Recently, my partner began investing in real estate after we went to a seminar that covered all of the good, the bad and the ugly of this investment model. The principals are simple: buy low, rent for a year and sell high. And, with a goal of two properties per month, my partner is on his way to building passive income and long term wealth. Want to know how he did it?
Using a list of affiliated vendors, my partner secured a hard money loan approval for up to $125,000. Then, we began shopping for properties on the market for pennies on the dollar. After many bids lost, we secured a property for $52,000 that required $9,500 worth of work to rehabilitate it. This put his “all in” about $62,000. However, before securing that property, we ran numbers to see what it would be worth fixed up. We came out to about $92,000 – all things considered. Not bad for his first go around.
His note on the property was $62,000 at seven percent interest. However, the goal is to refinance the property using a conventional loan immediately after construction is complete, putting his monthly payment around $450 (including taxes and insurance).
Rent and Hold
From here, the strategy is simple: rent the property to a tenant for one year and one day from the date of purchase, so as to avoid hefty capital gains taxes from the flip. After running the numbers for comparable rentals in the area, the rent price we solidified was $925 per month. We had a renter in two days, after getting calls, texts and emails from over 20 applicants.
What this Looks Like in Cash Flow
$925/month – $450/month x 12 months = $5,700 per year.
Selling at $92,000 in a Year, Looks Like This:
$92,000 – $62,000 = $30,000 + $5,700/year in profit = $35,700 in straight profit (minus applicable real estate fees).
Rinse and Repeat
At two properties per month, that is approximately 24 properties per year, on (or about on) par with the same numbers.
What This Looks Like
24 properties x $35,700 in straight profit = $856,800 a year. By simply investing half of that profit into larger ventures, such as multifamily units, apartment complexes or commercial ventures, this means you can literally double your profit each year, without fail, using the exact same formula.
However, as my partner noted, it’s important to have solid professionals in the real estate field, the hard money lending field and the conventional finance field in order to get this recipe just right. All the same, in doing so, it can lead to full retirement in less than three years from the day you start, and passive income for life. All you need to start is a decent credit score (720 or higher), about $20,000 in the bank and a valid model to work from.
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