Sunday, January 7, 2007

Chapter Two - Real Estate - Start with Excellent Credit

Chapter Two – Laying the Groundwork

Your first goal – buy your own home as soon as you can. You can start making money right away just by owning your own home.

Story: My husband and I were just 26 and 25 years old. I was in graduate school (so I was a net loss for income) – my husband was fresh out of college and his salary was small. We had one baby born that year and we bought a small 1000 SF older home (2 BR 1 BA) in North Carolina for $48,000. I love being able to say that my first home cost only $48,000! We moved in, we liked doing home improvement projects and over the next 2 years we fixed up the place and made it better than it was. It was simple things like painting the dark cabinets white to brighten the kitchen and opening a pass through between the kitchen and living room to open up the house. Before we sold it, we put in new carpet also. We lived there for 2 years and then needed a bigger house – so we moved to a 1400 SF home in Apex. We decided to rent out our first home for a couple years. It was quite a distance from our new home. Since it was an older home, we had many calls from the tenants and it became a pain to go out there to fix things all the time, especially since we now had 2 young children (1 who was very ill). So, we sold the home after owning it about 4 years. Before we sold it, we did the most important thing (something that seems obvious but most sellers do not do) – we made it look incredible. We put in new carpet and repainted all the walls. The place looked great. We sold it for sale by owner and it sold within 2 weeks for $80,000! During the time we owned it, we had to replace the water heater, heat pump, wood rot on two floors, and the sill. That cost us about $10,000 – yet, even so our profit was $22,000!!!! We were floored. Wow, that was the easiest way in the world to make money.

Our second home in Apex was new construction. They were selling these homes pretty inexpensive for 1995 – we paid about $78 per square foot or $109,000 for a 1400 SF new home. We lived there for 3 years and sold the place to move into another bigger home. We were able to sell it for $122,000 and again we net $13,000 in just 3 years and we didn’t have to do anything on this place for improvements! Plus the $22,000 and the $13,000 were all tax-free since we lived in the home for at least 2 consecutive years of the last 5 years we owned it. We knew we were on to something!

Our third home was a little different – we got it for a good price, $92 per square foot but the market hit $100 per square foot and then it remained steady for about 4 years. It was frustrating – but that can happen and you need to be prepared for it. After the 4 years prices starting going up again and now are going up at a remarkable pace and have hit around $122 per square foot with people now asking between $135-$150 per square foot in some neighborhoods. If they start selling for those prices, I expect to see the prices here follow. Even at the $122 per SF, we are looking at over $60,000 gain right now – but, we finished our third floor and are adding a sunroom so we are adding another 500 SF to our home – which will bring in an even bigger return. We now have 4 children who have friends and schools they attend, so house hopping is no longer an option for us – I wish it was because house hopping is a great way to make free money! More on that later.

The point of this story is to show you how much we gained from doing nothing but living in our home. Appreciation is a great thing. When you rent, you are paying down someone else's mortgage and giving away your appreciation and tax advantages. Remember, you can write off all the interest and more from owning your own home! So, as soon as you can, buy a home. Even if you are only going to live there for 2 years and then want to move on – the gain is worth it. There are lots of great financial loan programs for first time home buyers too – so do some research, look into it, spending time doing that will pay you back! Find a good home – even if it is small and buy a home as soon as you can.

The second best thing you can do during this preparation stage of your life is to establish excellent credit. I cannot stress how important this will be to your success. It might take 2 or 4 years before you can start really investing but buying that first home and letting it appreciate while you work on establishing excellent credit is the start you need.

Here are some things that you should know about credit – it is not just about paying all your bills on time. It is about how much debt you have, how close to the limit of your credit cards your balance is, and how many times your credit has been checked. I have never paid a bill late in my life. I have always had excellent credit – but my score dropped when I did some heavy investing. I had to use creative financing to get started – more about that later – I had many credit inquiries because of all the loans I needed to apply for, and my debt ratio is high – all of these things decreased my score even though I have never paid a bill late. Still, starting with the excellent credit rating had allowed me to get heavily invested when it was my time to start investing. Now, I will need to take 1-2 years to pay down some of debt and not have my credit checked and I expect to be back to that excellent credit rating – then I can move forward again. Sometimes it can take time to do this, you won’t have instant riches – but you will be on your way to a good financial future if you have patience.

