design speaks not only to a well-kept property but to the quality of presentation that your clients will appreciate as well.

The above ideas are general, big-picture concepts to keep in mind with your interior design. Below are several specific tips and tricks that will help with interior designing.

Interior design tips and tricks

  • Balance “splurges” and “saves”

A “splurge” is a big-budget item such as a designer table in the dining room or a statement chandelier in the main hall. A well-chosen splurge draws the eye and ties the room together, serving as a natural focal point. 

On the other hand, “saves” are the little design elements used to flesh out a room, from throw pillows to wall hangings, they can go a long way in interior decorating. You can go cheap on the saves and set aside more money for the splurges to maximize the “wow” factor without breaking your design budget.

  • Minimize clutter

Don’t decorate like someone who hoards everything. Often, more is not better when it comes to interior design, particularly for display properties; keep things simple and steer clear of countless small items which will just confuse the overall look of the room.

  • Feature upgrades

Two points here: first, when redesigning an old home, be sure to upgrade key fixtures and rooms, particularly the kitchen and bathroom. And second, capitalize on those upgrades by featuring those rooms more prominently. In the case of the kitchen especially, it may even be possible to draw attention to that room from other locations in the property, doubling-down on the benefits of your upgrades.

  • Avoid fads

Don’t decorate only according to the latest style; if you do, your interior design will soon look outdated. Go for time-tested, classic looks and design elements from mid-century modern influences, classic rustic farmhouse style, etc.

While not an exhaustive list, hopefully you find that the tips and principles listed above will help you increase the price and beauty of your property.

Keep reading

How to Successfully Integrate Smart Home Tech into a Home
How to Properly Furnish a Small Bedroom to Fit a Large Bed
How to Use Video Walls to Make Your Home More Entertainment-Friendly

Source: fancypantshomes.com

Apache is functioning normally

Last Updated on March 29, 2023 by Mark Ferguson

I strongly believe that real estate is one of the best ways to achieve wealth. Rental properties, in particular, are an awesome way to build net worth and create passive income.

I own a real estate brokerage, have been an agent for 17 years, and flip houses as well. My strategy is to make as much money as I can by selling houses as an agent or flipping houses and investing that money into rentals. Real estate has made me quite a bit more than a millionaire and anyone with a work ethic can do it. If you become a millionaire, it may not mean what it once did thanks to inflation and the cost of living. However, being a millionaire is still a big deal, and only 5 percent of American households have a net worth of one million dollars or more.

Why is real estate a great way to become a millionaire?

Real estate is one of the best ways to build wealth with or without a lot of money. I am not saying you don’t need any money or that it is easy, but it is possible. One of the main reasons real estate is a great vehicle for wealth is the ability to use leverage. Leverage is basically using loans or other people’s money. You can get loans relatively easy on real estate because it is a hard asset. The more money you have the easier it is to make money in real estate. While it is possible to get started with nothing or next to nothing, it is much easier if you have money to invest.

While you can borrow money to invest in other businesses, it is usually not as easy as it is to borrow against real estate. Banks love to lend on houses and commercial properties because they have an asset backing the loan. If banks lend on stocks or businesses and they go under the bank has nothing. If they loan against a house and the borrower can’t make payments the bank can take the house.

Because banks like to lend on real estate you can get some of the best loan terms available. Real estate also has amazing tax advantages that are not available with other investments. You can buy and sell a primary house, make $200,000 and pay zero taxes on that profit in certain scenarios. Not tax-deferred, no tax at all, ever. You can also force appreciation with real estate; you do not have wait for it to go up in value. I flipped 26 houses last year and all of them I bought for much less than they were actually worth. You can also make improvements to a property to increase the value. All of this can occur while you are making money on it every month after paying expenses including the mortgage.

It is also possible to take money out of your real estate investments by refinancing properties. You can use that money to buy more and more properties. This is what I have done in my career and one of my only regrets is that I did not start sooner!

Is a primary house an investment?

I want to start with the question of whether a primary residence is an investment. Many people talk about how it is dumb to buy a house and smart investors rent. I disagree. I think a primary residence can build a lot of wealth. I have increased my net worth buying and selling houses that I lived in over and over.

I bought my first house when I was 22 years old. I paid $190,000 for the house, which was full retail value for it. I lived there for 7 years and spent at least $10,000 on materials to remodel the home. That money does not count the time I personally spent updating bathrooms, painting, installing fixtures and fixing many other small things. I sold the house for $180,000 after doing all that work! It did not help that the market dropped, but I could have done much better if I would have been patient and waited for an awesome deal. Not every personal house is a great investment but I also did not have to pay rent, I was not forced to move when the landlord decided he wanted to sell, I could have pets, and I could change the houses however I saw fit. I did much better financially with my second house.

I bought my second house from the foreclosure sale for $215,000 in 2009, put less money into it for repairs, and sold it for $343,000 three years later. I bought the house with money I borrowed from my sister and father in law because I had to pay cash at the foreclosure sale. I was able to refinance all of that money out with a conventional bank a couple of months later. The awesome part about making so much money on that house was that it was tax-free. When you live in a house for 2 out of the last 5 years the money you make is usually tax-free! I sold the house to my friend so I had no real estate commissions to pay. We spent less than $10,000 on the house while we owned it and we did not even have to change the carpet.

I took the money I made from that house and used it for a down payment on a house I purchased for $560,000 in 2013. I have owned that house since and it is worth more than $850,000 now. I was lucky that our market has taken off, but I also focus on getting great deals on all the houses I buy. My loan on my personal house is less than $400,000, which means I have created $450,000 in net worth through my personal residences. that money is tax-free if I ever decide to sell the house I am in now. They limit your tax-free gain to $250,000 for an individual or $500,000 for a couple. I can also get a line of credit or refinance the house to pull money out tax-free and use it to invest.

I have not become a millionaire through these houses, but they have definitely helped to grow my net worth. When you buy a house as an owner occupant you can put very little money down. Because you are putting little money into the deal, the returns can huge if you got a great deal or values increase. If you do not have a lot of money to invest in rental properties, buying a personal residence is a great way to start. When you gain equity in the house or buy below market value, you can get a line of credit, pull any money you invested out plus some and use that money to invest. I bought my first rental property by refinancing the second primary house I had.

Why are rentals a great source of wealth?

The biggest increase to my net worth came from rental properties. I always buy properties below market value, which creates instant equity. When I buy a rental property for $120,000, it may be worth $160,000 or more after spending $15,000 to fix it up. When I buy that property and fix it up, I add $25,000 to my net worth. I have 20 rental properties now and all of them have added money to my net worth in multiple ways:

Buy below market value

You can buy below market value in many different ways. You do not have to be a professional investor to do it. There are deals on the MLS, on auctions, and even on Facebook! Buying below market value allows investors to use the BRRRR strategy which in turn can get you into rentals with very little money. Every house I buy adds $20,000 to $50,000 to my net worth because of the great deals I get.

