Using real estate as a vehicle for wealth
For many of us, our most significant investment and largest profits in life are due to having bought a house — something that acts as a de facto bank account, grows in equity and provides shelter all at once. But what if we want to use real estate as a money-making opportunity instead?
Real estate has, of course, made many millionaires. The Wall Street Journal recently reported how more than 80% of borrowers who refinanced in the third quarter chose the “cash out” option, withdrawing $14.6B in equity out of their homes, according to government-sponsored mortgage corporation Freddie Mac. Now, many are finding their homes to be a tappable source of wealth. “Home equity is the big pot of gold,” said Sam Khater, the chief economist at Freddie Mac.
It’s not hard to see why many have successfully made money buying and selling real estate because of the diverse ways to grow wealth with real estate investments. Forbes writer David Greene talks about having become a student of creating wealth through real estate and has compiled a list of some of the traits he sees as common among the most successful investors, whether they’re house flippers, residential home landlords, or large apartment complex owners.
Knowledge is, of course, key. Real estate investors always seem to know more than those around them — what drives markets, how to time market cycles, and which things to watch out for. “They are much more likely to recognize shifting markets before others do and are prepared to take advantage of these opportunities when they present themselves,” says Greene.
“The very best never stop learning, and real estate is no exception,” says Greene. Apart from websites where investors can learn, network, and find solutions to their problems, some also collect books written on how to invest in real estate, reading them over and over again. Greene recommends developing the ability to analyze a property for cash flow as well as recognizing an under-valued property when you see one. Then develop a basic understanding for estimating rehab costs along with the various pieces at play when it comes to owning rental property.
“The more you know about real estate investing, the less fear you’ll have,” he says. “Overcoming fear is one of the best things you can learn to do if you want to carve out a successful career for yourself in real estate.”
Patience is also a virtue. Greene agrees that it may sound simple, but that’s not always the case. “When it comes to real estate investing, there is a lot of pressure on you to move and move fast. The best deals go quick, and allowing projects to run past the agreed upon timeline can be expensive. Investors are constantly facing pressures to do more, do it faster, and do it cheaper.”
He goes on to say how the best investors know when they need to run fast and when they need to stop and wait to see how things develop. “Patience can take several forms when it comes to real estate investing,” he says. “Learning to recognize areas where you’ll need to practice it can save you from a lot of expensive mistakes.”
Understanding market cycles are also of vital importance. “Top investors zig when everyone else zags. They are fearful when others are greedy and greedy when others are fearful. Waiting for the market to slow down, or crash even, can require more intestinal fortitude but it is also a much better time to be picking up assets.”
To study advice Greene offers regarding how to transform a property, how to be efficient, and how to be keenly focused and how to develop important relationships, he encourages you to go to BiggerPockets.com, where you can get tips like this for free. “In a hot market, you don’t just find good deals,” he says. “You make good deals. Top notch investors see ways to add value to properties without spending more money than they have to. For those with the vision to bring it about, there can be big rewards for those who buy the ugly duckling and turn it into the beautiful swan.”
Rates Currently Trending: Neutral
Mortgage rates are trending sideways this morning. Last week the MBS market worsened by -18bps. This was enough to move rates slightly higher last week. We saw low rate volatility last week.