My best girlfriend wanted to buy a house in Santa Clara California. We had bought received our income tax checks and wanted to put our money to good use. She purchased a 3bd/2ba home that needed a lot of work. I bought a volvo. I was renting a very nice house in Silicon Valley. The houses that I could afford were in bad neighborhoods and looked like a dump. At the time I thought I had made the right decision.
Move forward 10 years, I was still renting but my friend's "little dump" had turned into a money magnet. Vera's dump was now worth three times what she had paid for it and she was able to refinance the house, take out money to buy her husband a new cadillac and herself a volvo.
I was flabbergasted and jealous. Not knowing what to do to get to my firends financial level, I started reading books, going to seminars, spending money to find out how I could catch up with Vera. Most of what I read and spent my money to purchase was garbage, rehashed ideas that didn't work.
I was afraid to purchase rental property, my credit was too poor to buy a house, I did not have a lot of savings, I felt like a failure.
I knew that if I had followed Vera's suggestion that I would be sitting on over $200,000 in equity. That amount of money seemed like a lottery win to me. But how could I get there? What steps did I need to take to get to the property rich phase. I also calculated that if Vera had purchased two, three or four houses during this boom, she would already be a millionaire.
So real estate was the way to wealth. This enlightened idea might seem like old news to a lot of people but to me I had lived in a poverty bubble and had little financial education.
So, I decided to become a real estate agent. The long days and nights were grueling. Most of my commissions were spent on advertising, gas costs and anti-depressants. The money was good but the haggling with other agents, showing houses to people who did not want them or showing houses to people who could not afford the house that they really wanted became frustrating.
Then I met a real estate investor. This man knew exactly what he wanted and told me if I could find this house he would buy it. I found the house. The worst house in the best neighborhood. The house was for sale for $222,000. This house was badly in need of repair. The carpets had not been cleaned in 10 years. The owner smoked. The walls was filthy. The house had been neglected for 10 years. The real estate investor purchased the house, rennovated it for under 25,000 and sold the house for $328,000 within 3 months.
I was hooked. So this is how you really make money in real estate. Finding undervalued properties, fixing them up and then selling them at huge profits. This process is called "Flipping" on the popular HGTV shows. The problem that a lot of would be investors face is having the money to invest in these properties.
One of the best pieces of advice my mentor taught me was get the funding before you find the deal. In the old days, this involved putting together a group of investors who would fund your deals for you. times have changed and their are hard money lenders who will provide you the cash you need. Even more innovative methods for funding your deals involve getting the seller of the property as your tenuous partner. However, the best way to fund your deals and reap all the profits for yourself if you are so inclined is to form and LLC as soon as you decide to become an investor then develop your own line of credit. Then the money is sitting there waiting for you to make the deal and make the cash.