Appreciation

I never count on appreciation but it is a nice bonus. I buy rentals that will make money today without prices increasing. However, my rentals have seen huge increases in prices. I started buying rentals in 2010 and spent about $1.3 million on 13 residential properties ( I also have commercial). Those rentals are worth over $3 million dollars today. Part of that is appreciation and part of it buying below market. The cool part is I spent very little money buying them after refinancing a few.

Cash flow

My rentals make me about $12,000 a month in passive income every month. I have property management who takes care of them for me and it takes very little work once I buy and renovate the property if needed. That money will keep coming in as long as I own the properties and will increase over time as rents go up with inflation. I love rentals because of the steady money they bring in.

Equity pay down

I have mortgages on all of my properties and my tenants are slowly paying them off for me. Every month my net worth increases because the mortgage balances on my properties decrease. This is on top of the cash flow I make every month.

All of these factors have increased my net worth directly or given me more cash, which allowed me to invest in more properties and add to my net worth. Rentals did not make me a millionaire overnight, but they have been an awesome investment and made me a millionaire a few years after I started buying them. Making a lot of income is great, but people can make hundreds of thousands of dollars a year with nothing to show for it if they spend it all.

How can you make money flipping houses?

One way I make a high income is by flipping houses. I flipped 93 houses in the last five years but started doing one or two a year with my father many years ago. Flipping houses is not as glamorous as they make it out to be on TV, but it can be a lot of fun as well as lucrative. I typically buy a house for $150,000 to $250,000, spend $20,000 to $50,000 fixing it up, spend another $20,000 to $30,000 on other costs, and sell for $250,000 to $350,000. We try to make $30,000 on each flip we do. Sometimes we do and sometimes we don’t.

I have used the money I make from flipping to buy more rentals and buy more and more flips every year. I would love to have more rentals but it is actually harder to find good rentals than good flips!

Below is a video of one of my flips.

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How much money can you make being a real estate agent?

I have also made very good money being a real estate agent. I use to be an REO and HUD broker which meant I sold foreclosures for banks. I had multiple years that I made well over $100,000 a year after expenses from being an agent. I now own my own real estate brokerage but focus on the flips more than selling houses.

Not only is being an agent a great way to earn income that you can invest, but it is a game changer for my flipping and rental property businesses. I am able to find more deals and pay less in commissions because I am an agent.

How long did it take me to accumulate one million dollars in net worth?

I bought my first rental property at the end of 2010 when I figure my net worth was about $180,000. I had been a real estate agent for 8 years, and flipping houses with my father for many years, but had not accumulated a huge amount of money. I invested money in the stock market, but most of my net worth was in my personal house.

I hit one million dollars in net worth in 2013. At the time I had seven rental properties, which had contributed greatly to my net worth. Not only did buying below market value, and appreciation increase my net worth, but I was saving as much money as I could to buy rentals. I put 20 or 25 percent down on each property and made repairs to most of them. Here is what a typical rental looked like:

  • Buy for $100,000
  • Put down $20,000
  • Spend $15,000 on repairs
  • When I was done the house was worth $150,000 to $160,000

After buying and fixing up the rental I had a house that was worth $160,000 with a loan that was $80,000. After a couple of years that house increased to $180,000 in value and my loan balance decreased to about $77,000. For each of my rentals, I gained $100,000 or more of net worth after a few years of ownership. On some of my houses, I built much more net worth because I got really great deals on the property. That does not count the cash flow I earned each month, which was about $500 per month, per property.

Some of my net worth was from my personal residence and other investments, but most of it was from rentals. It took me about four years to accumulate a net worth of one million dollars from just rentals. While it took cash to buy those properties, it forced me to save money as well. I know I would not have saved as much had I not been buying rentals.

What if you don’t make a lot of money?

My story may not be relative to many people. I have a successful real estate sales team, a successful fix and flipping business, and a blog that makes money as well. I have had extra money to invest in rentals to increase my net worth. Even if you don’t have a lot of cash to invest, you can buy real estate. You can buy houses with little money down as an owner occupant, and with many other strategies. You could turn owner-occupied houses into rentals or sell them, collect tax-free profits, and re-invest it into more properties.

You may not be able to buy as many rentals as I did as fast, but you can definitely start building wealth. How fast it takes you to reach one million dollars in net worth depends on many factors like:

  • How much cash you have to invest
  • How good of a deal you get
  • How many houses you buy
  • How fast your market appreciates or possibly depreciates
  • What strategies you use you to accelerate growth like refinancing, house hacking, or the BRRRR method.

Conclusion

It is possible to build a net worth of one million dollars in a couple of years with real estate. It also may take five years, ten years, or even fifteen years. Only five percent of households are millionaires so even if it takes a while you will be ahead of the pack. It may be tough to get your first property, but the more you buy the easier it gets and the more money you will make.

Build a Rental Property Empire

Categories Real Estate

Source: investfourmore.com

Apache is functioning normally

Last Updated on March 29, 2023 by Mark Ferguson

I have been involved in many multiple offer situations as a buyer, seller and listing agent. I just made an offer on a short sale late last week where they received multiple offers and they have asked for highest and best. There are many different strategies you can use when trying to win a highest and best situation. It is tough to decide how to revise your offer and how much to raise your offer in a highest and best situation. The biggest problem in any multiple offer situation is you don’t know what other buyers will offer. All you can do is analyze the situation as best you can, and make the best offer you can based on your own numbers and needs.

What does highest and best mean?

Highest and best has become more popular in the last few years due to decreasing inventory and increased buyer demand. I am a HUD and REO listing broker as well as a real estate investor, and I am in highest and best situations all the time on my listings and as a buyer. Highest and best is when a seller receives more than one offer on a property, and they decide to give everyone a chance to submit there best offer. In the seller’s formal request, the seller gives each buyer a chance to raise their offer and a date and time all offers must be received by the seller. The seller will review all offers at the same time and pick the offer they like best.

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I used to list a lot of bank foreclosures, and banks use highest and best in almost every situation when they receive multiple offers. Banks can take a long time to respond to offers, and some banks have policies that they will not review offers until a home has been on the market for a certain amount of time. Because of these policies, banks end up with multiple offers on many of their properties. The banks started asking for highest and best to give every buyer a fair chance to revise their offers. In a highest and best situation, the bank notifies every buyer they have multiple offers, and to submit their highest and best by a certain date and time.

Many traditional sellers (not banks) using highest and best as well. In the past, most traditional sellers may let all buyers know they received other offers, but not officially ask for highest and best. Even if a seller does not formally ask for highest and best, I would treat any situation where a seller gets multiple offers as highest and best.

