My wife and I are totally debt free and have a gross income of around 100,000. We think real estate is a good way to go. Should we save and buy with our cash, save for the down payment and get a loan for the rest, etc. We live in the midwest so property values are pretty steady here. Our main goal is to be ready for retirement when that time comes(10-15 years). Are there any good gurus or courses to learn from?
Real estate is no better than any other investment except for leverage. A rent house makes 5% to 12% cash on cash. If you buy a house cash for $100,000 and it appreciates 10% the house is now worth $110,000. You have made 10% on your money. If you bought the same house and put $10,000 down and mortgage $90,000. The house appreciates 10% and is now worth $110,000. You have still made $10,000. But this is on $10,000 invested so you made 100% cash on cash return. So now what you do is buy 10 houses with $100,000 cash instead of 1. Now you control $1million worth of property and all that goes with controlling a million dollar portfolio.
Always finance. Watch your notes and as soon as one of the mortgages is paid down enough to refinance pull out cash. That cash is tax free because it is a loan and not income. Don’t use that cash to buy a sports car. Use that cash to upgrade the house (new roof, replace A/C or furnace, etc) you can only grow as fast as you can save money if you go all cash. Leverage speeds you up.
Good gurus - NOPE! Gurus are in the business of selling common knowledge via courses, bootcamps, mentoring, or coaching to unsuspecting newbies with the promise that they have a “SECRET”! The dirty little secret is that THERE ARE NO SECRETS!
You can learn everything you need to know by reading the forums here and joining your local Real Estate Investors Association (REIA). Make friends with the successful investors in your area and your new friends will be happy to help you for free!
I agree with Bluemoon that buying with leverage can really accelerate your profits. That is exactly the way I built my business. I bought several dozen rentals over a 5 year period (with leverage) and am now semi-retired. On the other hand, if you like your job and can save enough money to pay cash for one property per year, that is also a very valid strategy. Depending on your exact location in the midwest, you should be able to buy rentals for far less than $50,000 each. With some work, you might be able to find rentals for as little as $10K or even less that produce excellent cash flow!
Start by reading the forums here (especially the landlording forum). Join your local REIA and make friends with the successful investors in your area. Start looking at rentals that are for sale in your area (I recommend looking at a minimum of 100 houses before you buy anything) for the purpose of learning your market.
Good Luck,
Mike
Or a combo of both. You could use cash to buy. You can often get a better deal that way. I’ve found that banks will refi after a year with a new appraisal (they go by purchase price if < 1 yr owned). So maybe between purchasing under market, some fix-up, and a year’s appreciation the house is worth enough to get a 80% LTV loan and get most if not all of your cash back (and still cash flow of course). Then do it again.
If you have enough cash to buy >1 house, you could stagger your purchases so while one chunk of cash is tied up, the other is getting freed up.
Yeah, no bootcamps, guru, neauvou riche, or crap like that. A $20 book or two can’t hurt and this website is great.
Mike, did you use conventional banks to buy so many houses in a relatively short period of time?
i would agree about staying away from gurus. many sell cheap seminars in order to sell you on more expensive seminars. many will make you feel that you will fail without their boot camp or their dvd collection. at the end you can learn everything they’re telling you on forums and through a few a books.
so at the end, use leverage as mentioned by other posts and don’t buy into guru’s.
Good Luck.
Thanks for the advice from all of you. This is a great site and I greatly appreciate the words of wisdom for those who have been there and are there now. I will continue to educate myself on my market(Wichita, KS). You can be sure I will be back for more much needed advice as my wife an I begin this journey.
It’s just a game of simple math. If you are thinking of it as a retirement vehicle, look into rentals of some sort. One thing I have learned is that I’m glad I didnt have a lot of money when I first started because I would have blown through it. It’s great that you are debt free and make 100k but dont get it in your head that you need to utilize that 100k. We buy properties from homeowners privately with $10 deposits, have our deals for rehab privately funded at 12% ROI on a 6-12 month term to our investor and we never put more than $2500 of our own money into the deal. Then we refinance with a local small bank.
Ian
Scott,
Great news being debt free. It’s the only way to be. First I want to start off by saying please dont take peoples advise on here as a say all on what you should do. Please make sure to speak with a financial professional that you trust before making and large financial decisions.
With that said I suggest that you avoid going in to debt to invest. It’s a huge mistake especially considering you’re close to retirement. With the real estate market and the current economic climate you would be taking an unnecessary substantial risk. With having no debt and being in a great position to put some of your money to work your goal should be to invest your money in growth mutual funds with long track records and pay cash for properties. The real estate market even in the midwest can be volatile. As long as you make a wise decision on the property location, and you market it correctly, and make wise choices for a tenants with paying cash for your properties once you capitalize your property cost you will have a steady flow of income plus eventually appreciating property value assets. There is a long list of reasons to stay away from mortgaging homes or taking out any loans most of them fall under the same reason you’re now currently debt free. When mortgaging a property your risk goes up substancially and you can easily be overburdened. Events such as these: losing a tenant, repairs, higher taxes, unexpected expenses, rental market value dropping, would be extremely stressful as well as financially draining.
As for guru’s normally I’d normally say stay far away from them It sounds like you’ve financially made the right decisions because you’re debt free. You don’t want to ruin that. You can follow the same debt free principals and make smart investments with your money. Do some research. There are a lot of so called advice givers out there that say you should take out all the loans you can and leverage your credit. If you don’t follow my advice just remember that going in to debt for a “Real Estate Investment” is a huge mistake.
Mikestilly, Hmmmmmm, first post as a member and all “gurus” are crooks except for one? The name you posted, which was a rules violation and deleted? This wouldn’t be some feeble type of forthcoming sales pitch would it? :rolleyes
For many folks, being ready for retirement means being financially independent, which is usually achieved when their pension income, social security income, and investment income support their retirement lifestyle. If by “debt free” you mean you own your current home free and clear, then you are already close to achieving financial independence. If you have a pension and social security in 15 years, you may not need any other sources of income in your situation.
Can you give us more details? What does “be ready for retirement” mean to you? What does this translate to in numbers? If your pension, social security, and IRA/401k aren’t enough to support your retirement lifestyle – your debt free lifestyle-- how much shortfall are you expecting real estate investing to cover?