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No money down Real Estate?

Wholesaling real estate provides an opportunity for someone to build income with little or no capital. All it requires is ambition and some specialized knowledge. The more ambition you have, the more money you can make. Wholesaling does not require a real estate license. A license is not required to buy or sell any property that you have an equitable (monetary) interest in. That interest can be a contractual interest (you have the property under contract) or you actually own or have title to the property.

What is Wholesaling?

A wholesaler, to make a long story short, puts property (normally distressed and/or non-conforming property) under contract and assigns or resells the property to another real estate investor. The investors a wholesaler sells to usually uses cash, lines of credit, hard money loans, and other sources of immediate funding. This allows quick closings on properties that sometimes need extensive repairs.

A wholesaler lives off of the idea that price overcomes all objections. If you can sell a property for a low enough price it doesn’t matter what’s wrong with it, somebody will buy it. A wholesaler focuses on developing two things. Finding good deals and their network of investors to sell their deals to.

Getting Started Wholesaling Real Estate

Getting started, a wholesaler normally does not buy property. They put properties under contract with a contingency and focus on quickly selling the property for more money to other investors. If you end up not being able to sell the property before you are expected to close then you utilize your contingency and walk from the contract.A wholesaler is a middle man, and a good wholesaler becomes a very well payed middleman that other investors like doing business with. The secret is that if you have a good deal under contract, there are many more established investors out there that will be glad to pay cash for it in a matter of days. If you have a house that will sell fixed up (ARV) after repair value,  for $100,000, and it needs only $10,000 in remodeling, and you have a contract on it for $55,000, then with a developed investor network you could have an investor buy it for $60,000 in a few days. You sell it or assign the contract for 60K, you bought it for 55K so you just made $5,000 in a matter of days. To learn these strategies and more register online  for our next Wholesalers workshop where local seasoned investors can show you how to wholesale properties with little or no money down.

A wholesaler is a middle man, and a good wholesaler becomes a very well payed middleman that other investors like doing busineess with. The secret is that if you have a good deal under contract, there are many more established investors out there that will be glad to pay cash for it in a matter of days. If you have a house that will sell fixed up (ARV) after repair value,  for $100,000, and it needs only $10,000 in remodeling, and you have a contract on it for $55,000, then with a developed investor network you could have an investor buy it for $60,000 in a few days. You sell it or assign the contract for 60K, you bought it for 55K so you just made $5,000 in a matter of days. To learn these strategies and more visit our regular networking meetings at CorKy’s Bar-B-Q or attend one of our Wholesalers meetings / workshops  where local seasoned investors can show you how to wholesale properties with little or no money down.

 

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Building a portfolio

By Doug Betty

I recently met with a group of eight (8) young investors, who asked me to review what they were doing, and give them my opinion. They had steady jobs, had some experience flipping houses, and had achieved a combined portfolio of eighteen (18) rental homes.  The problem was that even though they had 18 rental properties, they had little equity.  They made 20% down payments on each house, and had good 15/30 year fixed rate loans. However, with prices depressed over thelast few years, there was little equity and little positive cash flow.   Since they had not yet experienced major repairs such as roofs or heat & air systems, I could tell that the cash flow would move in the negative column relatively soon. So, the bottom line was they had several hundred thousand dollars invested and yet to make anything from it.

Were they building a portfolio?  No, they were not building a portfolio –  they were building debt.  Like many investors, they were counting on the fact that the houses would go up in value, their residents would pay off their loans, and the tax advantages of owning real estate would help their bottom line.   And in many respects these things can and do work. However, I don’t think they are enough on their own. My approach to owning rental property is entirely different. I am much more debt adverse. I will not purchase property that doesn’t produce cash flow immediately. We are here to make money and better our lifestyle and waiting 15, 20 or 30 years for a property to cash flow is too long and painful of a strategy for me. Here is my strategy in a nutshell.

I base my decision of whether to purchase a rental house largely on the CAP rate the rental house produces, just as if it were a commercial property.  After all, it is a rental house. The cap rate is determined by the ratio between the net operating income produced by the rental property and the original price paid to buy the rental property.  In order to determine the net operating income, I have to determine the real cost.

To determine the real cost, I first look at the cost of borrowing money to purchase the property.  Borrowing money at a rate higher than the CAP rate is a foreclosure waiting to happen. Don’t borrow at 7% to buy something that makes 5%. That problem is less likely with today’s low rates, but it was easy to do back in the day when rates were 8% or more. (Ask me how I know!) Don’t be fooled, and run the numbers.  Many houses that appear to be good investments and easy to rent, in nice areas actually have low rates of return. Investors get excited because they have 100K in a house worth $120K and it looks nice and rents well. But it has a CAP rate of 5%. Who wants to spend 30 years paying off a mortgage, when the investment only makes 5%?

Next, I consider all fixed expenses and maintenance costs.  Some investors are fooled by the low payment and what appears to be positive cash flow. Again, I speak from experience.  In addition to the fixed expenses, such as property taxes, insurance and mortgage payments, you must also estimate maintenance costs for the entire life of your investment.  Resident turnover can eat up as much as three to four month’s rental income.  In addition, there will always be ongoing maintenance (leaky plumbing, stopped up sewers, electrical issues, pest control, lawn care, etc.).  Finally, if you plan to keep the property for any significant period of time, you will have to plan in the beginning for major maintenance, such as roof replacements and HVAC repair/replacement.  Depending on the age and condition of the house when you purchase it, five to ten years down the road the house may need other major upgrades that will eat up years of cash flow.

The point of investing in rental property is for it to produce cash flow. Equity is nice and later down the road we’ll enjoy that. However, I have to work for my family to live. If I can own enough income producing assets to pay for my family’s lifestyle, then I am free from having to work. It’s just that simple. If I buy a rental with no cash flow and a 30 year loan, I am saying I am willing to work for 30 more years.

Doug Betty has been a real estate investor in Middle and East Tennessee for over twenty years, and he is an instructor teaching investor workshops at Tennessee REIA.

Section 8 Housing

What is Section 8 & how does it work?

 

Section 8, also known as the Section 8 Housing Choice Voucher Program, exists to provide housing solutions for low income families.

The program provides families with a certificate or voucher that allows them to lease an apartment or home they otherwise couldn’t afford.

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Families pay some “reasonable rent,” which is a percentage of their income; the remaining rent is covered by (MDHA) the Metropolitan Development and Housing Authority.  Total rents are determined by MDHA, and are capped by the Fair Market Rent (FMR), which is set by HUD (US Department of Housing and Urban Development). Rental property owners can list there available properties on a website that the Tennessee Housing Development Authority operates. Tenants can then submit their vouchers for approval and the home inspection process takes place. Once approved the landlord and the housing authority will sign an agreement and the tenant moves in. The MDHA rent checks are issued directly to the landlord. However, the tenants portion of the rent the landlord must collect in their normal procedure. To find out more about Section 8 rental housing contact TNREIA about their upcoming Section 8 workshops.