Do not be scared off by multiple offers

Many buyers do not like it when a seller asks for highest and best. I hear buyers say; “I don’t want to get in a bidding war” and they withdraw their offer. If you want to get the best deals you have to take part in highest and best bidding wars. The worst thing that can happen is you get beat out, so why not try? Why not leave your offer the same as your original offer and if you get it great, if not move on. For more detailed tips on getting your offer accepted here is a great article on how to make an offer that will be accepted.

Why do sellers ask for highest and best?

Highest and best situations can make buyers mad, but the sellers have a good reason to use it. The biggest reason is they want to formally give every buyer notice of multiple offers and give them a chance to raise their offer. Banks, in particular, have been sued a lot and they want to do everything by the book, with paperwork to prove it. Highest and best is usually the fairest way to handle multiple offers.

Banks and traditional sellers also use highest and best to try to get the most money they can for their house. They are the owner of the house and they have every right to try to maximize their profit or cut their losses.

Can you get information from the listing agent about other offers?

If you are dealing with multiple offers, you most likely have a real estate agent, and the seller has their own listing agent. You can’t exactly talk directly to the listing agent, but you need your agent to get as much information as possible. Here are some great questions to ask:

1.  How many offers are there?

2.  Are any of the offers cash?

3.  When is highest and best due?

4.  What is the highest offer you have now?

5.  Is there anything special the seller is looking for? Closing date, financing, rent back?

If you have any experience with highest and best, you know the listing agent will not answer most of these questions. It doesn’t hurt to ask and see if they will answer. As a listing agent myself I won’t answer any of them, except how many offers there are.

How much should you offer?

There is very little chance the listing agent will tell you how much the other offers are and even if they do, the other buyers could raise their offers. It helps to know how many offers there are, but It only takes one offer to beat you. Whenever I am in a highest and best situation I make the highest offer I can based off my buying criteria and profit potential.

I don’t try to guess what the other offers are in a highest and best situation. My theory is that I would rather pay a little more, and get a great deal than try to save money and get beat out. Having said that, don’t pay more than your numbers say you should. Most of this advice applies to investor offers if you are an owner occupant you have many factors to consider. You need to look at supply and demand, how much you love the house, and what neighborhood prices are. Emotion will come into play much more with an owner occupant offer than with an investor offer.

Remember that the list price is not the only thing you should base your offer on in a highest and best situation. Some buyers will think of the list price as the most they will offer, but this may be a huge mistake. I try to think of a multiple offer situation in this way: What is the most I would pay for the home if the house did not have a list price. If someone is willing to pay more, then I am confident I made my best offer and gave it my best shot. I won’t regret trying to save a few bucks by offering less than I was ultimately willing to pay.

How does your loan affect the chances of getting the house?

For myself, I have the option of offering with a loan or cash on most properties. On my long-term rentals, I like to use financing, but I may use a cash offer to give myself a better chance. On fix and flips, I will always offer cash, even though I have bank financing on them. The reason I do this is that I can pay cash if needed and my bank doesn’t require appraisals on most of my loans. If you can offer cash, it almost always looks better than a financed offer. Just make sure you can produce a proof of funds letter showing you have the cash. In some situations like with HUD, financing does not matter. HUD only cares about the net price to them.

How else can you get your offer accepted?

  • I always explain my financing if I submit a financed offer in a highest and best situation. My portfolio lender does not require an appraisal or repairs on most of my properties. I make sure I tell this to the seller so they know I will close quickly without having any appraisal issues.
  • Sometimes I will ask for the seller to pay closing costs in my offer to save cash. In highest and best I usually remove the closing costs, because it increases the net to the seller and makes my offer stronger.
  • I will remove my inspection contingency on some properties. Usually, I only remove my inspection contingency on newer homes that I have a very good idea about the repairs needed. If a home has had a few offers fall apart because of inspection issues this can be a great way to get the seller to accept your offer. Only remove your inspection contingency if you are experienced with repairs and evaluating a home.
  • An increase in earnest money can also get the sellers attention in a highest and best offer situation. If you raise the earnest money and remove the inspection contingency, this can really increase the chances of your offer being accepted.

What if the seller does not ask for highest and best?

Many times traditional sellers will receive multiple offers, but not ask for highest and best. In many states, the listing agent is required to tell all buyers when the seller receives other offers. When you are informed that there are multiple offers, don’t wait around to see if they will ask for highest and best. There is a chance they will never ask for highest and best, but you can still revise your offer.

If I am notified a seller has multiple offers, I immediately ask if they are asking for highest and best. If they don’t know or say no, I will revise my offer right away. If you revise your offer right away, they may accept your offer without asking for highest and best and giving other buyers a chance to raise their offers. Another tip is to always ask the listing agent to notify you if they receive other offers after you have submitted your offer. I hate it when I find out I lost out on a house, and I was never notified they had other offers!

Should you use an escalation clause?

An escalation clause is when a contract states the price will be this unless a higher offer is received, then the price will rise this much over the next highest offer. For example:

Contract price:     $100,000

Escalator clause: If the seller receives any offers higher than $100,000, this offer price shall increase to $1,000 more than any higher offer up to $110,000. Any other higher offers must be given to buyers agent to confirm the higher price.

Many buyers feel this is a great way to get the lowest price on a home in a highest and best situation. However, there are many problems with an escalator clause and it may actually cause the buyer to pay more than they would have otherwise.

  1.  The seller is not obligated to show any other offers to the buyer or their agent. Yes, it can be asked for in the offer, but the offer is not signed by the seller and they are not bound to it.
  2.  The buyer has stated in writing they are willing to pay $110,000. A smart seller will simply counter the buyer at $110,000 and does not have to show any other offers to the buyer or their agent, because they did not accept the original offer with those terms. I also do not know how legal it is to show a confidential offer from one buyer to another buyer without their permission.
  3.  Some offers may ask the seller to pay for closing costs and this will change the net price to the seller. Even though this offer is $100,000, another buyer could offer $105,000 with the seller paying $6,000 in closing costs. The second offer is actually lower than the $100,000 offer, but because of the escalator clause, the first offer would raise to $106,000.
  4.  Most banks simply will not accept an escalator clause. It may actually hurt your chances of getting the house and if your agent argues that they have to accept the escalator clause, it could make the banks and listing agent mad, hurting your chances even more.

Conclusion

It is tricky to know how much to offer in a highest and best situation, but stick to your numbers and do not let emotion get involved. It is better to lose out on a home than pay so much that it stops becoming a great deal. Another tip is to always ask the listing agent to notify you if they receive other offers after you have submitted your offer. I hate it when I find out I lost out on a house and I was never notified that they had other offers.

