Real Estate Investing Guides

If you're looking to start investing in property to build long term wealth, then you've come to the right place. Below is a list of strategies you and I can implement to generate you wealth over the next 10 years.

The traditional "live in a house forever"

This strategy is employed by most homeowners. Paying down a mortgage, with larger contributions to their "forced savings" accounts as their principal gets paid down towards the end of their mortgage.

  • At the beginning of a mortgage, 74% of the payment is towards interest.
  • 10 years into a mortgage, 60% of the payment is towards interest.
  • 15 years into a mortgage, 50% of the payment is towards interest.

Not until the half way market into a 30-year fixed-rate mortgage will you be putting in your pocket more than paying back in the bank.

While this is a sound strategy for most, allowing someone to own their house free and clear by the time they retire, what is often overlooked is that when they bought the house, they were given control over an asset that is worth much more than the few thousand that they put down.

House hacking

This strategy has seen renewed interest among millennials, may of whom cannot afford living by themselves and need to share the cost of housing with a room mate. House hacking is where you buy a single-family house or duplex (up to a fouplex), live in one portion of the residence and rent out: bedrooms, basement, ADU, or the other dwelling unit. This strategy banks of the fact that the mortgage on the property will be entirely, or largely covered, by the rent received.

An owner occupant only has to put 5% down for such an investment property, an investor would otherwise have put up down 20% a a minimum.

Here's a simple example:

  • $800,000 for a 4-Plex in Renton
  • At 5% down, that means only having to put $40,000 down
  • A 30-year fixed rate at 2.69% would mean a monthly payment of $3,559. Including PMI (excluding taxes and insurance)
  • If you rent out 3 of the 4 units for $1186 each, this covers the entire mortgage. (Not taking vacancy and capital improvements into consideration)

Bank hacking or BRRRR

This strategy employs buying a new primary residence for yourself every year (or two). This of course means that you will be moving into a new house every year and renting out the house you're moving out of. Finding houses that need a make-over (carpets, drywall, paint, bathroom + kitchen refresh, landscaping, hardware) are your golden tickets to climbing the property ladder in a matter of just a few years, especially if you can do some of these things yourself. The sweat equity and improvements will improve its appraisal value, allowing you get rid of PMI and pull more money out of the house with a cash-out refinance to buy your next property.

  • $277,00 for a single-family in Port Orchard
  • At 3.5% down, that means only having to put $11,080 down
  • A 30-year fixed rate at 2.84% would mean a monthly payment of $1,583.00. Including PMI or MIP, taxes and insurance.
  • Invest $50,000 into remodeling the house, thereby increasing it's value by $100,000.
  • At $10,000 plus the $100,000 of equity you generated means you now own $110,000 of a $377,000 property (or almost 30%). This allows you to cancel PMI or MIP (5 years minimum) How to Cancel FHA mortgage insurance (MIP)
  • Have the house reappraised once you decide to cash-out refinance. You can now withdraw $34,600 (while still leaving you 20% equity in the house).
  • You now have $34,600 available for your next investment, $75,400 equity in a house with a mortgage of $1,540 (including taxes and insurance) paid for by your renter.

In summary:

  • Out of pocket costs: $10,000 down + $50,000 renovation + sweat equity + $18,996 (1 year of mortgage payments, which you would be paying someone in rent anyway... so it's really not a cost)
  • Wealth Accumulated:  $75,400 of equity in left in home, $34,600 cash-out, renter paying off your house for you (including paying into your principal), tax deduction on interest paid, market appreciation on $377,000 (2% = $7,540 vs 5% = $18,850).