Real Estate Riches

Use this blog to gain insight into the biggest wealth creator of all time. Useful, timeless and independent information on how to make money in real estate.

Financing

Oh Voila ! Thank god we are here on the most important topic called financing. Its actually all about financing isn't it? I have discussed leverage before and if you understand the term you may well infer that getting a finance is the know how that gives you the biggest leverage. Once you know how there actually is no thing that can keep you and your million dollar worth property portfolio apart. Many people get into real estate just to acquire massive amounts of debt knowing that while debts remain at a constant the value of properties that those debts control keeps multiplying and thus keeps increasing your net worth.

This topic will be covered in a few posts rather then just one , not just important it is also interesting to see how real estate financing works and how in this sort of investing you make your own rule.

Under financing I will cover many forms of loans and techniques to get finance. We will talk about home loan, mortgage, commercial loan, valuation, signature loan, vendor financing, credit card financing etc. so stay tuned!

Buy from a motivated seller

In the world of property investors its a well known fact that 95% of the people buy and sell properties for reasons that are not compelling enough. They sell to cash up when not in dire need of money, or to sell one and buy another following a tip, sell property to invest elsewhere and so on and dear reader this is the mass chunk that we need to avoid.

As stated earlier a lot of money is made at the time of buying, also in the mind since properties are prices in hundreds of thousands and millions and reflect more value then peanuts by any means, small amounts like a few thousand do not matter a lot. As an investor you would go through a number of properties before zeroing down one or two and after this write up the factor to zero down would be more towards the circumstances then the actual property. Remember you are an investor and not every property you buy is to be used by you as your primary residence or office space. You must shop around for property sellers who are willing to sell it for meeting commitments rather then those who just wish to sell. Once you find out the motivated seller, negotiating a better price become all the more easy. I am not one of those who is suggesting to absolutely exploit the seller but remember you are interested and a property at a given price may be negotiated for a few thousands or ten thousands less then its market value, Your price offer is still better then the next best offer available if any so both the seller and the buyer are into a win win situation. This is great opportunity to buy something of certain value for much less then its worth and the difference in price and value instantly ads to your net worth. Do it a few times and then you can talk to your banker with a straight eye in his / her face rather then look down when you next need a loan. Banks respect and give importance to people who already have high net worth. This tip if used can make you an important client at your bank of choice.

Dont fall in love with the property

It is a very common mistake , that when infact realises very late or probably never even at times. When we look at a house / property and it looks like a dream house to us, we instantly connect with the property and get very emotionally motivated to buy it. Guess what happens when emotions take charge ?. Logic goes out of the window and your love affair ends up costing you a lot of money forget making any.

In order to avoid that, make sure you use a spreadsheet where you put in the price of the property, its rental, the amount of interest you are paying on the amount of loan you have taken and see if the numbers make sense. i.e. does the return look sustainable? if yes go for it otherwise mover on. There is never a perfect house or property to buy, and its something you can always get better at so make sure if anything is worth falling love with its the deal with the numbers adding up in your favour. You have to become a sharp number cruncher to understand if any deal is worth it, otherwise move on to the next property.

Making Money when you buy

Property as you might be aware is one of the few investments where people by and large have made money rather then lost. Don't get me wrong people have made money elsewhere too but property investment as a source of making money has been almost a nobrainer. Seldom does one lose it unless you haven't cared to do the homework on the deal.
Against the general notion that you make money once you sell the property, I believe that property based wealth creation works faster if you consider the buying phase and and analyse it closely too. Needless to say there is money to be made, in fact lots of it when you actually enter the deal as a buyer. You know the prices, you know the sq. ft. rate prevailing in the area , you know that prices of similar properties move in unison, so when you stumble across a specific property which is well researched profile wise and notice that price is less then the average or can be negotiated ..... you have almost made money instantly. Not only will you ride the capital again till you sell it( I don't recommend selling generally) or refinance it, you will be ahead of the game to start with. Its not the easiest thing to come across an under priced property but not very rare either. You can negotiate deal to only go through if they are under priced or just walk away. We often shop around for best prices to go on holidays, buy groceries and get our cars fixed. Why not do it to our investments too?

