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I want to share with you some ideas on using real estate to become debt free and build your cash reserves. It has worked for me and I have also shared this with many other investors and it has worked for them also. Many investors start out in real estate thinking that you have to "have money to make money". That is not the case at all. You will need one of two things though; either good credit or cash...remember that it doesn't have to be your cash or credit as far as that's concerned. It's OK to start out with other investors until you can do it on your own. I would rather share the profits and have some of something rather than all of nothing.We only buy when we can get paid and still cash flow the property. Let me explain. Let say you find a property that has an after repaired value or ARV of $100,000. Because the property needs $20,000 in work you can buy it for $50,000. Now you will be in the property at 70% of value once the work is done. Whether you paid cash, borrowed from relatives or got a hard money loan for purchase and rehab makes no difference. Once you have a $100,000 property you can now refinance at 80% loan to value or LTV and after closing cost pull out about $7,000 to $8,000 in tax free cash. Yes you do not pay taxes on borrowed money. But just remember that it is still borrowed money and has to be paid back, even if it is the tenants that are paying it back. I do not recommend refinancing over 80% loan to value. This way you still have some equity for your financial statement and the property should cash flow with no problem.<!--more-->[widget:ad_unit-207033651] Now, what do you do with the cash out from the refinance that you just received? No you don't buy a new car, go to Vegas, or anything like that. You simply pay off a credit card, installment loan, your car, your equity line, etc. You can buy real estate and get cash to pay off your personal bills and increase your cash flow from the rents at the same time. If the property you just bought and refinanced has a $200 cash flow but you also used the cash out to pay off your car that has a $300 payment, how much did you really increase your cash flow? $500! Every time that you buy a property think about what bill you will soon be able to pay off. Once you have all of your consumer debt paid off then you start paying off your home that you live in. Once your home is paid for then you go to your banker and get a line of credit on your home to use to buy and rehab properties. Then you simply refinance once the work is done and pay off the line. It is much easier to negotiate with a seller when you can simply write a check to purchase their property. Then when you ask a seller the least they will take if they can have a check by Friday, you can back it up. Sure it may take some time to get to this point but once you have become debt free (with the exception of rental property, of course) it opens up so many options for you to do things that you have never been able to do. Not to mention the peace of mind.We have a property analysis form that we use to determine if a deal will fit into this plan. The form even shows the cash flow, cash out and equity gained by purchasing each property. If you would like a copy, please visit the "Freebies" section of www.larrygoins.com.I hope you have enjoyed this article. For more articles on real estate investing, to sign up for our free newsletter and listen to free weekly training teleconferences please visit my website at www.LarryGoins.com where you will also find free forms, documents, EBooks, Downloads and more. Also visit www.FinancialHelpServices.com for investor financing. Thank You, Larry Goins. continue reading
I was on a coaching call with one of our students the other day, and we got on the subject of free and clear properties. He has done several deals now and is really getting his feet wet in the real estate game. He purchased a couple properties recently and just finished with the renovations. He owns the houses free and clear and wants to pull his money back out through a refinance. His plans are to hold on to the properties and use the cash from refinances for his next deals.This brought to mind a couple suggestions for his free and clear properties that would potentially save him a bunch of money and protect his assets at the same time.Two Reasons to "Mortgage" Your Free and Clear PropertyWhen I say "mortgage" your free and clear property here, I do not mean bring in a new loan and leverage your property. I am suggesting to file a mortgage against your property from an entity that you are familiar with.1. Save Money when RefinancingIf you foresee yourself wanting to pull out money from a free and clear property down the road, here's a good tip.The rate that you could get on a rate and term refinance is typically much better than a cash out refinance. This could easily translate into saving tens of thousands of dollars over the life of a loan. If you own a free and clear property and want to pull out some funds, you'll have to do a cash out refinance.BUT, what if the free and clear property you owned, had a mortgage on it that you were familiar with. You could apply for a rate and term refinance and you would simply supply the payoff on the mortgage for closing. The mortgage is paid off but little does the bank know, it goes right in your back pocket!You get a rate and term refinance, save a bunch of money, and get the cash you wanted. Win-Win-Win!2. Protect Your AssetsLet's say that you own a free and clear property and are doing some renovations. You've got a team of contractors working away steadily until one day, Joe Contractor falls off the roof. And come to find out, he wasn't even licensed.Joe Contractor is feeling pretty down on his luck as he lays in the hospital getting better. As he is watching Jerry Springer, he gets a great idea.Why don't I sue Mr. Deep Pockets Investor since he's such a wealthy land barren?Joe Contractor calls his attorney and his attorney finds out that the property is free and clear. Soooo, the attorney gladly takes the case. "With all that equity, there's plenty to go around," says the attorney.Now, you've got a lawsuit on your hands, your rehab project is on hold, and you watch as your investment dreams turn to nightmares.Or, you "mortgage" the property from an entity that you're familiar with. The same attorney looks into the situation for his down and out client, but this time, he sees that there isn't any equity in the property. The attorney calls back Joe Contractor and let's him know that he'll gladly take the case, but it's gonna cost him . . . A LOT!Joe Contractor doesn't want to throw his money away and probably files for disability or something. Anyway, you successfully navigated away from a big headache by playing your cards smart.If only to protect your assets, "mortgaging" your free and clear properties is a great way to minimize risk!To find out more about Patrick Riddle and his real estate investing adventures, go to his creative real estate investing blog. continue reading
Here's a question that a reader posted the other day followed by my response. After reading their question, try to come up with your own thoughts before reading my response and determine how you would have handled this situation.Dear Scott, There is a property that I am really interested in. I would like to take action to put it under contract. This will be my first deal. How do you go about purchasing Multiple Properties? example: This is a 5 House Package ( 5 Houses can be purchased for $8K)If I buy them all,I can get a bonus of a $245,000 uptown condo for $204,000. These condos are still under construction and the option was bought for $10,000. The five house package buyer gets this $51,000 value equity pack for free! Also, this is a "wholesale/assignment" deal that requires all cash. I would be dealing with another investor. Now, this truly appears to me to be an exceptional deal! Nevertheless, I need to do my due diligence; I also need a private lender to secure funding for this deal; in addition, I need to structure this deal with an "exit strategy"Scott, what real estate s... continue reading
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