Aaron’s story concludes in April with parts two and three. In addition to that, Aaron interviews several entrepreneurs on mindset, goal setting, and strategies for success in real estate. Erik Hatch also returns to the show to share “the perfect real estate blueprint.” Tune in to today’s highlight episode for that, tips on running a real estate business, and more. Don’t miss it!
Listen to today’s show and learn:
Why you should write a book [1:10]
How to write a book with no time and no writing experience [2:40]
Aaron’s plans after leaving prison: construction management [5:43]
Where Aaron came up with “bonus time” [7:54]
Building a system for success as a real estate investor [8:50]
Scaling to 1,000+ flips with a home-building system [12:04]
An example of how entrepreneurs will always find a way [17:32]
When Aaron found his second chance at the foreclosure auction [20:18]
Three things any agent can do to set themselves up for success [22:26]
A simple plan for success in real estate sales [23:02]
Advice for real estate agents: practice your sales skills [28:21]
The mindset shift that supercharged Victoria’s business [29:19]
Advice for new real estate agents [34:19]
The pros and cons of the VA loan [35:40]
David’s advice on getting started with real estate investing [37:23]
How far ahead to plan your vivid vision [39:23]
The power of the vivid vision [44:49]
It might go without saying, but I’m going to say it anyway: We really value listeners like you. We’re constantly working to improve the show, so why not leave us a review? If you love the content and can’t stand the thought of missing the nuggets our Rockstar guests share every week, please subscribe; it’ll get you instant access to our latest episodes and is the best way to support your favorite real estate podcast. Have questions? Suggestions? Want to say hi? Shoot me a message via Twitter, Instagram, Facebook, or Email.
Mortgage lending is largely about the numbers. The process of originating a mortgage is logical, mathematical and should, therefore, be predictable.
From a homeseeker perspective, the process of searching for and purchasing a home is both logical and emotional. The logical side of the process often means a long list of requirements like square footage, number of bedrooms and baths, school quality, proximity to work and shopping, etc.
But for those searching for a home, there is a fair deal of emotion that factors into their decision to make an offer. Who hasn’t fallen in love with a property and conjured up visions of what life could be in a new home? This is likely one of the reasons real estate agents are known to say, “Marry the home, date the rate.”
Once the homeseeker has found that dream home, it’s now time for them to figure out how they are going to pay for it. And while you might think that this is when the homeseeker flips the switch from emotion to logic, our recent research suggests that there is a strong emotional component to the financing of a home. Keep in mind that, for most, going through the mortgage application is something that happens a small handful of times in their lives.
Earlier this year, CreditXpert fielded a national survey of those that had recently purchased a home, refinanced a mortgage or anticipated being in the market for a home in 2023. Through this survey we wanted to better understand how consumers think about their credit, the process of applying for a mortgage and what they thought about CreditXpert’s predictive analytics tool that gives them the precise steps they need to take to reach a target credit score.
After showing the participants the tool, we asked them to share the top three reasons they would use CreditXpert to improve their credit score. The number one reason (“will help me save money over the life of the loan”) was clearly logical and not much of a surprise to our team. But subsequent reasons caught us by surprise and clearly pointed to the emotional side of the mortgage application process.
The pink bars in the chart below clearly spell it out. Homeseekers cited more confidence that they were getting the best interest rate (28%), felt empowered to work with their lender (25%), took the mystery (fear) out of the process (21%), gave them more confidence (there’s the confidence word again!) they could qualify (20%) and took some of the stress out of the process (18%).
The mortgage application process is stressful, meet your borrowers where they are
All borrowers start out hopeful and get excited when they see a home that’s nearly perfect. As the deal gets closer to the closing table, applicant anxiety begins to enter the red zone. There are always one or two reasons for the applicant to panic before it’s all signed and then, when it’s all over, they swiftly go from elation to exhaustion, as they realize how much this process took out of them.
For the loan originator, the mortgage is a transaction. For the borrower, the mortgage makes a life-changing event possible.
Not to put too fine a point on it, the chart makes clear that for the mortgage borrower the housing/mortgage transaction is much more emotional than logical.
Building empathy to build applicant trust
The perfect example of by-the-numbers mortgage lending is the refinance transaction. If it makes sense, it’s clearly visible in the numbers for everyone to see. There is little emotion for the homeowners either, as they are only in the deal to get a better rate and term.
A purchase mortgage transaction is different.
New homebuyers are strapped into an emotional roller coaster and once they make the offer, they are in a desperate rush to the closing table.
Demonstrating empathy and understanding towards your borrowers is crucial for building trust. When people feel genuinely heard, understood and cared for, trust builds.
The simple act of helping your borrowers improve their credit score helps build that trust by empowering them, building their confidence, taking the mystery out of the transaction and overall reducing their stress. In a highly competitive market, that’s a recipe for closing more loans.
For those that need help qualifying for a mortgage, improving their score can be lifechanging. For those that are well qualified, improving their score could help you make a more competitive offer and lower their cost of homeownership. And for those where an improved score would not result in a better outcome, the simple act of showing them that you are shaking the trees and working hard for them will increase transparency, build trust and help you close more loans.
A whole lot can go wrong when flipping a house, particularly in today’s market—and few know this better than Page Turner, the star of “Fix My Flip.”
On this HGTV show, now in its second season, this Log Angeles–based real estate broker helps overwhelmed house flippers finish their projects and sell at the right price. She even invests her own money, banking that her 20 years of expertise in the industry can help save even the most hopeless of projects.
Curious to hear more about her experiences, we had a chat with Turner and learned a lot about real estate that could benefit not only flippers, but homeowners, sellers, and buyers alike.
Many may fantasize about renovating a house and selling it for a profit, but the reality is that’s much harder than people think. What are the biggest mistakes you see?
One of the biggest mistakes I see from flippers is that they don’t know the specific neighborhood and market that they’re in. They don’t know the neighborhood well enough to know what buyers want in a home. So I see a lot of flippers adding a thousand square feet to a house where, within a 2-mile radius, there are only two-bedroom cottages. So why would you build a 2,000-square-foot house?
And of course, not budgeting and not knowing how to adapt in this quickly changing housing market that we’re in. That’s where a lot of flippers are losing right now.
What do you think homeowners can take away from your show?
“Fix My Flip” is definitely a show where you can learn how to renovate spaces in your own home.
I have a she shed on the show where I put beautiful wallpaper in it. It was just this ugly old barn, but we made it so cute. Little, different ideas like that. That’s what I hope that the homeowners will be able to take away as well. Like, you know what, I’m not flipping my house but I would like to add that wood-slatted wall or peel-and-stick wallpaper.
I really feel that even homeowners who are not looking to flip will be able to have great takeaways that they can do in their homes as well.
Homeowners and flippers are always looking for beautiful yet budget-friendly design updates. Are there any trends you recommend?
You know what I’ve been doing a lot of? Wood accent walls! There’s these wood slats that you can get off really any dot com. They’re peel and stick, and they bring so much life and character to a room.
I think we’re in a time now where instead of just painting a feature wall one solid color, you can experiment with your own patterns and bringing in colorful rugs and putting a different type of textile on the wall, or removable wallpaper.
You can really get away with putting gorgeous, removable, inexpensive wallpaper in a bathroom if you can’t afford tiling. Why not?
I think anything goes as far as being creative and really loving your own space. We want people to be creative with design and not be boring. I’m sick of white, black, and gray.
Watch: Exclusive: Nate Berkus and Jeremiah Brent Open Up About Their Own Struggles With Design
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Do you think flippers should include trendy designs in their flips, given trends come and go?
Well, on Season 2 of “Fix My Flip,” I’m really like: We’ve got to start living a little bit in these flips. And so you will see me design with pink, or even green and purple, glass tile, and my thought process behind that is that I grew up in a generation where tiles lasted for 30, 40, 50 years and the tiles were pink and blue and yellow and black and they were gorgeous—and those are classic colors!
So now I’m like, let’s not go for the primary pink, but let’s do a light, soft, glassy pink or lavender. And let’s re-create what a lot of generations think classic is. I’ve been wanting to do a pink bathroom on this show for two seasons now. I’ve done it in the kitchen. I haven’t done the bathroom yet.
I’m so sick of white for the tiles. I use it to complement something else, and a lot of times I have to use it because these aren’t my homes. It’s not a Page Turner takeover. I have to sometimes yield to what the flipper wants, too.
What’s your take on adding high-end appliances? As a flipper, do they provide a good bang for your buck?
A lot of flippers skip it, and I think that it behooves a flipper to put in a higher-end appliance that you don’t have to pay full price for. You can go to a scratch-and-dent. You can find appliances that might even be secondhand but gently used through one of the social media platforms.
I think that you have to do that because buyers will come in. They’re going to ask for a refrigerator anyway. … Do you pay now or do you pay later? Put it all in so you can get the most for your house upfront instead of a buyer walking in and seeing where you cheated the house.
Southern California has a notoriously pricey housing market. Should flippers aim to work in places like this?
I’ve been in real estate for two decades and licensed in three different states, so I’m very well-versed in learning markets. But I lived in Nashville, TN, for a long time and when I moved back home to L.A. and had to continue my business, I’ll admit the numbers scared me.
I was flipping in Nashville for $400,000. Here, the house costs one million before I even touch it. But I have to just remind myself that everything is relative, right?
If somebody is not from L.A., who just jumped into this market without understanding the market, understanding how hot the numbers really are, there’s risk of losing a lot of money. But flipping is a business. Whether you’re here or in Nebraska or Kentucky, you still have to learn how to run the flipping business. If you do that, then you can succeed in flipping anywhere.
Was there any one house that was particularly surprising this season?
I don’t know if they will show this, but I do walk into a house—and I’m highly allergic to cats. Nobody told me what I was walking into because they didn’t know I’m allergic to cats. But this house was on the news for rescuing over 130 live cats from this house. I could barely even go in the house to film. So I think there will be some very interesting takes from that because I couldn’t stop sneezing, coughing, gagging. I had a hairball in my throat. It was horrible.
