#1: Closing Costs

Many Millennials don't even know about closing costs! Listen in to hear more. This is from my podcast feed at http://feeds.feedburner.com/SkylerSmithRealtor

Mobile Homes and Investing

Yesterday I had a conversation with a girl who runs a mobile home park. She's selling off one of the more run down homes in the park to replace it with a new one, to rent out. The home will need to be moved, and doesn't really need much more than paint and carpet, though new siding could do wonders for it.

I think that mobile homes are a very interesting investment, though I don't own any yet. Rent for a mobile home inside of a park isn't much cheaper than it is for a similarly sized home, yet a mobile home typically costs much less than a traditionally built home on a foundation.

This is the only mobile home park I know of in Cache Valley that rents their units out, most parks are exclusively owner occupied (they require that residents own the home they live in, and they make their money in rent for the lot.) I'm sure that management becomes a lot easier if you don't have to worry about filling homes with tenants, but the business model of a park that can make money both off of lot rents and also renting out homes really intrigues me.

I don't know - I do want to use mobile homes to leverage a land purchase, but I want to investigate the rent market more, that seems like it could be a risky move. I'd maybe consider renting out a unit like that while renting the lot it sits on, just because the exposure would be very minimal. More to come if that idea goes anywhere.

How to Get Started Investing in Real Estate

One of the best ways to get started in real estate that I have found, is to maximize your leverage with the bank using an owner occupied loan.

This is a technique that is used often by people who are buying their own houses to live in. The bank usually only requires between 3% and 5% at a minimum of cash down payment in order to buy your own home. They do require that you live in that home for a specified amount of time, often only a year or more. One thing that is often overlooked though, is that those same banks are willing to loan with the same low money down options on a duplex, triplex, or four unit building. Remember though, you will actually have to live in the unit for at least the required amount of time.

Normally, a bank will require 20% to 30% down on a loan for an investment property. That money can be borrowed, and as you expand your portfolio you'll want to use those options, but getting started with only 3-5% down is extremely attractive compared to this. In some ways it can improve the return on investment greatly. If you don't have your own home to live in yet, this is an excellent way to get started.

This is how I got started, and it worked out really well for me. I bought a 4-plex for $150,000, put only $6,000 down. Closing costs were wrapped into the loan, so I didn't have to put anything else down. After paying the mortgage and all expenses, I was getting $150 per unit per month in passive income. If your expenses aren't unusually high, you will recoup your initial investment in the first year with those kinds of numbers.

Many real estate investors that I talk with look back on their first couple of buy and hold deals as sometimes the best investments they've ever made, because they were able to use this creative strategy to get their foot in the door with relatively very little money down. If your family situation allows you to move into an investment unit like this, do it!

Low Dollar Land Banking in Northern Utah

The US dollar continues to fall, and regardless who holds the blame, it’s a problem that any saver will need to address. Saving large sums of money in a bank account, or under the mattress, or in the back yard can be terrible, as the hard earned money you put away every month is slowly whittled away by inflation year after year.

My goal is to get millennials excited about real estate. Between a bad job market and crushing student debt, it’s an asset class that is tough for millennials to afford. I would argue though, it’s also an asset class that’s tough for millennials not to afford (cue trombone slide.)

We say that the dollar is falling, but we need to remember, it’s falling compared to what? Prices are all relative. The dollar is falling  in value compared to gas, bread, milk, and just about everything we spend our money on. What causes this type of inflation? Generally, the excessive printing of money, which inflates the money supply. The trick is then, to hold your assets in a commodity that will not lose its value over time. We can see very easily that the dollar loses its value over time. Why do people keep dollars? Well, they can’t go bad like milk and cheese, so they're a better savings tool than those. Storing up wheat is not a bad idea, but it’s hard to get off your hands when you’re ready to “cash in” and spend your wealth on something else. I know some who are waiting for the zombie apocalypse and have stored their wealth in ammunition and blankets. That’s a cool and fun idea, but I choose to store up my wealth in real estate. In general, I prefer to buy up apartments that are ready to be rented out, but there are many ways to bank on real estate. Today I’d like to focus on using land to preserve the wealth you bring in from your career. Raw land is a very viable savings vehicle which rises against inflation and can be a very effective personal bank if used correctly.

Example: Bear Lake, a recreational area in Northern Utah currently has a lot of land for sale, with many cabin lots listing between $15,000 and $17,000. It is not unreasonable for a millennial to save up enough for that type of investment, or even to qualify for a loan to acquire the property. In Bear Lake, you could set up your very own land bank, with which you could easily short the dollar. The dollar value of most land is likely to rise at the very least along with the rate of inflation, because the dollar’s value is sinking *compared to* land. (Let’s not even consider the fact that all of this land is ready for development and the development of neighboring lots will likely cause values to rise.) Taxes are about $150 per year, and some of these lots have a $20 HOA fee to maintain roads and stub out utilities, but that could very easily be offset by renting out a tiny house or small cabin on the property. We’re talking something •very• simple, you wouldn’t even need one on a foundation to get started. Rent it out a half dozen nights a year and you cover all of your costs, and stay in it with friends and family all you like! I love vacations, but what’s more enjoyable than a vacation home that pays you to be there?

I mentioned earlier the problem of liquidity. If you’re storing most of your wealth in land or real estate, many would think it hard to access that wealth without selling off the whole asset. Many banks are willing to lend you money if it’s backed up by an asset you own outright. So if you need to buy a new car or make some other large purchase, you could borrow on a home equity credit line, sometimes called HECL or HELOC. Interest rates are usually lower for this type of credit line, and if you did indeed put that little cabin on your land, you could use the income from renting the cabin out to make the payment for you! I can’t be the only one tired of seeing .01% interest from a savings account. I prefer an asset where I have more control. I prefer to be the bank, at least whenever I can.

Deal Analysis Update

That condo I posed about last month still hasn't sold. The auction has ended twice now and I was once the second highest bider, and the highest the second time around. It looks like the reserve price is $45k, which is still a good deal for that property.

The only real issue is if there's meth in the home. After I went through, it looked pretty good inside, and it wouldn't take much to get it up to retail quality.

The auction is active again this week, and I'm thinking about bidding up to the $45k mark this time around. Hopefully they haven't changed the reserve price, I'm surprised nobody has snatched it up yet!