One more thing about credit, having a home to pay on will be a great start to your excellent credit rating – but you will need to have some credit cards that you charge on and then pay off without letting your balance get close to your credit limit. All these things will help improve your credit – you have to use credit to get “credit” for it!

To summarize, assuming you are ready to get started – maybe fresh out of college – or even if you just have a decent job and a high school diploma – your first goals should be:

1) Research First Time Homebuyer programs – many will allow you to put 0-3% down.
2) Buy your first Home
3) Spend 2-3 years getting an excellent credit rating.

Wednesday, January 3, 2007

Highlights of How to Make Money - Real Estate Investing

I have started writing a short ebook on how to make money by investing in real estate. This is intended for the average person who has little or no cash to start but has a desire to invest in real estate and start making money. Over time, I will post the entire ebook - a chapter at a time. Here is my introductory chapter.


Chapter One – Highlights of How to Make Money

Most people dream about how much easier life would be if they had money. They could work less, take trips, have nice things, and provide for their family. How does one create that situation? The lucky ones are born into money, but for those of us who are not, we have to work at.

So what can you do to make money? Well, the key to making money is having money – in most cases it is much easier to make money if you have at least some money to start with. Many of us do not – so then what? Well, here is your first big piece of information – you will not make it rich by going to work each day, bringing home a paycheck, and having a savings account. You have to be more proactive than that.

Some folks invest in stocks. If you are dedicated and learn the market so you invest in the right stocks and of course have the money to invest to begin with – maybe you could get rich that way. For me, it doesn’t work. First, you have to have money to invest – I didn’t. Second, you need to really learn the stock market and spend a lot of time investing. I am a smart person, I have a Ph.D. in the area of Mathematics – but stock market investing is still a challenge to me. It still seems like such a gamble and I don’t have any influence on the outcome. Sure, I do the 401K stuff for retirement but even with that, I have watched my money decrease over the years only to finally get back to the starting point 6 years later – what a waste of my money. I could have been much more successful investing in real estate for those 6 years!

So – yes, this ebook on making money is about investing in real estate. You hear it all the time – real estate makes money. Over the long run, history has always shown that you make money in real estate. How do you get started? What if you have no money? How do you know what to do with real estate? This short book will hopefully provide you with some information on what you can do to prepare for your investments and what to do when you are ready to get started. This book is designed for beginners, not for seasoned professionals.

There are many ways you can make money in real estate:

1. Flipping houses
2. Buying good deals, holding for 2 years and moving to another good deal
3. Buying and holding properties by renting them out
4. Combining #1 and #2 – buying and living in your flip and then selling 2 years later
5. Wholesaling
6. Lease / Options

There are more ways too but these are the ideas I will focus on. I will discuss how to get started including what you can do to prepare yourselves for this adventure. I will talk about financial options, how to flip, how to be a landlord, how to find the right property, different ways of counting your “income” from your investments and more. Tune in for more …

Monday, January 1, 2007

Snoof? No... Mom, Spoofee

I hate to give away all my great sites... but, since no one that I know even reads this blog yet, I guess it won't be a problem. I recently told my mother about a site that I have found great deals on for a couple years now. It is spoofee.com. She emails me later asking, "Lynne, what was that site again? Snoof?" It is spoofee.com! It has all sorts of great deals. Here are just a few that I have taken advantage of:

1. Christopher wanted a flat panel LCD monitor for his computer. I bought one that I saw on Spoofee. It was $229 with $100 rebate for a 19 inch LCD. That by itself ($129) is a good price but with it came - a free $100 DVD player, $90 MP4 player, and a $60 mini-fridge - all for free just because I spent $250 (I added in some DVD RW's). So once I got my free items (they came the next day) - I put them on Craigs list and sold the DVD player for $40, the MP4 player for $48, and the mini-fridge for $20. This returned $108.00 - making my purchase for the 19 inch monitor (assuming I get my rebate...) $21.00. Pretty good, huh?

2. I got a free subscription to PC Magazine - which I actually am enjoying!

3. I got a free (with rebate) 1 GB SD card for my Wii.

4. And more that I will list as I think of it....

Suffice it to say, if you check spoofee and don't mind rebates - you can get some great deals there!