Is there anything you’ve learned from those you’ve helped?
That you can lead a horse to water but you can’t make them drink. I’ve had to learn when to walk away, and it’s OK. Because this is my business. It is my brand, and I’m here to help. But if you reject the help, then we can shake hands and I just walk away.
Did you have to walk away from a flip this season?
A couple of times, yes. It wasn’t easy because I want everybody to win. I wanted them all to win, but if they call me in and reject everything I say, why am I here? The one thing about “Fix My Flip” is that it’s real life. When a flipper refuses to listen or accept the help that they called me in for, I have to walk away.
Hello! Today, I have a great post from my blogging friend James. James and his wife paid off $62,000 in debt in just 7 months!
Shortly after we got married, my wife Andrea and I got serious about our finances and paid off all our debt.
This is the story of how we turned a profit on our wedding, combined our finances, and paid off $62,000 of debt in 7 months.
Related:
Where’d all the debt come from?
All the debt was mine. I was a dumb young kid and thought I’d always be able to out earn my stupid decisions. Until one day I couldn’t.
Despite a generous 3-year military scholarship at my pricey, private college, I had student loans to pay for:
my housing (~$12,000 x 4)
my freshman year’s tuition (~$30,000)
and a summer study abroad program (~$15,000)
Then shortly before I graduated, USAA, a military-member’s bank, offered me a $25,000 loan at the ridiculously low rate of 2% interest. USAA dubbed it a “Career Starter Loan,” but really it was their clever way of ensuring I’d be a customer for the foreseeable future. I used $15,000 to refinance my study-abroad loan, bought a new laptop, and put the rest in savings.
If you’re keeping count, that pushed my total debt upon graduating college up over $100,000.
So of course I immediately got serious about my finances, did a budget, and started attacking my debt, right?
Nope.
I bought a sports car instead.
I was 22 years old, only 4 months into my Army career, and had racked up over ~$115,000 in debt. All I had to show for it was a fancy diploma, a 3 year old Mazda, and $1,100+/month in debt payments.
My wake up call
As can happen in the military, I got hurt.
I always knew it was a possibility, but never thought it’d happen to me. Ultimately, the Army decided it was best if they “retired” me. Just like that my once promising career was over only two years after it started.
Fortunately for me, the Army is a huge, slow moving bureaucracy and I had some time to prepare for my unexpected new life as a civilian. Unfortunately for me, I got hurt during the financial collapse of 2008 and I was entering one of the worst job markets of my life.
I didn’t know how long I’d be without a reliable income, but I knew I’d still be expected to reliably come up with $1,100/month for debt payments.
I opened an excel file and made my first crude budget, subtracting what I needed to spend each month from what I made each month. Turns out I had more money leftover at the end of the month than I realized. I saved as much of it as I could and set it aside as an emergency fund.
Six months after leaving the Army, and nearly draining my savings, I convinced a Fortune 500 company to put me in charge of a $15M/year operation. Now armed with a decent salary I set aside one month’s worth of expenses as a small emergency fund and attacked my debts with a vengeance.
I finally understood what a hindrance my debts were and I wanted them gone!
If you’d like, check out this article to get the exact tools and tactics I used to attack my debts. Following this plan, I would’ve paid off my remaining ~$80,000 and been totally debt free in 3 years.
There was just something I had to do first.
Will you marry me?
My debt was no secret to Andrea, and to her credit, she didn’t really care. She valued me more than my debt and saw how hard I worked to get through my career crisis and get my act together. In fact, we grew closer through all the craziness.
We’d been together for 5 years at this point and it was time to move our relationship forward. I paid off a couple more debts, kept current on my remaining balances, and used my excess cash each month to save for an engagement ring.
In September 2011 I asked Andrea to marry me, she said yes, and we were married a year later.
In that year, I paid the minimum payments on my remaining debts and we saved all our excess cash to pay for our wedding and honeymoon.
We made sure to stretch our dollars by:
Booking a daytime wedding, it was a lot cheaper to rent a venue during the day than at night.
We rented centerpieces (the vases all the flowers went in) instead of buying them. I’m not sure what we would’ve done with 20 identical glass cylinders after the wedding, anyway.
Made our invitations and programs using kits available from craft stores.
“Hired” friends and family in the industry we would’ve been willing to hire even if we didn’t know them
Andrea’s aunt is a seamstress and made all the bridesmaids dresses.
Our DJ/Pianist was a friend.
Our Photographer was a friend.
In the end, we had a beautiful wedding, a great honeymoon, and were able to pay for everything in cash. We even had a bit leftover.
Joining forces
After our honeymoon, we moved into a new rental house and started combining our finances. Then once we could see all our money coming into and going out of the same account, we redid our budget.
Andrea and I both earned similar incomes, but now our expenses were much less as a married couple than when we lived on our own. We only had one rent payment, one set of utilities, etc. Since our “married” expenses each month were pretty close to what each of us spent as a single person we had a lot of cash left at the end of the month.
By this point, the debt was down to ~$62,000 and it was time for us to attack it.
Andrea and I both wanted to pay off the debt quickly, but we didn’t agree on how. The main point of contention centered around the money we had leftover from our wedding, wedding gift cash, and some of Andrea’s savings from her years as a responsible person.
Even though Andrea had shown me incredible grace, I still felt ashamed of my debt. I didn’t want it hanging over our heads and was willing to take drastic action to to wipe it out.
I wanted to throw most of our savings at debt, leaving just enough to act as a small emergency fund. Then once the debt was totally gone, we’d rebuild our savings to its previous level.
That plan would have us out of debt really fast, but was risky as it would leave us with only a small emergency fund for a while. I didn’t love this risky plan, but I was anxious to pay off our debts and was already used to living with only a small emergency fund. Besides, with two incomes I figured the odds of us having a catastrophic emergency were quite small.
Andrea, however, hated that plan.
She wasn’t comfortable with the risk and did not want to drain our savings. Having a big emergency fund gave her a sense of security I’d never experienced before and the idea of only having a small emergency fund freaked her out.
Balancing speed with security was a new concept for us. We viewed risk differently and had to come up with a plan we’d both be happy with. The more we talked about it, though, the less our conversations centered on our finances.
Instead, we focussed more on building the life we wanted.
Debt freedom and a big emergency fund were just some of the ingredients.
We both wanted to travel. We both wanted to give to charity. We both wanted to pursue work we love.
Paying off the debt would give us the freedom to do so.
We never wanted to worry about putting food on the table. We never wanted to wonder how we’d pay our rent. We didn’t ever want to be tied to a job we didn’t like just because we needed the money.
A big emergency fund would help us avoid those things.
Our plan for paying down debt
So here’s what we came up with.
We agreed to use some savings to pay off a couple of my smaller student loans completely. This still left us with enough of an emergency fund to maintain Andrea’s sense of security.
We agreed to keep our expenses to less than half of our combined income. We could’ve afforded to rent a fancier house and eat lobster every night, but we chose not to. This way, if one of us lost our jobs we’d still be able to pay rent and keep food on the table. While we were both working, though, we’d use the leftover cash to attack the remaining debt.
We agreed to stay focussed and pay off all the remaining debt in less than a year. If by our first anniversary we still had some debt we’d tap into our savings to pay off whatever small amount was left.
Assuming everything went according to plan, we’d be debt free with a healthy emergency fund within the first year of our marriage.
FINALLY DEBT FREE!
Everything went according to plan and we’re done paying down debt!
Seven months later we were totally debt free. ~$62,000 paid off and we still had a healthy emergency fund.
Or to put it another way, we paid off ~$115,000 in five years, about a year faster than if we’d not gotten married and I just paid it off myself. I paid off ~$53,000 in 4 years on my own, slowed down my debt attack to get married, and together with my awesome wife wiped out the rest.
Even more important than paying off the debt, Andrea and I learned how to set the course of our lives and take action to get us there. We grew closer as a couple as we faced the challenge of paying off debt. Best of all Andrea and I learned to work together to achieve great things.
Now it’s your turn
Maybe you’ve never talked about hopes and dreams or set goals with your partner. Or maybe you’ve never even thought about it for yourself. This can be tough and tricky, but I’d like to help you out.
It’s pretty easy to articulate a “what” and a “how” for money and call it a day. Take for example “Let’s pay off our credit card/student loan debt by cutting our expenses.” That’s great and responsible, but boring. Instead, as Andrea and I learned, start with “why” you want to do something.
Think about or ask your partner:
How would it feel to have an extra $100, $500, or $1,000 leftover at the end of the month?
How would you approach your career differently if you didn’t have to trade your labor just to pay Sallie Mae or Visa?
How much fun could you have?
How generous could you be?
What new options would you have in your life?
Taking this approach, you’d come up with something like: “I want to take a job for the love of it, give more money to charity, buy that thing I’ve always wanted without feeling guilty, and/or stay home with the kids. So let’s trim our expenses to pay off our debt.”
With a solid “why” like that, the “what” and “how” are just details. You’ll also be much more likely to stick with your goals when, not if, something comes along to distract you.
Pessimism is practical
If you find yourself struggling to come up with a worthy “why” release your inner pessimist. Think about all the things you don’t want in life. Think about what you’re afraid of. Then flip it by stating the opposite.
Take “I’m afraid I’m going to work as a corporate slave forever just to pay off my student loans” and flip it to “I want to pay off these loans so I can afford to work for a non-profit.”
“We’re going to be too broke to travel or have any fun when we get older” flips to become “I want to travel the world with our friends and family, so let’s save up a bunch of money to do so.”
Once you have your “why” figured out, “what” to do with your money and “how” will come more easily.
You’ll be able to withstand temptation and not get distracted by shiny stuff. And by working towards a worthy “why” together with your partner, you’ll learn to talk about money without fighting because you won’t just be talking about money. Instead, you’ll be planning and working towards a better life together.
