As real estate investors, building a portfolio of rentals is the single biggest wealth-creating opportunity of our lifetime.
Real estate investors who rely on bank financing are struggling and failing because the large down payments required and mortgage underwriting criteria make it very difficult to buy investment real estate.
Those of us who have figured out a way to eliminate banks from our investing equation are succeeding massively.
A lot of real estate investing elements must be completed correctly in order to create cash flow and long-term wealth. The good news is, real estate is still “on sale” and widely available.
In many markets, investors can buy rental property for less than the price of a new car. But even the price of new car still takes a lot of capital to acquire, so the key to investing in real estate remains finding the best way to leverage real estate acquisitions without using your own money.
Real estate investors who learn to buy with Other Peoples’ Money (OPM), can buy houses without the hassles of getting a bank mortgage.
Last week, in my own market of Richmond, VA, I put a house under contract for $25,000. This house last sold in 1968 for $9,900. It has a current tax assessment of $115,000. It will need about $18,000 of repairs and then it can be rented for $850 per month.
How I Bought the House Without a Bank or Any of My Own Money
To buy this home without needing a bank, I structured a joint venture. In this case, the private lender is a self-directed IRA from Quest IRA. The IRA will fund the entire acquisition, closing costs, and repairs, for a total funding of approximately $45,000.
My side of the joint venture includes doing all the work, including finding the house, negotiating, completing the repairs, and then managing the house for the next 5 to 10 years.
With this joint venture, we are splitting all net income and future upside equity 50/50. The rental income is $850 per month, taking out taxes and insurance this will net at approximately $700 per month.
The $700 per month is then split 50/50. I retain $350 per month and send the other $350 per month to the self-directed IRA. If we keep this property for five years, and it is full occupied, both the IRA and I will receive 60 payments of $350 per month for a total rental income of $21,000.
It’s a Win-Win for Everybody
If we sell the house in five years for today’s tax assessment of $115,000, our upside gross equity on the $45,000 investment will be $70,000, which is split 50/50 and another payday of $35,000 for each party in the joint venture.
Given the nature of the joint venture being a 50/50 deal, every second acquisition is the equivalent of one free and clear house. How many of these deals do you need to be able to live just off of the monthly rental income? If you could structure 20 of these deals, you would be at $7,000 per month. Structure 40, and you have $14,000 per month.
Don’t even focus on the equity and net worth, just focus on the cash flow and creating free and clear houses to hold long-term. Make the acquisitions without banks and you can succeed massively.