Real Estate 101

Download Episode Running the numbers

• MAO formula
• MAO = (ARV * .7) - repair costs - assignment fee
• Formula used by house flippers and wholesalers

www.pauldavidthompson.com

Build Wealth by Housing Hacking

• Have roommates
• Airbnb an extra bedroom
• Airbnb your house while you travel
• Live in one unit of a small multifamily - duplex/triplex/quadplex
• Rent out of other features of your house - storage facility, pool house, RV pad, parking spaces
• Roll your equity from primary residence every 2 years
• Do Live-in Flips every year or so
• Do a Live-in Flip then Rent

www.pauldavidthompson.com

Build Wealth by Housing Hacking

• Have roommates
• Airbnb an extra bedroom
• Airbnb your house while you travel
• Live in one unit of a small multifamily - duplex/triplex/quadplex
• Rent out of other features of your house - storage facility, pool house, RV pad, parking spaces
• Roll your equity from primary residence every 2 years
• Do Live-in Flips every year or so
• Do a Live-in Flip then Rent

www.pauldavidthompson.com

We've all heard it before... "Your home is your biggest investment!" Er... nope, sorry it's actually your biggest expense. But don't feel bad because of it. Just recognize the fact so you aren't convinced to buy a bigger house because it's an investment. And maybe, consider some alternatives to turn your house into a profit center or at least reduce your expenses. Total Cost of Home Ownership

We've all heard it before... "Your home is your biggest investment!" Er... nope, sorry it's actually your biggest expense. But don't feel bad because of it. Just recognize the fact so you aren't convinced to buy a bigger house because it's an investment. And maybe, consider some alternatives to turn your house into a profit center or at least reduce your expenses. Total Cost of Home Ownership

So now let me give you specific use case of someone I know and they are using real estate investments to invest in their future and create financial independence

1. A young couple fresh out of college with $35K of debt, a big car payment, and 2 jobs they don't like and looking to become financially independent and retire early by age 30. (What could they do)

• • Well, they're young and have time and energy on their side.
  • They don't have any assets to speak of, make decent money but have limited credit
  • They should cut their expenses to the bone and live hyper frugally
  • They should sell their very expensive car and make do with one car
  • They are interested in real estate already so should actively network at local meetup groups and their local REIA
  • They should actively seek out someone who is willing to take them under the wing and show them the ropes
  • They should advertise as house buyers using cheapest methods possible (bandit signs, doorknocking, business cards, networking, social media, and direct mail once they can afford it)
  • They should try to find a house to buy and move into. Since their credit is poor and they don't have much cash for a down payment they should try to find a distressed willing to sell on owner financing, subject to their existing mortgage, or a property they could rent to own.
  • Move into the house they found that meets their criteria and use some sweat equity to fix it as a live-in flip while working on improving their credit
  • Continue marketing for more properties and assign a few / wholesale a few contracts so they can raise cash for their savings and next down payment
  • Now that their credit is better and have saved enough for a small down payment they find the next suitable house to live in move into that house and get an FHA loan to get long-term fixed financing
  • Now use the strong equity position from on one of the first properties they purchased as collateral for an equity loan at 10% from a private lender and pay off the $35,000 of high-interest credit card debt thereby reducing the debt payments and increasing their savings rate
  • After living in this property for a year do it again and turn the property they just moved out of into a rental. Now tenant is paying their mortgage and equity loan to the private lender
  • they can continue doing moving to a new property every year while still earning their incomes, keeping expenses low, saving aggressively and using their creative financing strategies to acquire properties to hold as rentals
  • After 5 -6 properties the young couple can quit their jobs and live off their rental income, wholesale fees, and starting flipping properties for more income now that they have more time
  • By the age of 30, they'll have 10-12 properties and be financially independent so long as they maintain a low cost of living
• I refer to this strategy as hyper savers and live in flip house hacking
  • What makes it work is the willingness to make sacrifices on their lifestyle while their young (one car, eating out less), flexibility to be able to move frequently, and the understanding that buying assets instead of consumer goods allows them to generate passive income and restructure their debt.

