Investing in real estate is your best bet for building wealth.
According to the Federal Reserve, families’ median net worth fell almost 40% between 2007 and 2010, down to levels last seen in 1992.
There has never been a better day than today to prepare for your future. What can you do to achieve your financial goals and build wealth this year?
Here are three ways to build wealth by investing in real estate, and you can take action on them right now.
#1 – Roll into a Self-directed IRA and Add Rocket Fuel to Your Retirement
Are you ready to take control of your own retirement future? Are you ready to begin to diversify your investments beyond the traditional stocks, bonds, and mutual funds? How about real estate investments?
If you answered “yes” to these questions, then you are a prime candidate to add rocket fuel to your retirement by using a self-directed IRA. Now is the perfect time to diversify.
The self-directed IRA is the best kept retirement secret in America. And it’s perfect for real estate investors because you can use your IRA funds to invest in real estate, notes, deeds of trust and mortgages, and other investments such as tax lien certificates.
#2 – Invest in Rental Property
Prices of houses have dropped about one-third over the past five years and the overall rental market has strengthened.
There are a variety of real estate investment possibilities when buying rentals including commercial, multi-family, and single-family homes.
Warren Buffett recently made the following statement on Squawk Box on CNBC, “If I had a way of buying a couple hundred thousand single-family homes…I would load up on them.”
He went on to make more remarks concerning low interest rates, low prices and valid points regarding why he likes single-family homes. I applaud Mr. Buffett. He has an accurate picture of the housing market as an overall investment platform. He also remarked that, “single-family homes are cheap now.”
I agree. Today’s real estate market is the best market opportunity of our generation. More real estate wealth will be made now than any time in recent history.
What is holding you back from investing in rental property? If you said tenants, then this next wealth-building opportunity is perfect for you.
# 3 – Build Wealth Without Tenants, Toilets or Time
If you are a true “passive” investor and have the funds to invest and allow your money to work for you, then you are the perfect candidate for joint venture real estate investing.
Your investment funds can joint venture with an experienced real estate investor and you can create great returns and cash flow.
Discounted Real Estate
In today’s real estate market, a good real estate investor should be able to find and acquire houses at a 40% discount price. That means the purchase price plus all the necessary repairs will not exceed sixty percent of the value of the house.
Here’s an example:
Purchase price of house: $50,000
Necessary repairs to house: $10,000
Value of house after repairs: $100,000
The total investment is $60,000 and the house is worth $100,000 which equates to a 40 percent discount on the overall value. Looking at it the other way, the $60,000 investment has $40,000 of built in equity upon purchase of this property.
Monthly Income Stream
In my market here in Richmond, VA, a house like this one will be a typical 3-bedroom, 2-bath house in a county suburb working class neighborhood. This house in Richmond will rent for $900 per month and create a nice monthly income stream for the joint venture investment.
The primary on-going expenses associated with holding real estate are taxes and insurance. In Richmond, the taxes and insurance combined will be about $150 per month for the house in this example, which leaves $750 net for the on-going monthly income stream for the joint venture.
The $60,000 investment has now been used to pick up $40,000 of gross equity and a $750 monthly income stream.
For the sake of simplicity, let’s assume that the two joint venture members agree to a 50/50 split in this venture. With a 50/50 split, the $750 monthly income stream is split so that both members receive $375 each month. Both members will also share the upside equity at some point in the future.
Let’s make one last assumption to show how the ultimate return can be easily calculated for both members of this joint venture.
Let’s assume that both members hold onto this investment property for five years and then sell it for $100,000, which is today’s value of the house. What are the earnings on this joint venture?
$375 per month for 60 months: $22,500
Upside equity split of the total $40,000: $20,000
Total return over the five years: $42,500
Total investment made: $60,000
Annualized return on investment: 14.16%
This is an example of a win-win transaction for a passive investor who can joint venture with a sharp real estate investor. The passive investor invested $60,000 and received earnings of $42,500, which is an annualized return of 14.16%.
The key is to joint venture with the right experienced real estate investor who can do all of the work and keep your investment safe. The returns are high and the passive investor does not have to deal with tenants or toilets or commit any of his personal time.
written by Jim Ingersoll