I hope you and your partner will face the challenge of your finances, decide what you really want for your lives, and work towards your goals together. Aggressively paying off our debts actually brought Andrea and I closer together and deepened our marriage. We learned how to talk about tough subjects, set goals, and work together to achieve them. You and your partner can do the same.
Author bio: James helps couples handle and talk about money without fighting at loveandmoneymatters.com. Enjoy his blog post about paying down debt below.
What’s your family’s biggest financial goal? Why is it important to you? Are you currently paying down debt?
If you are new to my blog, I am all about finding ways to make and save more money. Here are some of my favorite sites and products that may help you out:
Find ways to make extra money – Here are over 75 different ways to make extra money.
Cut your TV bill. Cut your cable, satellite, etc. Even go as far to go without Netflix or Hulu as well. Buy a digital antenna and enjoy free TV for life.
Start a blog. Blogging is how I make a living and just a few years ago I never thought it would be possible. I earn over $100,000 a month online through my blog and you can read more about this in my monthly online income reports. You can create your own blog here with my easy-to-use tutorial. You can start your blog for as low as $2.75 per month plus you get a free domain if you sign-up through my tutorial. Also, I have a free How To Start A Blog email course that I recommend signing up for.
You should know your credit score – Check your credit score with Credit Sesame for free!
Answer surveys. Survey companies I recommend include Swagbucks, Survey Junkie, American Consumer Opinion, Pinecone Research, Prize Rebel, and Harris Poll Online. They’re free to join and free to use! You get paid to answer surveys and to test products. It’s best to sign up for as many as you can as that way you can receive the most surveys and make the most money.
Sign up for a website like Ebates where you can earn CASH BACK for just spending like how you normally would online. The service is free too! Plus, when you sign up through my link, you also receive a free $10 cash back too!
Save money on food. I joined $5 Meal Plan in order to help me eat at home more and cut my food spending. It’s only $5 a month and you get meal plans sent straight to you along with the exact shopping list you need in order to create the meals. Each meal costs around $2 per person or less. This allows you to save time because you won’t have to meal plan anymore, and it will save you money as well!
I highly recommend Credible for student loan refinancing. You can lower the interest rate on your student loans significantly by using Credible which may help you shave thousands off your student loan bill over time.
Try InboxDollars. InboxDollars is an online rewards website I recommend. You can earn cash by taking surveys, playing games, shopping online, searching the web, redeeming grocery coupons, and more. Also, by signing up through my link, you will receive $5.00 for free just for signing up!
Some reader stories contain general advice; others are examples of how a GRS reader achieved financial success or failure. These stories feature folks with all levels of financial maturity and income.
Mark Ferguson has been a Realtor since 2001 after graduating from the University of Colorado with a business finance degree. He runs a real estate team of 10 that sells over 200 homes a year, fix and flips 10 to 15 homes a year and owns 11 rental properties. Mark also runs www.investfourmore.com, a blog that discusses Mark’s fix and flips, rental properties, becoming a real estate agent and everything real estate related.
Many television shows portray fix and flipping as a very profitable business that can easily be done in your spare time. Sure there are usually a few contractor problems, but in the end the house sells for a lot of money and the owners make a killing. In reality, you can make money fix and flipping homes, but it takes a lot of hard work and a lot of flipping to make a lot of money. It is also very easy to lose a lot of money if you do not account for all the costs or overestimate the value of your flip.
I have been a Realtor since 2001, and I have fix and flipped close to 100 homes over the last 10 years. I have 10 fix and flips going right now, and I can tell you it is not easy managing one fix and flip let alone 10! It takes a lot of money to fund fix and flips, more time than you think to sell a flip, a lot of experience to deal with repairs and contractors, and expenses are almost always more than you figure.
If you buy houses cheap enough with enough of a margin for error, you can make good money fix and flipping homes — but don’t expect to be a millionaire after a year or two in the business.
Are the Television Shows Accurate in Their Portrayal of the Flipping Business?
Most fix and flip television shows love to show the before and after pictures of a flip with the initial purchase price and the selling price at the end. There are a couple of shows that portray the expenses accurately, but most leave out many of the costs that flippers encounter. In the fix and flip business, many investors use the 70 percent rule to determine if they can make a good profit when they flip a home.
The 70 percent rule states the purchase price should be 70 percent of the after-repaired-value (ARV) minus the cost of any repairs. For example, if a house will be worth $150,000 after it is repaired and it needs $30,000 in repairs, the 70 percent rule states an investor should pay $75,000 for that house. Buying a house that will be worth $150,000 for $75,000 seems like a home run, but it is really just an average deal because there are so many costs associated with flipping.
What Costs are Involved in Fix and Flipping Homes?
The obvious costs involved in flipping are the purchase price of a home and the repair costs. In our example, there appears to be $45,000 in profit once you include the selling price and the repairs but there are many more expenses that many beginners do not consider.
Financing costs: Most people do not have $75,000 plus the costs of repairs and carrying costs to buy a flip. It is more expensive to finance a flip because banks make their money off interest paid on loans. The shorter time you hold a loan, the less money a bank will make. Most large banks will not finance flips, but some local lenders will. Hard-money lenders will fund flips, but they are very expensive, charging 12 to 16 percent interest rates plus 2 to 4 percent of the loan amount for origination fees. A hard-money lender is a not a bank but a company that takes money from investors at a given interest rate. The hard-money lender then lends that money to fix and flippers at a much higher interest rate.
Carrying costs: When you own a house, you have to pay for the lawn care, heating, insurance, taxes, HOA and more while you own the home.
Purchasing costs: Besides the loan origination costs, there are some other costs to consider when buying a flip. A home inspection will run $300 to $800. Some lenders will require an appraisal, which is $400 to $600. There will be a closing fee, recording fees, tax certificates and much more.
Selling costs: When you sell your house, you will most likely have to pay a real estate agent to sell the flip and possibly cover closing costs for a buyer. The real estate commission and closing costs can add up to be 10 percent of the sale price.
Miscellaneous costs: Depending on where and how you buy your property, it may have a tenant or the previous owner may still be living in it. You could have eviction costs or costs to pay the occupants to leave.
Here is an example of what the total costs would look like on a typical fix and flip I buy and sell. I have a great lender who charges me 5.25 percent interest rate and 1.5 percent origination, but they only lend on 75 percent of the purchase price. My loan costs are much lower than most flippers’.
Purchase price: $75,000
Loan amount: $56,250
Costs:
Loan costs: $2,500
Carrying costs: $1,600
a. Insurance: $400
b. Lawn maintenance: $300
c. Taxes : $400
d. Utilities: $500
Buying costs: $1,000 (I usually do not do an inspection or have an appraisal)
Repairs: $30,000
Selling costs: $7,000 (Since I am a Realtor, I only pay the buyer’s agent commission. I list the house myself and do not have to pay a listing agent.)
Miscellaneous: $5,000
Total costs: $47,100
If I sold the house for $150,000, my profit would be $27,900. That is a decent profit, but I want to make at least $25,000 on each flip because of the risk involved and the money I put into them. On this flip, I would need at least $50,000 of my own cash for the down payment, carrying costs and repairs. Beginning flippers could easily spend three times as much for financing costs and another $4,500 to pay a listing agent. That cuts the profit to under $20,000 for a house that sells for twice as much as it was purchased for. The next time you watch a fix and flip show, see how many of these costs they actually tell you about!
Will You Make More Money Fix and Flipping More Expensive Homes?
It is true that the profit potential goes up when you flip more expensive homes. However, there are many more risks involved when flipping expensive houses.
The repairs will be much more expensive because buyers will demand higher quality.
It takes longer to sell more expensive houses and your carrying costs will be higher.
The carrying costs will be higher due to HOAs, more maintenance needed, higher taxes, etc.
You will need more cash because down payments, carrying costs and repairs will be higher.
All your money is in one house instead of multiple homes, increasing the risk if something goes wrong.
The biggest problem with flipping more expensive homes is that the difference between the buy price and sell price is massive. Using the 70 percent rule, a house with a $500,000 ARV would have to be bought for $300,000, if it needed $50,000 in work ($500,000*.7-$50,000=$300,000). It is very hard to find a deal that has such a large difference between the ARV and the purchase price because an owner-occupant buyer would be willing to pay much more for the house. The owner-occupant can pay $400,000, put $50,000 into the house and still have a great deal. In the more expensive market, it is much more likely owner-occupants will have the cash to put into homes.
How Long Does it Take to Fix and Flip a House?
From start to finish, my goal is to have a flip for four months from the time I buy it to the time I sell it. I almost never hit that number because there are so many unknowns. The biggest delay I have is finding good contractors, especially when I have 10 properties at once. It takes me a couple of weeks to get a contractor started on the work, about a month for the work to be done, about three weeks for the home to be on the market before a contract is accepted and yet another month for the escrow/closing process — if everything goes perfectly.
Unfortunately, it often takes longer for the contractor to make repairs. We inevitably see a few things the contractor missed and they have to go back to the home to take care of those items. Then we have to line up cleaners and get the home listed. Sometimes it takes three weeks to get a good offer; sometimes it’s just one week, but it could just as easily be two months. In addition, the escrow process can vary from one month to sometimes two months. Now that I have so many houses and not enough contractors, I am looking at almost nine-month turn times on some of my properties.
Is All the Hassle Worth it When Fix and Flipping Homes?
After looking at all the costs and everything that has to be accounted for, it may seem a bit intimidating to flip a home. Especially when you consider we have not even talked about how to find a fix and flip that can be bought cheap enough to make money. Just like anything in life, it takes time to learn what you are doing and feel comfortable. I still am learning new techniques to find properties and finding better ways to fix and flip homes.
After you learn the business, it can be a lot of fun. I still get excited whenever I get a new deal under contract, almost as excited as when I sell one for a nice profit. Over the last two years, I have averaged about a $35,000 profit on each of my fix and flips. I completed 10 flips last year and should complete (buy, fix, sell) over 10 this year. On most flips, I make around $30,000 in profit; but once in a while, I will make more, like this property that I made over $50,000. In the last 13 years of fix and flipping homes, I have made over $100,000 twice on a single flip. My success has not come from making a huge profit on one or two flips a year, but on consistently making modest profits on multiple homes. There is much less risk flipping many lower priced homes than flipping one expensive home.
