Posts Tagged 'real estate investing'

How to build wealth with multi-unit properties.

Duplex’s Triplex’s and Quad’s

It starts out with getting a pre-approval.  Contact your mortgage rep and find out how much money you can borrow.  This is called a pre-approval.  Once you have been pre-approved you will know how much house you can afford.  If you cannot get approved for a loan then now is not the time for you to be investing in real estate.  If you ARE approved for a loan, then congratulations you now have the tools to get started. 

In my opinion, the safest and easiest way to build real estate wealth is by purchasing and LIVING IN multi-unit properties for as little cash down as possible.  You will be living in one unit of the house and renting out the other units.  These “other” units will be paying your mortgage for you, allowing you to build up equity without paying for it.  You will want to purchase duplex’s, triplex’s or quad’s.  These are obviously houses with 2, 3 and 4 units in them respectively.  Once you have been pre-approved for a loan amount, tell you Realtor you want to look at these three types of properties within the loan amount that you have been pre-approved for.  The reason that you want to purchase houses from 2-4 units is because lenders will typically allow you to move into homes with up to 4 units for as little as a 3% down payment.  Now of course lending rules are constantly changing but let me show you the basic math here.

Quadplex Example

Purchase price:  250,000

Down payment:  -7,500 (3%)

Mortgage (5%):  -1,300 /m

Rents: (750/m per unit)  2,250 /m

Cash flow:  +950/m

That was a pretty basic example but it illustrates some very important principles.  It shows how for very little money down you can live in a house that is not only paying for itself but giving you a return every month.  Now of course there are expenses that have to be paid like insurance, taxes, mortgage insurance, utilities etc but you can see my point.  Instead of you shelling out your hard earned money to pay for your mortgage or rent, you are now being PAID to live in your home.  I would suggest taking the extra cash from rent and putting it into an account to be used for vacancies and home repairs.  Additionally, you should also take the extra rent and put it back into your house for repairs and upgrades.  This will let you raise rent and increase the resale value.  This is called “forced appreciation“.

Part 2

You are now living in your quadplex and you are not only saving a tremendous amount of money but maybe also making a little profit on your multi-family home.  A year has now gone by and you should have been saving up cash for your next house cause guess what?  You are going to be buying your next multi-family property!  Go talk to you mortgage rep and get pre-approved for your next mortgage.  If you don’t get approved then keep saving and try again later.  If you DO get approved then purchase  and MOVE IN to your next multi and repeat the process. 

Quad  1

Purchase Price:  250,000

mortgage and expenses:  -2,000

rents from 4 units (750/unit:  3,000

Cash flow:  +1,000

Quad 2

mortgage and expenses:  2,000

rents from 3 units:  2,250

Cash flow:  +250

Quad 1&2

Combined Cash flow:  +1,250

Combined home value:  500,000

Lets pretend you don’t buy anymore properties and you hold these two homes for 5 years.  Lets also say that they don’t appreciate or increase in value due to demand.

Five years later:

Quad 1

Equity built up:  +25,162

Quad 2

Equity built up:  +20,429

From just an equity standpoint, using 15,000 cash you built up $45,591 in equity in five years.  Not to mention the extra cash flow on top of that.  Now, lets say that your houses appreciated at a modest 3% appreciation rate a year.  Those two properties would be worth $298,513 and $289,818 respectively.  That’s $88,331 worth of appreciation.

Lets look at those numbers again.

Quad 1

purchased in 2009 at 250,000

Quad 2

purchased in 2010 at 250,000


Total Equity built up: $45,591

Total Appreciation built up:  $88,331

Total Profit:  +133,922

Initial investment:  -$15,000

So what exactly does that mean?  It means you purchased 2 quads in five years that not only paid for themselves, but also gave you a profit of $133,922 on your initial investment of $15,000.  That’s is quite a nice return wouldn’t you agree?  Of course it is easier said then done but just by going through this simple example you can see how you can easily built wealth with very little money.  Just think if you had kept purchasing multi-unit properties that paid for themselves your entire life?  The return would be tremendous.  Of course to pull this off you would have to lean heavily on your team.  Your contractor would be needed to keep those properties is good shape and continuously improving them.  Your Realtor would have to be finding you the best deals and closing them.  Your mortgage rep would be busy finding ways for you to finance them and your lawyer would be busy keeping you out of trouble.  Once again I know this was a very basic example but knowing the fundamentals is half the battle.

All that’s left is a commitment.


Search for multi-unit homes on my site


30-year rates are low. Really low. Are you going to take advantage of it?

If you just can’t decide whether or not now is a good time to buy, these rates should convince you. They are historically low and there is just no way to predict what rate they will be in the future. I had a client apply for his mortgage when it was at 6%, it jumped to 7% while it was getting approved and he locked in at 6.5% a few weeks later. This was only last month. The point I’m trying to make is that if you are thinking about buying, locking in at these rates now will give you a much better return on your investment. If you wait, there is a good chance these rates won’t be around. Don’t say I didn’t warn ya!

Freddie Mac reports a decline in the 30-year fixed mortgage rate to 5.47 percent during the week ended Dec. 11 from 5.53 percent last week and 6.11 percent a year ago.

