How To Start My Own Business

I know this might get some critism because this is a website publishing forum, not a start your own business forum, but I hope just to understand the basics of what I want to do. I will be using some of my profits this year and next in order to buy up a house, renovate it and rent it out. I was talking to a guy I know that is very knowledgable in the subject, however, it is very hard since he is very busy. Perhaps, I can span a real estate company in the future....

Ok, if I wanted to buy some property and rent it out, what steps would I take?
What is the best way to pay for these propertys?
Is there anyone who does this now?

;)

I think Chris does it now.

Cutter has refered to Michale Mastersons book Autmatic Wealth - he is keen on Real Esatate investment (Masterson not Cutter, although he may be as well!) and I believe covers it in the book .

basically, you need a deposit. in the uk usually a minimum of 20% loan to value plus dealing costs.

You buy a property and rent it so that the rent covers the mortgage. Then you use the equity in that property as a deposit on your next property etc.etc.

The long term benefit is that the whole of the capital value of the property appreciates not just the 20% deposit that you have invested.

Obviously you need to know that you can rent it, that you can pay the loan if you cant rent it and for void periods etc.

But that is the basics, give or take

(The above does not represent investment advice, BTW ;) )

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Originally Posted by Blue Cat Buxton

I think Chris does it now.

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I think a lot of websitepublishers do it in order to diversify there revenue. I know that most of the online poker players do it in order to generate revenue outside of playing poker.

This is something I'm considering doing in the future. Perhaps not rental property, but maybe property development.

To be honest, unless you're earning a really decent amount of money, I think you'll have problems getting anyone to loan you the money you'll need. You'll probably need at least 3 years of healthy accounts.

I'm not involved in real estate for various reasons. Honestly, I'd hold off until there is a dip in the market.

The main reason why real estate is so attractive is because of leverage. If you have $15,000 you can invest in a $100,000 property. If you have $1,000,000 you can invest in a $6,000,000 property.

Under ideal circumstances the renters pay your mortgage and any maintance costs, if you are luck you even get some cash flow out of it. Then after 10 or 20 years you sell that $100,000 property ( that you paid $15,000 for) for maybe $250,000 or more (theoreticly if wait long enough and its in a hot market, say New York City, it could be worth millions by then.)

A lot of people know this; after the stock market dropped in 2000 a lot of money went into real estate.

I'm not going to go into a debate about this, but a lot of investors feel some markets are ripe for bursting. You may have heard of the "real estate bubble." I don't know the exact numbers, but there is a huge percentage of "home-owners" with interest-only mortgages, a lot of people are spending a disporportionate amount of their income on their mortgage, etc.

On top of this, many real estate investors are just participating in arbitrage right now. In certain markets people have had their home prices jump up $100,000 in a year -- so there is tons of optimism. Its kind of like in the late 90s were anyone could make a killing just buying dot com IPOs.

Bottom line, there are a lot of indicators that current home prices are unsustainable (this is more true in "hot markets" like LA, Vegas, or Miami -- but on the other hand, a lot more people would rather live there than Fargo, North Dakota.)

On the other side, there is an exact amount of phyiscal real esate. Short of man-made islands its a limited resource. In the long term there is plenty of money to be made. Additionally you have trends in certain areas, such as california, where multiple familes are packing into homes to cover their rent/mortgage.

If you live in a "cool" market go ahead and get into it if you can. If your market is "hot" then I'd wait for a drop and buy then -- because a lot of people are going to be defaulting as interest rates rise.

Sorry, thats a lot of info to digest :D

I do it now, but I'm not that involved with it, I basically wrote a check and someone else manages the specifics.

Anyways Cutter makes a somewhat good point. There definitely is a bubble in some areas, and that gets alot of attention, but real estate isn't like any other investment really as there isn't a global market for it, just small regional or local markets, markets that are insulated against each other. Only in markets where prices have risen unrealistically is there potential for a bust, and really thats only because people are buying such houses with interest only loans (where they only have to pay interest). Basically these people are banking on the fact that the house will go up in value, if it doesn't go up in value then they'll suddenly owe the bank more than the house is worth, and the market could go tumbling down.



Real estate in normal areas (not california) is going to appreciate between 2-5% per year. This sounds like crap, but its the total value that appreciates, not your 20% down payment. So in reality you can be looking at 40-50% per year gains from something that is extremely stable and free from most risk.

Something like Kitrina could mess you up, or help you. Real estate in New Orleans is pretty worthless right now, but there will probably be a short term boom in rental housing in places like Texas.

The best way I think for a young single person to get into this market would be to buy a duplex or other multi-family structure and live in one half while renting the other half, this way you can keep an eye on your tenants. Also do not rent to friends or family, or they may end up mooching off you.

I would definitely talk to a lawyer & accountant about it all, they can probably tell you most of what you need to know as far as legal/financial things, for instance that you're supposed to keep security deposits in a seperate bank account. The lawyer can also give you a lease to have tenants sign.

Investing in real estate is like investing that the population will continue to grow, as long as people are having babies its a pretty sure bet.

