Entrepreneur this week #
Post 3
The five most important things to consider before investing in real estate
1. Buy assets that are off-market with EQUITY -
Do not forget, the goal in real estate investing is to solve problems, to become Someone's other liability to an asset by the value you can bring to the table.
Buying Assets in the Market (MLS) in most cases does not give you an advantage over the other bidders, as what is good in the market is disappearing fast, and what is left for a long time is leading to question marks, especially regarding the price, which is usually exorbitant.
In a previous post I told you how I purchased my first property in a public auction for $ 39,400.00. Many emotions flooded me, on the one hand the desire to win and win and on the other hand the fear of making a mistake and returning home in disgrace. After all, success in the first tin will make me want to keep buying houses in court, and a loss will make me not come back anymore. It’s hard to describe how fateful the first deal in a real estate deal is for the rest of my career, not just for me, for anyone.
2. Find a niche for yourself -
Buying real estate just for a significant return is not focused enough. A shrewd investor knows how to set up a business model that does not depend on a single transaction, emotion or random factors. A successful entrepreneur knows how to examine his business model while looking at numbers and putting emotion aside. 2009 was very clear, I knew what area I was focusing on, I knew what type of properties I was interested in buying (condos at the time), and no less important, I knew Identify value And by knowing how much I am supposed to pay for each property in order to buy it at a much cheaper price than the market prices.
The first CONDO I bought was near NOVA SOUTHERN UNIVERSITY which is an expensive private university in a city called DAVIE in Florida. My idea was very simple - I would buy apartments and rent to students. The proximity to the university during the crisis in 2009 felt very safe to me. Even in the midst of the crisis the wealthy parents wanted their children to have a better future so they sent them to study dentistry, business administration, and law. Someone had to take care of their roof, didn't they? So why should it not be me.
(Link to the property listing site - the first property I purchased):
3. Don't be afraid of math and move your money into consistently better investments
As you can see in the table above, I bought the property in 2009 for $ 39,400 and sold it in 2017 for $ 170. I had over 20 units that I cashed out in the same building in 2017, with each unit earning at least $ 120, so why did I ever make that move?
I bought the property for about $ 40, and rented it for $ 1200, I felt very good with my investment because the percentages I make on my money are insane, right? On your face, until things started to change for them slowly. how exactly? Well, rents did not change significantly from 2009 to 2017 actually increased by only $ 100. So it turned out that instead of $ 1200 I got $ 1300, but on the other hand the value of the property increased significantly because of its location and in 2017 it was already worth $ 170 (which is the price at which I also sold it). So why did I sell a property that cost me a total of $ 40 and gave me an excellent rent? You ask yourself? Why sell? Here T catch 22 That one should understand it well that investing in real estate.
So that way, if the value of the property goes up, so do the taxes go up, right? In addition, the HOA also raises its FEES gradually, and suddenly a situation arises where my return goes down instead of rising, because my expenses increase gradually, and my income remains almost the same. So while the value of the property has risen significantly, how do you calculate the real income from the above situation?
4. Calculate a return on the value of the property today, not at the time of purchase! In my 2009 case
I wondered, if my property is worth $ 170 today, and my rent is $ 1300 (although I bought the property at $ 40 in 2009), how do you calculate the value? Calculate it at par Estimated value today In the face of existing revenue. So instead of calculating at $ 40 (previously valued) at current value, taking the following scenario: If I get $ 1300 on a property that I can sell tomorrow at $ 170 then how much return do I make?
Here you also need to calculate the expenses: taxes - $ 200 a month, HOA - 290 a month, management, repairs and maintenance - $ 150 a month on average. Total - $ 640 expenses per month versus income of 1300 = $ 660 profit per month, or $ 7920 per year.
If we divide $ 7920 by $ 40 we get a clean 12% return.
If we divide $ 7920 by $ 170 we get a clean return of about 4.5%.
I asked myself, why do I have to work so hard for 4 percent on my money? I can sell the property and put the money in 30 years BOND and get over 3 percent on my money without working, without holding assets, and without speculation, and most importantly being liquid Whenever I want.
And this is what made me sell the property by deferring my taxation (exchange 1031 for properties that give over 10 percent return against real estate prices today, not once.
5. Time is the most important variable Do not fall "small"
Which leads me to a critical point that most people do not dwell on long enough when discussing the value of a free market property and various pricing strategies. Time is not just another factor in the process, but the most important variable. point. Yes, everyone knows that "time is worth money" .. but how much money is exactly time worth?
Time is the one that doubles your money, not the deal. what do I mean? It doesn't matter if the deal you offer is 6% percent a year or 10% a year, what matters is how quickly you get into the deal and how many deals you can make in a big way, for example:
What is better? Earn 10% on a $ 40 property? Or 6% percent of a million dollar asset?
On the face of it, 10% sounds tempting, right? But how long will you have to work for it? In order to earn 10% on a million dollars you need to purchase, renovate, and rent 25 properties separately. At best if you have a smart system you can make a deal or two a month, and that's only after two years of hard work. And what about your time?
Remember: It is easy to make a high percentage for a little money and it is difficult to make a high percentage for a lot of money.
As you become more and more expert in a specific niche, you will also know how to perform such calculations, which appear to be complex and straightforward. What niche should you focus on? This is already in the next post ..
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