1. Do I need perfect credit to buy an investment property?
Absolutely Not! Your aim should be to have a credit score of 680 or better to qualify for a mortgage. If your credit score is less than a 680 but higher than a 600, you can acquire real estate with hard money. Hard money has less credit standards for qualification purposes but harder terms (higher interest rate, interest-only payments and higher points charged up front).
You can use hard money to do flips and use the capital gains to get your personal credit up to par. If your credit score is less than a 600, you can wholesale properties to other investors. Wholesaling involves getting a property under contract at t a certain price point and then assigning your contract to another investor at a higher price point. The average amount you can make per wholesale is about $5000. You can use this money to repair your credit. Now you may be asking, "Why buy a rental property if I can make side money doing flips and wholesaling?" The answer is simple: Aim to make that "Wake up whenever you want to" money. Rental income produces passive income and builds wealth. Flipping and wholesaling is still a job. Rentals are investments. If you are interested in repairing your credit, visit 100percentfinanced.com and look on the "Valuable Resources" page to find the credit repair organization I used to improve my personal credit.
2. Can I really buy a rental property without putting money down?
Yesssss, Buddy! Most of my deals have been done using little to none of my own money. If you can find a single family property in which you can buy it, rehab it, and pay for closing costs for less than 65% of the After Repaired Value (ARV), then you can have a hard money lender give you 100% of the money.
For instance, let's say a Realtor found you a distressed single family property that will be worth $100,000 after it's fixed up (ARV). If you can buy it for $40,000, put $20,000 in rehabbing the property, and $5000 in closing costs, you can own the property 100% financed.
Now, if you have a credit score of 720 or better, you can apply for business credit and use those funds to purchase single family and multifamily housing. Personally, over 5% of my holdings (30 rental units) have been acquired with savings. 15% have been acquired through hard money. 80% have been acquired through business credit.
3. How can I make money in real estate with tenants, toilets, and taxes?
People are under the assumption that the majority of your cashflow (monthly profit from rental property) is eaten up by bad tenants, evictions, repairs, and increases in taxes, insurance, etc. With this false belief, many people stay away from owning real estate.
First of all, don't buy low in hopes to sell high. This may cost you money to hold the property (holding costs) until it's sold, which can affect your cashflow negatively. This isn't investing; this is flipping. There is a difference. Flipping is similar to gambling or investing in the stock market. Buying low and selling high is a speculative business model which is based on the market (something out of your control).
Investing is buying an asset to generate a monthly profit and hold on to it until the wheels fall off. My rentals pay for my lifestyle and it took a lot of time and money to add them into my portfolio, so why would I sell it? Why not keep it and leave my kids an inheritance?
Most beginning investors get hurt from real estate because they don't buy right. They don't factor reserves for vacancies and maintenance into their cashflow analysis. Moreover, they don't perform a property inspection and get everything fixed up front Last, they don't perform proper due diligence and place a section 8 tenant in the property. If you buy it right and follow a sound business model, then you can really make money in real estate.
4. Can I really quit my job and live off the passive income from my rentals?
Absolutely! All you have to do is fill out your financial statement (income statement, balance sheet, cost of capital, etc) to first see where you stand financially. When you find out how much it costs you to live monthly (everything from Tuna, to toothpaste, to taxes), then you can buy enough rental properties that meet or exceed this amount. For example, if you want to have $5,000/mo. in passive income to live happily and pay all of your bills, you if you average a monthly profit of at least $200/rental unit, then you can estimate that you need about 25 rental units to replace your paycheck.It's feasible to retire young through real estate in five years. I did it in four.
If you have decent credit and a little bit of money, you can leverage business credit, hard money, and other assets to get the funding you need to acquire these rental to say goodbye to the "9 to 5". Retirement is having enough passive income exceeding your expenses-it's not based on age or a large nest egg. Even if you enjoy your day job, it's always prudent to have more than one source of income.
5. Can I buy a rental property even though I don't own the house I'm in?
Yes. Many investors I know rent because they love their apartment in a particular neighborhood. They simply see real estate as a muse for financial freedom and will use their rental income to one day buy their dream home.
Everyone should aim to own a home, for homeownership is the American dream. You can do what I did and buy a small multifamily property; live in one unit and rent out the others. I got an FHA loan with a 3.5% down payment; I lived in one unit and rented out the others. That way, my tenants paid the mortgage and I lived there for free.
If you decide not to live in a multifamily property with other tenants, then that's fine. Owning a rental property before buying your primary residence will not hinder your chances of obtaining a mortgage. Actually, it should increase it since you have additional income to report through your rental property.
6. Why should I invest in real estate, especially if the market crashed?
When the market crashed a few years back, property values fell (as well as the interest rates). To me, that created a perfect storm for the real estate investor: lower property values and lower interest rates should create a buying frenzy. Listen, now is the time for you to get as many properties as you can get your hands on. Let's say you own a rental property, the market crashed, and your property value decreased dramatically. Why would you care? If you invest for cashflow (buy and hold strategy) and not to flip (buy low and sell high), then you don't worry about property value since your property is dishing out a monthly profit. Also, if the market crashed, more people are renting and not buying properties (even though they should). Last, when has a landlord every dropped the rent due to a market crash? With my tenants, they expect to get a rental increase every year which further increases my cashflow.
7. How do I know if this is a ทาวน์โฮมมือสอง "deal" or not & I end up making a big mistake?
Mentorship. Starting off, I never closed on a property without presenting it to a successful mentor or a group of fellow investors. Why? I wanted an extra set of eyes on every deal just in case they might see something I didn't see. Use those training wheels until you're mature enough to ride along on your own.
A "deal" is a rental property that puts a monthly profit into your pocket. This again is called cashflow. See the formula to calculate an annual cashflow below: Gross Rents - Taxes - Insurance - Management - Utilities - Landscaping - HOA fees - Maintenance/Vacancy Reserves - Misc. Fees - Debt Service (mortgage, hard money, or business credit payments) = Cashflow.
Some of the things like property management and landscaping can be done yourself. Also, you may not have to pay for utilities, HOA fees, etc. Basically, cashflow is your gross revenue - expenses - debt service. That's it. Real estate investing is simple but not intuitive, so make sure you have someone with a successful track record help guide you.
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