How to Buy and Hold Real Estate in Today’s Economy
By Mike Butler, Author of Landlord on Autopilot
Our real estate market along with pert’ near everything in our economy is already smack dab in the middle of an extraordinary inflation crisis. You already know why this is happening and everyone has their own version of how to fix it.
But the bottom line involves You, the investor, Your real estate business, and Your Life!
YOU Must Take Action Now and make major changes immediately to your new ground rules.
No More Buy, Fix Up, and Retail – STOP IT NOW! – also referred to as “Flips.” This was great this time last year and you got to pocket big chunks of cash. You might cringe by reminiscing about the “old days” of last year; but times have already and are continuing to change. You do not want to get with your pants down.
This rapidly changing market reminds me of home builders from the last real estate bubble that popped. Builders are in the same boat as the buy, fix up, and retail folks. The market crashed and many builders and investors filed bankruptcy because they became upside down. They spent their profits before they got them and without any income, they could not pay their bills. Needless to say, there were many properties sold at fire sale prices.
You can avoid this upcoming nightmare right now. Simply, change your “Exit Strategies.”
When buying and you find a deal that would have been a great buy, fix up, and retail, now becomes a deal to “wholesale” to another investor or cash buyer. Doing this greatly reduces your risks of things described above.
Your next exit strategy could be “Buy and Hold”; but carefully Run Your Numbers for Rental to make sure you get to pay yourself first verifying this deal is an incoming producing property for your portfolio.
Many investors get started buying “fixer uppers” because their dad taught them how to do things to “Save Money.” I grew up in this culture and I began by buying fixer uppers. My Dad grew up poor and his parents’ brain-washed him with this same mindset. It reminds me of the book “Rich Dad, Poor Dad.” If you have not read it, get it today, and read it now. It is a game changer for your life and business mindset.
I was always a “buy and hold” investor and my original goal was to buy 3 small 2-bedroom houses on my old paper route and get them paid for before I retired from the Louisville Police Dept. My numbers showed me these 3 little houses paid for, would double my police pension. At the time, police officers could retire with 20 years’ service.
So, here is what you should carefully review. If you want to get 20 nice rentals paid for in 3 to 5 years… and do it safely… even with your job, you must learn how to find deals and learn how to buy them without using banks!
Try this on for size, at least for the next 12 to 18 months or so, until our inflationary economy settles down.
Here is your New Qualifying Criteria for Buy and Hold Properties:
- It must be structurally sound – no busted foundations, caved in roofs, etc. Just a good solid well-built house that will be easy to maintain. In our town, 3-bedroom brick ranch style homes built after 1978 are awesome for buy and hold.
- Mechanicals – think of your licensed trades. HVAC, Electricians, Plumbers can replace systems that are old and worn out. These are okay, but you have to factor these costs before you make your offer.
- Your new definition of “Rehab” is limited to cosmetics. These are new floor covering or refinishing hardwoods, paint, updating kitchen and bathrooms, light fixtures, removing the Vietnam jungle covering fence rows and filling gutters and a good bath and cleaning.
- You MUST Run Your Numbers for Rentals to ensure it will be a good rental.
If you find yourself cipherin’ your numbers and exit strategies on a prospective deal, and this house does not fit your new qualifying criteria for buy and hold, then you have only one exit strategy – Wholesale It and pick up a few coins. Remember, Pigs Get Fat, Hogs Get Slaughtered!
Now, on top of all of this, you must stay tuned to loan products for both homebuyers and investors. Right now, it seems most homebuyers are being quoted 5.5% or more for a 30-year fixed rate loan.
As a rule of thumb, based on history, if an investor can find a lender offering 30-year fixed rate loans, your interest rate is usually 2% or more higher than an owner occupant loan. On top of this, the economists are predicting the Feds to raise the prime by another half point in June AND they forecast raising the prime rate up to six more times THIS YEAR!
Using your cell phone, go to Google Play and get the app called Financial Calculator. This does a lot more than the old HP12c. You can use it to cipher loan payments, rates and it is really awesome for buying discounted notes and mortgages.
Always remember to put your best deals of the year, both wholesale and buy and hold, into your Self Directed ROTH IRA at www.CamaPlan.com for Tax Free Profit & Income for Life!
With interest rates rising, inflation, foreclosures will be on the rise, now is the time to take action so you can stay several steps ahead of these trends.
So, buckle up, put on your helmet and pull your trigger now to learn how you can find great deals in any market. I am so looking forward to your feedback and your success!
About the Author
Mike Butler began his real estate investing career while working his full-time job as an undercover police detective in Louisville, KY. He began buying fixer uppers and renting them to make extra money vs. working “off duty” moonlight jobs like many of his fellow police officers. Mike discovered very quickly how investing in real estate is the way to true financial freedom for his family. He then exploded his real estate business by buying an average of 2.5 rental properties every week while working his full-time job! Mike’s investing success has been featured in Money magazine’s featured article “Can Real Estate Make You Rich?” and The Wall Street Journal Radio network with over 170 syndicated radio shows.