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Originally Posted by Cutter

Under ideal circumstances the renters pay your mortgage and any maintance costs, if you are luck you even get some cash flow out of it. Then after 10 or 20 years you sell that $100,000 property ( that you paid $15,000 for) for maybe $250,000 or more (theoreticly if wait long enough and its in a hot market, say New York City, it could be worth millions by then.)

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Tell me how I can get a $100K or hell even a $250K property in NYC!

Actually, on this topic. I'm looking into building an apartment complex in the spring and I wouldn't be adverse to it if someone wanted to invest. I hope to personally invest about $100k but the project only needs $200k (though $300k would be nice).

My home town, a small farming community, has been listed previously as one of the fastest growing towns in Michigan. A new walmart, supposedly the largest walmart in the world, just opened there last year, as did a home depot. These types of big stores are new to that area and they're driving tremendous growth. Job growth alone is in the hundreds (which is huge for that area). The town needs more rental housing.

There is a plot of land a few hundred yards from walmart thats zoned for apartments and I can hopefully get it for about $300k (he's asking like $340k but he wants to sell somewhat badly). Its 17 acres and change, and it includes an existing house with garage. Not a big house, just a small ranch (painted pink haha) but that adds to the value.

I've looked into manufactured housing and it seems to be that it'll be around $60k per unit, or roughly $60 a square foot, to build a manufactured 8 unit apartment building.

Then there are also lot improvements, insurance, parking, etc, that'll be necessary. I don't know how much those will be yet, but lets say $80k

So $300k for the land, $420k for the building, $80k for miscellaneous and we've got $800k. a $200k downpayment should get us $1m from the bank, so that leaves $200k in operating expenses.

Also, in the back of the property are some rail road tracks. No one wants to live by the train (even though it comes infrequently) so we were thinking of putting up garage condos there. Basically glorified self storage. Its cheap to build and easy to rent out. But its not zoned for that so we'd need to get permission from the township. So if we did that it might suck down another $100k to leave $100k in operating expenses.

Hopefully our loan payments will not be anymore than $5000 a month, so we could rent the units for like $700 a month to break even, maybe $800. With an increase every year of course (but no more than 5%).

The idea with this project is to buy the nice land now, and build on it every couple of years. So maybe 3 years down the line use the build up equity to fund another building, then in 3 more years fund 2 more buildings, basically doubling in size every 3 years.

Also, just a little background on the area. Some commercial real estate my dad owns was built for around $500k, in maybe 1998. Its now worth over 1.2m. Real estate is doing very well in this town now, but its such a poor area that people in the area just don't have the money to invest in it and people outside the area just don't know about it.

So, thats my pitch. I planned on seeking out my duplex partners for this but I figured why not ask you guys, as I know alot of you are interested in it.

Pretty interesting project...

How much would your partners need to put down, and what kind of returns do you think they could expect?

No returns for a long time. The idea is to reinvest all equity back into the complex to build it up. Then one day in 10-15-20 years refinance instead of building more.

Its hard to say how much you'll make, I hope to pull 7 figures out of it.

They will not be equal shares obviously if I'm putting in 100k, but I imagine 20k (or possibly even 10k) would be enough for a share.

Also, if you make less than $150k you could writeoff losses, there will be on paper losses as we depreciate the cost of the building. I could writeoff $5k a year from my duplexes if I made less than $150k.... but my accountant tells me if I ever do make less than $150k I can go back and retroactively claim it...

Wow, that's slick. I didn't know you could depreciate the cost of the apartments. That only applies if you pay for the construction - not buying existing buildings - correct?

Nope. Our duplexes were preexisting. I'm not sure how it all works, all I know is that the duplexes showed a loss on paper due to us depreciating the purchase price and that my share of the loss was around $5k and that my account said that since I make more than $150k a year I'm not allowed to deduct losses from rental property.

Storage units seem to be pretty popular. There are a lot around, and new one being constructed. Seems like they'd be a lot cheaper and easier to build and manage than residential dwellings. Is owning storage units pretty lucrative? Are they similar to apartments, i.e. 20% down; rentals pay mortgage, etc.; the real money's made in building equity; ...?

Interesting story about real estate market changes in New Orleans.

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BATON ROUGE, La. — Brandy Farris is house hunting in New Orleans. The real estate agent has $10 million in the bank, wired by an investor who has instructed her to scoop up houses — any houses. "Flooding no problem," Farris' newspaper ads advise.

Her backer is a Miami businessman who specializes in buying storm-ravaged property at a deep discount, something that has paid dividends in hurricane-prone Florida. But he may have a harder time finding bargains this time around.

In some ways, Hurricane Katrina seems to have taken a vibrant real estate market and made it hotter. Large sections of the city are underwater, but that's only increasing the demand for dry houses. And in flooded areas, speculators are trying to buy properties on the cheap, hoping that the redevelopment of New Orleans will start a boom.
[...]
Two months ago, Steve Young bought a two-bedroom condo in New Orleans' Garden District as an investment for $145,000. Last month, he was transferred by Shell Oil to Houston. Last week, he put the condo on the market.

In a posting on Craigslist, an Internet classified advertising site, Young asked $220,000. He got a dozen serious expressions of interest — enough so he's no longer actively pursuing a buyer.

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