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Originally Posted On: https://www.dohardmoney.com/how-to-achieve-financial-freedom-through-real-estate/

 

Can you imagine it?

Eating at the best restaurants, taking the coolest vacations, having the flexibility to do what you want, when you want…

But more than that…

It’s knowing that your family is taken care of, and hopefully for generations to come. You’ve done your part to make sure that they can live a life free of the headaches, stress, and other issues that come with financial hardship.

Achieve Financial Freedom Through Real Estate

I want to share with you MY perspective on achieving financial freedom through real estate. I’m going to assume that you’re starting from scratch (or close to it), and what I think you should do to systematically build your wealth to become completely financially free in the next 10 years.

I can teach you this because I’ve done it. I’ve done it with all the strategies I’m going to lay out here.

10 Ways to Get Started Towards Financing Freedom Through Real Estate

Buy a Primary Residence With the Goal to Rent it Out

I got my start in achieving financial freedom through real estate by purchasing a duplex, living on one side of it, and renting out the other. It didn’t cover my entire mortgage, but certainly a good chunk of it while paying down my loan and enjoying the appreciation.

Another variation on this that a TON of people use to get started is to buy a house, but solely with the purpose to move out at a later date, keep that house and rent it. It’s a fairly simple strategy, but a great one to suddenly own two properties instead of one! A lot of people who don’t even consider themselves investors and aren’t interested in owning a ton of property (or at least aren’t interested in the work that goes into it) can do something manageable to increase their net worth.

Then if that first property goes well, you can move again and have a second rental property!

Here are a few things to keep in mind when doing this:

1. If you use an FHA loan to purchase your home, you must stay there at least one year before moving out. However, this way you can get a future investment property at 3.5% down instead of a typical 20% down if you wanted to buy a strictly investment property from the start.
2. Many lenders will want to see 6 months’ worth of mortgage payments in your bank account before they’ll fund your second property. Add this on top of the down payment required for your new home, and that can be $30k or more.
3. Many people in this situation will wait until they can refinance their house, get cash out, and use that money to buy their next house. A bank will often lend you up to 80% of the value of the house. Let’s say you owe $240k, and the house is worth $360k. They’ll usually lend you $288k. This means you’ll have roughly $48k (minus some costs) to purchase your next home and prove you have the cash on hand to cover vacancies in the rental property. Since the bank is lending you 80% of the value, it’s as if you’ve put down 20% on your loan…meaning that you can often do away with PMI (private mortgage insurance) which will lower your payment.
4. Treat your home strictly as if it is going to be a rental property. For example, don’t take on any home improvement projects that might make your home less desirable to some people—like painting a room bright green. Only do it if it’s going to increase appeal to everyone, not just a select few who like your tastes. Also, only do improvements that will provide a nice ROI. Here in Utah, most homes come with an unfinished basement. In many cases, it’s not worth $15k to finish a small basement so you can raise rents by $100…and also have larger families move in that are harder on the property.
5. Move into high growth areas. It’s not a guarantee, but in my experience, moving to a suburb that’s on the rise as far as population and amenities will result in the fastest appreciation. If you buy that house and then two years later there are more stores and entertainment sources, the value will likely have risen.

Wholesale

Wholesaling is one of the most common ways that people get involved in real estate investing as a career move. This is when you make an offer on a discounted property, put it under contract, but then assign the contract to another investor interested in doing the rehab work and the eventual resell.

The investor you assign it to will likely make a good chunk of change, and you can earn $2,500 – $10,000 from the part you play.

Wholesaling is great because:

• It’s fast – you can get paid in 2 weeks or less.
• It’s still profitable – you won’t make as much as a fix & flip, but I’ve seen people make $25k or more on really good deals.
• No loan – and trust me, that removes tons of headache.
• No contractor – even more headaches removed.
• No deadlines with payments, interest, rehab, etc. – same.
• It’s just easier – if you’re brand new, you’ll need to learn A LOT about how to do a fix & flip properly (we can help). A wholesale deal still requires some know-how, but much less.

