How to make money in real estate
Hola again! You might think you know the answer to this question and likely you know some or even most of the answers. But I am hoping to add to that knowledge and hopefully help you take the next step to make money in real estate.
There is more than one way to make money in real estate and here are a few of them:
Buying, renovating and selling, aka “flipping”
Buying, holding and selling, aka “speculation”
Buying and renting, aka “cashflow” or passive income.
Buying and converting the land use from A to B and then selling. “flipping 2.0? sure”
A combination of all or some of the above.
Buying “stocks” or REITs of publicly traded companies who do some of the above.
Other more creative like rental arbitrage.
I have invested and made money in every single way in this list except #7. I don’t have any intention of buying into another real estate company, I keep my money in my own company, and since the Salmon Group is not publicly traded I cannot (nor I want to) sell REITs or pieces of my company.
Which one is my absolute favourite approach? I have to say a combination of #1 and #3.
Let me tell you why and add some recent examples of that approach. BTW some other people call it R3 (reno, refinance and repeat). I didn’t coin that name but we can totally borrow it.
The first step is to figure out what size of mortgage you qualify for and if you have the right size of downpayment. That’s your shopping “market”.
If you don’t qualify for the right amount or are lacking some funds for the downpayment, there are many ways to get there. Typically OPMs or other people’s money. This can be a friend, a different lending institution, or even a partner like myself. I have partnered up with new investors and you can see some of the comments in the “partners” section of my website.
Once you’re all set, the fun part begins, time to select the RIGHT asset. Let’s be clear here, we are looking for ASSETS. Not all rentals are created equal. Depending on the market some type of properties will yield a better return than others.
How to select the right asset? Well, you need some experience, research, or a mentor or partner. I strongly suggest that for your first investment property you at least reach out to someone you trust and respect.
Deciding on the right asset is more than just looking at mortgage costs and potential rent. You have to consider factors such as potential turnover of tenants, average income in the area, future city development plans for the area, history of appreciation or depreciation, and of course, the asset itself. You have to consider what level of problems or maintenance you can expect because whatever you buy will have the former to a larger or lesser degree. There is NO way around it, it’s part of making money in this business.
After you have selected the right asset, I like to make sure it has room for improvement, but not a full rebuild. Enough work that it will allow me to get more rent out of it and also increase it’s value immediately.
Again, for this step please connect with someone who has done this successfully before. This step is critical as this is where the true wealth is generated.
Once you have renovated the house the right way for the right budget, you will be enjoying some nice cashflow, and you have built thousands of dollars of value into your asset. I have done this and increased the value of different properties from $20K to over $150K in matter of months.
Note: I can’t promise you that I can make you $150K in 2 months, but I assure you that is always our target for my partners and myself.
Depending on the level of added value you have now created, you might be able to refinance or be closer to that step, and take a portion of that new equity out to use towards your new asset.
The best part of refinance? The equity you take out is 100% tax free. Even the small interest that it will cost you, it is tax deductible against your net income.
See, the real estate game can be fun. You just need the right team next to you and some patience, but it can create great wealth for you.
I’m sure you know this already, but real estate has made more millionaires in North America than any other vehicles. At the very least it can supplement and even replace your 9-5 job in a matter of a few years.
So, there you have it. Hopefully this helps you in your investment journey and if you are looking for a partner or mentor to be on your side, let’s talk, and…. let’s make some money!!
Thank you for reading and as always,
mucho amor,
Abe