Build a Rental Property Empire

Categories Real Estate

Source: investfourmore.com

Apache is functioning normally

Panic selling is when a large number of investors want to sell their holdings at the same time and it creates a drop in prices. That drop scares other investors into selling, which causes prices to fall still further, which frightens more investors, and so on.

The resulting panic can erase vast amounts of wealth. It can take weeks or even years for the markets to recover from a serious panic-selling event.

For years, the popular advice on panic selling for most investors was simple: Don’t panic. The logic being that over time, and through major financial crises, the equity markets have tended to rebound and rise.

But even if an individual investor resists the urge to sell, a bout of panic selling in the markets could still have an impact on their wealth, and their plans. The more an investor knows about panic selling, the more informed they will be when and if panic sets in.

Panic Selling and Stock Market Crashes

Stock markets — and the market for anything from housing to basic commodities — go down when there are more people selling than buying. And sometimes in the stock markets, the sellers outnumber the buyers to such a degree that sellers panic and are willing to take almost any price to get cash for their investment.

When panic grips enough investors, the markets can crash.

Recommended: What Is Active Investing?

Throughout the history of every kind of market, panic occasionally sets in. Sometimes it’s a major global event that sets it off, like what happened with the stock markets in March of 2020 as the global COVID-19 pandemic picked up speed and countries entered lockdown.

Other times, it’s a matter of a given asset — like housing and real estate in 2008 — being bid up to unrealistic levels, followed by the mass consensus of what it’s worth changing seemingly overnight. The history of U.S. recessions is full of these highly emotional market changes.

What Causes Panic Selling?

While panic is a very human response to the prospect of major financial loss, there are also other factors that can trigger investors to start panic-selling stocks, including: margin calls, stop-loss orders, and algorithms.

Panic Selling and Margin Calls

In the Great Crash of 1929, there were many investors who had borrowed heavily to invest in the stock market. When the markets dropped, they received something known as a margin call, requiring that they pay back the loans they took out to invest.

Those margin calls required that they sell potentially even more stock to pay back the loans, which caused the markets to fall even further.

Panic Selling and Stop-loss Orders

Similarly, there are trading programs that can throw fuel on the fire of a bout of panic selling. These can be as simple as a stop-loss order, a standing order to buy or sell a particular security if it ever reaches a predetermined price, which investors commonly use in their brokerage accounts.

A stop-loss order can be a way to take advantage of price dips to buy a stock at a discount. But during a sudden drop in the markets, stop-loss orders often lead to automatic sales of stocks, as investors try to lock in their gains.

These automatic sales — in large enough numbers, can accelerate the decline in a market, and contribute to the panic.

Panic Selling and Algorithms

There are algorithms employed by major financial institutions and professional investors that will automatically sell if the price of a given stock falls to a certain level. The crash of 1987 was caused in part by some of the first computerized trading programs.

And in 2010, one trader who lost control of his highly sophisticated trading software was responsible for the “flash crash,” which caused roughly a trillion dollars of market capitalization to disappear in under an hour.

The system-wide risk presented by these tools is one reason that most major stock exchanges have installed a series trading curbs and “circuit breakers” in place to slow down panic selling and give the traders who use these programs to recalibrate them before a full-fledged selling spree can run out of control.

The Risks of Panic Selling

When markets drop suddenly, it can be scary for investors. And one of the biggest risks may be to give into that fear, and join in the selling.

But one thing to remember is that markets go up and down, but an investor only loses money when they sell their holdings. By pulling their money out of the stock market, an investor not only accepts a lower price, but also removes the chance of participating in any rebound.

Loss is a big risk of panic selling. People who invest for goals that are years or decades away can likely weather a panic. But if a person is investing for retirement, a sudden panic just before they retire can create a major problem, especially if they were planning to live off those investments.

The danger of sudden, panic-driven drops in the market is one reason it makes sense for investors to review their holdings on a regular basis, and adjust their holdings away from riskier assets like stocks, toward steadier assets like bonds, as they get nearer to retirement.

That risk is also why most professionals recommend people keep 6-12 months of expenses in cash, in case of an emergency. That way, even if a financial crisis causes a person to lose their job, they can stay in the market. It’s a way to protect their long-term plans from being jeopardized by everyday expenses.

Finding Opportunities in Panic Selling

During a panic, there are typically enough scared people making irrational decisions to create valuable buying opportunities. The stock-market crashes in 1987 and in 2008, for instance, were each followed by a decade in which the S&P 500 rewarded investors with double-digit annual returns. (As always, however, past performance is no guarantee of future success.)

The problem is that there’s no way to know when a panic has reached its end, and when the market has fallen to its bottom. Professional traders with complex mathematical models have had mixed results figuring out when a market will rebound. But for most investors — even savvy ones — it’s a guessing game at best.

There are two ways an investor can try to take advantage of a bout of panic selling:

1.    The first is not to panic.

2.    The other is to keep investing when the market is down, while stocks are selling for much lower prices.

Dollar Cost Averaging

One way to take advantage of panic selling is with dollar cost averaging. With this long-term plan, an investor buys a fixed dollar amount of an investment on a regular basis — say, every month. It allows an investor to take advantage of lower purchase prices and limits the amount they invest at when valuations are higher. As such, it’s a strategy for all seasons — not just during a panic. Most investors already employ some form of dollar-cost averaging in their 401(k) plans.

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The Takeaway

Steep drops in the stock market are usually headline news. The causes aren’t always clear or easy to understand. So it makes sense that a sudden drop in the markets can cause even seasoned investors to make mistakes. This is a real risk. But it can also create opportunities.

That’s why it’s important for investors to revisit their financial plan regularly, to make sure they can weather the storm, and still be on track to reach their goals — even if a market decline means they have to take a few steps back.

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Apache is functioning normally

Have you ever thought about doing a cash-out refinance on your home for investment?

A lot of people have.

I received exactly this question from a reader.

Reader Question

Hi Jeff,

Thanks for your videos and educational websites!

I know you are very busy and this may a simple answer so thank you if can take the time to answer!

Would you ever consider approving someone to taking a cash-out refi on the equity in their house to invest?

I have been approved for a VA 100% LTV cash-out refi at 4% and would give me 100k to play with.

With average ROI on peer to peer, Betterment, Fundrise, and S&P 500 index funds being 6-8%, it seems like this type of leveraging would work. However, this is my primary residence and there is an obvious risk. I could also use the 100k to help buy another property here in Las Vegas, using some of the 100k for a down and rent out the property.

BTW, I would be debt free other than the mortgage, have 50k available from a 401k loan if needed for an emergency, but with no savings. I have been told this is crazy, but some articles on leveraging seem otherwise as mortgages at low rates are good at fighting inflation, so I guess I am not sure how crazy this really is.

I would greatly appreciate a response and maybe an article or video covering this topic as I am sure there are others out there who may have the same questions.

