How to Buy Your 1st Investment Property

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St. Louis, MO – Economic Data Packet

Download our PDF “St. Louis, MO Market Data Packet”

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How to Turn Liabilities into Assets in Real Estate

assets liabilitiesFor most people, debt is typically considered to be a negative thing. Reason being, debt is often misused by people who do not understand the high interest rates that credit cards, auto loans and student loans often have, especially for those who do not have good credit. However, debt isn’t always a bad thing, especially when the interest rate is fixed, low, and it is being used to purchase an asset that goes up in value e.g. real estate.

One of the biggest advantages of owning rental real estate is that when a property is strategically selected in the right market and property class, it can provide more income than the expenses that the owner carries. Regardless of any positive cash flow, if the income covers the expenses, the owner will benefit from something known as “principle pay down.” In other words, the tenant pays off your mortgage for you.

When you purchase the right properties, after making the initial down payment you should not have to put any more money out of your pocket into the property when the loan is properly structured.  In the meantime, you enjoy the interest write offs and depreciation tax shelter allowed by the IRS on rental real estate. Now combine that with the appreciation in value you will see in your property when held for a long enough period of time. But again regardless of any appreciation, each month that your tenant makes that mortgage payment for you, the principle balance on your loan is decreasing, and your net worth in increasing. That’s why conventional financing for rental income real estate is considered “Good Debt.”

Your net worth is calculated by subtracting your liabilities from your assets.

Net Worth = Assets – Liabilities

Income producing real estate has long been considered one of the best choices for investment diversification. From a financial planning standpoint it is a great tool as you can control the payoff of the loan to coincide with your retirement by selecting the term of the loan and amount of your payment.

There is another strategy that you might consider depending on your age, income and the equity in your primary residence. This formula typically works well for high income earners in need of additional tax shelter. This is how it works: borrow enough from your primary residence to cover down payment and closing costs on $1,000,000 worth of real estate. That would require a $250,000 to $300,000 loan and the purchase of 5-10 SFR’s or 4-6 multi-units in affordable markets. The idea is the interest on the new loans as well as the depreciation allowed by the IRS creates a huge tax shelter for your current income, and the tenants pay off the loans for you over time.

Structured properly, these loans will be paid off by the time you retire and you can enjoy the income from these investment properties for the rest of your life. These same free and clear properties can be eventually willed to your heirs before you pass away. The real beauty of using real estate debt is that eventually your loans will be paid off by your tenants, and what was once your liability is now your asset.

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Off-Market Cash Flow Homes in St. Louis, MO

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The Problem with Seminar Companies

sales pitchAt some point you’ve probably received an invitation to attend a real estate seminar hosted by a well-known expert, or what they are commonly referred to in the industry as a “guru.” You may have even attended one since it was “free” and they offered a complimentary gift just for attending. While the invitation made it look like the seminar was being given by the real estate guru himself, you might have been disappointed to find out that the “guru” had sent a professional speaker in his place.

While some good information may have been given, it is never quite enough for you to actually learn the secret of how to make the program work for you. For this you need to attend a weekend or even 3-5 day boot camp for only $$$$ where you will get the rest of the information. Oh, and by the way they have a special set of CD’s, books or videos that will help prepare you for the weekend. At the boot camp these sell for $999 for the set, but tonight they’ve received special permission to sell them for $499 to the first 6 who sign up for the boot camp. And so it goes. Their business model is to sell more seminars, more coaching, and more materials. Those are their primary profit centers. The speakers are rarely licensed real estate professionals and usually don’t own any investment property.

The real problem with this model is it erodes your hard-earned savings earmarked for down payment on real estate. You see, they don’t care if your goals match their program, or whether or not this makes sense for you, or if you even have a penny to your name after buying all their products because the truth is, you represent nothing more than dollar signs in the seminar world. If you buy into all their programs and continuing education, you could easily spend $15,000 to $50,000 and up before purchasing your first investment property. You end up spending a lot of time and money on information that is all available for free online or elsewhere, they just package it nicely. Remember the old adage; if something sounds too good to be true, it probably is. If someone is promising you a get-rich-quick scheme with little or no money down, no credit, only a few hours a week needed, etc. run the other way.

We always encourage you to do your own due diligence and work with licensed agents or brokers, not to mention those that actually practice what they preach and have a track record to back it up.

At Marshall Reddick Real Estate we are firm believers in education. We offer it free of charge because we don’t believe valuable education should only be made available to the few. Our business model is to help you invest in real estate, develop residual income and create a tax shelter for your income along the way so you can get real, proven, substantiated results. It’s not get-rich-quick, it’s not the sexiest strategy, and you probably won’t see us on HGTV, but it works.

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Florida Investing: Cash Flow and Appreciation

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How to Prepare for Financing an Investment Property

Approved-Loan-ApplicationIf you are considering to take advantage of the current record low interest rates and qualify for a mortgage to finance your investment purchase, whether it’s your first home purchase or your tenth, your mortgage lender will ask for the same items every time. It’s important to be prepared.

Here’s a little test. How long would it take you to gather the following items for your lender?

You will need to gather the following 7 items prior to making application:

  1. Last 2 years 1040 Federal tax returns with W-2’s attached
  2. Last 2 paycheck stubs, covering at least one month
  3. Last 2 months bank statements: checking, savings, brokerage & retirement
  4. Last 2 months mortgage statements (all mortgages in your name)
  5. 2 year address history and landlord contact info if you currently rent
  6. 2 forms of government issued ID, example: D/L, SS Card, Passport
  7. If self-employed and earning income from S-Corp or C-Corp, copies of last 2 years business tax returns

The list is not long, but if it takes you longer than a half hour to gather, you have some work to do before you apply. Lenders can’t fund your loan if any of these are missing. All lenders are required to follow these guidelines from Fannie Mae and Freddie Mac as the loans are typically sold to the one of these two after funding.

If you cannot find copies of your last 2 years Federal Income tax returns they can be ordered from IRS.gov or your CPA may be able to produce copies for you.

Debt to income ratio is another factor lenders look at carefully. Your fixed, recurring monthly expenses such as house or rent payment, car payment, and credit card minimum payments should not exceed 43%-49% of your gross (before tax) income depending on your mid FICO score.

Did you know you can order a free credit report yourself at: annualcreditreport.com? Did you know that many lenders will remove a 30 day late from your credit report as a customer service if you have an otherwise good payment record with them? Did you know you can add a comment of explanation to your credit report if the reason for being late is reasonably justifiable?

After gathering all the documents and completing your application, scan and send them as an email attachment to your lender. Most lenders prefer a paperless transaction these days. There is also less chance of documents getting misplaced during the escrow process. Staying organized can mean avoiding potential hiccups and save you lots of time when considering to qualify for a home loan.

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Indianapolis, IN High Cash Flow Investment Properties

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Tap Into Your IRA/401(k) to Buy Real Estate or Be the Bank

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Austin, TX New Build Duplexes with High Cash Flow

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