Wealth Basics Rule # 4: Try to buy the property under the market valuation to get ahead in the financial race.

Real Estate Riches!!!

"Thank you for your kind mails. Its very overwhelming. Keep track of this blog for there is more and more information being posted. Get on the fast track to riches with these timeless tips. Your support is much appreciated."

- Bluebird

Create Wealth...Action Steps

Making money in real estate is more then buying houses at certain rates waiting for the capital gain and selling them to cash up and end with more then you started. You see when your mind as a real estate investor starts getting seasoned more and more, you will find out that real estate provides opportunities in several ways to make money. In the next few posts I will discuss some interesting money making idea that are simple yet very effective and perfectly legal too. I can almost see each of you saying

Show me how to do it:

Other People's Money or OPM: One of the biggest benefits of real estate is you can buy it with other people's money(OPM)- While OPM can be any ones I will discuss the most standard ones that we get from banks and other financial institutions. The money here lies in the idea which is to acquire more and more good debt (Good debt is debt undertaken to buy something that goes up in value). This is the single most important benefit of investing in real estate. With time your debt amount either remains the same as all you pay is the interest or becomes less if you pay back principle as well as interest. Even if you pay interest only the rate by which your property goes up over a long period beats the interest paid hands down.It is almost like borrowing money to gamble in a casino, winning lots of money , and then handing over the the initial amount borrowed by the source such as a friend only herein real estate you are not gambling but is sure and certain and also the amounts we are talking about is much larger as well.

Wealth Basics Rule # 3: Always use debt to buy real estate even if you can pay cash down.

The amount of money you have can be used as an initial deposit in buying a few properties instead of one. With time when each of them grows in value you loan will remain the same and you'll be making money from Inflation and value rises.

Important Lesson: Debts are of two types Good and Bad

Good Debt: Debt undertaken to buy something that goes up in value such as home loan....it helps you move ahead financially.

Bad Debt:Debt undertaken to buy things that drop in value some times immediately after purchase. Credit card, car loan etc.

Wealth Basics Rule # 2

Heres how you can beat the Property index
Sometimes simple things in life are the most difficult to understand. Lets check it out. When you hear business reports on stock market, there is a general tendency to bunch the stocks together in an index. The movement of index apparently become the mirror of the sentiment working in the market. If you take a closer look at how indexes are formed. Any certain index comprises of different members . Collectively their prices are interpreted as averages and it is the average that indicates if its Mr Bulls party or Mr Bear is in control. To make the picture even clearer look at the construction of averages (index) again. Say : the technology sector (in terms of technology index) has moved up by 10 percent and it comprises of ten technology companies. Do you think the prices have moved in unison of all of these independents companies of the index. Absolutely not. The individual companies may have severe skews as long as it averages to 10% growth. So two three four five or even 9 of them could be out of flavour but still the index depicts good growth. Is that Fair ?Why don’t you decide.

In real estate prices move in unison, . That’s the reason why if a certain area becomes a hot spot all the dwellings located I that area benefit with the price rise. Are you getting the picture. Now lets see how we can beat the property index easily. So easy you wont believe its true but trust me that’s how it works.

Look at the national average in your country. This is the index of all the properties in the country and their price movements. Remember that the slow growers are an equal component and if you discard the slow area, undeveloped interior country side , your chances to beat the average becomes 100 %. Keep going, look at the major metros. The the degree by which you would beat the index becomes even better. What about a good spot within a metro city? Or a mini metro. Look at the trends, Read the below blog on how an area becomes a hot spot and I am sure you'll have the aha! moment in your investing life. So easy it is to beat the index and get on top . Remember when you buy in a growing area with high returns, its not just the capital gains that you get but the area also receives higher rent. Your investment property can soon become a cash cow and add pounds to your property portfolio.

Wealth Basics Rule number # 2: Identify growth areas (hot spots) before buying real estate.

Wealth Basics Rule # 1

Here's how property developers make money :

Have you ever wondered why developing real estate is one of the biggest profit games in town? Where do they make money? Is it by adding margins to every product used in construction? or Is it an over all margin added on to the cost of land and development(improvement). Well to put it very simply, property developer's make money out of their vision.