My Thoughts

But rather than answering the question directly, I’m going to present the pros and cons of the strategy.

At the end, I’ll give my opinion.

The Pros of a Cash-Out Refinance on Your Home For Investment Purposes

The reader reports he’s been told the idea is crazy.

But it’s not without a few definite advantages.

Locking in a Very Low-Interest Rate

The 4% interest rate is certainly attractive.

It will be very difficult for the reader to borrow money at such a low rate from virtually any other source. And with rate inching up, he may be locking into the best rates for a very long time.

Even better, a home mortgage is very stable debt. He can lock in both the rate and the monthly payment for the length of the loan – presumably 30 years. A $100,000 loan at 4% would produce a payment of just $477 per month. That’s little more than a car payment. And it would give him access to $100,000 investment capital.

As long as he has both the income and job stability needed to carry the payment, the loan itself will be fairly low risk.

So far, so good!

The Leverage Factor

Let’s use an S&P 500 index fund as an example here.

The average annual rate of return on the index has been right around 10%.

Now that’s not the return year in, year out. But it is the average based on nearly 100 years.

If the reader can borrow $100,000 at 4%, and invest it and an average rate of return of 10%, he’ll have a net annual return of 6%.

(Actually, the spread is better than that, because as the loan amortizes, the interest being paid on it disappears.)

If the reader invests $100,000 in an S&P 500 index fund averaging 10% per year for the next 30 years, he’ll have $1,744,937. That gives the reader a better than 17 to 1 return on his borrowed investment.

If everything goes as planned, he’ll be a millionaire using the cash-out equity strategy.

That’s hard to argue against.

Rising Investment, Declining Debt

This adds an entire dimension to the strategy. Not only can the reader invest his way into millionaire status by doing a cash-out refinance for investment purposes, but at the end of 30 years, his mortgage is paid in full, and he’s once again in a debt-free home.

Not only does his investment grow to over $1 million, but over the 30 year term of the mortgage, the loan self-amortizes down to zero.

What could possibly go wrong?

That’s what we’re going to talk about next.

The Cons of a Cash-out Refinance on Your Home

This is where the prospect of doing a cash-out refinance on your home for investment purposes gets interesting.

Or more to the point,  where it gets downright risky.

There are several risk factors the strategy creates.

Closing Costs and the VA Funding Fee

One of the major disadvantages with taking a new first mortgage are the closing costs involved.

Whenever you do a refinance, you’ll typically pay anywhere from 2% to 4% of the loan amount in closing costs.

This will include:

  • origination fees
  • application fee

  • attorney fee
  • appraisal
  • title search

  • title insurance
  • mortgage taxes

and about a dozen other expenses.

If the reader were to do a refinance for $100,000, he would only receive between $96,000 and $98,000 in cash.

Then there’s the VA Funding Fee.

This is a mortgage insurance premium charged on most VA loans at the time of closing. It’s usually added on top of the new loan amount.

The VA funding fee is between 2.15% to 3.30% of the new mortgage amount.

Were the reader to take a $100,000 mortgage, and the VA funding fee set at 2.5%, he’d owe $102,500.

Now… let’s combine the effects of both the closing costs in the VA funding fee. Let’s assume the closing costs are 3%.

The borrower will receive a net of $97,000 in cash. But he will owe $102,500. That is, he will pay $102,500 for the privilege of borrowing $97,000. That’s $5,500, which is nearly 5.7% of the cash proceeds!

Even if the reader gets a very low-interest rate on the new mortgage, he’s still paid a steep price for the loan.

From an investment standpoint, he’s starting out with a nearly 6% loss on his money!

I can’t recommend taking a guaranteed loss – upfront – for the purpose of pursuing uncertain returns.

It means you’re in a losing position from the very beginning.

The Interest on the Mortgage May No Longer be Tax Deductible

The Tax Cuts and Jobs Act was passed in December 2017, and applies to all activity from January 1, 2018, forward.

There are some changes in the tax law which were not favorable to real estate lending.

Under the previous tax law, a homeowner could deduct the interest paid on a mortgage of up to $1 million, if that money was used to build, acquire or renovate the home. They can also deduct interest on up to $100,000 of cash-out proceeds used for purposes unrelated to the home.

That could include paying off high interest credit card debts, paying for a child’s college education, investing, or even buying a new car.

But it looks like that’s changed under the new tax law.

Borrowing up $100,000 for purposes unrelated to your home, and deducting the interest looks to have been specifically eliminated by the new law.

It’s now widely assumed that cash-out equity on a new first mortgage is also no longer deductible.

Now the law is still brand-new and subject to both interpretation and even revision. But that’s where it stands right now.

There may be an even bigger obstacle that makes the cash-out interest deduction meaningless, anyway.

Under the new tax law, the standard deduction increases to $12,000 (from $6,350 under the previous law) for single taxpayers, and to $24,000 (up from $12,700 under the previous law) for married couples filing jointly. (Don’t get too excited – personal exemptions are eliminated, and combined with the standard deduction to create a higher limit.)

The long and short of it is with the higher standard deduction levels, it’s much less likely mortgage interest will be deductible anyway. Especially on the loan amount as low as $100,000, and no more than $4,000 in interest paid.

Using the Funds to Invest in Robo-advisors, the S&P 500 or Peer-to-Peer Investments (P2P)

The reader is correct that these investments have been providing steady returns, well in excess of the 4% he’ll be paying on a cash-out refinance.

In theory at least, if he can borrow at 4%, and invest at say, 10%, it’s a no-brainer. He’ll be getting a 6% annual return for doing virtually nothing. It sounds absolutely perfect.

But as the saying goes, if it looks too good to be true, it probably is.

I often recommend all of these investments, but not when debt is used to acquire them.

That changes the whole game.

Whenever you’re thinking about investing, you always must consider the risks involved.

The last nine years have somewhat distorted the traditional view of risk.

For example, the stock market has been up nine years in a row, without so much as a correction of greater than 10%. It’s easy to see why people might think the returns are automatic.

But they’re not.

Yes, it may have been, for the past nine years. But if you look back further, that certainly hasn’t been the case.

The market has gone up and down, and while it’s true that you come out ahead as long as you hold out for the long term, the debt situation changes the picture.

Matching a Certain Liability with Uncertain Investment Returns

Since he’ll be investing in the market with 100% borrowed funds, any losses will be magnified.

Something on the order of a 50% crash in stock prices, like what happened during the Dot.com Bust and the Financial Meltdown, could see the reader lose $50,000 in a similar crash.

But he’ll still owe $100,000 on his home.

This is where human emotion comes into the picture. Since he’s playing with borrowed money, there’s a good chance he’ll panic-sell his investments after taking that kind of loss.

If he does, his loss becomes permanent – and so does his debt.