So now let me give you specific use case of someone I know and they are using real estate investments to invest in their future and create financial independence

1. A young couple fresh out of college with $35K of debt, a big car payment, and 2 jobs they don't like and looking to become financially independent and retire early by age 30. (What could they do)

• • Well, they're young and have time and energy on their side.
  • They don't have any assets to speak of, make decent money but have limited credit
  • They should cut their expenses to the bone and live hyper frugally
  • They should sell their very expensive car and make do with one car
  • They are interested in real estate already so should actively network at local meetup groups and their local REIA
  • They should actively seek out someone who is willing to take them under the wing and show them the ropes
  • They should advertise as house buyers using cheapest methods possible (bandit signs, doorknocking, business cards, networking, social media, and direct mail once they can afford it)
  • They should try to find a house to buy and move into. Since their credit is poor and they don't have much cash for a down payment they should try to find a distressed willing to sell on owner financing, subject to their existing mortgage, or a property they could rent to own.
  • Move into the house they found that meets their criteria and use some sweat equity to fix it as a live-in flip while working on improving their credit
  • Continue marketing for more properties and assign a few / wholesale a few contracts so they can raise cash for their savings and next down payment
  • Now that their credit is better and have saved enough for a small down payment they find the next suitable house to live in move into that house and get an FHA loan to get long-term fixed financing
  • Now use the strong equity position from on one of the first properties they purchased as collateral for an equity loan at 10% from a private lender and pay off the $35,000 of high-interest credit card debt thereby reducing the debt payments and increasing their savings rate
  • After living in this property for a year do it again and turn the property they just moved out of into a rental. Now tenant is paying their mortgage and equity loan to the private lender
  • they can continue doing moving to a new property every year while still earning their incomes, keeping expenses low, saving aggressively and using their creative financing strategies to acquire properties to hold as rentals
  • After 5 -6 properties the young couple can quit their jobs and live off their rental income, wholesale fees, and starting flipping properties for more income now that they have more time
  • By the age of 30, they'll have 10-12 properties and be financially independent so long as they maintain a low cost of living
• I refer to this strategy as hyper savers and live in flip house hacking
  • What makes it work is the willingness to make sacrifices on their lifestyle while their young (one car, eating out less), flexibility to be able to move frequently, and the understanding that buying assets instead of consumer goods allows them to generate passive income and restructure their debt.

Download Episode Exploring which real estate investing strategy is best suited for you? This is a really important topic because the term "real estate investing" is a vast topic that has dozens, if not hundreds of specialties. In episode 3 I talked about the continuum that real estate investing spans. It can be heavy on the business side or lean more toward being an investment. The most well-known method is "Flipping" houses or being a "Flipper". Is a business activity that allows you to earn big chunks of money. You have to be able to hire and manage contractors and has a lot of moving parts. Buy and hold for rental income. This is where the term "investor" accurately applies. You buy, hold, and don't sell for a long time. This is true real estate investing as you're buying for the intrinsic value of the asset whether it be cash flow, appreciation or both This is on the investment side of the spectrum and allows you to earn a steady stream of income over a long period of time. There is a lesser known strategy that I call "Trading" or being a "Trader". This is where you use your contractual interest in a property to earn an income. Typically, this earns you a pile of money. The most often discussed "Trader" strategy is wholesaling where you put a property under contract then assign or transfer your interest to a 3rd party for a fee. This requires quite a lot of legwork to find properties, make offers, get them under contract, open escrow and find cash buyers.

Download Episode Exploring which real estate investing strategy is best suited for you? This is a really important topic because the term "real estate investing" is a vast topic that has dozens, if not hundreds of specialties. In episode 3 I talked about the continuum that real estate investing spans. It can be heavy on the business side or lean more toward being an investment. The most well-known method is "Flipping" houses or being a "Flipper". Is a business activity that allows you to earn big chunks of money. You have to be able to hire and manage contractors and has a lot of moving parts. Buy and hold for rental income. This is where the term "investor" accurately applies. You buy, hold, and don't sell for a long time. This is true real estate investing as you're buying for the intrinsic value of the asset whether it be cash flow, appreciation or both This is on the investment side of the spectrum and allows you to earn a steady stream of income over a long period of time. There is a lesser known strategy that I call "Trading" or being a "Trader". This is where you use your contractual interest in a property to earn an income. Typically, this earns you a pile of money. The most often discussed "Trader" strategy is wholesaling where you put a property under contract then assign or transfer your interest to a 3rd party for a fee. This requires quite a lot of legwork to find properties, make offers, get them under contract, open escrow and find cash buyers.

Today I'm talking about the primary category of choices the average person/family has when it's time to invest. The 3 big broad categories are the Stock market vs. real estate vs. starting a business. What should you invest in? There are promoters of all of these and they'll each tout the benefits of each. What should YOU do? I'm comparing and contrasting what I think are your three best choices. You can buy stocks, put a down payment on some real estate, or put you and your money to work by starting a side hustle.