Controlling Assets Worth Five Times the Money you Invest

There are many benefits to real estate investing such as passive income, tax incentives, asset appreciation, etc. The one benefit that most people are not aware of is how much money is controlled versus how much money was invested. Once I learned this, I became fully invested in the idea of real estate.

My first example I am going to make is buying a primary residence. This is a typical transaction that most non-real estate professionals should be aware of. When buying a home, you are required to come up with a down payment. With some loan structures, this could be as low as 3.5% of the total cost of the home. In Maryland, where we invest, the average home price is $291,000, and 3.5% of that is $10,185. So, this means with just over ten thousand dollars invested, you are controlling an asset worth $291,000. This example is extreme because in order to only put down 3.5% you are limited to an FHA style loan which has many rules and regulations.

Traditionally, when buying investment properties, you are required to pay 20% as a downpayment. Let's assume the investment property you want to buy is priced at $100,000, which is around the cost of most of our properties. So, with a purchase price of $100,000, you are required to put down $20,000. As long as you don't miss payments and foreclose, you control an asset worth five times as much money as you invested.

When comparing this to other forms of investing, there is nothing else that I am aware of which gives you this kind of power. For example, when investing in stocks, you are limited to controlling the exact amount of shares you have the capital to buy. For example, if you have $20,000 to invest and you choose to invest in stocks, you will receive $20,000 worth of stocks in hopes that the stock price will increase.

Many people will make poor excuses for why they are heavily invested in the stock market instead of real estate. I am hoping this article can help guide people towards real estate investing and reaching our goal of financial freedom.

-Ryan Greenberg

How To Buy 4 Rental Houses in One Year With Little to No Money

Most people never get involved in real estate investing because the assumption is that you need a large bank account to do so. In this article I am going to explain how you can buy 4 houses in one year without using your own capital. Starting an LLC to protect your personal assets should be the number one priority. This will end up costing you a few hundred dollars depending on where you live.

Step 1: Finding a deal

In order to get investors interested in lending you money you will need to find a good deal.  I will try to cover a few ways to find deals in this article. The first way is your traditional method of getting an agent and having them send you properties. This method may work in some areas but typically good deals are not listed on the MLS. We use people we call wholesalers.They find foreclosures, auction homes, tax liens and off market deals. They get those properties under contract and flip the contract to an investor for a fee. Another method is making low ball offers on a listed properties in hopes someone really needs to get out of their house. We need to be sure there is going to be room to build at least 20% equity so we can refinance properly and pull out all of our money. We like to buy properties that need cosmetic work that can quickly add some value. We suggest getting a licensed contractor to give you an estimate of renovations before making an offer.

Step 2: Finding the Funds

Finding someone to fund a bad deal is next to impossible, but if you find a good deal and have good credit, you can easily find funding. Hard money lending companies will often times lend you 100% of the money you need to buy and renovate the property. Usually hard money loans come with a high interest rate around 10-15%. Depending on how long it will take to renovate, a slightly higher interest rate is not a big deal. As long as you have 20% equity in the home after the renovation you can refinance, pulling all of your money invested back out in the form of a long term fixed rate loan.

Step 3: Find a Qualified Tenant

Finding a tenant is easy, finding a good tenant is a little more difficult. We use a program called “Smartmove” for screening potential tenants. This program screens for credit history, eviction history, job history, and current income. This saves a lot of time and headache trying to find out all of that information from different sources.

Step 4: Refinance

This, in our opinion, is the most difficult part of the whole process. If have been following our strategy, by this point you would have bought, renovated, and rented this property. If all of your analysis is correct, you should have at least 20% equity in this home. The next step is to find a lender that will give you a long term fixed rate loan, at a decent rate and 80% LTV. (loan to value). If executed correctly, you should be able to fully pay back the original hard money loan and start the process over again. This whole process should take no more than 3 months. You CAN buy 4 rental houses in 1 year!

-Ryan Greenberg

Funding your Investments

We all know real estate is a great investment, So why doesn't everyone do it? Many people never get started because they can not figure out how to fund their first deal. Also, trying to find funding for your first real estate deal can be very intimidating and difficult. Through our experience, we have figured out many creative methods for funding deals.