The best part about this business is that I do not flip full time. I run a real estate team of 10 and my primary job is running that team and selling houses. Once you set yourself up correctly with the right contractors, the right financing, enough of your own money and experience, the business does most of the work itself. It is not easy to get to that point and it takes a lot of time and reinvesting money back into the business.
How Do You Find a Great Deal to Fix and Flip?
Finding a great deal is the key to making money in the fix and flip business. I used to buy 90 percent of my fix and flips at the public trustee foreclosure sale. These houses were sold in as-is condition for cash, and many times the inside of the house could not be viewed or homes were occupied. When I bought a home at the trustee sale, I had no inspection period and no way to back out once the property was purchased. In the last two years, the competition at the trustee sale has increased and I have not purchased any homes from that sale in over a year. In fact, I do not even go to the sale anymore because people are paying close to the amount you could buy a house for on the MLS. When I buy on the MLS, I get to have an inspection done, I can use a loan to buy the property, and I don’t have to deal with any occupants.
Almost all of my deals are bought on the MLS now. There are a few tricks to getting a great deal, but it is not easy with rising prices and competition.
Act fast: I make offers within hours of homes being listed.
Become an agent: One of the reasons I can act so fast is that I write the offer, set up a showing and I do not have to wait on an agent.
Look for properties that need work: The more problems a property has, the more potential profit there is. Make sure you know how to fix the problems and how much it will cost!
Look for properties that have been on the market over 90 days. The sellers are more likely to accept low offers on these homes. If they are grossly overpriced, I do not even bother.
Make offers on homes that come back on the market quickly. I can set up MLS alerts to tell me when a house in a certain price point comes on the market or comes back on the market after a contract falls apart. Many times the great deals that need work have contracts that fall apart because buyers don’t realize how much work is needed until their inspection.
There are other ways to get great deals such as direct marketing to sellers who do not have their properties for sale or finding wholesalers who sell cheap properties to investors.
What Should You Avoid if You Decide to Start Flipping Homes?
If you have decided you want to give flipping a try, here are some tips to keep you from losing too much money on your first try.
Only do the repairs yourself if you know what you are doing and have time to complete them. Many flippers try to save money by doing the work themselves. They don’t realize how long it takes to make repairs, especially in their spare time. It ends up taking months to fix the property and the extra time will eats up the money you thought you saved by doing the work yourself. To make the situation even worse, the work won’t be as good as if a professional did it.
Do not overestimate the value of a home or rely on values to increase to make money. Many markets have increasing prices, but that doesn’t mean they will keep increasing. A lot of flippers went bankrupt during the housing crisis because they assumed the market would keep going up. When prices stopped increasing and then decreased, they lost everything. I kept flipping right on through the housing crisis because I based values on the current market and left myself room for adjustment.
Do not overprice a home when you list it. To make money flipping, you have to sell quickly and keep your money moving from property to property. If you have a house sitting on the market that won’t sell, it is most likely overpriced. I have found that the sweet spot for a house to be on the market is three weeks and then I usually get an offer. If I don’t get an acceptable offer after 30 days, I lower the price 5 to 10 percent, depending on the activity.
Don’t try to sell a house yourself unless you are an agent. If you sell a house for sale by owner, you lose market exposure by not being in MLS. Ninety percent of buyers use a real estate agent to represent them and those agents look on MLS to find properties for their buyers. If you use a limited service company that puts the home on MLS, you still have to pay for the buyer’s agent. You are saving very little money and the buyer has representation while you do not. Who will get the better deal?
Always assume your repairs will be more expensive than you think and the flip will take longer than you think. Even if you get a bid for all the work before hand, things always pop up that you didn’t see or you couldn’t have known about.
My Worst Flipping Experience
There is a lot of information in this article and I didn’t even come close to covering every topic involving flipping houses. I hope it gives you an overview of what it is like and what it takes to flip houses. It is not about hitting a homerun on every flip, but hitting a lot of singles over and over again. I have lost money on flips before, sometimes because of things I have no control over. Since I had many flips going at once, losing money on one flip did not destroy my business — but this was the worst experience.
A couple of years ago, I bought a flip at the trustee sale. I saw the interior of the home through the windows but never got inside the house before I bought it. It was a good deal on a newer house, with little work needed and I thought I would make some easy money. After I bought the house and got the locks changed, we found a brand new BMW in the garage. I knew something very odd was going on, so we tracked down the previous owners in California (I am in Northern Colorado). They claimed the bank had foreclosed wrongly and they were going to get the house for free. They ended up filing a lawsuit against the bank a week later and we had a house we could not sell because it was involved in litigation.
The previous owners had been convinced they would get the house for free by a legal aid. We offered them $5,000 to drop the case and they would not even think of it, because they knew they would get the house for free. Long story short, the lawsuit was frivolous and thrown out by a judge as soon as he saw the case. The problem was that it took the court almost a year to look at the case even after we had hired lawyers and paid them almost $10,000 to speed up the process. After carrying costs and lawyers fees, I lost about $15,000 on that house. There was no way to know that would happen, but sometimes that’s how it works when buying houses at the foreclosure sale. That is why I prefer to have multiple low-value houses at the same time, instead of one expensive house. I was still making money and turning other properties while that house was tied up. If all my money was tied up in one house that I could not sell for a year, I could have been in serious trouble.
Conclusion
I have been in the fix and flipping business for a long time and it has been very good to me. It is not easy to get started, to find great deals, find great contractors or to get all the money needed to flip. It is not impossible either, but it does take a lot of planning and education to get started. If you want to ask any questions in the comments, I’ll try to respond as quickly as possible.
Investing in real estate is always considered one of the best ways to build wealth.
Unfortunately, there are some drawbacks that make traditional real estate investments (like owning rental properties) challenging and prevent most people from trying.
The most significant challenges to owning properties are:
Capital – Many people who are interested in real investing don’t have the money needed for a down payment on a rental property.
Time requirements – Owning and managing rental properties can be a major commitment.
There are some ways to invest in real estate, however, that can produce passive income without the need to manage properties or deal with tenants.
In recent years, the growth of real estate crowdfunding has opened up many new opportunities for the average investor who wants to branch out into real estate.
Real Estate Crowdfunding: A Quick Overview
Real estate crowdfunding makes it possible for smaller investors to benefit from real estate without the need to deal with property management or many of the other issues that come along with being a landlord.
Real estate crowdfunding began with the JOBS Act of 2012, and in the past several years, more than 100 different websites/platforms have entered the industry.
Although many different companies fall under the classification of real estate crowdfunding, there are several different approaches and some major differences that you need to be aware of if you are considering investing.
What all real estate crowdfunding platforms have in common is the fact that they allow individual investors to participate in larger real estate deals without the need to manage the property.
Some platforms allow you to invest in specific properties or projects, while others allow you to invest in a portfolio of properties. Some focus on commercial properties or apartment buildings, and others focus on smaller residential properties.
As an investor, there is a lot to like about the opportunities that are available. If you’re looking for an investment that has the capability to produce passive income, real estate crowdfunding is something that you should consider. Regardless of whether you are looking for an investment that can produce income during retirement or whether you want to reinvest to grow your wealth faster, there is a lot to like.
For a much more detailed look, see Kevin’s article Ultimate Guide to Real Estate Crowdfunding: What it is and Where Can I Invest?
Aren’t Rental Properties Sources of Passive Income?
With all of the talk about passive income, you may be wondering why crowdfunding would be preferable over directly owning rental properties. After all, owning rental properties is often listed as a great way to earn passive income.
While owning rental properties is a proven and time-tested way to build wealth, it can take a significant commitment in terms of your time and attention.
As a landlord, you may not always need to put in a lot of time, but you’ll have very little control over when you are needed.
If a tenant has a plumbing leak on a holiday weekend, you’re probably the first person they will call. You’re responsible for everything that needs to be done with the property, and that can be a big responsibility.
On top of maintenance and repairs, you may also have to deal with tenants who pay late, or not at all. Chasing down late payments or working through an eviction process can take a lot of your time.
Yes, it’s possible to hire a property manager to handle a lot of the details, but that will cut into your profit and it won’t totally remove the responsibility from yourself.
On the other hand, crowdfunding offers a truly passive way for you to invest in real estate.
Andrew Herrig owns multiple rental properties and also invests through real estate crowdfunding platforms (he also blogs at Wealthy Nickel). On the subject of passive income from real estate, Andrew dispels the notion of the truly passive rental property.
“As a real estate investor who owns a portfolio of rental properties, I also put some of my money into real estate crowdfunding. While many people talk about rentals as being a passive investment, that has not been my experience. Even if you have a property manager, you still have to manage the manager and get involved in making decisions on placing tenants or paying for repairs or upgrades. Real estate crowdfunding provides truly passive income (aside from the due diligence you need to do on the deal sponsor). I am constantly evaluating my real estate portfolio to see where it makes sense to convert an active rental property investment into a passive crowdfunding investment. If in a particular scenario I can get similar returns from crowdfunding, it’s a no-brainer to invest there instead.”
Generating Passive Income from Crowdfunding
If you’re intrigued by the possibilities, you may be wondering how to get started.
Here is a look at the steps you can take to start generating passive income through real estate crowdfunding.
Are You An Accredited Investor?
The first thing you need to know is, are you an accredited investor?
To qualify as an accredited investor you will need to have a net worth of at least $1 million (excluding your primary residence), or you’ll need an income of at least $200,000 (for single filers) or $300,000 (for joint filers) for the past two years.
If you don’t meet those qualifications, don’t worry. Some real estate crowdfunding platforms are only available to accredited investors, but others are available to all investors. Some have options for accredited investors and non-accredited investors alike.
