Are you ready to learn the secrets to reaching financial freedom through real estate investing? On this episode of The WealthBuilders Podcast, the coaches answer more questions asked at The WealthBuilders Real Estate Workshop. You’ll learn the benefits of becoming a real estate agent as an investor, how to use your IRA for a tax-free down payment, and first-time home buyer tips in the current interest rate environment.
1. One of the real estate formulas used at WealthBuilders is to invest in areas where the price of houses does not exceed 2-4 times the median household income. Does this apply to building homes, too?
- That rule is a little different for personal homes versus properties you buy as an investment outright. If you plan to stay in a personal home for a while, appreciation will make it a good investment.
- If the home you are building is for an investment, the 2-4 times the median income rule still applies.
2. With high interest rates, what recommendations do you give first-time home buyers?
- Don’t go house poor: Make sure you buy something you can afford each month.
- Get Creative with Financing: Let’s say the purchase price is $400k and you’re going to put 20% down. What if you got a loan for $200k at today’s rates and then asked the seller to take a note and second lien on the property for $120k at 3-4, or no percent, just because you gave them the price they were asking for. That will get your overall payment down.
- If you don’t plan to stay in the house for long, you can do an Adjustable-Rate Mortgage (ARM) for a lower interest rate
3. Can you explain the 1% rent formula?
- It simply means that an investment property should rent for 1% of the purchase price each month. For example, a $200,000 house should rent for $2,000.
- If your goal is cash flow, this is an important rule to follow. If you’re in the long-term game for appreciation, you just need to ensure that you’re breaking even.
4. Is buying rural to build a tiny house village a good investment?
- Not many people want to live year round in a tiny home.
- If it’s in a vacation area, it could be lucrative.
- You’d need to assess your development, plumbing, and electricity costs.
5. How do you use gold compared to real estate investing? Can you share information on the impending devaluation of the U.S. dollar?
- Generally, people convert to gold when interest rates are high or when the government is overspending and the value of the dollar depletes.
- When the value of the dollar is going down and you can’t earn an interest rate high enough to beat inflation, then gold is a good place to park your money for a while. It’s a good way to diversify your portfolio as well. But it’s not going to produce income like a rental house would.
6. What are the pros and cons of being a real estate agent when you are a real estate investor?
- You get respect among other real estate investors
- You get access to the multiple listing service (MLS) that is not accessible by the general public
- You can gain a commission on the purchase
- Getting your real estate license doesn’t teach you how to invest. It teaches you how to pass an exam.
- You expose yourself to more liability
- You must maintain continuing education requirements, licensing fees, and malpractice insurance
7. I have money in an IRA that I want to cash out to purchase a property. How do I make the transfer into our LLC with the lowest tax penalty possible?
- You can buy real estate with your IRA money. But you have to jump through a few hoops to do it.
- When you invest with your IRA, you don’t borrow the money out of the IRA and put it in your personal account to purchase a property. That’s a withdrawal that’s taxable. Instead, the IRA itself makes the investment.
- Then, you fill out some forms and you direct them to wire money for closing. Then, the title of the properties is taken in the name of your IRA account.
- Your tenants write checks to the IRA account. You can’t spend that money unless you want to make a taxable withdrawal until you reach the retirement age of 59 and a half.