They collect land banks in areas of potential. Sketch up a potential project and do a lot of general subtle marketing. Press releases and media stories are written in favour and the hype start gaining momentum. Consequently the prices start shooting up. Individual projects are announced and bingo! in a matter of months the per sq feet rate get up 7 - 12 times or even more the initial price paid. Thats where the money is made and it just snowballs from there

How can this information help you. Well next time you read an article on how good a certain area is doing and how flats are priced in millions , don't think its for your information, its a mind game that big players are trying to play. They are trying to train your mind to understand that prices have gone up or are going up. What to do? Try shopping for real estate in similar areas or even the same ones but remember since the price is being created and does not exist, there are chances that the price fever would not have caught on 100% and you can get real estate at cheaper then market rates. Any real estate bought cheaper then the going rate is going to put capital appreciation in your pocket. Remember when you are buying from the builder you are paying retail price, when you are buying like a builder(fragments of land from land owner) you have greater chances of paying wholesale price. This rule has a huge upside. Normally people buy in an up coming area at an already high price area and wait for the prices to increase and ride the wave..

Imagine when you get in the trade before the the media story catches up i e , before the builder goes marketing his individual projects in the masses. Its a very simple approach but will make you money.

Wealth Basics Rule # 1: Try to pay wholesale prices for property while buying and get retail prices while selling!

Wealth Basics

Real estate is different things to different people. But on a common note Real Estate (RE) is the world's greatest wealth creator. If you study RE in relation to other vehicles of wealth creation, you will notice that other vehicles while promising do not offer the same level of price support mechanism(its price does start licking the dust if a crisis unfolds in the financial market) which is vital for some one if he or she is considering wealth creation as a life objective.

To start with let's clear a few things. Am I saying that shares, derivatives, owning business, tertiary education , fixed deposits , mutual funds are not worth while.investments? Absolutely not. Am I saying that real estate is the most supportive form of wealth creation - Absolutely!
On a Joe Blog(Common MAN) note, Can he (Mr. Blog Who else? and I am not a sexist) make more money on other vehicles than Real estate - Yes . Can he lose more money on other vehicles - Oh Yes. RE is the vehicle that offers you the opportunity but does not take your Sleep at night factor away. I like real estate for the reasons as mentioned below. Have a read and see if it may work for you too.

1. Financial Security: Your investment in real estate may not climb the price ladder as fast as others but will certainly not come down the ladder as fast either.Wrong investment in RE is a rare thing. How many times have you heard that some one ( Oh Mr. Joe Blog) has lost his entire savings due to a real estate crash. Have we had any crash ?

2. KISS - Keep it simple stupid - It ain't that complicated. So no need to become a technical analyst or read buffetology.

3. Control: This is one form which offers a great amount of control over your investment. When you invest in a property , you control its maintenance, its enhancement, its renovation ..and to an extent its value. Compare that to shares where you either buy , hold and pray or sell(short selling is very funny concept), pray and buy!

4. Loan: While you may not know but for right kinds of real estate investments banks fall over each other to loan you money. (Banks are bastards, but more on this later)

5. Leverage: While property prices may not rise that sharply , your investment in property may if you use the leverage of bank loans properly.( Leverage:A tool that helps you do things you other wise cant) Driving to work while living far away is a leverage, flying on a plane is a leverage, buying a million dollar property with loan is a leverage... I hope you get the idea

6. Creativity: In RE you can be as good in moving ahead as creative your genes are. When I say creative it is about cooking ideas, dreaming up finances, smelling deals...

7. Depreciation: The ability to depreciate anything apart from land (which mostly never depreciates) for accounting purposes.

8. Freedom: while real estate is said to be all about Location location and .........(guess what the third word is ) your investments do not have to be where you live. They can actually be located far from it.

Real estate is a universe in its own right . The write up is just a start to the roller coaster ride that might end up sorting your life for ever.. so don't go any where. Keep reading

Please note that this blog contains ideas, suggestions and directives that may or may not hold good in the eyes of the legal eagles so please consult a a lawyer to make sure you land up in the right real estate after following the guidelines and insights.