Accredited investors will definitely have more options (see our table below), but there are plenty of good options that are accessible to anyone. But it’s important to know if you qualify as an accredited investor, because it will determine what options are available to you.
Options For Non-Accredited Investors
For those who are not accredited, some of the best options include:
Fundrise
Invest in a portfolio of properties through Fundrise. You can choose their Starter Portfolio, or one of their three Core Plans: Supplemental Income, Balanced Investing, or Long-Term Growth. The Core Plans allow you to choose an approach that fits well with your own situation and needs. Read our full Fundrise review here.
DiversyFund
DiversyFund provides investors with the ability to diversify some of their holdings into commercial real estate, while the $500 minimum investment for non-accredited investors is a definite plus.
DiversyFund is different from most other real estate crowdfunding platforms in that their REIT actually owns the properties held in the trust. They buy, manage – and when necessary – sell properties in the trust.
You can expect a 7% preferred return before DiversyFund receives any profit split. Then investors earn 65% of the cash flow profits above the 7%. Once investors have made 12% per year, any remaining profits are split 50/50 between investors and DiversyFund.
Read our full DiversyFund review here.
Modiv
Modiv currently offers two different REITs that are open to all investors. Read our full Modiv review here.
Groundfloor
Groundfloor is one of the few crowdfunding platforms that is open to non-accredited investors and facilitates investment in specific properties. The investments through Groundfloor are short-term (usually 6-12 months) and return 5% – 25% interest. The investments are used by flippers and you’ll be able to pick the exact projects that you want to invest in.
How Do You Want To Invest?
Do you want to invest in a portfolio of properties, or do you prefer to invest in individual properties that you handpick?
By investing in a portfolio of properties you can get started very quickly without the need to vet or research the individual properties or projects. You can create an account, fund it, and start investing right away. It’s a low-maintenance, long-term investment that is ideal for generating passive income. An example would be investing in any of the options offered by Fundrise (their Starter Portfolio or any of their Core Plans).
The other option is to choose the specific properties and projects that you want to invest in. If you are not an accredited investor, Groundfloor is basically your only option for picking individual properties, and they focus only on flips of residential properties. If you’re an accredited investor, you’ll have far more options here. For example, you could use PeerStreet to invest in individual loans or use EquityMultiple to invest in large commercial or residential properties. You can use FarmTogether to invest in tracts of farmland, a surprisingly good investment over the past 50 years.
Once you know if you are an accredited investor and you know the type of investment you want to make, you can quickly narrow down the possibilities and find the best investment for you.
How Much Are You Willing/Able To Invest?
Each platform will have specific requirements related to minimum investments. In some cases, the minimum can vary based on the specific investment that you choose.
Most of the platforms that allow investments from non-accredited investors have lower minimums in order to make the investments realistic for more people. But many of the platforms that are open only to accredited investors will have minimum investments in the $1,000 – $10,000 range.
If you see high minimum investments at a few platforms, don’t be discouraged. Here are the minimums at some of the top platforms:
Do You Want To Reinvest Dividends?
Although we’re talking about passive income, you could choose to reinvest. If you don’t currently need the money, reinvesting will allow your investment to grow much faster and larger.
This is especially easy if you are using the portfolio approach. For example, Fundrise investors have a setting in the dashboard that allows you to easily control whether your dividends are paid out to you as cash or reinvested. You can set it to reinvest and then easily change it in the future whenever you want.
If you are investing in individual properties or projects, you probably won’t have the option to reinvest automatically. Instead, you’ll need to choose new investments to invest in.
Recommendations For Getting Started
If you’re new to crowdfunding or real estate investing in general, the portfolio approach is definitely the easiest way to get started (it’s also the option that is most accessible to non-accredited investors).
You’ll need to choose the crowdfunding platform that you want to invest with, make sure you can meet the minimum investment, create your account, and fund it.
This is a long-term type of investment and you need to be aware that your investment is unlikely to be liquid. Be sure to check the details related to liquidity before you invest, but in general, this is not an appropriate investment if you might need the money within the next few years.
Invest In A Portfolio Of Properties
A few recommendations if you want to take the portfolio approach:
Fundrise – Fundrise is a great entry point to the world of real estate crowdfunding. It’s open to all investors, has a relatively low minimum investment of $500 (for the Starter Portfolio – the Core Plans have a minimum investment of $1,000), and doesn’t require you to vet any specific properties or projects.
RealtyMogul – RealtyMogul offers a few different types of investments. Accredited investors are able to invest in individual properties, but they also offer public, non-traded REITs that are open to non-accredited investors.
Modiv – Modiv also offers anyone the opportunity to invest in REITs, making it a quick and easy way to start.
Invest In Individual Properties
If you prefer to invest in individual properties, here are a few excellent options:
Groundfloor – As was mentioned earlier, Groundfloor is pretty much the only platform that allows non-accredited investors the option to invest in individual properties.
PeerStreet – PeerStreet is a marketplace where accredited investors can invest in private real estate loans. You can create an account and view the available investments.
FarmTogether – is a crowdfunding platform that invests exclusively in farmland. Farmland has been one of the best and most reliable investments over the past 50 years. They shoot for an annualized investment return of between 8% and 15%.
Other Ways to Invest in Real Estate Passively
Although crowdfunding offers a great way to generate passive income from real estate, there are a few other options that offer many of the same benefits without the need to manage the property yourself.
Public REITs
Public REITs can either be traded or non-traded. Publically traded REITs are probably the most liquid of all real estate investments since they can be bought or sold at any time, however, the returns tend to be lower.
Public non-traded REITs meet the requirements of the SEC, but they are not traded on an exchange, which means they tend to be illiquid.
Some of the crowdfunding platforms that were mentioned in this article offer REITs, but you can also invest in REITs in many other ways. If you have an existing account with Vanguard or Fidelity, you can very easily start investing in REITs.
Mutual Funds and ETFs
While REITs invest in real estate, REIT ETFs invest in multiple REITs. There are also many mutual funds that focus on real estate. Like other mutual funds and ETFs, these investments offer liquidity, so you’re not looked into a long-term investment.
Crowdfunding Site
Fees
Account Minimum
Accredited Investor
Review
* Groundfloor
None
$10
No
Review
* DiversyFund
None
$500
No
Review
* Fundrise
1%/year
$500
No
Review
* RealtyMogul
0.30% – 0.50%/year
$5,000
No
Review
* stREITwise
3% up front fee, 2% annual management fee.
$1,000
No
Review
* FarmTogether
Intake fee of between 0.5% and 1.0%. 1% annual management fee.
$10,000
Yes
Review
CrowdStreet
None
$10,000
Yes
Review
Yieldstreet
1-4%/year
$2500
No
Equity Multiple
0.5% service charge + 10% of all profits
$5,000
Yes
Review
PeerStreet
0.25% – 1.0% setup fee
$1,000
Yes
Review
Sharestates
0-2% setup fee
$1,000
Yes
Patch of Land
0-3% of loan total
$1,000
Yes
Modiv
None
$1000
Yes
Review
RealCrowd
None
$5,000
Yes
Cadre
Intake fee of between 1-3%. 1.5-2% annual management fee.
Is it time to worry? Home prices are surging, affordability is becoming a concern, and home flippers are back out in droves. Surely that’s a recipe for disaster, right?
A new report from RealtyTrac revealed that the number of “active home flippers” in 2015 was the highest it has been since 2007, around the time things came crashing down, partly due to those very flippers.
Last year, some 179,778 single-family homes and condos were flipped by flippers, with flips accounting for 5.5% of total U.S. home sales.
That was up marginally from the 5.3% share in 2014, but it marked the first annual increase in the share of house flips after four consecutive yearly declines.
And in 83 of 110 metros nationwide (75%) flipped homes increased from a year earlier. So it’s not just some markets seeing increased flip activity. California is the only noticeably cold state.
For the record, RealtyTrac defines a “home flip” as a property sold a second time within a 12-month period. But if I had it my way, I’d expand that definition slightly seeing that some folks wait just over a year due to tax purposes.
So the number of flips could be even higher if you move the definition to say 13 months, which is still clearly a fast turnaround intended to make a quick profit.
110,008 Flippers Flipped in 2015
Sorry for having fun with the word flipper. I can’t help myself. I think we need a new word for it, personally. Anyway, a total of 110,008 investors/entities flipped at least one property last year.
That was the highest number since 2007 when a slightly higher 130,603 home flippers existed. Still, it’s nowhere close to the peak seen in 2005 when 259,192 flippers were out doing their thing. Back then flips made up 8.2% of total home sales.
The share of flipped homes was actually above 2005 levels in 12 metros, including Pittsburgh, Memphis, Buffalo, San Diego, and Seattle.
The states with the highest share of flips included Nevada (8.8%), Florida (8.0%), Alabama (7.4%), Arizona (7.1%) and Tennessee (6.9%).
As far as metros go, Memphis (11.1%) Fresno (9.2%), and Las Vegas (9.2%) led the way.
Interestingly, despite the numbers inching up again, the number of home flips per investor (1.63) was the lowest since 2008.
So it appears as if today’s flipper is a bit more discerning, possibly because they have no choice. We know inventory is limited, and it’s already more difficult to obtain financing for several properties at once.
That could limit some of the bad things surrounding house flipping, but it doesn’t mean noobs aren’t still buying homes for double the price the previous buyer purchased them for.
Tip: Look at the property history at the bottom of Redfin/Zillow listing pages to see what the previous buyer paid to determine if you should pay double that!
Flipped Homes Purchased at 26% Discount
RealtyTrac said flipped homes were on average purchased for 26% below market value and later resold for a five percent premium above the estimated market value.
The average gross flipping profit, defined as the difference in purchase price and sale price, hit a 10-year high in 2015 of $55,000, not far from the $58,750 seen in 2015.
This figure doesn’t include the costs of rehabbing the property, which is typically anywhere from 20-33% of the property’s after repair value.
