Real Estate 101 : Knowledge is power
By Kevin Fletcher, CCIM
It’s been said, “Don’t wait to buy real estate, buy real estate and wait”. Sometimes I hear something and truly wish I had been the first one to say it. This statement is definitely one of those times.
Real Estate has produced more millionaires than any other platform available and I believe provides the great opportunity for anyone to change their financial situation. Real Estate doesn’t care where you fall in the economic “classes”, if you are 5th generation American or recently immigrated to America. It doesn’t care if you have a trust fund or if you are a single person raising children. All that matters is do you own it and is time doing its thing to help your financial situation.
There are certainly barriers to entry into the real estate ownership opportunity but they are NOT all limited to 20-30% down, high credit and high income earners for investing or home ownership. There are plenty of opportunities for most people to start gaining the knowledge they need to invest and even enter into ownership opportunities.
Yes, the more down payment you have, better credit score you have and more stable employment you have, there will be more opportunities for you to invest. And yes, this should be a long term goal for anyone but don’t think you can’t start taking control of your financial situation now no matter where you are. Knowledge is power and the more you learn about real estate the better you will be long term. If you choose this path for you to take control of your financial situation and homeownership opportunities, than learn all that you can and start your own “team of experts” to assist you.
Here are a few options to consider and each of these will be discussed more in depth in future posts.
Joint Venture Partnerships- Find deals and you will likely be able to find someone that will consider venturing with you. Even if you only have a minority stake in the endeavor OR only get a “finders fee” for the deal, you will have learned and made some profit/money putting the deal together.
Owner Financing- For some deals, you can find owners that will finance the opportunity for you. Sometimes this may be starting small with a trailer in a mobile home park that you can rent out and sometimes it may be an apartment building but there are owners out there that will finance opportunities for you. Sometimes these aren’t the greatest deals but it is a way to enter. Many times when entering into this agreement, you as the buyer are also solving a problem for the Seller. Sometimes it is just a desire to receive payments and interest instead of a sale and sometimes it is to solve a different issue. It’s always worth asking why someone is structuring it the way they are.
Owner Occupied apartment buildings- This is, by far, the best way to start homeownership if you are looking to build wealth and create long term financial gains for yourself or your family. Buying a “starter” home in Maine now could cost you upwards of $300,000 to $400,000 depending on where you are looking. This would put your monthly cost of living (Mortgage, Interest, Taxes, and Insurance) upwards of $2,000 to $2,500 a month or more. By buying a 2 to 4 unit building, you will be looking at approximately the same amount of money needed to close (downpayment, closing costs, etc.) of as little as 2-3% of the purchase price but would drastically LOWER your monthly cost of living with the rental income coming in from the other units in the building. You could even get it to ZERO and that would allow you to save more money for your next purchase. This is an incredible opportunity and one I HIGHLY recommend for everyone looking to get into home ownership.
Private Lending- Similar to Joint Ventures, if you find the right deal, many times you can also find someone to lend you the money to purchase the property. Usually the lender likes to see the entire business plan on the operations of the real estate and may even wish to know you have a history of performance. But, I have also seen many times this option used for someone's first investment. This is a great option that provides much more flexibility over traditional lending sources like banks and mortgage companies.
Lease Options- This option is probably my least favorite but one that should be discussed. Generally speaking, we have historically seen a 4% annual appreciation on real estate values over the last 50 years. The benefit of a lease option is that you could potentially fix your purchase price now and gain that appreciation should the structure allow it and you follow through with the option to purchase
This is just a sample of a few ways to start your real estate journey. I always recommend that you seek expert advice on structuring any of these options and consult with an attorney if needed.
The Fletcher Group has completed each of these transactions multiple times in our history and we are here to help. Please reach out if you have any questions. Thank you for following us.