Unless you are living with your parents rent-free, you are paying a mortgage - either yours or your landlord’s. Entrepreneur Magazine, a premier source for small business, explained this month in their article, “12 Practical Steps to Getting Rich”:
“While renting on a temporary basis isn't terrible, you should most certainly own the roof over your head if you're serious about your finances. It won't make you rich overnight, but by renting, you're paying someone else's mortgage. In effect, you're making someone else rich.”
Christina Boyle, Senior Vice President and head of the Single-Family Sales & Relationship Management organization at Freddie Mac, explains another benefit of securing a mortgage vs. paying rent:
“With a 30-year fixed rate mortgage, you’ll have the certainty & stability of knowing what your mortgage payment will be for the next 30 years – unlike rents which will continue to rise over the next three decades.”
Purchasing a home is usually the best financial move, but not just any house will do.
Sagareus will help guide you toward a purchase that will gain equity and appreciation over time, offer more than one exit opportunity, and not put you at financial risk in the meantime.
The most traditional investing strategy is a conventional buy and hold investing. A buy and hold investor, aka landlord, purchases a property and rents it out. As a landlord, you are create financial abundance primarily by collecting monthly cash flow and/or waiting for appreciation and equity growth through mortgage pay down.
Conventional financing requires 20%-25% down payment for a non-owner occupied purchase. If you have funds available, this is a simple straightforward method to secure your financial future.
House hacking is the most accessible and safe approach to building long term wealth. Traditional house hacking strategy is very simple. You purchase a 2 to 4 unit property, live in 1 unit while renting out the others. Ideally, the other units produce enough income to cover all expenses AND your "rent payment."
Even when income does not quite cover your full payment, you are still building wealth. Alternatively, you could purchase your first home with the intention to hold as a long term rental. With Owner-Occupant financing, you are required to live in the property for 12 months. During this time, save up another down payment to buy your next property.
The major benefit of the House Hacking model is the Owner Occupant financing. With Owner Occupant financing, you secure a lower interest rate and are required to put down as little as 3.5%.
This acquisition approach is best for would be investors who lack the 25% down payment required for non-owner occupant loans. This is the most popular approach for entry level real estate acquisition and simply requires analyzing your purchase with a long term view.
Flipping houses is a great way to generate additional income so you can invest even more. Successful flippers generally have a construction and/or interior design background and/or build a strong team around themselves for massive success.
Over the years, we've outlined 6 key processes for successful flipping:
You want to look at A LOT of deals before making your first purchase, and you'll continue looking at lot of deals as you evolve as a fix and flipper. Lead Generation involves searching the MLS, networking with wholesalers and invested minded real estate firms, such as Sagareus. You can also set up direct mail, online, or other advertising campaigns to get sellers to contact you directly.
Lead Processing & Deal Analysis
As leads come in, you need a system to obtain necessary information, analyze the potential investment, and follow up with an offer. I would argue deal analysis is the most important phase. In other words, choosing what deal to execute and what deals to pass.
If you use a broker to represent you, your broker can suggest terms of your offer to secure the deal, but as an investor, you need to understand the components of a real estate purchase so you understand what makes a competitive offer. Making, presenting and negotiating the purchase is vital to flipping success.
Financing fix and flip projects comes in various forms. Typically, the projects cannot be financed through conventional financing because the property is in such disrepair. This leaves 3 general options:
Fund your projects is vital. You can generate as many leads as you want, make 1000s of offers, but if you can't close, you can't do the deal.
While the entire flipping process takes an average of 6 months, construction typically takes 6-12 weeks, depending on the scope of work. During the construction phase, you are making all the configuration and design decisions. You will need to determine what is worth spending on and what should be left out. What will the end buyer appreciate the most? Your contractor and real estate broker can help you, but ultimately you must make all final decisions.
Pre-Sale & Listing
Once construction is complete, you'll prep the house for sale including final cleaning, staging, photographer, creating marketing materials & finally listing the house for sale. A good listing broker will assist with this phase, but again, as the investor, you will want to understand the process and make all final decisions. Finally, the property will be listed for sale. You will receive offers from buyers and you will negotiate the sale of your property.
Finally, the BRRR Method is an acronym for buy, renovate, rent, refi, repeat. Executed well, this approach allows you re-finance out 100% of your original invested funds. The challenge with the BRRR Method is sourcing deals that meet buying criteria and accurately estimating renovation costs and timeline. This approach also requires substantial initial investment including non-25% owner occupied down payment + renovation costs.
The BRRR Method is best for professional investors with construction background and adequate time to spend supervising the construction crew.
These are the questions Investors us ask most often
This is the primary issue most investors have. Sourcing and underwriting deals takes a lot of time, effort, and money. Sagareus lead generation pipeline consists of a combination of direct mail programs, colding programs, effective lead capture and nurturing programs, networking, and online advertising.
No. In fact, many people have lost a lot of money flipping houses.
Learn from others first and take it one step at a time.
Unless you want to live in the property, yes. You will need at least 20-25% down to secure a deal, whether its a buy & hold deal or a fix and flip deal.
If you lack funds to move forward with a deal, a common strategy is to find a money partner. This person has the money, but lacks the time and/or expertise to execute the deal.