Take a lesson from my friend's situation (GOOD story)

It's time to talk about the homes that aren't bought as investment properties. There are plenty of financial articles out there that will try to tell you that your home is not an investment. Some will tell you that you will get a much better return on your money if you just put all your money in the stock market and not buy a house.

Well I've got a friend who would tell you that is absolute bologna. I've been the beneficiary of buying homes that I live in and that appreciate in value. I had a couple of solid home equity wins before I got my real estate license and it has helped me guide my clients through the path to creating real value through their home equity over time. This particular friend hadn't been to any of my speeches, and didn't work through me when he bought his home. He got a fair price a little bit under market value, made some affordable and sensible upgrades, and now is able to benefit from it.

The rough numbers are this: He bought a 3 bedroom home for $95k. Because it was an "owner occupied" home, his loan terms were very favorable and he only had to put very little down out of pocket. After a couple of years in an appreciating market, similar homes in the neighborhood are selling for about $165k. That is a $70,000 spread! Keep in mind, it generally costs about 10% to sell a home after all is said and done, so if he were to sell the property he would end up with about $63,000 to work with. Because he's lived in the home for at least 2 out of the last 5 years, there will be no capital gains tax if the property is sold. The $63k is free and clear. If he chooses to keep it as a rental and repeat the process, he could rent the home for about $1,000 per month in the shape that it's in. The payment is under $600, so as you can imagine, the cash flow would be pretty good as a rental property.

The last option, and the one that I suggested he choose, was to capitalize on the equity that he has gained in his home by taking out a home equity line of credit on the home while it is still his primary residence. Most banks will give you a credit line up to 80% of the value of the home, provided you can meet their underwriting requirements. If we assume the existing first mortgage is at the purchase price - $95,000 - then he should be able to get a home equity line of credit (or HELOC) at about $37,000.

Not every home has to be purchased as an investment property to be a good investment. In fact, the property you buy as your primary residence will often grow your equity at a faster rate if you were to compare your down payment to that of a rental property. Contact me today if you have questions or would like to discuss maximizing and accelerating your equity and we can see if these principles might be able to be applied to your situation.

So - How's the Market?

A question I have been getting daily from friends and people I meet around town is the classic "How's the market?" Normally my response is the purposely vague answer of "great!"

The real estate market in Logan and Cache Valley as a whole is in a unique position right now. Homes that are competitively priced are selling very quickly, sometimes in as little as one day. Other homes that are either priced too high or need too much work done to them will sit for a bit more time, but those are even eventually snatched up after a reasonable price is negotiated. Translation: It's a pretty good time to sell right now.

Even with homes selling much more quickly, we haven't seen prices make too big of a jump. They are indeed moving upward, but appraisers are reining that in a bit and are keeping things reasonable. Extremely low interest rates are also keeping buyers in homes that they can afford. A $5-10k rise in the purchase price of a home has a similar payment of a lower price at previous interest rates, so it's not being felt by home buyers yet. Translation: It's a pretty good time to buy as well.

Investors and renters seem to have the hardest time finding good options in the current market. There are still plenty of ways to invest and make money, but the traditional under priced duplex or triplex is just not really found on the market right now. I'm getting many calls every week from renters looking for a place to live and it is extremely difficult to find anything reasonable at the moment. If you are able to continue renting at your current place, or you are in a position where you can buy, I would suggest doing just that.

Do you need a Realtor when buying a house?

Here's something to consider before you make an offer to a home seller without using a real estate agent. It's 100% legal to buy or sell real estate in Utah without a license, but there are some important considerations before proceeding. An investor was recently looking at a home for sale online who was frustrated with their real estate agent not sending them deals, and asked "So do I want to have my agent fill out the offer letter and pay him $8000 or attorney that probably costs me ~$600 or can I draft one myself (and have a title company hold the earnest money deposit)?" Here are my three main points:

1. Many real estate brokerages in Utah carry "errors and omissions" insurance, and if there is a lawsuit you will want to make sure to have that kind of protection regarding mistakes in the contract. An attorney will accomplish the same goal in this regard. It's also not unheard of for some agents to charge a flat fee just to write up the paperwork for both buyer and seller and keep out of the rest of the negotiations. That said, plenty of great investors never use an agent, but from the looks of things you'll probably make a lot of simple mistakes early on if you don't have a professional holding your hand through the process. That brings me to my next thought.

2. I get your frustration at not feeling like you're the #1 priority of your agent, but think of how this looks if you made two offers with him today but you're going to leave him out of this deal *on the same day.* I'm not saying that this is the agent for you, but if you want to thrive in the real estate game long term it would be hugely beneficial to get an agent on your "board of advisors," and one that will have your best interest in mind. You're not going to be getting the awesome off-market deals in your first few interactions with an agent, and this should be a relationship that lasts years. Factor that relationship equity in to your financial statement on this house and decide how you want to run your real estate business. This could be your chance to win the confidence of your agent and have him work for you for years to come.