Method 1: HELOC  (home equity line of credit)

Many people finance their home and pay into their mortgage for years and years building up equity. Most people will never see that equity perform for them. Taking out a HELOC is a great way to start funding your deals. Basically, the bank will have your house appraised and lend you the difference between the value and how much you owe the bank.

Example: You owe $100,000 on your mortgage; your house appraised at $150,000; the bank will lend you between 80-100% of the $50,000 difference. The great part about using a HELOC is that you do not start paying interest until you actually spend the money. This is why I prefer the HELOC over a home equity loan which forces you to pay interest as soon as you receive the funds.

Method 2: Private money lender

Believe it or not some people make a living lending money to other people. This is known as private money lending. Finding someone with capital could be as easy as asking a relative or friend. There are also many services and databases online for private money. These lenders work just like a bank where they lend you money based on the value of the home.

Method 3: Hard money lender

A hard money loan is a specific type of asset-based loan financing through which a borrower receives funds secured by property. Hard money loans are typically issued by private investors or companies. Hard money loans are typically have higher interest rates and shorter terms. Click for hard money.

Method 4: Business Credit Cards

Business credit cards. If you’ve got decent personal credit, 0% interest business credit cards are an incredible way to purchase your next investment. There are companies such as Fund & Grow that help you apply and get the most bang for your buck when applying for business credit cards.

Method 5: 401k

401k. If you have a 401k through your employer, most plans allow you to take out one loan per year. This is a fantastic strategy, because you’re in essence, paying the interest back to yourself.

-Ryan Greenberg

What is the BRRRR strategy?

The BRRRR method is an incredible real estate investing strategy that has brought many investors success. Knowing how to properly finance properties is the quickest way to scale your portfolio and grow your wealth.

Buy: Buy a property where you can renovate and gain some instant equity

Rehab: Have a renovation team come and fix up property to get it “rental ready”

Rent: Find a qualified tenant to rent the property

Refinance: Pull out 80% of the appraisal value (ex. Total investment after renovations $80,000; value of home $100,000 you are able to pull out $80,000 in a 30 year fixed rate loan)

Repeat: Use the same initial investment to buy another property

This investment strategy allows you to use the same money to buy multiple properties in a short amount of time.

The necessary points when using this method are buying properties for the right price and correctly estimating the rehab costs.

If done correctly, you should be able to pull out all of the capitol you invested into each deal while collecting the monthly cash flow and principal paydown.

Once a significant amount of equity has been raised; leverage that in the form of a HELOC to downpay on another property and maximizing your returns.

-Ryan Greenberg

The Simple Benefits of Buy-and-Hold Real Estate

There are many different methods to investing in real estate. Our company specializes in buy-and-hold rental real estate. In this blog post, I am going to outline some of the greatest benefits we see in long term buy-and-hold real estate.  

Short term cash-flow

Most investors do not have cash available to purchase a property so they take a loan from the bank or a private lender. Before purchasing a rental property, there is a lot of due diligence work necessary to make sure you will are able put money in your pocket after all expenses. This is referred to as positive cash-flow. Every market is different but there are a few general rules I follow when analyzing properties.

First, I look for houses in the area that are currently up for rent and see how much people are asking in that area. Finding some properties that are currently rented helps gauge prices in the area.

Next, I find out what the property taxes are because high taxes will cut into the monthly cash-flow. Where we invest, in Baltimore, we have found that houses priced over $150,000 do not cash-flow well so I typically try to find properties between $90,000 and $150,000.

I also have found that houses that need cosmetic renovations are great for cash-flow. Finding a reliable contractor in your area to renovate your property is a great way to build some instant equity. The typical home buyer wants a turn-key property and building equity through renovation is extremely beneficial.

Long term appreciation

Real estate, just like any other investment, is subject to fluctuation but seems to constantly increase in value over time. There are more people trying to invest in real estate than ever before. My perspective is that there is a limited amount of land to build on. As the available land decreases, the prices trend up.

Tax benefits

In addition to the short term cash-flow and long term appreciation there are also many tax benefits to investing in real estate. The first benefit that comes to mind is the 1031 exchange.

A 1031 exchange allows an investor to sell a property, to reinvest the proceeds in a new property and to defer all capital gains tax. This benefit increases the purchasing power by 15-30% depending on your tax bracket. There are also many tax write-off incentives when investing in rental real estate.

If you have any questions please click here to contact us. Our team of professionals would love to walk your though any of your investing needs.

