Interested in Real Estate: Got cash?
5:10
Writer’s note: Today I’m taking on a different subject, as for the seemingly abrupt turn, it’s the long term goal of many entrepreneur-minded people to build a source of residual income, whether it be for your retirement from a cubicled-life or to help finance your children’s education, having money come in without the burden of spending your precious time doing it is frequently desired if not sought after goal. Therefore, as part of your path to financial independence, a few of my thoughts on real estate investing for the beginner.
Life Note: My introduction into real estate management was not planned in 2007, in fact, it came at me in a way that I least desired it and wanted it to, being thrown into a situation where my elderly mother’s tenant was insinuating litigation. This was brought to my attention, none other than directly after my graduation from Chinese Medicine School and two months before my State Acupuncture Board exam.
What sad timing. I lost 15 pounds in the process (I went from 150 to 135) from depression and anxiety. However, I managed to negotiate a mutually agreeable outcome to the exigent circumstance and I passed my Board Exam (though with less of a smile on my face as I would have imagined because I was still in the midst of negotiating with deceptive tenants).
Nevertheless, being the most inclined and determined to take this unwanted burden on for my family, WTH, I ended up taking on the mantle of being the landlord, property manager, home renovator, along with my other hats, and ended up finding the wherewithal going from an Acupuncture hermit to colliding into the world of real estate investment.
And for you? So what if you had a few ideas that could help you get into your own investment real estate? If you could get a tip of two, you may (or may not) easily find yourself in the position to secure a long term income or growth equity in your financial portfolio. Could that help your situation?
What I’m going to write is not meant to be a rigorous pro-guide, but a few thoughts to consider your equity power. If you’re considering real estate as an investment consider the following…and consult with your realtor and loan broker for the latest rules…
Now we’re talking some serious real estate. 🙂 Paris 1989, photo by Challen Yee
How to get the money
With real estate, the general rule applies, it takes money to make more money. If you’re in this position, how do you leverage your assets?
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Tip 1: If you own a home, you can qualify for a HELOC
One of the easiest sources of money to get from a lender is a Home Equity Loan or HELOC. The qualification process may still take several months now since rules have changed after the big recession started, but it is a less rigorous entry than getting a regular mortgage. What is nice about a HELOC is you do not pay if you are not using it.
Though lenders don’t want to hear this, in order to take full advantage for your HELOC for investment purposes, don’t use it for anything else. If you do not have a lot of debt and have discipline not to spend the HELOC on a variety of other things, that is important. By securing a HELOC, you will have access to money to assist in a down payment for a property.
Sometimes, in order to qualify for a loan the bank needs to see that have cash in your account waiting to go. In this case, if you use the HELOC to show cash in your account, you will need to draw the necessary funds from your HELOC and position it in cash to complement what is in your checking account for up to three months. Most lenders like to see up to three months of statements to evaluate your cash situation.
Tip #2. If you are employed making decent money, do not change careers yet
In order to qualify for a loan, banks don’t mind if you change jobs, but they do not like it if you change careers. This was the best UNPLANNED reason why I ended up going back to my cubicle job, I could show adequate income to qualify for a HELOC or a mortgage. If I was only trying to get my Acupuncture practice going and showing I was living off my savings, the banks were not going to like that.
It helps to show you’ve been in an industry, making qualified income for at least a year.
Tip #3: If your house is paid off, you can mortgage your home and get more cash
I wouldn’t do this unless the rental income can come in immediately (or after a short renovation period) to begin paying off your mortgage but it could be a way to get the amount of cash necessary to buy another property in cash.
It may sound scary converting all this equity to cash, but if you have low debt and are getting into a sound income generating piece of real estate investment, I repeat, sound income generating real estate investment… you will have a situation where you have a way to pay off your debt without you having to do it every month on your own.
After typically 15 or 30 years (so this kind of investment does take some future planning) you will have income to fuel your retirement, OR, increased equity that you can cash out, and the only major financial burden was coming up with a 25% down payment, and other upfront costs to get your property.
When it comes to taking a loan against your own house, make sure your plan is clear to safeguard your home if you cannot generate adequate income to pay the loan off. Having adequate savings to handle downtime between tenants is critical.
If you are able to generate additional income from other ventures, you can choose to pay down your loans to a more agreeable level if that suits you.
Tip #4: You can borrow money from a relative sitting on cash
You can do this, but plan on paying this money back as soon as humanly possible, for instance, after you get a mortgage on your house or sign agreement with a mutually agreed plan to pay them back. I prefer the former because even if you find a relative willing to help, I do not want to be a burden on them and I don’t want that to get in the way of our relationship. They also have long term goals and needs and the chances they are going to be exactly the same as yours is precisely zero to none.
Your efforts to build independence for your family will be sabotaged by your unwillingness to snap the umbilical cord from your family or relative. Moreover, in general don’t expect people, even family members, or should I say, especially family members, to have the same investment principles as you or cash needs over the course of time.
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I’m neither a real estate guru nor a house flipper, I prefer long term investment strategy when it comes to real estate, but if I can offer a few pointers from my experience so as to help you strengthen your financial situation, it may become part of your entrepreneurial or investment portfolio.
6:50 first draft
(Big gap)
09:40 publish
I’ll see you… on the next page
Challen Yee