The 4 Stages Of Wealth Building As A Homeowner

One of the primary objectives of owning a home is to let the home appreciate over time and become a pillar of a family’s financial strength.

But before we can discuss “wealth”, we need to identify the stages to get there.

Stage 1

Having “Emergency Cash” is the first stage. It’s having $5-7,000 liquid for life’s inconveniences (the boiler breaking down, the car needing work, etc). When faced with the inevitable challenges that arise, many people are forced to run to their credit cards to make it through. They become stuck with high interest rate, non-tax deductible borrowing.

Stage 2

The second stage is the elimination of “Bad Debt”. We define “Bad Debt” as any debt whose interest is not tax deductible. Obviously, those high interest rate credit cards must be the first to go. But we also want to divest ourselves of the borrowing associated with car loans, boat loans, student loans, and personal loans because it typically can be done cheaper.

Stage 3

Shockingly, when you arrive at stage three, you will be considered in the Top 5% of Americans in terms of financial security. Stage three is accomplished when you have 3-6 months of your total expenses in reserves. The average homeowner (who is logically financially better off than the non-homeowner) has less than one month’s expenses in reserve! When life shows them more than a minor inconvenience (like a job loss, an illness/disability, or worse), most people are in a panic situation. With 3-6 month’s reserves, you will have time to weigh options and make better choices.

Stage 4

True financial security is attained when you become “Debt Free”. But not without debt. We consider our clients “Debt Free” when they have enough liquid assets to pay off whatever mortgage they have outstanding. Wealth building almost requires utilizing the tax benefits of having a mortgage in combination with strategies that utilize The 3 Miracles of Money…

The 3 Miracles of Money

1.       Compound Interest – The impact of money left to grow upon itself can be dramatic. If you had $1 on Monday and you could double it every day ($2 on Tuesday, $4 on Wednesday, etc.), by the end of 20 days, you would have $1,048,576.00!!! Now, you can’t double your cash every day, not even every year, but the concept holds true…..compounding interest is a good thing!

2.      Tax Free Growth – The ability to accumulate assets without giving Uncle Sam a third of it (in the form of Federal and State Income Taxes) is how the $1 became $1 million. If the growth was taxed at 33% ($1 on Monday gave you $1.67 on Tuesday – instead of $2- and so on), your $1 would only grow to $28,466.20 after 20 days!!! THAT IS NOT A TYPO! You would have “lost” over $1 million.

3.      Leverage and Arbitrage – If you can put up a minimum of cash and take title to a significant asset (like a down payment on a home….the smaller the down payment the better), you can leverage that cash investment to large returns. At the same time, if you can take the cash that you don’t bury in home equity and effectuate a spread between your “after tax cost of money” (mortgage payment) and your investment options (hopefully, in a tax free environment), you can gain the exponential growth that creates wealth.

Special thanks to Dave Cook for providing this information.  

Want to know more about home ownership?  Call me, Laura at 303-726-1051.

Earn While You Learn

Investing in real estate is one of the most powerful ways to earn money while you learn how to make more money.  When you consider the cost of higher education today and then factor in the chances of gainful employment once you’ve completed that $40,000+ education the amount needed to get into real estate investing begins to look pretty sweet.  Our current success story, Matt A. saw the opportunity and jumped on it.  His journey was not all roses.  I asked Matt what he came up against and what he learned from the bumps in his investing road.

"In addition to what you can get out of books like Your Castle Real Estate’s “Investor’s Guide” & Gary Keller’s “Millionaire RE Investor”, I’ve learned several things that don’t come in the books.  How to listen to my gut, who I need on my team and when to listen to them, the importance of controlling fix-up costs & remaining flexible, and the one that saved my butt - having multiple exit strategies.

“The first several months were about learning how to look at property – first on paper and then while walking through the houses.  Looking at property on paper can be deceiving.  The pictures often times make the homes look really nice.  But then we’d get to the house and realize it was a total shambles.  Pictures can lie.  You had told me I’d need to look at 100 homes on paper & then go see 10 to write one offer.  It’s tricky because there are so many variables.   But after seeing several dozen properties those variables became less intimidating & more familiar.

"The biggie is location.  But I found that even in the less desirable areas there can be pockets that are great.  With my first three deals we were in three different areas: North Aurora, Montebello & South Denver.  Each area had its own set of influencing factors.  Now I know that it’s important (at least in my case) to choose an area and learn all I can about it: avg. price point, quality of schools, acceptable level of fix-up.  And perhaps the most important – do the inspections before you close!”

Ah Yes, I remember.  Would you like to share that story?

“Sure.  We’d just closed on the 3^rd flip and one of those “too good to pass up” deals came to our attention.  It was back in the east Denver/north Aurora area that I really liked, a 2 bed/1 bath for $70K.  I knew the area was running low on properties under $100K and we’d had some down time between a couple of the earlier deals which I didn’t want to do again.  Having my money sit in the bank wasn’t getting me any closer to my goal.  If we wanted the house we needed to close in 48 hours to save the house from its foreclosure sale.  So I jumped on it.  The comps were showing resale in the $140K range.  That’s $70K in wiggle room – how could I loose, right?

