June 2020 – A Real Estate Opportunity

Real estate is one area the wealthy invest in. It may be their primary homes, vacation homes, or rental properties.

One of the most important ingredients in good real estate investing is knowing yourself, what you want, and what is a good buy. This is a lot more difficult to do than many people think. Take a look at all the underwater mortgages that resulted from the 2008 financial crisis.

In this newsletter, I want to introduce some principles to follow when buying a home. Doing some research and following a plan are a much better road to financial success. If you make a decision based on emotion, it can cost you a lot.

Here are some principles to follow. Use these if you’re buying a home to live in or a rental property.

1. Don’t pay too much for your house. This is especially important if you are an emotional person, and you attach sentimental value to something. There is no one perfect house for anyone, so don’t let your interest cloud your judgment. As a rule of thumb, after you’ve made a 20% down payment on a house, if the market rent for a comparable property doesn’t cover the cost of the monthly expenses (for example, the mortgage, association dues, taxes, etc.), then you paid too much for the house.

2. If you are able to buy your house with cash, that is an advantage. A cash purchase enables you to move quickly on a deal. When markets are hot, sometimes a cash buyer can swoop in and take a deal from another prospect who has to wait for financing.

3. There are legal ways to reduce your down payment. If you don’t have enough money for a down payment, you can still purchase a home. Active, reserve, and veteran military can finance with a VA loan, which does not require a down payment. However, non-military also have options. An FHA loan requires only a 3.5% down payment, although the loan probably has mortgage insurance premiums. Another strategy is having a family member sell you property after they buy it, so you can finance the entire purchase. Here’s an example. Your brother buys a house for $100,000. He puts $20,000 down (20%). He then sells the house to you for $125,000, and you are able to get a mortgage loan for 80% of the value of the sale (~$100,000). Take a look at this article, and make sure you aren’t doing anything illegal when buying or selling with a family member.

4. Look for homeowners in financial distress. These people have properties that are off the market. They aren’t listed, but the owners may go into foreclosure because they have difficulty making their mortgage payments. If you can provide a homeowner financial relief it’s a major win for both of you. They avoid the stressful and costly foreclosure process, and you unlock equity in a property that provides you an immediate return.

A great resource for finding off market real estate is Liran Koren’s The Ultimate Step-by-Step Guide to Finding and Investing in Off-Market Real Estate.

A distressed real estate market is a great opportunity to find a new home or investment property. However, you can always find opportunities in any market, if you know what to look for.

Additionally, I can help you with your real estate investment planning, when you join my membership programEach month we’ll look at how to get you to your income goals as soon as possible. Accountability helps all of us achieve our greatest dreams.

I also encourage you to pick up copies of my books The Money MissionTax Saving Strategies, and The Blended Retirement System.

Have a great weekend, stay safe, and I’ll talk to you again very soon!

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