-Ryan Greenberg

Real Estate vs. Stock Market

Many so called “financial experts” will tell you to save your money, invest it in the stock market and don`t touch it until you are retired. They often say you need to diversify your investments and make sure you save as much money as possible. Here at PE Properties we believe in real estate investing over the stock market for a number of reasons.

You can`t touch stocks: This may sound funny but I prefer to invest my money into tangible things. When you invest in the stock market you are leaving your money in the hands of greedy brokers and bankers instead of controlling it yourself. When I purchase a house I know that asset is something I can touch and will be worth something as long as it's still standing. As a matter of fact, even if the house burns to the ground the land will still be worth something. The way I look at it, in today’s economy, even the biggest businesses are susceptible to failure and I don't want to be on the wrong side of a bankruptcy.

Everyone will always need a place to live: When Blockbuster Video started their business I would guess they never expected us to be watching movies on our tablets streamed directly from the internet. I bet people that were heavily invested in Blockbuster when Netflix was created were pretty upset. I never worry about my real estate holdings because I know that I could always find another person that needs to rent a home.

You can still diversify: A pretty popular argument for stocks is that you can easily diversify your investments to make it a safer play. I would argue that being diverse in real estate is just as easy. Not everyone needs to buy rental properties and become a landlord to invest in real estate. There are people that make 10-20% returns lending other real estate investors money while the capital is tied to some sort of collateral such as a property or equity. You can also invest in notes, fix and flips, short term rentals, etc.

Assets Vs. Liabilities: This is a very popular argument among investors. Many people say buying a house to live in is an asset, but others would disagree with this statement. An asset, by definition, is something that puts money into your pocket. On the contrary,  A liability is something that costs you money. If you broadly look at these definitions your primary residence is actually a liability. The way I look at it is your primary residence can be both if you use it correctly. If you have read through our website you can see we have talked about using a home equity line of credit (HELOC) to purchase real estate deals at a fairly low interest rate. In my opinion, if you take the equity from your house and get a HELOC to purchase deals, your primary residence just switched from a liability to an asset since that new property is hopefully putting money in your pocket.

Survive the crash: Market crashes can be a very scary time for investors. If the stock market crashes you have nothing tangible to hold onto, you just go on your Etrade app and see that your money has disappeared. With real estate there are many strategies that will help you capitalize during a crash. I want to start with the time leading up to the crash. In my opinion, hoarding money and opening lines of credits such as HELOCs and business credit cards with low interest is the first step to surviving the crash. When the crash happens it will be hard to get loans but houses will be extremely cheap. Having excess cash or credit during this time can be crucial in getting into a great deal. Also, having your current rental properties stabilized and financed on long term loans can be the next strategy. If you have an adjustable rate mortgage (ARM) during a crash this can be problematic when home values are low and your loan is coming to an end. On a positive note, when you own rental properties during a crash you can count on an influx of potential tenants. Often time during a crash, many people foreclose on their homes and need a place to live. This can be a great time for tenant acquisition.

These are a few of the reasons we prefer investing in real estate over the stock market. I want  to add that plenty of people are successful in the stock market but investing in real estate is our means for gaining wealth through passive income. To find out more please send us an email or set up a phone consultation!

-Ryan Greenberg

How do we motivate ourselves?

Everyone is motivated by different things, some by material things and others by more intrinsic things. Figuring out what motivates you is the first step in taking action. My daily motivation is the path to achieving financial freedom. The definition of financial freedom, in my opinion, is when your passive cash flow exceeds your spending needs. Here at PE Properties we are striving everyday to help our clients reach financial freedom. Passive income is earnings derived from a rental property, limited partnership or other enterprise in which a person is not actively involved. There are only so many hours in a day and trading those hours directly for a set amount of money is no way to achieve financial freedom. We need to start learning how we can make our money work for us instead of us working for money. Creating passive income streams is the beginning of the journey to financial freedom. We believe the easiest and most successful way to create passive income is through purchasing rental properties. When done correctly rental real estate can be extremely profitable and passive. It takes a lot of courage to pull the trigger and get your first deal. Before doing so, I would suggest taking time to research the topic and figure out what type of investment you want to make. If you have any questions about getting started feel free to reach out to us here at PE Properties!

-Ryan Greenberg