The same will be true if he invests with a robo-advisor, or in P2P loans.

Robo-advisor returns are every bit as tied to the stock market as an S&P 500 index fund is. And P2P loan investments are not risk-free.

In fact, since most P2P investing and lending has taken place only since the Financial Meltdown, it’s not certain how they’ll perform should a similar crisis take place.

None of this is nearly as much a problem with straight-up investing based on saved capital.

But if your investment capital is coming from debt – especially 100% – it can’t be ignored.

It doesn’t make sense to match a certain liability with uncertain investment gains.

Using the Funds to Buy Investment Property in Las Vegas

In a lot of ways, this looks like the most risky investment play offered by the reader.

On the surface, it sounds almost logical – the reader will be borrowing against real estate, to buy more real estate. That seems to make a lot of sense.

But if we dig a little deeper, the Las Vegas market in particular was one of the worst hit in the last recession.

Peak-to-trough, property values fell on the order of 50%, between 2008 in 2012. Las Vegas was often referred to as the “foreclosure capital of America”.

I’m not implying the Las Vegas market is doomed to see this outcome again.

But the chart below from Zillow.com shows a potentially scary development:

The upside down U formation of the chart shows that current property values have once again reached peak levels.

That brings the question – which we cannot answer – what’s different this time? If prices collapsed after the last peak, there’s no guarantee it can’t happen again.

Once again, I’m not predicting that outcome.

But if you’re planning to invest in the Las Vegas market with 100% debt, it can’t be ignored either. In the last market crash, property values didn’t just decline – a lot of properties became downright unsalable at any price.

The nightmare scenario here would be a repeat of the 2009-2012 downturn, with the reader losing 100% of his investment. At the same time, he’ll still have the 100% loan on his home. Which at that point, might be more than the house is worth, creating a double jeopardy trap.

Once again, the idea sounds good in theory, and certainly makes sense against the recent run-up in prices.

But the “doomsday scenario” has to be considered, especially when you’re investing with that much leverage.

Putting Your Home at Risk

While I generally recommend against using debt for investment purposes, I have an even bigger problem when the source of the debt is the family homestead.

Borrowing money for investment purposes is always risky.

But when your home is the collateral for the loan, the risk is double. You not only have the risk that the investments you’re making may go sour, but also that you’ll put your home at risk in a losing venture.

Let’s say he invests the full $100,000. But due to leverage, the net value of that investment has declined to $25,000 in five years. That’s bad enough. But he’ll still owe $100,000 on his home.

And since it’s a 100% loan, his home is 100% at risk. The investment strategy didn’t pan out, but he’s still stuck with the liability.

It’ll be a double whammy if the money is used for the purchase of an investment property in your home market.

For example, should the Las Vegas market take a hit similar to what it did during the Financial Meltdown, he’ll not only lose equity in the investment property, but also in his home.

He could end up in a situation where he has negative equity in both the investment property and his home. That’s not just a bad investment – that’s a certified nightmare!

It could even lead him into bankruptcy court, or foreclosures on two properties – the primary residence and the investment property. The reader’s credit would pretty much be toast for the next 10 years.

Right now, he has zero risk on his home.

But if he does the 100% cash out, he’ll convert that zero risk to 100% risk. Given that the house is needed as a place to live, this is not a risk worth taking.

Final Thoughs

Can you tell that I don’t have a warm, fuzzy feeling about the strategy? I think you figure it out by the greater emphasis on Cons than on Pros where I come down on this question.

I think it’s an excellent idea in theory, but there’s just too much that can go wrong with it.

There are three other factors that lead me to believe this is probably not a good idea:

1. The Lack of Other Savings

The reader reports that he has “…50k available from a 401k loan if needed for emergency, but with no savings.” For me, that’s an instant red flag. Kudos to him for having no other debt, but the absence of savings – other than what he can borrow against his 401(k) plan – is setting off alarm bells.

To take on this kind of high risk investment scheme without a source of ready cash, exaggerates all of the risks.

Sure, he may be able to take a loan against his 401(k), but that creates yet another liability.

That that will need to be repaid, and it will become a lien against his only remaining unencumbered asset (the 401k).

If he has to borrow money to stay liquid during a crisis, it’s just a question of time before the strategy collapses.

2. The Reader’s Risk Tolerance

We have no idea what the reader’s risk tolerance is.

That’s important, especially when you’re constructing a complex investment strategy.

While it might seem the very fact he’s contemplating this is an indication he has a high risk tolerance, we can’t be certain. He’s basing his projections on optimistic outcomes – that the investments he makes with the borrowed money will produce positive returns.

What we don’t know, and what I ask the reader to consider, is how he would handle a big reversal.

For example, if he goes ahead with the loan, invests the money, and finds himself down 20% or 30% within the first couple of years, will he be able to sleep at night? Or will he instead contemplate an early exit strategy, that will leave him in a permanent weakened financial state?

These are real risks that investors face in the real world. At times, you will lose money. And how you react to that outcome can determine the success or failure of the strategy.

This is definitely a high risk/high reward plan. Unless he has the risk tolerance to handle it, it’s best not to even start.

On the flip side, just because you have the risk tolerance, doesn’t guarantee success.

3. Buying at a Market Peak

I don’t know who said it, but when asked where the market would go, his response was “The market will go up. And the market will go down”.

That’s a fact, and one that every investor has to accept.

This isn’t about market timing strategies, but about recognizing reality.

Here’s the problem: both the financial markets and real estate have been moving up steadily for the past nine years (but maybe a little bit less for real estate).

Sooner or later, all markets reverse. These markets will too.

I’m worried that the reader might be borrowing money to leverage investing at what could turn out to be the absolute worst time.

Ironically, a borrow-to-invest strategy is a lot less risky after market crashes.

But at that point, everyone’s too scared, and no one wants to do it. It’s only at market peaks, when people believe there’s no risk in the investment markets, that they think seriously about things like 100% home loans for investments.

In the end, the reader’s strategy could be a very good idea, but with very bad timing.

Worst Case Scenario: The Reader Loses His Home in Foreclosure

This is the one that seals the deal against for me. Doing a cash out refinance on your home for investment is definitely a high-risk strategy.

Heads you’re a millionaire, tails you’re homeless.

That’s not just risk, it’s serious risk. We don’t know if the reader also has a family.

I couldn’t recommend anyone with a family putting themselves in that position, even if the payoff were that high.

Based on the facts supplied by the reader, we’re looking at 100+% leverage – the 100% loan on his house, then additional (401k) debt if he runs into cash flow problems. That’s the kind of debt that will either make you rich, or lead you to the poor house.

Given that the reader has a debt-free home, no non-housing debt, and we can guess at least $100,000 in his 401(k), he’s in a pretty solid situation right now. Taking a 100% loan against his house, and relying on a 401(k) loan for emergencies, could change that situation in no more than a year or two.