“So we closed Tennyson on a Tuesday & bought Willow on Thursday.  Then we did the sewer scope.  (insert the sounds of fate here- “dun, dun, dun, dun” in a descending scale)  And of course it was trashed so I had to replace it to the tune of $5000.  Then we decided it really needed a garage - $11,000.  By the time we got it fixed & back on the market it was mere days before the tax credit expired and I had little room to reduce the price and still make some money on the deal. 

"We had the house on the market for 6 months with very few showings when you and other investors I know started talking about keeping the place as a rental, re-financing to pull out equity and picking up a couple of other rental properties.  This was the “remain flexible & multiple exit strategies” lessons in practice and it lead to my best buy to date."

We’ll save that story for the next Success Stories installment.  In the meantime, if you’d like a FREE copy of the Your Castle Real Estate “Investor Guide” give me a call – 303-726-1051 or shoot me an email at ludmilla303@msn.com

Finding the Right Real Estate Agent for Investing

Building Your Real Estate Investing Team

“Where no counsel is, the people fall; but in the multitude of counselors there is safety.”
                        -- Proverbs, 11:14

“The important thing to recognize is that it takes a team, and the team ought to get credit for the wins and the losses. Successes have many fathers, failures have none.”
                       -- Philip Caldwell

The most successful people always have a great team helping them.  You’ll need to find a Mortgage Broker, Real Estate Agent, Inspector, Appraiser, Insurance Broker, Contractor and CPA.  You may also need the support of an Attorney and a Property Manager.  Today my focus is on finding the right real estate agent.

To begin, the two most important members of your team will be your mortgage broker and your real estate agent.  Outstanding residential mortgage brokers and real estate agents rarely achieve even modest success with investors.  Insist on full-time professionals that specialize in working with investors so you can maximize your track record of success.

Interview and Check References when searching for a real estate agent

Bear in mind that the perfect agent with A+ answers on every question likely does not exist, and if they do, they will be so busy that they might not have time for more clients. Be willing to compromise. It’s rare that you can find the 100% perfect agent.  The search and thought process for investments should be highly numbers-driven - residential agents are mainly focused on the emotional appeal of a home and how well it fits their client's lifestyle.

Here are some sample questions:
  - Are you a Full Time Real Estate Agent or do you do other things? If so, what else do you do?
  - How many transactions did you complete in the last twelve months?
  - Tell me about the mix of clients – what types of clients did you work with and what sorts of deals did you do?
  - Do you work on a team? If you are sick or on vacation, who will be helping me?
  - What happens if I’m not satisfied? Can I get out of the contract? How long is the contract?
  - Describe the investment you are considering. What properties do you suggest I consider? What have you seen other investors like me do? What specific returns did they achieve?
  - How would we work together? What is your “Process”?
  - Could I get some references of two or three investors you have recently assisted?
Call them up and ask them …
     • How comfortable they were working with the agent?
     • How knowledgeable did seem?
     • How responsive they were in answering questions and returning phone calls?
     • What did not work for you in the relationship?

I encourage you to interview a few real estate agents before making a final decision to sign a buyer’s agency contract.  Make sure you have a clause to cancel if you are not satisfied.  Commit to working with one agent after your due diligence period so they will bring you the best deals.  Non-committal buyers only see left-over deals after preferred clients have picked over them.

If you are thinking about investing in real estate I recommend “The 2011 Guide To Colorado Real Estate Investing” by Lon Welsh. For your FREE copy give me a call (303-726-1051).

Musician investor turns $23K into $150K!

And $1330 in monthly passive income in just 3 short years.

I first met Matt 3 years ago in one of our favorite watering holes, Herb’s at 22nd & Larimer. At the time he was drumming in a band, and he & his wife were expecting their first child. He shared his goal of wanting to invest in real estate. Since then Matt has done 9 deals and now owns 4 homes with over $15O,000 in equity and monthly cash flow of $1330 over & above expenses. Over the next few days I’m going to be sharing Matt’s success story of how he went from that modest start to increasing his holdings by more than six fold and creating a revenue stream that allows him greater freedom with his music, more quality time with his family and an improved vision of what is possible for his financial future.

Matt begins his story by sharing, “There was a kind of ‘perfect storm’ of happenings that lit a fire under me to do something. I looked at the other guys in the band and realized that, though they were older than me & had been making a living with their music, not one of them had any financial security. With our first child on the way I knew if my story was going to be different I had to do something. Back in college I saw a late-night commercial with Carlton Sheets - you know the no money-down real estate investing stuff? So the real estate bug had been swimming around in my head since then. And when I met you & Thriving Artist Alliance. I knew it was time to take the leap toward creating a better financial future for my family.

“I had read Robert Kiyosaki’s “Rich Dad Poor Dad” so I knew the difference between being “broke” & being “poor”. Poor is a mindset that is difficult to change. Broke just means you don’t have any money. That you CAN change.

“My wife & I had managed to save $23,000 so that’s what we started with. The original plan was to do fix-n-flips to build up enough cash to buy a rental property outright and then repeat the cycle again & again fining & flipping, until we’d built a portfolio of 10 rental properties that would cash flow $300/mo each giving us $3000/mo in passive income.”

Having been with Matt every step of the way I can tell you his journey wasn’t perfectly smooth. He faced more than his fair share of challenges & unexpected obstacles. What has made Matt successful, as a real estate investor, is his steadfast commitment to his long-term goal and his willingness to learn from his mistakes.

Intrigued or want more information? Give me a call: 303-726-1051

Stay tuned for more of Matt's story in the coming days.