Some lenders are locking in even lower rates as they build on momentum started when the Federal Reserve announced plans last month to purchase a substantial number of mortgage-backed securities. HSH Associates and Inside Mortgage Finance are reporting interest on 30-year fixed loans at 5.33 percent and 5.09 percent, respectively.

Freddie Mac chief economist Frank Nothaft says mortgage rates also were driven downward by the recession and rising unemployment.

Source: The Washington Post, Dina ElBoghdady (12/12/08)

Thinking about buying real estate? Now is the time!

If you’re ready to buy a home and can afford it, now is a great time to buy. Mortgage interest rates remain very low. In many areas, buyers have a lot of inventory from which to choose and long-term homeownership continues to be one of the best ways for the typical American to build wealth.

Don’t let all of the negative media attention about the “mortgage meltdown” keep you from pursuing your homeownership dream. Mortgage industry woes are primarily limited to subprime loans and other types of creative and comparatively risky financing products. While the mortgage industry stalled briefly to reconsider its more exotic loans, there is plenty of conventional financing available for qualified homebuyers. Interest rates remain at historically low levels – still less than 7% for the typical, 30-year fixed-rate mortgage.

Indeed, the market has changed. It’s gone from a frenzied seller’s market to calmer buyer’s market. In fact, buyers haven’t seen a market this strong in years. When the national median home price dropped for the first time on record, the decline made huge albeit misleading headlines. For starters, there is no such thing as a national real estate market. All real estate markets are local and driven by local factors that include the local economy, housing supply and demand factors and other attributes like geography.

The slight decline followed years of unprecedented steep home price appreciation and the reality is that only a handful of markets experienced price declines. Corrections in markets that experienced exorbitant home price appreciation were expected and signal good news for buyers. According to 2007 third-quarter National Association of REALTORS® (NAR) statistics, the vast majority of the nation’s metropolitan areas showed rising or stable home prices with most areas experiencing modest gains.

Right now there are many homes from which to choose and in most areas buyers don’t have to deal with the harried and hurried competition of multiple bids. The changing market has also changed the inventory landscape to include fewer speculative sellers and a larger share of serious and motivated sellers.

Prospective homebuyers have some time to shop inventory and thoroughly compare home types and prices, amenities, neighborhoods, commutes and other important real estate-related features. And buyers have stronger price negotiation power as sellers compete for their attention by offering concessions or other incentives.

While all real estate markets have ups and downs, Americans continue to consistently build wealth through homeownership. According to the NAR:

One average, the value of a home doubles every 10 years. During the past three decades, home values have increased an average of 6.6% per year.

The average homeowner today has 36 times the wealth of the average renter. Homeowners are essentially paying themselves when they pay their mortgages and this means they’re building equity. Homeowners also benefit from some real estate-related tax write-offs like mortgage interest.

Sixty percent of the average homeowner’s wealth is their home’s equity. For homeowners who’re in their homes for the long-term, home equity typically is their single largest source of wealth.

Because every market is different, it’s a good idea for potential homebuyers to contact a local real estate specialist to learn more about what’s happening in his or her community and real estate market. The bottom line in real estate doesn’t change – if you’re ready to buy and can afford to make a long-term homeownership commitment, it’s always a good time to buy!

Flipping houses- The Down & Dirty

So you wanna try flipping houses?  I’ll give you some pure basics to get you started.

1.  Locate an undervalued home for sale that is structurally sound but requires some pretty extensive cosmetic work.  When I say cosmetics I mean rehabbing the siding, windows, kitchen, bathrooms, carpets, appliances and painting the walls.  To find an undervalued home, I would recommend using a Realtor.

2.  Once you’ve found your target home,  you are going to need financing.  One source of funding that rehabbers use are “hard money lenders”.  These types of loans are secured by the value of the house you are going to flip and are usually issued by private investors.  Talk to your Realtor about finding hard money lenders or check with your local real estate investing group.  For those of you from Bucks County, the local investing group would be DIG (

3.  Ok, you’ve found the home and got the financing.  Now is time for the number crunching.  First determine your After Rehab Value or ARV.  This is the value of the property once you’ve finished all the cosmetic work.  This can be determined by your Realtor.  Here is the basic format for determining your bottom line and what your offer should be for you to make a minimum of $10,000 cash on the flip (The Golden Rule).

ARV minus:

  • Repair Costs
  • Holding Costs (monthly loan charges)
  • Sales commission (5%-6% of ARV)
  • Closing Costs ( transfer taxes on the buy and the sell, 1% for each in Bucks County)
  • Hard Money Costs (points-probably around 3%-5% of the loan)
  • PROFIT ($10,000 MINIMUM!)

Now, what’s left is what your offer is going to be.  Simple right?  Again, for more details please consult a real estate professional.


Your average home in Falls Twp is selling for around $230,000; so we’ll make that our ARV.

ARV $230,000 minus:

  • Repair costs $20,000
  • Holding costs $6,000 (takes three months to flip and sell)
  • Commission $11,500 (5% commission on the sale)
  • Closing Costs $4,000 (transfer taxes of 1% on the buy and then on the sell, estimated)
  • Hard Money Costs $5,000 ( 5 points estimated)
  • PROFIT $10,000 MINIMUM


Now, can you find houses selling for $173,000 in Falls Twp?  You bet.  I’d love to show them to you!

Keith Reilly




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