I’d recommend against the cash-out refinance.

What’s your opinion?


Source: goodfinancialcents.com

Apache is functioning normally

Last Updated on March 29, 2023 by Mark Ferguson

I am a huge believer in setting goals to help myself achieve more in life and in business. I love to make big real estate goals that are tough to achieve because I know they will help me accomplish more. Because I set really big goals, I do not always accomplish everything I set out too, but that is okay. I know I am still farther ahead not accomplishing big goals than I would be accomplishing small and easy goals. 2015 was a good year, but not as good as I hoped. I ran into many roadblocks (some of the same as 2014), but I also had many successes. Even though things did not go exactly as I planned, I had a great year, I have big plans for the future and I am going to challenge myself even more in 2016.

My goal articles for other years

Why do I like big real estate goals?

Before I get into exactly what happened and did not happen in 2015, I want to discuss goals. I overlooked goals when I was younger and it was a huge mistake. I thought goals were a waste of time and I never even tried to set any meaningful goals. When my career and life really started to turn around was when I accidentally set some goals as a real estate agent. I wrote out a very detailed plan on how many houses I would have to sell to make what I thought was decent money back in 2005. I gave that plan to my dad, who I was working with at the time to show him how unfair my commission split was. He didn’t change the split I was getting, but I did end up selling that many houses a couple of years later. When I wrote that plan, I thought it was an incredibly ridiculous number (100 houses a year). I know I would not have sold that many houses as a real estate agent if I had not written out that plan, even if it was by accident.

I started to make good money and I realized I wanted to make even more. So I started reading every book I could on goal setting, self-improvement and even “how to get rich”. I even took Jack Canfield coaching, which helped my career tremendously. Along the way, I learned a lot about myself, about habits I needed to have to be successful and how to continuously improve. Many people with life would get easier and are looking forward to a time when they can relax. I learned that challenges are fun, and solving problems is fun. Being bored with no challenges and an easy ride is not fun. I love Jim Rohn’s quote:

“Don’t wish life were easier, wish you were better.”

I started to realize I was in control of my life. If things weren’t going how I wanted them to go, I could change things by changing the way I did things. That may remind you of the saying:

“The definition of insanity is doing the same thing over and over again, but expecting different results.”

Honestly, this saying is one of my biggest pet peeves. First off, many people attribute this saying to Albert Einstein, but there is no record of him ever saying it. Second if this were true, 95 percent of the population would be insane. Sometimes doing the same thing over and over does change the results, if you do the same thing better and better every time you do it. While I think the saying sends a good message about trying new things if something is not working, it still bugs me that it is used so much and wrongly quoted to Eisenstein.

Making big goals is one reason I have accomplished so much. One of my biggest goals is to buy 100 rental properties by 2023. When I first starting buying rental properties I thought a good goal would be to buy 30 properties. I based this goal on my trend of buying 3 properties a year and thought I could continue that trend for ten years. After learning about goals and how to best use them, I knew I had to make my goal bigger. If I knew I could achieve my goal without changing much, I knew my goal was too small. I changed my goal to purchase 100 properties in the next ten years. That goal would challenge me to make more money, find new ways to buy properties or discover other ways to get more properties than I thought I could. While I am a little behind on my plan to reach 100 rentals, I am much farther ahead than my original goal to buy 30 houses.

What were my rental property, fix and flips, team and blog goals for 2015?

2015 rental property goals?

At the end of 2014, I wrote a goal article about what I had accomplished in 2014 and my goals for 2015. Below you will find the goals I set for 2015 and comments on how I did.

  • I want to get back on track buying as many rental properties as I can. I am going to flip fewer homes, which will give me more capital to buy rentals. I am also refining my direct marketing campaign, which should bring me more deals (I will have an upcoming article to discuss my direct marketing). I want to buy at least seven rentals in 2015 and that should put me closer to my goals of 100 rentals by 2023.

I only bought five rentals in 2015, which was less than my goal, but more than I bought in 2014. However, I am thinking about turning a couple of my flips into rentals, which would put me at my goal. I have one flip that I intended to sell quickly unless the tenants wanted to stay. The home was rented for $1,100 a month and I bought it for about $100,000. The tenants wanted to stay and we just upped their rent to $1,300 a month and they still want to stay. I have not done any work to the property and I think I may try to sell it as-is for $150,000 as with the tenants in place or I might keep it as a rental. My hesitation about keeping it as a rental is the location is a little different from most of my rentals.

I have another flip that I may turn into a rental as well because it is in a great location and could have a basement apartment. If I decide to make those properties rentals I would have met my 2015 goals. In fact, I may have surpassed them if you look at units because both of the new rentals would be 2 unit properties and one of the five other rentals I bought in 2015 was a 2 unit property as well. 

To learn how to use mindset and attitude to make yourself more successful, check out: How to Change Your Mindset to Achieve Huge Success: Why your attitude and daily habits have more to do with making more money and having more freedom than anything else. A 200-page book available as an eBook or paperback on Amazon.

2015 fix and flip goals?

  • For 2015 I am not going to be as ambitious on my flipping goals. My goal for 2015 is to flip 10 houses and wholesale 5 to 10 more. I have 8 flips right now so reaching ten should not be a problem, but I might sell a couple I have now as wholesale deals. If anyone is interested in some Northern Colorado deals, let me know! There are a number of reasons I don’t want to flip 15 houses in 2015.
    • It takes too much babysitting of contractors and I would need to add at least a couple more.
    • It takes a lot of capital to fund all those flips and the repairs. I think all the flipping made it harder to buy rentals.
    • I can still buy as many properties, but instead of flip them myself, I could wholesale the properties.

In 2015 I will flip 9 houses. This is less than the ten I wanted to flip and I should have flipped many more. The biggest problem was I could not get houses fixed fast enough. I even hired a project manager full-time to get things done faster and it has not changed anything. I love flipping houses and I have realized that I am addicted to buying houses. I did wholesale two properties in 2015, which was nice. On both deals, I made close to $20,000 without doing any work at all. I would still be open to wholesaling more properties if the opportunity arises, but those were unique properties. One was in a very small town that was perfect to wholesale because it was 45 minutes away from me and the other was a college rental that needed a ton of work. 

2015 real estate team goals?

  • For 2015 I want my team to sell 200 houses, which is a big pullback from my previous goal. REOs and HUDs are even harder to find in 2015 than in 2014, which will decrease our sales. However, the new team members and training we implement should increase the number of sales from the other agents. I also want to add a couple more agents and my goal is to have every agent on my team make $100,000 a year.