3. You will likely have stronger negotiating power than the seller if you're being represented by an agent. I've represented plenty of buyers and helped them buy homes "for sale by owner," where the seller wasn't represented by an agent and I can pretty much steamroll them in negotiations. I will commonly make a request for the buyer that the seller just agrees to, where if they had an agent there would definitely be push back. A good agent - the right agent for you - will pay him/herself off just in contract negotiations, wether that's before or after you settle on a contract price.

Please Don't Buy that $20,000 Investing Course!

In 2008 I went with a couple of friends of mine to a free seminar. It was one of those seminars that didn’t actually teach any strategy, it just described a world where you have more than enough money to spend on whatever you want, and the best part of it was that it required very little work. All you have to do is sit on your couch and wait for your phone to ring and you get to quit your job and buy your buddies a boat that you can all hang out in. At the end of the seminar they explain that they have a $20,000 training camp where you go to learn all about real estate and how to make the big bucks just like they do. Nothing was taught, it was just a hype machine prepping you to be sold on the course.

My friends had already signed up and paid for the $20,000 course. I’ve got another friend that took the same course years later - and to the best of my knowledge none of them has done even one of these deals. I honestly don’t know how valuable the stuff at this training camp is that is taught, but to some extent I don’t really think that it matters if you never end up utilizing the knowledge.

These seminars typically follow a typical pattern.

• You are invited to attend a free seminar on real estate investing
• Almost no actionable advise is taught in the free seminar. Rather, they sell a lifestyle: You won’t have to worry about bills, you can buy whatever you want, drive fancy cars, etc. 
• At the end of the free session they introduce you to the paid course where the actual strategies are taught, sometimes this one is just $2,000, and the $20,000 course comes at the end of the $2,000 course. 
• Sometimes they will encourage you to call your credit card company and raise the limit on your card so you can pay for the course. This is a despicable sales technique!

As far as I can understand, Trump University operated much the same way as these other seminars did. It was pitched mostly to poor and under educated individuals as a way to get out from under crushing debt or wage slavery. Trump even had his curriculum designed by one of these house flipping seminar companies, so it followed the exact pattern and intense sales techniques.

Folks, there is a better way. There are so many resources available online and in books that will cost you much less. Save that $20,000 for a down payment on a real investment.

Talk with a local real estate agent that understands investing. Talk to a loan officer that has worked with investors before. Here are a few other resources that I have found extremely helpful as I've learned more and more about real estate and personal finance. Don't worry, no affiliate links - I don't even know how to set those up!:

• www.biggerpockets.com
• The Bigger Pockets Podcast
• Robert Kiyosaki's "Rich Dad, Poor Dad" (Book)
• Dave Ramsey's Podcast (Personal Finance Focus)
• Rich Dad's Cash Flow Quadrant (Book)

Q: "I've got the drive, where do I get the money to invest???"

From a question I got today: "I've got the drive and work ethic, but no cash for a down payment to fund my rental investments. What can I do to get started investing in real estate?"

I find that there are two different schools of thought when an investor is in your position. 

1) Go the creative financing route - buy with a lease option or seller financing. I've done this one before, but a down payment is helpful to make these happen. Also, please don't put every dime you have in to your down payment. Keep some in reserves so you can "weather the storm."

2) Find a partner. Find someone that has the cash but no time to find/negotiate deals. I've done this one too, and I think that it's also a great option.

In both of these seenarios you're going to have to find deals. Cash partners are abundant once you've got a deal good enough, and you'll never get a seller financed deal without actually going out and asking sellers. I'd take that drive and start tracking down some deals :)

Vacation Rentals as Passive Income

As a real estate professional I get a lot of questions about the value of real estate as an investment. Real estate has become the foundation of my savings and investing, mostly through the acquisition of long term rental properties. 

One of the strategies that some investors use is owning vacation rentals, or short term rentals. I've had clients that have made quite a bit of money through vacation rentals, but you have to make sure to buy in the right area and it takes more maintenance than a long term rental, since you have to clean up and change linens after every tenant, and tenants stay from one night up to about a month at a time on average. Rent can go a lot higher if you buy in the right area, and even though there is more upkeep through cleaning, etc. your equity will often grow faster on vacation rentals. 

This is the tiny house of an artist friend I made in Costa Rica earlier this year. He used a shipping container as a base and other modern tiny houses as inspiration. He told me that renting out the loft above has been a great source of side income for him ever since he built it. 

Home Equity

Home equity. Every month homeowners are making their mortgage payment they are adding to their family's overall wealth. 30 years worth of home ownership ends up in a paid for home with 💰💰💰 real equity. 30 years of renting and you're lucky if you even get your deposit back! The earlier you can start, the better. It's not the best fit for everyone to buy now, but it might be for you. 

As you build up home equity your purchasing power increases. If you decide to invest in real estate in Logan or elsewhere in Northern Utah, you might be able to dip in to your home's equity to come up with a down payment. Starting now could give you a huge leg up as you progress throughout your career, wether that means you buy now with an FHA, USDA or conventional mortgage, or start a rent to own program to get on the path to home ownership. The time is now.