The best return on investment (ROI) was in the $100,000 to $200,000 home price range, with Pittsburgh (129.5%), New Orleans (99.2%), and Philadelphia (98.4%) the leaders nationwide.
Unfortunately, this return to flipping means less opportunity for traditional home buyers who rely on mortgage financing to get the deal done.
This competition, coupled with a continued lack of housing inventory, will make it increasingly difficult for first-timers and others with limited cash reserves to buy homes. Additionally, it could be yet another sign of the formation of another bubble.
Now that Tarek and Heather El Moussa have joined forces in holy matrimony and in the business of flipping homes and in starring on their own show, “The Flipping El Moussas,” we figured it was only a matter of time before they took the next step that all reality star couples take.
Can you guess? They’ve embarked on selling their own line of home decor.
Pretty much all big-name reality TV stars hawk their own products, of course. Chip and JoannaGaines peddle home accessories galore at Magnolia and Target. Property brothers Drew and Jonathan Scott launched a furniture line at Living Spaces. Dave and Jenny Marrs of “Fixer to Fabulous” have a slew of outdoor wares at Walmart. Even Tarek’s ex-wife, Christina Hall, has her own bracelet line. In short, the list of celebrity-endorsed products is nearly endless.
So it stands to reason that the El Moussas would also enter into the fray. Yet while I was excited to check out their offerings, I have to admit I was somewhat underwhelmed.
Is Tarek and Heather El Moussa’s home decor line a flop?
Home by Tarek & Heather currently offers only four products: two candles priced at $38, one candle priced at a jaw-dropping $249, and a dispenser of hand soap for $16.
All “smell lovely,” says Heather in a promotional video.
Apparently, these four products are just the start, with more to come—at least according to the second episode of their show, when Tarek and Heather were celebrating the arrival of some samples. They are not only sniffing candle scents, but also plumping pillows and nuzzling what looked like whisper-soft throws.
Tarek describes their new line: “In all of our flips, we’re going to put in candles, we’re going to do floor mats, rugs, maybe blankets, like homey stuff. Like comfy rugs and pillows.”
“So when people walk in, they know it’s a home by Heather and Tarek—er, Tarek and Heather. Sorry,” Heather says with a laugh.
I’m sure I wasn’t the only one who immediately wanted one of those throws. Given my anticipation, I was sorely disappointed to scour their website with nary a throw in sight—just four freaking products, one of them a $249 candle.
Could they have been overly eager to get to market, or just painfully naive about marketing home products? Tarek is known for selling homes, but selling home decor is a whole different game.
To find out what they might have been thinking, I reached out to consummate branding and marketing expert Klint Briney, founder and CEO of BRANDed Management. His company has worked with celebs, including Ed Sheeran, LeAnn Rimes, Mariah Carey, and Mark Cuban among others.
I asked him why the El Moussas launched so few products right out of the gate—shouldn’t they have waited until they had more to offer? Briney thinks not.
“By entering the saturated market of celebrity brands and home goods, a more risk-averse approach would be to initiate a small launch to test the market,” Briney says.
In other words, less is initially more when it comes to these lines.
“They chose two hero products that are both gender-neutral, accessibly-priced, and shelf-stable,” Briney continues. “In a time when most Americans struggle with decision fatigue, fewer offerings can often initiate higher conversion rates, as they are not bombarding the consumer with too many choices.”
I heard that. When I do a search on Amazon for one specific product and get 20 pages of results, I am usually overwhelmed by the choices and hold off on my purchase.
Tarek and Heather’s products haven’t been picked up yet by big-box stores like Target and Walmart, where their contemporaries have a presence? Is that a bad sign?
Not really, according to Briney.
“It appears they are taking a more targeted and narrow approach upon launch, as it is critical for them to ‘win their own backyard’ before employing a more large-scale, blanketed rollout,” Briney continues. “Their items are strategically branded Newport Beach and Los Angeles, the two markets they work and reside in. This sort of data is great presentation material when meeting with mainstream retailers, which often leads to better terms.”
In other words, you start out small and targeted, prove your work in a niche area, then your business offers a lot more value to a big-box store.
“They can learn a lot by the recent acquisition of Aussie brand Aesop,” Briney adds. This producer of skin, hair, and body care products was recently “acquired by Loreal for $2.5 billion, the largest in company history.”
If they’re lucky, Tarek and Heather, after starting with a few candles and some hand soap, could end up with a billion-dollar deal with a major international corporation.
“In an era of cancel culture and the fast rise and fall of most celebrity careers, the fact that Tarek has had a show in production over 10 years, along with reinventing himself after a high-profile divorce, shows his marketplace viability,” Briney concludes.
Forget the throws. Maybe instead I should buy stock in the El Moussa company.
Hard money is used by many investors as a short-term solution to fund real estate deals. Hard money can be used to fund fix and flips or buy rental properties until long-term financing can be put in place. I fix and flip homes as well as invest in long-term rentals, but personally, do not use hard money. When you use hard money it is usually more expensive than traditional financing and I have other short-term financing in place. Hard money is still a great option for many investors, but I will also discuss other short-term financing options. There is also a way to use hard money or private money to buy rentals with no money down using a conventional loan refinance.
What is a hard money loan?
Hard money is a type of financing used to finance properties for a very short-term like 6 months or a year. Hard money-lenders use different terms than a traditional bank. The first thing you will notice when you finance with hard money lenders is they charge a very high-interest rate. Most hard money-lenders are charging 10 to 16 percent and points for their money. Points are a percentage of the total loan and can add costs quickly when a hard money-lender is charging 2, 3 or even 4 points on a loan. Hard money loans are typically used for fix and flips because they usually have a one year term.
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Why would investors use hard money to finance a rental property?
The advantage of a hard money-lender is they may loan the entire amount of money you will need to complete a deal. Most hard money lenders base the amount of the loan on the after repaired value or ARV. You may hear they will loan 65 or 70 percent of ARV; that is not the purchase price, that is how much the house will be worth once you fix up the home. With a hard money loan, a rental property could be financed with much less money down.
How can a hard money loan be refinanced on a rental property with no money down?
Here is an example of how one hard money-lender structures a deal. You buy a home for $60,000, the ARV is $130,000 and the lender says they will go up to 70 percent ARV on the property. The hard money-lender will loan up to $91,000 on the house based on the ARV. The hard money-lender will need bids or estimates for repairs, and they will pay out the money for the repairs like a construction loan. They will pay 25% of the repairs needed at closing, and the other payment will come in 25 percent increments as the repairs are completed. The lender won’t charge you any interest or points until you sell the home and then you pay them one large payment for the loan principal, interest and points. This particular hard money-lender charges 15% interest and 4 points, but they will reduce the points paid after you do a few deals with them.
The cost to do this deal with a hard money-lender can add up very quickly. On this deal, the interest will cost you $6,825, and the points will cost you $3,640 if you use the money for 6 months. There are also hard money-lenders that will charge lower interest and points but will want a split of your profits. I don’t use hard money-lenders myself, because of how much they charge, but for investors who have no other options it can work out well. Hard money-lenders can help you secure a property below market value when you do not have other options.
Where can you find hard money-lenders?
There are many hard money-lenders out there. Many only lend in specific states, while some lend nationwide. The best way to find a hard money-lender is to search for one in your state on any search engine. If you want a few companies to talk to, I have listed some hard money-lenders below.
Lima Capital Hard Money
Fund that Flip
Can you refinance a private money loan on a rental with no money down?
Private money is money that comes from a private person. The person loaning the money is not a bank, mortgage company, hard money-lender or portfolio lender, they are just a person. Regular people will lend money on real estate because interest rates on other secured investments are really, really low now. Have you looked at what the rate is on a CD? For a five-year CD, the average is less than 1 percent! You can’t even come close to keeping up with inflation with that rate. Many wealthy people are looking for a higher yield investment that is still secured. Loaning on real estate may be the perfect answer for them to increase returns and create great opportunities for investors. A private money loan can be used in the same way a hard money loan is used.
How do you find private money for a rental property?
The biggest problem with private money is finding the person to lend you private money! There are many websites that claim to have private money lenders they can connect you with for a small fee. In my experience, those websites take your money and connect you with a hard money-lender at best. A real private money-lender wants to lend their money to someone they know and trust. They don’t want to lend money to a complete stranger who may or may not be trustworthy and do not have a clue what they are doing. I am still trying to find a source for good private lenders, but I think I am limited to one option; people I know. I use private money from many sources who want a better return on their money.
How to buy a rental property with no money down using hard money
It is possible to buy a rental property with no money down using hard money. If you were to finance with a hard money loan and finance repairs as well, you can refinance the hard money loan with no seasoning period according to Fannie guidelines. Fannie guidelines do not allow a cash-out refinance without a seasoning period, but the home has a higher loan than the original purchase price because the repairs were financed. You can get a long-term loan to replace the hard money loan without waiting a year like you would with a cash-out refinance.
For example, if you buy a home for $100,000 with hard-money loaning 100 percent of the purchase price and financing $35,000 in repairs. The total loan is now $135,000, you fix up the home and refinance using a Fannie loan, which will loan up to 75 percent of the new appraised value. If the appraisal comes in at $185,000 then you could finance up to $138,750, but Fannie guidelines will not allow a cash-out refinance. You would be able to refinance the full $135,000 that was loaned to you by the hard-money lender. This technique can be rather expensive because you have to pay the higher interest rate on the hard-money loan, the initial points and then the refinance costs with Fannie Mae. However, you just bought a long-term rental and fixed it up with almost no out-of-pocket costs!
Using traditional banks to finance short-term loans on rental properties
There are some banks who do short-term loans for investors. They are very hard to find and usually, you must have a great relationship with the bank. We use a portfolio lender to finance many of our short-term investments. They charge around 5.25 percent interest and 1.5 points on our loans. They will only give us 75 percent loan to value on our original purchase price and can complete the loan in two weeks. In the past, banks would finance 100 percent loan to value and fund us the same day. I am afraid those days are gone forever.
