Here at EYF, we drill many different retirement strategies, and most involve retirement accounts. IRA’s, 401(k)s, and index funds are great ways to build up to retirement. Another strategy, though, is to retire with real estate capital. This basically means buying a few properties with room to grow, and using the capital and/or income you get from them to fund retirement. There are a few different ways to get this done, so we will just go over the universal basics for intelligent investing. If you take these tips, you will be able to attack the many different real estate retirement strategies.
The first thing you will need before buying a house is funding. If you have even decent credit, you can probably get some level of pre-qualified funding before you shop. This will help dictate your budget while shopping. If you don’t have good enough credit, there are some great articles below on how to get yourself in a better situation.
Buy Below Market Value
When you are looking at properties, your goal isn’t to find the best looking, or most updated, home. This even applies if you are looking to live there. What you are looking for are homes with easy-to-fix issues and outdated accents. Old carpet, faded cabinets, peeling paint, etc. Your goal is to get a home that is having a tough time getting sold but won’t break the bank to repair. This will result in you getting a price far beneath market value.
Say you are able to find a $650k home in an $800k neighborhood. The house has ravaged, pet-soiled carpets. It has old, brown cabinets. It even has broken and outdated light fixtures. The grass is dead in the back, and there is paint chipping in the bedroom. So, you get new vinyl planks on the floor, paint over the cabinets and the walls, new light fixtures, and some nice turf and mulch in the back. All of this costs you around $50-60k to pull off, but afterward, the home is now worth the same $800k as the houses around it. You just made $90-100k in equity right off the bat, and have a great home or rental property. Most mortgage sources will finance your repairs so long as you prove to them that you will be creating more value than you are spending.
Cheap, Rental-Oriented Repairs
Once you take ownership of a property, the biggest beginner mistake is overspending on renovations. When you are just starting out, you are not building yours forever home. No matter what your strategy is, this is not the last property you will buy– don’t act like it is. Your goal should be to spend as little as possible to increase the value as much as possible. This means no true hardwood floors– we go with vinyl or even carpet (depending on your market). Got old cabinets? Like I said above, we repaint; don’t replace them. Unless you live in a place where grass grows extremely easily, mulch and maybe some turf makes much more sense. Don’t overreach, start tearing down walls, and pretend you are the star of an HGTV show.
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Trey LaRocca is a freelance writer, financial sales worker, and tech guy. When he isn’t out and about or at work, he’s usually at home enjoying some video games and a beer. Currently residing in Newport Beach, this California Kid can be found at the beach on any given weekend. Trey has years of experience in day/swing trading, financial analytics, and sales.