Do you want to learn how to build equity through your next home purchase, you’re in the right place. In this post You will find out about how you can utilize the same purchasing strategies professional flip companies use, ensuring your next home is loaded with equity.
The strategy I will be going over is what I like to call the “live,n’flip”. This method has the same purchasing strategy as if you were going to flip it, But Instead of unloading it after 6 months like a traditional flip, This enables you to hold it for 2 maybe 5.. Or however many years you choose to dwell in the home. This is best used for someone who wants to tango a little bit in real estate investments. This is also meant for someone who Does not mind doing a little bit of work today for a handsome reward down the road.
Ok, enough with the Mumbo jumbo let’s get into the good stuff. So how you ask am I going to purchase my next home and load it with equity. Simple!! First, Let me give you an example of different types of properties on the market that you need to be going after.
There are what I like to call the Macy’s and Nordstrom properties that you pay top dollar or retail for. Then there is the clearance rack at the back of the store. The Marshall’s or TJmax where you get the same product with minor defects. These are the properties we want to go for.
WHAT TYPES OF PROPERTY SHOULD I BE LOOKING FOR???
1.) Currently there are still plenty of Bank owned properties where you will most likely find the best deals. These are my favorites. There at such deep discounts because most of them need so much work, along with banks just wanting to clear them off their books.
2.) You could also get a good deal on short sales but they can take long periods of time to close on. I have seen upwards to a year. But If you have the patience go for it.
3.) Other homes that you should be keeping your eyes on are owned by motivated sellers who might be going through divorce, probate or many other situations that would force a sale of their home. To locate these simply ask your realtor to search keywords in the MLS such as motivated seller, offers welcome, short sale,sold as is etc…
4.) Don’t forget to Sign up for wholesale buyers lists. This is an automatic email list an investment company like ourselves will send you weekly or monthly. This includes properties that are usually off market and discounted due to sellers motivations. When real estate investors are too busy or out of cash for time being, they will sell off there leads they generated through their marketing.
Now that you know what type’s of properties you should be looking for, I would Like to talk about the most important contact you will need, a great realtor who can run comparable’s, let you know local market conditions and most importantly let you know if a property is a good deal. When locating a great realtor make sure they have had experience working with investors or ones who have invested themselves. This will make your life a lot easier. It is most important to have a gem of an agent by your side. You will need to trust that they are pulling good repair comps. This is key… An (arv) is an after repair value or a homes worth after you perform the renovations. Having a great agent will take location, neighborhood comps, market stats, and your planned renovations to determine this value. You need to base your purchase price in accordance with this value, therefore making the numbers work and loading the home with equity.
One more group of people you would want close by your side are contractors and handyman. When you and your realtor are checking out these properties you might want to invite your contractor along to see how much money certain upgrades would cost so you can factor all those numbers into the bottom line as well. If you don’t have any contractor contacts that fine, most likely your realtor will know a trustworthy, cost friendly handful of them. Also you can ask family and friends for referrals.
Ok let’s get down to business
If you have goals of 20% equity in your property check this out
-You purchase a property for 100,000 (purchase price and closing costs)
-40,000 ( renovation costs) ( contractor costs)
-6,000 (borrowed money) borrowed for 6 months at 12% annually.
Your total costs for this property equal 146,000.
So if the home is worth 182,500 (arv) after your renovations you have 20% equity.
Yes….. It’s as easy as that.. With the right connections and a little bit of work you will have a minimum of 20% equity in your next home. Who’s better than you.
Now say you held on to and lived in your home for 2 years which just happens to be the amount of lived in years where capital gains tax drops from 33% to 15%. You can sell your property, take the profits and do it again. Now this is what I call the liv,n’flip.
I don’t care if your living in your flip, or flipping a home you live in. As long as your home is loaded with equity your good. This has been a method that has proven successful for myself and for many I know.
Stay tuned for prt2 that will explain the best ways to finance distressed properties that will load your home with equity.
Good luck flippers and equity builders alike.