I am a real estate investor!
Now having 3 properties to my name, I guess I can officially call myself a “Real Estate Investor”. I want to first disclose that it is definitely not a fun and glamorous hobby, but I know that my kids will appreciate (or benefit) from this 15 years from now. You see, I was one of those women who DID NOT want kids and just wanted to focus on my career goals (climb the Corporate Ladder with no personal liabilities…children) and earn my PhD, of course. All of a sudden, after earning my MBA, I wanted 5 children! Yes, you read that correctly… “5 kiddos”.
You know that saying “wait till your biological clock starts ticking”… well, it definitely ticked LOUD and CLEAR. I have 2 kids, and after giving birth to my son, I am now done as he is the equivalent to 4 boys, so in essence I made it to 5. You do not need to have a business background to get that joke.
Setting a future for my family
Having 3 properties and 5 kids (2 really) I realized that all I do now is work for my children. I want the best for them and I absolutely do not want to be a burden to them as I get older. On the contrary, I want to be able to provide to them what my immigrant parents were not (but always regretted) able to provide to me… a debt-free education and a debt-free property.
So, in my recently founded entrepreneurial mindset and advice instilled from a dear friend and business colleague, I went for it and began to invest in Real Estate. In today’s society, you really don’t need much money to invest… TRUST ME!
Advice I can offer
Here are the 10 most important pointers that have worked for me:
1. Your credit score is the key. So, if you haven’t pulled your credit report lately, please do so immediately and see what in the world you are being held accountable for that shouldn’t be there.
2. If you are able to give a 20% down payment, DO IT! as this will avoid the additional PMI (Private Mortgage Insurance). PMI is basically additional cash you have to pay every month because you did not have a 20% down payment at the time of closing. However, you can give as little as 5%, 3% and based on some loan programs such as FHA you can even contribute a lower down payment (this is TRUE… as I tell my daughter…. “Google It”).
3. If you are employed and contribute to a 401, check with your employer as you might be able to borrow from your account. The beauty to this is that you pay yourself back. YES! You read that right… you pay yourself the interest rate for borrowing money from yourself. Isn’t that amazing?
4. If you currently own your home, you may want to consider taking out a HELOC (Home Equity Line of Credit). This is similar to a credit card line of credit but with a collateral (your house). If you know you have equity in your home, it is always a great idea to have this line available to your name in case of a rainy day (even if it’s not for real estate investing purposes). Some financial institutions will only consider you if you have a minimum CLTV of 85% or less for a home equity line of credit. A “Combined Loan To Value” (CLTV) is the proportion of loans (secured by a property) in relation to its value. The term "Combined Loan To Value" adds additional specificity to the basic Loan to Value which simply indicates the ratio between one primary loan and the property value. Use this formula to figure out your current CLTV : Amount you owe on your mortgage / the current appraised value. Example: if you owe $150,000 on your home and it is currently appraised at $450,000 your CLTV = 33% . Take the $150k and divide by $450. Which means that your equity is 66% and you “may” qualify for a total of $255,000. How did I calculate this? Take your home’s current appraised value and subtract what you still owe to the bank; then, multiply that figure by 85% (keep in mind every institution has their own parameters, policies and guidelines). In this scenario the total amount one would be able borrow would be $255,000 = ($450,000 - $ 150,000) *85%.
5. Find a good realtor. Be very specific in regards to what you want/ what you are looking for. Having a great relationship with your realtor is very important. They will go above and beyond to work a deal for you.
6. Don’t be so focused about making money from the get go… a smart investor is patient. Not to be cliché, but the saying “patience is a virtue” goes a loooooooong way with this hobby. I don’t make any money in my investments. I prefer to take out loans with short terms (in other words, 15 or 20-year terms) and have the renters pay the mortgage… via monthly rent (includes mortgage, taxes, insurance, homeowners association fees, etc). My main goal is not to make extra income. I just want someone else to pay my properties for me. That’s where you have to be very careful who you are renting to.
7. Know your market, who you want to rent to (family, college kids, young professionals, etc.) and invest in areas that will attract that particular market.
8. Do your research. Check out the vicinity, crime, schools, attractions, etc. before you even decide to invest.
9. Consult a good real estate tax professional for advice regarding any tax implications and/ or advantages.
10. Lastly, keep your tenants happy!