Use an App

I looooove that there are so many apps out there that make investing easy, and in many cases, passive. For example, you’ve probably heard of the Acorns app that automatically pulls money from your bank account (of course on a schedule you set) and invests it regularly for you. Or Robinhood, the stock-trading app that has taken the world by storm.

Achieving financial freedom through real estate investing has certainly been a huge part of the investing app boom! There are so many options that there will be one for you.

Ask yourself these questions:

• How actively do you want to research the deals you get involved in?
• How much are you willing to invest?
• How much risk are you willing to accept?
• What types of property do you want to invest in?

Some of the apps require that you be an accredited investor ($200k+ for 3 years, or net worth greater than $1 million excluding your home), whereas others, like Landa, allow you to get started with $5. I’m not going to dive into the ins and outs of each one, but here’s a good article that does.

Find a Good Mentor

So when I first started getting into real estate investing, I was working my tail off. I used to call with two different phones so I didn’t have down time between cold calls. I knocked doors, sifted through county records, drove neighborhoods, and so much more. Luckily there are (waaaay) better ways to find deals now, but all of that hard work I did led to me finding a mentor.

He liked to fund deals, and he noticed I was a hustler. I did a couple deals with him, which I later found out was a test. Then he turned around and gave me a WHOLE bunch of money and wanted me to get it working for him.

So here’s the point…

It might sound like I got lucky to find someone who was willing to mentor me, show me the ropes, and then ultimately fund many projects. But this type of story is one I hear all the time…and they all start the same. It starts with someone who wants it bad, who does all the right things (learning, researching), and then works their tail off!

If you’re getting started, you’ll need a mentor…fast. Or else you’ll spend months or even years spending money & time, but ultimately failing. There’s a reason 99% of real estate investors quit before their first deal. It’s hard. It requires work. And most of all, it (almost always) requires someone to teach you the ropes.

Here are some ways to find a mentor:

• You’re a lucky person and have someone close to you who’s willing to teach you
• You glom onto another investor and do the dirty work for them for free or a small cut
• You go to every single stinkin’ real estate club or networking group, virtual or not, that you can find
• You pay for one. While I don’t do 1-on-1 mentorships these days, I put together a system that has over 100 videos where I teach you exactly how fix & flip deals. You also get software, downloads, and as much support from the team as you need.

Use Your Self-Directed Retirement Accounts

Here’s a quick primer on the different types of retirement accounts out there:

401(k) – These are the ones sponsored by your employer.

IRA – Retirement accounts for individuals.

Traditional – You put pre-tax dollars into these retirement accounts. Your money grows on a tax-deferred basis, meaning you don’t pay taxes until you you withdraw the money. This allows for a bigger up-front number in your account to accumulate gains faster.

Roth – You put post-tax dollars into these retirement accounts. With Roth accounts, any gains in your account are not taxed…ever. It’s a serious benefit, and why they’re my favorite type. Another awesome benefit is that since the money you put in has already been taxed, you are allowed to withdraw any contributions you’ve made at any time. You can’t withdraw any gains you’ve had until withdrawal rules apply (like with a traditional account), but the money you put in can be taken back out…like a savings account.

Self-Directed – Usually your retirement account, along with a whole bunch of other people’s, are managed by a professional who invests the money in a wide variety of traditional investments (stocks, bonds, etc.). Self-directed means that you can control how to invest your money. For example, self-directed accounts allow you to invest in cryptocurrency, precious metals, and…real estate!

So here’s where I’m going with this…

I’m about to tell you what I think is the single greatest wealth creation tool there is.

Go and get a self-directed Roth account. If your employer has it available, then it will be a 401(k)…if not, then get an IRA.

Start contributing regularly….

