Today we are discussing a somewhat advanced strategy for you to
use after you have been in the creative real estate investing
business for a while. I call this "Rehab, Refinance, and Cash
Out". This strategy can lead to true long term wealth and
financial independence. This works very well in a buyers market
like Memphis where prices have been quite flat for some time.
You need to use this to augment your wholesaling for immediate
income and retailing for bigger short term profits. Rehab,
Refinance and Cash Out is a long term wealth building strategy
and will be something you will be glad you did as it is a long
term buy and hold strategy, and those are the strategies that
lead to true wealth accumulation and financial independence.
Let me explain how this works. You find a good middle to low end
3 bedroom home that you are able to buy from an out of state
owner or other motivated seller that needs a little work and you
buy at 60% of after repaired value. You buy the house using a
hard money lender like http://www.pleaseclose.com/memphistrading
and do your fix up and have a property management firm manage
the property and put a renter in the house. The hard money
lender will typically loan you up to 65% of the after repaired
value to purchase the house which you use to buy the house and
then repair it. Now that the home is repaired you obtain an
investor friendly mortgage and cash out by refinancing at 80-90%
of after repaired retail value and you should be doing this with
properties where this strategy gives you back at least $10,000
at the refinance that you can use in your business any way you
need. Do not use this money to live on, use it solely to grow
your real estate business. Once you have done this strategy on
10 homes you should be able to keep finding better and better
deals because you can close quickly as you have cash in hand to
make things happen. More cash equals better deals and more
opportunities.
By the time you repeat this strategy 20 times you should have at
least $200,000 cash plus about $200,000 equity and 20 homes
giving you at least $2000 per month positive cash flow whether
you decide to work this month or not since you have a property
management company handling things for you. With average annual
rent increases, within five years that $2,000 a month should
grow to $4,000 a month. In 30 years you should have $2 to 3
million plus in paid off real estate. It's a good solid long
term strategy to add to your immediate selling from wholesaling,
retailing and lease options that the extra $200,000 in cash will
help grow tremendously.
The rent minus the management fees and all loan and other costs
must leave you with positive cash flow or this strategy should
be avoided. If you cannot cash out on the property I don't
recommend holding it long term as you want to be able to use
your best mortgages to cash out.
You can purchase using http://www.pleaseclose.com/memphistrading
if your Equifax credit score is above 550(which is bad credit)
or you have a co-borrower who has an Equifax score over 550. A
good investor friendly mortgage company will give you good rates
if you are at 660 middle score or above and the very best rates
if your middle score is 720 or above. Your first 10 investor
mortgages in your name and 10 in your spouses name are the
easiest to qualify and get the best deals. After those you
really need a good investor mortgage company to work with. Take
the time to find the real investor friendly mortgage companies
that can help you get loans for 100 properties and not just the
first ten and let them have the easy ones and the tougher ones.
I do recommend having more than one good lender available
though, but stick to the ones that specialize in investor loans.
Find out from other investors who the most investor friendly
mortgage companies are to use to refinance the repaired home.
I do not advocate becoming a landlord as I do not believe this
is a valuable usage of your time and energy. I highly recommend
asking around and finding a good property management company
that will charge you 10% or less to start out with and gradually
lower that % as you add more and more properties.
I feel this is an advanced strategy as you won't see any cash in
your pocket from this strategy for 4-6 months after you find the
deal which is a long time to work and not see any pay. If you
are wholesaling and making consistent money each month then it
shouldn't matter. This strategy will magnify the profits you
make in your investing business in ways you might not have
imagined. This strategy is a natural progression from
wholesaling as you are already helping others find these kinds
of deals, now you will be able to get the cash out typical of
probably 2 wholesale deals, just paid slower, and at the same
time building a nice future nest egg.
About the author:
David Neese is a real estate investing author who offers a free
course for real estate investors delivered by email, audio and
teleseminar which you can get for free at:
http://www.FreeRealEstateInvestingCourses.com You can find more
information about David at http://www.DigitalSuccessCoach.com
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