Traditional banks can offer another short-term option in the form of lines of credit. Most banks will want collateral in the form of real estate to issue a line of credit. If you have a house with equity in it, you should be able to get a line of credit from your bank. My bank charges a 5 percent interest rate and will go up to 90 percent loan to value on my personal residence or 80 percent on an investment property.
Conclusion
I use a mix of traditional banks, lines of credit and private money to fund my deals. I am lucky that I have private money available and cash to complete a lot of deals. I will usually get the bank loan for 75 percent of the purchase price, use private money for the rest of the down payment and my own money for repairs. Don’t be afraid to finance real estate with hard money if that is your only option.
I am a big believer in making big goals and one of my goals is to purchase 100 rental properties by 2023. I have been a real estate agent and investor for more than 15 years, and I love the income my rental properties provide. Buying 100 rental properties will allow me to retire with more than enough money to reach my current dreams and goals. I do not want to buy 100 properties quickly without concern for the returns or risk. It takes a lot of money, time, and effort to buy 100 properties in the right way. I only buy houses that are well below market value and have great cash flow.
I first wrote this article in 2013, but have tried to update it frequently. I now have 20 rentals that make me over $10,000 a month after expenses. I am way behind on my goal, but many things happened that I could not have predicted like our housing market going crazy. I have bought commercial properties in the last few years instead of residential because they have been better money makers in my market.
Why I made a more challenging goal
In 2010, my original goal was to buy 30 rental properties in ten years. I based that goal on what I thought I could realistically achieve when I started buying rentals. A couple of years ago, I realized my goal was too easy because I knew I could buy 30 houses in ten years. I had given myself no room for improvement in my investing strategies or real estate business! At the start of 2013, I reworked all my goals including my rental property purchase schedule. My new goal was to buy 100 rental properties by January 2023 because it challenged me and would make me work hard. I had no idea when I first made this goal how I could buy 100 rental properties, but that is why we make big goals; to challenge us to do more and to change the way we do things.
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Why real estate?
I want to buy 100 rental properties because of the income and freedom that 100 houses will give me. I make over 15 percent cash on cash returns on my rentals because I purchase them below market value with great rent to value ratios. If I can buy 100 rental properties with the current cash flow requirements I have, I will make a lot of money. According to my calculations, I will be making over $900,000 a year in cash flow, have at least 60 houses paid off, and have over 11 million in equity in my rental properties. Those figures are not adjusted for inflation and assume no appreciation or rent increases. That kind of income should allow me to afford whatever my family and I want and allow us to do whatever we like. We only live once and I want to get everything that I can out of life.
The first part of this article discusses the philosophy behind buying 100 rental properties, why it is important to have big goals, and why it is important to think big. The second half of the article discusses the numbers and a detailed purchase schedule.
Is it possible to purchase 100 rental properties?
To be completely honest, I do not know how I am going to buy 100 rental properties by January 2023. I do not make nearly enough money to buy 9 or 10 houses a year. I have barely been able to buy three houses a year. I bought my first rental property in December 2010, and I started my rental property purchase goal on that day. I should have had three by December 2011, six by December 2012, and nine by December 2013. I started out very slow buying only one rental in my first year. I have picked up speed and as of March 2016, I own 16 rentals, still behind where I had hoped to be. That does not mean I will not reach my goal. The reason I have not purchased as many rentals lately is they are much harder to find in our market. Our prices have increased significantly making it harder to cash flow. I have been buying many more fix and flips since I cannot find rentals.
Why do I think I can purchase 100 rental properties by January 2023 if I am so far away? After reading and listening to books on how to become wealthy I started reworking my life goals. A couple of ideas are repeated in books and audio tapes beginning with Think and Grow Rich by Napoleon Hill. Think and Grow Rich was published in the early 20th century after Napoleon Hill followed Andrew Carnegie for decades. Carnegie was one of the richest men in the history of the world and wanted someone to study rich people in the world and write a book about how and why they became rich. Because Carnegie was one of the richest people in the world, he was able to grant Hill access to most of the world’s wealthiest people. Think and Grow Rich is now known as one of the first self-help books, and many of its basic ideas are still taught today by the world’s most famous life coaches and teachers.
How will my attitude affect my success?
Being positive is a theme that is repeated in every self-help book and audio recording I have ever listened too. I am a strong believer that our attitude has a huge influence on our success in life. The books range from slightly crazy to extremely scientific reasons for how being positive can greatly affect the success we have in our lives. You may have heard of the law of attraction, which states that the universe will return to us whatever we put out. If we are positive and happy, we will get positive and happy things back. If we are negative and sad, negative and sad things will come our way. I am a very logical and scientific person and was not sold on this idea right away. I had to know why this would happen. How could being positive magically bring positive things into our lives?
I started doing research on the brain and on how the law of attraction theory worked. I found out that it is not all magic, there are scientific reasons why the law of attraction works. It is based on the subconscious part of our brain and on how it operates our bodies. We know that our conscious mind is only a fraction of what our brain is responsible for. Our subconscious mind is constantly working to keep us alive by telling our heart, lungs, muscles and the rest of our bodies what to do. Most of our movements and actions are performed by our subconscious, not our conscious mind. We do not have to think about walking, talking, driving, writing, or even most of our daily tasks. By doing those things repeatedly, we have programmed our minds on how to do them.
Tying this back into the positive thinking idea, if we are always thinking positively, our subconscious will think positively, too. If our subconscious thinks we are happy all the time, it will do what it can to make us happy. Why do we care what our subconscious thinks? It is much smarter than our conscious mind. The subconscious is responsible for handling millions of tasks at once, while our conscious mind can only handle a handful of ideas at once. If we let our subconscious know what we want it will help guide our lives and help us to get what we want. Whether it is love, happiness, money, or material items our subconscious has much more power than we think. The theory also states that you must think about what you want, not what you do not want because our subconscious cannot tell the difference. If you are constantly thinking about not having money, then your subconscious will do its best to make that come true as well. If you are constantly thinking of not getting sick, our subconscious will do its best to get you sick. Think of being healthy, think of being rich, and think of the good things, not the negatives.
Why such a big goal?
Almost every self-help book will tell you goals are extremely important. Without goals, we have no direction, no path, and no idea of what we really want in life. There are varying ideas of how our goals should be constructed. Some say we just need broad wide-open goals such as being as happy as possible all the time to make whatever is best for you to come to you. Others say to be as specific and detailed as possible with your goals, break your goals into smaller goals, and then have a period for when those goals will be accomplished. Eventually, you will have a detailed blueprint for how you will get to where you need to go.
Some people say you need realistic goals and others say you need outrageous goals. As you have probably guessed, I like outrageous goals! The reason I like outrageous goals is that they are challenging! If I know that I can reach a goal and if I know exactly how to reach it, where is the motivation for me to push myself? I want goals that make me think and reach for new ideas and systems. I have no idea what opportunities or challenges will face me in the future, so why should I limit my future goals to what I can do now? I may have a huge increase in income or find a new system that allows me to buy houses cheaper. I have such a lofty goal because I have no idea what could happen.
Who will I need help from?
Many of the self-help books also talk about how we all need friends, co-workers, or acquaintances to help us reach our potential. Some use the term mastermind to describe groups of like-minded people who meet to help each other succeed by offering advice and motivation. The idea is that the more people to brainstorm ideas, questions, problems, etc. the better the chance a great idea or solution to a problem will come about. I do not have a mastermind group (this has since changed), but I have recruited my best friend to work with me and learn the real estate business. He was a top-level manager in the corporate world and left his six-figure salary behind to learn real estate from me. I benefit by having a new mind to bounce ideas off and have more help in the office. He benefits by getting out of the corporate grind and learning how to be truly wealthy. He also has a flexible schedule and he is not stuck behind a desk all day.
Why focus is so important
The self-help teachers also say how important it is to focus on one task or goal. All the greats had something in their mind that they really wanted. They did not let anything stop them until they got what they wanted or died trying. I have always thought of myself as being able to multitask, a jack-of-all-trades type of person. So far, it had worked out well, but I know I can do better. I know there are things I can improve in my business to make it run better and make more money. I have always thought that I knew everything about finding good deals in real estate. After starting this blog, I have realized that there is a whole world I have been missing in direct marketing to off-market properties. Instead of trying to manage five different sources of income myself, I need to delegate less important tasks to my staff and focus on the real moneymakers. If I can focus intently on a couple different areas of my work instead of just skimming over 50, I know I can improve my numbers significantly.
Why visualizing the goal being achieved is important
Many great athletes will tell you how important visualization is to succeed in sports. Great golfers visualize exactly how their shot will look before they hit it. Basketball players repeatedly visualize hitting the game-winning shot. The wealth teachers are all huge supporters of visualization. They say visualization will give your subconscious a clear picture of what you want and then your subconscious will do its best to make it happen. If you want to change your life, start visualizing how it should be every day. Better yet, go see, touch, and smell the things you want. Test-drive the car you always wanted, look at your dream home, or immerse yourself with the things you want and your subconscious will get to work. I wrote a ten-year dream story on exactly how I wanted my life to be. I described a beautiful house and in three months, I bought that house. I was not even planning to move and in no way thought I could afford a house like the one I have now, but it became a reality.
Using all I have learned to reach my goals
Based on the ideas I have just discussed, I think I have a good chance of reaching 100 rental properties. I still do not know exactly how it will happen, but I know it will or I will find a better and more challenging goal. I have to train my subconscious to help me reach my goal. I have to be positive all the time. I have to think about my goals constantly and break it down into manageable pieces. I must have help and I have to focus more intently on my important goals. I also have to visualize myself already achieving my goals and having everything I want. Even if not all of this makes me rich, worst-case scenario, I am a positive, determined, focused person who knows exactly what he wants.