And then once you have some money in there, you can invest in real estate! Two things you can do is to fund your own fix & flips, or fund other people’s deals. This can be done even if you only have $5k – $10k. If you’re doing your own deals, then go get a hard money loan. If you need another $10k to make the deal happen, use your retirement account. With other people’s deals, you can be the one who provides them the money they’re short after they get a hard money loan. Then you get a portion of the profit or a set return on your money.

But here’s the real kicker…

Since gains made on your money in a Roth account aren’t taxed, any money you make from these real estate investments will NEVER, EVER be taxed! Let’s say that again…NO TAXES. Not now when the money goes in, not later when you take it out.

Oh, and Roth accounts can be passed onto children tax-free as well. That’s a little more complicated to set up, but you can talk to a professional to make sure that happens.

Home Equity Line of Credit

If you’ve got some equity in your house, I count this as the single easiest way to fund a real estate deal. 

Why?

You don’t need a partner, they’re easy to get, the interest rate is low, and you can withdraw more from your HELOC to pay the interest. This is especially important…here’s why.

Let’s say you’re interested in doing a fix & flip deal. You’re looking at a property and you’ve applied for a hard money loan (the best place to start). However, even though it’s a good deal, you’re going to need another $10,000 to make the deal happen.

So you tap into your HELOC and grab $10,000 to come up with the rest of the money.

Now, the purpose of the HELOC is so that you don’t tie up your own money in the deal, or you didn’t have money in the first place.

Either way, if you have to pay interest out of your own bank account, that defeats some of the purpose for what you’re doing! The last thing you want to worry about during a complicated and stressful rehab project is making interest payments and wondering where the money will come from.

With the HELOC, you can simply withdraw a bit more to cover the interest. Then, when you flip the house, you pay back the balance on the HELOC from the proceeds on the sale, and then the rest goes to your bank account as profit.

$0 Down Fix & Flips

What if instead of having to rely on using funds in your retirement account or your HELOC, you just got a loan large enough to cover ALL your costs? This seems impossible, right? Don’t all loans have a required down payment?

Nope. With the right hard money lender, you can actually find deals good enough that qualify for $0 cash-to-close!

Here’s a quick example:

Let’s say that your hard money lender is willing to fund up to 70% of the after repair value (ARV) of the house, and they don’t require any minimum down payment. The after repair value being what you estimate you’ll be able to sell the house for after you’ve fixed it up. This value will be confirmed by the lender.

So you have a deal with an ARV of $200,000. Your hard money lender (in this example) will fund up to $140,000 on your deal. You negotiate the sale of the property down to $100k, you expect $25k in rehab costs, and then another $15k in loan and other costs. Now you can come to the table with exactly ZERO dollars.

We do this all the time at Do Hard Money. If you’re interested in finding deals that qualify for our 100% financing loan, fill out this quick form.

On the other hand, what happens if you’re searching for that elusive $0 down deal, but you find one that will require $5k. Well first of all…that’s still AMAZING! $5k down for a profitable fix & flip is nigh on impossible to find with every other hard money lender out there, except for us. In fact, 1/4 of our deals require less than $2k cash up front, with average profits of $33,572.

But let’s say that you do need to bring some money to the table…but you don’t have any! So does that mean you have to walk away from a great deal because you’re a few grand short? Nope, not at all. There are many ways that you can use other people’s money or even borrow from yourself. I wrote an entire post on the 16 Ways to Get 100% Financing on Fix & Flips.

5 Ways to Expand Your Wealth Through Fix & Flips

In this section, I’m going to assume that you’ve had some success in real estate, or at least have been successful in other areas and you have some money saved up. How can you continue to expand your wealth and achieve financial freedom through real estate?

Hard Money Lending

Earlier in this article I talked about my mentor. One of the things that I did with his money is that I started funding deals for other investors. It’s truly the most passive way to earn returns so high that they won’t seem real, to be honest.

In a typical hard money deal, I’ll have my money out for 6-9 months, and I’ll get an APY of around 15%-18% on my money. It’s absolutely bonkers the kind of returns you can make on that. Let’s say that you lend $200,000 for a 6-month term at 18% interest. In just half a year, you’ll make $18,000 just for having loaned your money to someone. In fact, I teach conferences and seminars fairly often about increasing wealth, and this is exactly what I teach people to do.

