How to create real estate wealth
How to create real estate wealth? Real estate is a great way to increase and build wealth. The best method to use is finding places that need work that no one else wants to repair. The first three houses that I applied this method to range around $150,000 to $180,000 after rehab value.
The method is to buy a house that needs work. There are steps that must be considered in order for this method to work for you. Look for desirable neighborhoods that people will want to call home.
The deal is not the important factor. The important factor is, “How quickly can I get rid of this house?” Sometimes there is more than one house in a neighborhood that needs work. Don’t buy the first house that you view with realtors.
You must find at least three houses that are comparable to the one home that you want to purchase. Once you discover what the maximum market value for homes in that neighborhood, you can analyze numbers for an offer. The second step begins with rehab estimates and calling up sub-contractors (which are individual skilled labor companies like plumbers, electricians and floor layers).
You will want to receive at least two estimates for each job. The estimates will allow you to total up the costs of repairs for the remodel. There are two more items to add to the estimates.
Do not neglect this point. You will want to include 10% extra for a contractor of the total rehab estimates. You will need to add another 10% for what you cannot see that needs to be fixed.
There is always something that is not accounted for in remodels. Do not attempt to fix a house without these unexpected funds. The items needing to be fixed may be from a code inspector that says that you need to bring something up to code that does not need to be repaired.
My principle is no 10% cushion, no deal. You will need to prepare an offer to purchase the home. You will need to take the asking price of the home minus the repairs and prepare the offer for the remaining balance.
I can almost guarantee you that a real estate agent will tell you, “The homeowners are considering another offer on the house right now”. Do not offer a dollar more for the property.
Do not get attached to a house. The money is made when you buy the house, not when you sell the house. If you pay too much for the house, then you will lose money.
You will waste time and energy on the repairs. Tip: If you do not have construction skills, then I would recommend buying a house that needs minimum work. There are low costing projects that can spruce up a house like paint, carpet and landscaping.
The method is to repair the house and stay in it for no less than two years. The reason that you need to stay in the personal home for two years is to avoid taxes. If you sell before two years, then you will need to pay capital gains taxes.
The house must be move-in ready when you put it up for sale. Ask for the market value and if you did everything right, and then you should make an average of 10 to 30 thousand on the house.
There are three reasons that you should use this method:
- Increase your net worth
- Move up to bigger houses
- Stay in that price level home to pay off the note