Breaking down big goals makes them more realistic
I have broken down other goals in my life, but I have yet to break down a goal this big! I am going to work through the goal while writing the blog and see where I end up in 9.5 years. I wanted to write this article to help convince myself that it is possible to buy 100 properties. The first part of this article was all about my mindset. Now, let us get down to the numbers. Here is a year-by-year breakdown of how I plan to purchase 100 rental properties.
Year one
With my current income, I can purchase three rental properties a year and I have purchased that many in the last three years. I should be able to do a cash-out refinance on at least one rental property in 2014 and get enough money to buy another property. I am also counting on my new attitude and work ideas to create enough extra income to purchase one more rental property. I also just acquired a HELOC on my personal residence for $60,000. I think that will allow me to purchase one more rental. New goal for 2014 is to purchase six long-term rentals.
I will have 15 houses with about $9,400 in monthly cash flow. That is $112,800 a year all going toward paying off mortgages on my properties. I will have paid off one house at the beginning of 2014 and will pay off one and a half more in 2014.
Year two
In 2015, with income and savings, I should be able to purchase four properties. I should be able to do another cash-out refinance and buy another rental property as well. I also believe my continuous improvements will allow more increases in income, through either listing or flipping houses. The increased income will allow me to add another rental and HELOC another as well. I am hoping the addition of my friend beginning to work with me will bring in more income from his real estate activities, which will allow another purchase. My goal for 2015 is to purchase nine rentals.
I will have 24 houses with about $15,200 in monthly cash flow. That is $182,400 a year all going toward paying off mortgages. I will pay off the other half of one property and two more rentals in year two and will have four properties paid off.
Year three
I believe I will increase my income and savings enough to be able to buy five rentals. I will have 24 rentals and I should be able to refinance at least two of those properties. That will allow two more purchases and the HELOC should add the flexibility to add another rental. I am still planning to add to my income every year with increased business. This year I see a big jump in income with my friend being around for his third year and our new marketing and listing techniques taking off. I see three more rental properties being purchased from new income. My goal for 2016 is to purchase 11 rentals.
I will have 35 houses with about with about $22,200 in monthly cash flow. That is $266,400 a year all going to pay off mortgages. I will pay off four and a half more properties for a total of eight and a half properties paid off.
Year four
From my current income, I will be able to buy eight rental properties. I will continue to refinance two properties a year, which will allow at least two more purchases. I am also going to use the HELOC to buy another, and I am still planning to increase my income. I am going to stay conservative and assume enough income to buy one more property this year. My goal for 2017 is to purchase 12 rental properties.
I will have 47 rental properties at this point with about $31,400 in monthly cash flow. That makes $376,800 a year all going to mortgage payoff! I will pay off the half of a mortgage left over from 2016 and five more properties in 2017, making 14 properties paid off.
Year five
From my current income, I will be able to purchase nine rental properties. I will refinance two more properties and use the proceeds to buy two more rentals. I may not have enough money in the HELOC this year so I will not count on that, but I will count on my income increasing enough to purchase one more rental. My goal for 2018 is to purchase 12 rental properties. Note: To buy this many properties I will need about $300,000 in cash for repairs and down payments.
I will have 59 rental properties with a monthly cash flow of $41,000. That makes $492,000 a year all going to mortgage payoff. I will pay off seven and a half more properties in 2018 making 21.5 properties paid off.
Year six
From my current income, I will be able to purchase ten rental properties. I will refinance two more properties and use those proceeds to buy three more rentals. With inflation and appreciation, I should be able to refinance the properties for more money than in previous years. I will not use increased income to buy another property. If my income increases, I will use it for fun stuff such as vacations or cars! My goal for 2019 is to buy 13 rental properties.
I will have 72 rental properties with a monthly cash flow of $51,600. That is $619,200 going toward mortgage payoff. I will pay off the half mortgage from 2018 and nine more properties in 2019 making 31 properties paid off.
Year seven
From my current income, I will be able to buy ten rental properties. I will refinance two more properties and use that money to buy three more rentals. I will not count on any more raises in income since I do not need it at this point. My goal for 2020 is to purchase 13 rental properties.
I will have 85 rental properties with a monthly cash flow of $63,400. That is $760,800 a year going towards mortgage payoff. I will pay off 11 more properties in 2020 making 42 properties paid off.
Year eight
From my current income, I will be able to buy ten rental properties. I will refinance two more properties again and purchase three more rentals with that money. My goal for 2021 is to purchase 13 rental properties.
I will have 98 rental properties with a monthly cash flow of 75,600. I will have $907,200 a year going towards mortgage payoff. I will pay off 14 more properties in 2021 making 56 houses paid off.
Year nine
I only need to buy two more properties to reach my goal! I made it ahead of schedule and when I started writing this article, I was not sure how I would be able to reach 100 properties by 2023. I do not need to refinance any properties at this point and I can start using my income any way I want or I could retire!
I will have 100 rental properties with a monthly income of $82,400. I will have $988,800 a year going to whatever I want it to go to at this point. I can stop paying down mortgages if I want to or I could keep buying properties if I get bored. I came really close to the figures I estimated before writing this article. Falling just short of one million in income from my rental properties (which was more than I thought) and just shy of 60 properties paid off.
Assumptions in my plan to purchase 100 rental properties
You may be wondering how I came up with my figures. To be honest I used very basic figures to make things easy on myself.
I assumed $600 in monthly cash flow per property. I am making between $500 and $700 per property now.
I assumed each mortgage that I paid off would increase monthly cash flow by $400.
I do not assume any inflation because that would cause the numbers to be much more difficult to figure!
I assume my portfolio lender will continue to lend on as many properties as I want. I will have 43 houses financed at one time and then those will start to decrease as I pay them off.
I assume I can continue to do cash-out refinances with my portfolio lenders.
I assume interest rates will not increase significantly.
I assume rental rates will not go up.
Additional benefits of rental properties that my income projections did not account for
Rental properties have great tax advantages, which I discuss here. Every rental property can be depreciated, which will save me thousands in taxes each year. I assume my rental properties will not appreciate, but they have already seen huge appreciation in the last two years, increasing my net worth by $600,000. I assume rents will not increase, but my rents have increased as well over the last couple of years. I rented my first rental property for $1,050 a month in 2011 and it now rents for $1,300 a month. I will most likely be better off than my projections indicate if I can buy 100 rental properties.
Potential roadblocks
These are many assumptions and one or more of them may not work out as I plan. However, other factors may help me do even better than I planned or balance out any roadblocks I run into.
New ways to find properties: I am going to start direct marketing to off-market owners. This should allow me to buy properties even further below market, and I may even find a few owners who will finance down payments. I recently realized I could use my IRA to buy properties!
Private money: One of my goals is to find new sources of private money that will allow me to finance more repairs and down payments. This would allow me to put less money into properties and buy them faster.
New income sources: I have no idea what the future holds as far as opportunities and money. I may find a gold mine that will allow me to buy properties for cash and not have to worry about financing at all!
I assume I will not do anything with the houses I pay off free and clear, but if needed to I could easily get a line of credit or refinance one of these houses to bring in enough money to buy a few new properties.
What will I do in 2023 if I reach my goal?
I have many things I would love to do if I did not have to work. Here is a list of a few of the things I would love to do with one million dollars a year coming in and no job!
Start a pizza restaurant
Start a car dealership
Travel the world with my family
Donate time and money to those less fortunate
Play in the World Series of Poker
Attend a Super Bowl
Play golf all over the world
Buy a Lamborghini Diablo (done!)
Buy a beach house
Help teach others about real estate (doing my best now)
I have a much longer goal list than what is above and I hope to do many of these things before 2023. I know I will have time, money, and the freedom to do these things at that time.
Conclusion
I plan to purchase 100 rental properties by January 2023, but I realize that may not happen. If something better comes along to change my plan, I am ready to embrace fully any new opportunities.
Update on my plan 2014
I have already changed focus slightly in 2014 to fix and flipping over buying long-term rentals. I have done this for two reasons:
There have been more fix and flip opportunities than rental opportunities in my market.
The money from flipping will help me buy more rentals; rentals take a great deal of cash.
It seemed crazy to think I could increase my income enough to buy this many properties when I first made this goal in 2013. However now that it is late 2014, I can easily see myself making more than enough money to buy 100 rental properties and have plenty of money left over to do other fun activities. At some point, I may decide it is better to buy larger multifamily buildings than single-family homes, but for now, I see more opportunity in the single-family market in my area than multifamily.
Update on my plan 2016
The market has gotten even crazier in Colorado. Houses I was buying for $100,000 are now at least $160,000 or more. The rents have not increased nearly as much as house values have increased. It is very hard to find rentals and I have stopped buying them in Colorado. I have started to look at other states including Florida for a new market.
I also stopped paying off my mortgages early. I decided my money was better used to buy as many homes as I could. It has paid off buying 16 rentals in the last five years since our market has gone up so much. I have invested about $300,000 in buying my houses and my equity is close to $1.5 million. I have even decided to sell some of my rentals and re-invest that capital into more properties in another market.
I wrote this goal out in 2013 and updated it in 2014, and it is now 2016. I think goals are vitally important to achieving what you want in life. Will I reach this goal? I do not know. If I don’t reach it, will I be a failure? No! I am already way ahead of where I would have been without this goal. That is the point of goals, to motivate you to go farther than you think you can.
Update on my plan 2018
Right now it is the middle of 2018 and I have not come close to where I should be with my goal. Am I disappointed? No. Many things have happened that are out of my control; good and bad. The biggest challenge I have faced is the housing market in Colorado. Prices have almost tripled since I made this goal. Some of the rentals I bought for less than $100,000 7 years ago are worth close to or more than $300,000 today. I can no longer cash flow on residential rental properties in my market. I have thought about buying rentals in Florida, but in the end, decided to buy commercial properties here. I even bought a 68,000 square foot strip mall this year. I am buying rentals worth a lot of money, but not as many as my plan called for. Sometimes we have to change our plans based on changes in our lives or markets.
I have also focussed more on flips because I can make money with those in my market. I flipped 26 houses last year!