If you’re in a position to lend money for fix & flip deals, there’s incredible, life-altering wealth to be had.

If you’re interested in looking into this, the most important thing you can do is to begin to network. You need to be in touch with other real estate investors. Like I mentioned above, go to every real estate meeting, group, or conference that you can. Tell people you’re willing to lend money for deals. Since finding money is usually the tricky part, finding people who want to do this shouldn’t be too tough.

I also help people get started in hard money lending. To read more about that, click here.

Equity Partner

So this is similar to hard money lending, except that you’re not going to make a percentage return on your money—you’re going to split profit on the deal itself. This is often done on a smaller scale and it’s a good option if you’re not willing to lend $200,000 for a whole deal.

Perhaps you’re better suited to loan out $5k or $10k as a gap financier for someone who qualified for a hard money loan but is still short. However, like with being a hard money lender, you still get to make passive income without ever dealing with the headaches of the fix & flip itself.

Hire a Team

Once you’ve done a few fix & flips and you’re starting to get the hang of it, it might be time for you to start to expand. At first, you’re going to be super hesitant to handle more than one deal at a time because you’ll want to oversee every piece of the puzzle. You’ll be too nervous.

But pretty soon you’ll build up the confidence to have several deals going at once! Of course you’ll need a team for that.

First, you’ll likely want to have a team of bird dogs. These are people that go around and find deals for you, and you pay them a finder’s fee for every one of them that you put under contract!

You’ll also want to have a repeatable way of finding deals that doesn’t require a ton of your personal time…you’ll be too busy! You may want to hire high school kids to hand out flyers or cards. You’ll likely want to hire people to drive around with car magnets or to set up bandit signs for you. You’ll be needed to walk through properties and negotiate deals—so the more you can offload these types of assignments to others, the more money you can make.

You’ll also want to have your go-to real estate agent, contractor, title company, lender and others. While these people don’t necessarily work for you, you’ll find something interesting happens: they’ll find deals and send them your way! After several deals of using the same people, they’ll know that you’re serious and that if they have something fall into their laps (which happens sometimes to people in those fields), they’ll pass them your way. They know you’re going to hire them. Also, you should certainly formalize an agreement that if they bring you a deal, you’ll pay them an extra $500 on top of using their services.

Invest in Cash-Flowing Properties

So I’ve certainly gravitated towards fix & flips in this article—I’ve made a lot of money with them, and it’s typically what hard money loans are used for. However, rental properties always have been and always will be a backbone of my investing strategy. After all, once you can replace your current income with passive income from rentals, then you’re truly free. You’ll have the peace of mind to take more risks and truly become a full-time investor.

I mentioned in the first section that you can buy a primary residence and then rent it out later.

Here, I’m talking about using rentals as an active investment strategy with the plan to acquire and keep many properties.

My favorite way to do this is with the BRRR strategy: Buy, Rehab, Rent, Refinance. I’ve gone into much more detail on this in other articles, so I’ll keep it short here.

If you just go and buy a rental property and immediately rent it out, your cash flow will be low. If there was $1,000 a month to be had without doing any work, there’s no way you could’ve purchased the property at the price you did! So the way that you can get a significant monthly cash flow is through finding and fixing up a place (just as if you were doing a fix & flip), but then renting it out at the end!

Now you’ve got a much nicer place worthy of much higher rents. Of course you can’t stay use the hard money loan indefinitely with interest rates in the double digits. That’s why the last step is to refinance with a conventional lender into a typical 30-year loan. Some banks don’t like doing this, but we’ve built relationships with a few banks who will. We’ll not only teach you how to successfully pull off a BRRR, but we’ll help you get your loan refinanced so you can enjoy that long-term passive cash flow that truly helps you achieve financial freedom through real estate!