“Ninety percent of all millionaires become so through owning real estate” – Andrew Carnegie
Investors range from First Time Investors to seasoned Rehab and Resell Investors who purchase large quantities of homes every year. Investment strategies range from Repair and Hold for mid to long-term rental income to Rehab and Resell for short term profits.
You don’t have to be wealthy and have large amounts of cash to invest in real estate. According to a 2009 National Association of Realtors study of investors, nearly half of all investors had an annual income of less than $75,000. Down payment and closing cost funds came from traditional mortgages, home equity loans, Self-Directed IRA’s, Gifts from Family Members and partnerships. Larger investors will often use short term hard money loans to leverage their investments and maximize profits.
Learn how to create a College Fund or Retirement Income investing in real estate.
John wants to build wealth through rental properties so he finds a single family home for $400,000. John uses an $80,000 down payment and obtains a 30-year fixed rate loan of $320,000. The home can be rented for $2,500 per month, but John’s expenses average just $2,000 per month, leaving him with $500 per month in cash flow, which increases each year as rents climb with inflation. Although that income is taxable, he doesn’t have to pay any taxbecause of the depreciation deduction he gets on the property, thus part of the tax benefits of owning the property. Over the next 30 years, the value of the property increases to $1,000,000 (a 3% per year increase) due to appreciation. Finally, each year during those 30 years, the loan has been paid down and John now has an asset worth $1,000,000, plus he’s making thousands per month in cash flow from rental income
Suitable investment properties can be found in the Multiple Listing Service (MLS), participating in private auctions and at Trustee Sales at the County courthouses.
Now is one of the best times in recent history to invest in Real Estate with prices and interest rates at all-time lows and with rental income dramatically increasing to meet the large demand caused by families displaced during the extended foreclosure crisis.
TYPE OF INVESTORS
- First Time Investors
- Move-up Investors
- Portfolio Investors
- Performance Investors
- Rehab and Resell Investors
FIRST TIME INVESTOR
The first –time investor has never purchased real estate as an investment vehicle but likely has purchased real estate as their personal residence. This type of investor has a very low risk tolerance and little or no experience; however, this is the starting point for most investors.
The move-up investor either owns a home outright or owns a home with payments low enough to support becoming a rental property that cash flows at market rent. Rather than sell the home currently owned, a move-up investor can rent the home, have a tenant pay for equity and cash flow, and then purchase another property. This type of investor has a very low risk tolerance and currently owns a home that can be rented.
The portfolio investor purchases a property every one to three years. This type of investors are typically conservative but understand the benefits of real estate and have incorporated into their long term investment plan. This type of investor has a low risk tolerance and is experienced.
The Performance Investor purchases at least one property to hold every ear. These are typical high net- worth individuals who understand the value of large cash flow real estate portfolios. This type of investor has a low to medium risk tolerance and is very experienced.
REHAB AND RESELL
The Rehab and Resell investor purchases property for rapid improvements and quick, but profitable, sale. This type of investor has a high risk tolerance compared to other types, is very experienced and is looking for Trustee Sale, REO, Short Sale and Probate properties that can be purchased 25-30% below market value.
BENEFITS OF REAL ESTATE INVESTMENTS
- Cash Flow
- Taxes and Deductions
- 1031 Exchanges
SOURCES OF INVESTMENT FUNDS
- Traditional Mortgage
- Home Equity Loans
- Home Equity Lines of Credit
- Private Hard Money Lenders
- Self-Directed IRA’s
- Depreciation allows yearly deductions on improvements to the property
- 1031 exchanges defer capital gains taxes
- Self-Directed IRA investment opportunity
Contact our Team by Email at Info(at)SummitRealEstateGroup(dotted)net or call us at. . .
Orange County: 949. 305. 0121
Los Angeles County: 661. 510. 3042