In 2015 we did add two new agents and almost added a couple more to our team. They have just gotten started, but are doing awesome so far. One of my agents that was hired in 2014 made well over $100,000 in his first year, which was awesome. We did not sell 200 houses, we sold 127. That is way below my goal, but our market keeps going crazy. Prices have increased and even though we sold fewer homes, the value of the homes was much higher. HUD homes and REO properties have decreased even more and the sales have shifted from me to my team, which is exactly what I wanted. 

2015 goals for InvestFourMore?

  • For InvestFourMore I want to increase traffic, increase my relationships with other investors and blogs and continue to improve my investing strategies by learning as much as possible. Here are some specific goals:
    • 300,000 views a month by the end of 2015
    • Implement a new real estate agent success system
    • Borrow private money through the blog in 2015
    • Improve or create a new forum for InvestFourMore

InvestFourMore has done awesome and I have the most fun working on it than I do anything else. I did not hit 300,000 views, but I am very close! I have a new source for private money, that was from the blog. I knew the investor before I started the blog, but he approached me about lending money after reading about my business on the site. I created the new forum and it has been a success as well. I also created a new Facebook Group, which has been very successful and you are all welcome to join. I did many more things with the blog, including starting a high-level mentor program (email me if interested: [email protected]). 

2015 personal goals for 2015?

  • I don’t have any big goals for 2015 as far as car buying. I would love to buy an Aston Martin V8 or Lamborghini Countach at some point, but I don’t plan on doing it in 2015. I have personal income goals and a few more that I will keep private. I can’t share everything!

The year was a good one personally and I did not buy any more cars. I did meet a lot of great people and I started a new blog about cars: Howdidyouaffordthatcar.com. I have not had time to do too much with the site yet, but I plan to work on it little by little. I didn’t reach many of my personal goals for income, but I achieved many others I did set. 

What are my new goals for 2016? 

As you can see, I did not achieve many of my goals for 2016. That may seem like a disappointment, but it is actually a good thing. If I had achieved everything, that would mean I  set my goals too low and did not challenge myself enough. I also know there is a lot of room for improvement! Below are my new goals and some things I plan to do to achieve them.

2016 rental property goals?

For 2016 I want to buy 10 more rentals! Yes, that is a huge number, but I think I can do it. Here are a couple of things I am going to change to reach that goal:

  • I am working on refinancing 8 of my rentals into long-term 30 year fixed rate loans. I am using some national portfolio lenders. I will pay a little higher rate, but have my loans locked in and get $300,000 in cashback. My properties will still cash flow and I will be able to buy many more rentals with that money that cash flow as well.
  • I am thinking about investing in other markets. I bought a turn-key property in Ohio in 2015, but for future rental property purchases, I want to buy below market value. In order to do that in another market, it will take a lot of work. My reason for switching markets is the huge appreciation we have seen here. It is getting harder and harder to find great cash flow.
  • I am looking for a new local portfolio lender. My portfolio lender is getting tougher and tougher to work with now that I have hit a certain dollar amount of loans with them. That is one reason I am considering refinancing 8 of my properties with another lender. I would also love to find a lender who does not have a seasoning period, which would allow me to refinance properties faster and get some of my investment back.

fix and flip goals for 2016?

For 2016 I want to flip 20 houses! Yes, this is another huge goal for the new year. This will double the amount of homes I flipped in 2015, but I think it is possible as well. It will be tougher if I decide to keep two of my current flips as rentals. Here is why I think I can make this happen:

  • I have ten flips going right now. I will get these ten flips sold in the first half of the year. I have two more flips under contract, which would leave me with 12 flips. I only have to buy 8 more, get them repaired and sold before 2016 is over.
  • I think I can buy and repair that many homes in the next year because I am changing my repair process again. I had a vision in place for 2015, which has not happened. However, I am going to make it happen in 2016 and that may take some big changes in the way repairs are handled.
  • I may look into more financing options with my flips. I already have a new private money lender who has made the process much easier. While he charges more than my portfolio lender does on my flips, I can close in a couple of days. I may look into adding more private money lenders as well.

real estate team goals for 2016?

For 2016 I want to hire another really good agent. I do not want to hire too many agents, because we don’t have space for many more! I also want to focus on getting leads for our team through our website FergusonGreeley.com. I think we have some great agents in place, we need to get them trained and performing as well as possible, before adding more. Again I want to sell 200 houses in 2016, this goal may seem too high, but one of these years I will get there! How will I meet these goals?

  • Focus on organic leads through our website, utilizing everything I have learned from InvestFourMore.
  • Use Facebook to generate leads and sales for our team (we already do this and have had great results).
  • Weekly training meetings and great support for our agents (we already do this as well).
  • Flipping more houses will generate more leads and opportunities for our agents.

blog goals for 2016?

For 2016 I want to keep increasing traffic and the number of people I help buy investment properties or make more money as an agent. Here are some goals:

  • 500,000 views a month by the end of 2016. As a site gets bigger and bigger the traffic increase slow down. I still want to grow the site, but I also want to focus on helping people more than getting the biggest audience possible.
  • Focus on a few core things. With a blog or website, you can get sucked into 1,000 different activities that take a ton of time. I started a podcast in 2015, which has been awesome and should be a core activity, I think my coaching products should be a core activity and writing articles.
  • I want to write a really awesome book. I have written five eBooks that can be downloaded as a PDF or read as a Kindle eBook. I think the books are good, but I want to write an awesome book. I have already started writing an extremely in-depth book on rental properties that will be available as an eBook and a physical book that can be ordered and delivered to your door. I want this book to be the best rental property book available. I am also working on a book that I am co-writing with J Scott.

personal goals for 2016?

I don’t disclose what I make or how much I want to make on the blog because I try to keep at least a few things private! I do have personal income goals, business goals, and many other personal goals. Here are some long-term goals I added to my bucket list. I don’t have dates yet for when I want to accomplish these, but I am working on that.

  • Buy an old plantation and fix it up. I love old houses and old mansions. At some point in my life, I would love to buy an old plantation house and fix it up.
  • Start a used car dealership. I have already looked into starting a car dealership so that I can buy more exotic cars. I love cars and my dream job would be to buy awesome cars all day long, selling them is tougher for me. I met some really cool people this last year, including some guys who started a car dealership.
  • I want to buy a 1980’s Aston Martin V-8 in 2016. Prices on these cars are going up and I want to buy one before they skyrocket as my Diablo has.

Conclusion

Over the last year, I have learned a lot, changed the ways I do business and had a lot of fun. I think I can improve things immensely in 2016. One reason I think I can improve things is because of my personal habits and routines. I learned many things over the years about success and once you reach some level of success it is easy to slack off. I did slack off on my daily routines, goal reviews and personal improvement over the last year. I have made a huge effort to get those habits back on track in the last three months. I am really excited to get things started in 2016 and see what happens!

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Source: investfourmore.com