The government is printing money, why shouldn’t you?
With proper real estate knowledge. one can just print money out of thin air just like our governments. I will walk through a very simple case study below to show you how easy it is to add some zero into your balance sheet by shuffling paper around, well there is more than that.
- Buy – with equity.
You probably heard, “you made money when you buy” This is a perfect case example. The deal you buy has to create some equity after the repair has been made. For this particular example. I bought this so call house that was about to fell down to the ground for $100,000
If I knew what I know now after going through the repair of this house. I probably not going to buy it. Sometimes ignorance can be a blessing.
What I do know and good at is the After repair value of the house. It should worth well over 200k after the repair.
2. Rehab – with gut
This is hand down the biggest and hardest rehab we ever done. we certainly screwed up a lot and also learn a lot. Thanks to Jenny, where are able to complete the rehab in just 4 months. The rehab process is another story to tell. We spent just a little over 100k for the rehab.
Here is Jenny working hard day and night to make things happened….
3. Refinance – with confidence
Back to what I know best. This is probably the part that I enjoy the most about real estate investing – The number! As a real estate investor, your main job is keeping track of your equity, debt, and cash flow in my opinion. Get this right and everything else will take care of itself.
This is the part where you actually print money – The Appraisal!! Make sure that you are working with a good loan officer that understands investment property and get you a good deal on the cash-out refinance mortgage. Depends on your state, you might have to wait. in Texas, you have to wait for 6 months after you bought the house for a cash-out refinance.
If you did your number right from the beginning, this should be easy but I am still very anxious the day the appraisal came! I did everything possible to make my property look like a million buck before he showed up and the hard work paid off. The property appraised at $272,000!
What this means is that your house is now worth $272,000 and the bank agrees to lend you 70% to 80% of the value of the assets. In other words, you can pull out $200,000 and leave $70,000 in the house as equity.
So that pretty much it. You go to closing, sign some paper. The bank now agreed to lend you 80% of the house value, which is $200,000. You now have $70,000 of equity in the house. In other words, you are now $70,000 richer than you are yesterday.
You can put a line of credit on it later on and access that equity. that’s how you print money out of thin air.
In the picture: Me and closing with…myself. understanding the math behind the deal is the key to printing money, or equity, in real estate.
Wonder why nobody teaches this in college?
4. Rent – with cashflow
This last part is so important but yet most people forget. Make sure your Rent can cover your new mortgage! We decided to do short term rental instead of a regular rental.