Investing in Real Estate 101
by Scott Robinson / Robinson Realty
If I teach it to you all I ask is you do the deals through me. All you will pay when you sell is normal commissions and it's my concept so I have to make it work for you. By the way, as I am sure you know when you buy, the seller pays.
I have been in this business for over 25+ years helping people with similar plans to this and watched my parents do it in my teen years to start me off. We are now at or close to the bottom of the Real Estate cycle, a very good time to start to work this plan.
To make this work for you, you will need to have a little;timing, patience, intelligence, knowledge, credit and a small down payment to get started.
First we must get a great deal on the best house we can, but the worst house in the best neighborhood possible, with hopefully cosmetic repairs only needed, the more the better ( to help lower the price and scare away other buyers)....creating sweat equity. Which could add up; with buying right, doing the right repairs to the right house increasing the value maybe even 20%.
Besides our intelligence and timing we are also going to want to take advantage of the fact that when we sell we won't have to pay taxes on whatever money we put into repairs and $250,000 of gain if we are single ( $500,000 if we are married) and have lived in the house two out of the last five years.
The plan is to save our money and fix up the place and in two years sell(Depending on what tax incentives we used to buy and what tax advantages we want to use when we sell we may have to wait five years to sell.)(through me of course, because I am giving you this great idea.) and buy two houses. Both should of course fit all the above requirements.
One of these houses we rent out and forget about, probably with some repairs. The other we move into and as with the last fix it up over the next two years (Probably five.) and sell it and buy two.
Fifteen years or so later we are at the top of the market, living in a very nice home and collecting equity and rents from at least seven houses. I know everybody thinks the market will crash forever, but I have seen four cycles, two as a Realtor. The trend is up!! My Mom bought a four unit apartment building in Venice in 1967 for $15,000. @ 2% interest. It made enough money for her to buy another the next year and two more the next. She retired in seven years and moved into one of them. Five years later after buying many more buildings she moved to Malibu, buying a home up a long driveway just north of the firestation on Carbon Canyon for $85,000. She also bought the lot below and built a house on it. Towards the end they owned a few whole blocks of Venice plus.
So once again, fifteen years later we are at the top of the market so we are not buying houses we are selling. We at that time will talk, but as I see it we will have two choices; Sell all but one of the rentals and move into that. Fix it up and live in it for two years and bank the profit tax free using the $250,000 to $500,000 tax free gain. Plus write off the repairs!
This could be the most profitable way because you get top dollar at the top of the market. The trick is not paying taxes by finding another good investment vehicle. I am interested in seeing how the TIC"S are doing in the down market. We can talk about TICS, call if you have question. They are tax free investment vehicles. But as we work the market up we will study what makes money best in the next down market and be ready to go. I tend to like private investing and would probably advice something larger commercial. You get income with a tenant buying your investment for you plus appreciation. Something like a Rite Aid, maybe with partners. Who knows, but it will be fun finding out then.
Another way that might also work out very well is to move into the rentals one by one.
Make them major nice so you will enjoy living in them and they will sell fast in two years. At the end of two year write off and bank!!! the repairs and hopefully $500,000++ in gain! and move into the next rental and do the same thing. It will be like somebody you don't know or see working and giving you the money every two years. Nice retirement. Seven houses keeps you Rock-in for fifteen plus years and then leaves you with a nice hunk to head to.... As I see it if you have owned the house as a rental for years, you only need to live in it for the last two before you sell.
These houses will have lots of equity and the repairs(which you will write off.)you do for your two years of plush living will get them top dollar fast in any market. So will be of great value. After your first few there will probably be a waiting list people bidding for the next. By the way if interest rates get crazy at this point as they may you will have mostly all equity in these paid off mostly rentals and could carry the paper at an nice interest/profit!! Plus if you had gain over the $500,000 you could defer it over future years as you got the payments in your retirement;-}