How to Make a Million in Real Estate

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Florida Realtor News just published this story about real estate investing:

How to make a million in real estate:

Since the bottom of the housing market in 2012, median home prices nationally have risen by 53 percent, according to Clear Capital, a provider of real estate data and analysis. Is it too late to make money in real estate investing? Not if you find a property selling for a discount and manage it well. Real estate investors offer some key strategies:

Location, location… Look for properties in economically stable neighborhoods where you can expect long-term price appreciation and a large, consistent pool of prospective tenants. That's often at the entry level of the market.
Run the numbers. Look for cash flow – rent minus all expenses, including any management fee and a reserve fund in case of vacancies – of a few hundred dollars a month. Or you might be content to break even each month and wait for the home to appreciate. Use BiggerPockets.com's Rental Property Calculatorto assess a property's potential.
If you don't have the skills and time to manage a property, or it's in another city, you'll need to hire a property management company. You can expect to pay a monthly fee of the rent you receive, plus a separate leasing fee, which varies from one-half to a full month's rent.
Use other people's money. Ideally, you'll put down as little of your own money as you can, borrow the rest and charge enough rent to pay the loan. You'll pay more for a mortgage on an investment property than you would for your own home. The requirements you must meet to get a mortgage on a rental property vary depending on whether you intend to live on-site and on who is backing the mortgage (Fannie Mae, Freddie Mac, FHA or VA). If you have enough equity in your current home, you could take out a home-equity line of credit against it to buy the property.
Learn the business. When Jason Rector started out, he says, he read like crazy about real estate investing, went to conferences and took a lot of successful people to lunch. Check out BiggerPockets.com, an online real estate networking and information resource, and consider joining a local real estate investor club or association (search for one on the National Real Estate Investors Association website).

As a student paying his way through college at Eastern Kentucky University, Jason Rector got tired of paying rent.

"Every time I wrote the rent check, the landlord's net worth was going up, and mine was going down," he says. That motivated Rector to buy his first house. It was 2006 – before the housing crash – but properties in Richmond, Ky., were affordable. He bought a three-bedroom, two-bathroom home for $117,000 with a $4,100 downpayment, using savings from the mowing business he ran while in high school.

Rector finished the basement himself, adding two more bedrooms and another bathroom, and invited four friends to rent from him. That paid his mortgage and expenses while he lived rent-free.

The next summer, he bought a second house for $135,000. His younger brothers, who followed him to college at Eastern Kentucky, lived in and managed the houses after Rector returned to his hometown, Champaign, Ill., in 2008.

Back home, Rector began his career as a firefighter, but he had caught the real estate bug, and he kept buying. Today, Rector, 34, owns and manages 93 rental properties, with an eight-figure total value.

Rector says his wife, Lisa, 33, is a big key to his success. She's a real estate agent with Keller Williams and a top agent in her market. She helps find properties they can buy for 10 percent to 20 percent below market value – mostly apartment houses and single-family homes near the campus of the University of Illinois. The homes may be torn up or dated. Or they could be foreclosures or short sales. Lisa negotiates the deals, and Jason improves the properties.

Jason says that since the downpayment on the first house, he hasn't put a cent of his own money into the business. When he's ready to buy, he taps his line of credit to pay the purchase price plus the cost of renovation. When he rents out the property, he takes the lease to the bank and the banker orders a new appraisal. Based on the new value of the property and anticipated rental income, Jason takes out a new, 15-year commercial mortgage. He uses the loan proceeds to replenish the line of credit and pays down the loan with the rent he collects.

Investing for the long haul: The Rectors keep properties for at least five to 10 years. Jason will sell if he can find a buyer willing to pay more than market value or if he can cash in on home-price appreciation to buy a larger property with more units.

"My approach to real estate investing isn't get-rich-quick," he says.

Jason, who still works 52 hours a week as a firefighter and recently launched a construction company, used to manage and maintain the properties himself, and he says he never evicted a tenant. Now he employs 20 people as well as his two brothers and his mother. "I get to do the fun stuff, focusing on acquisitions and starting new businesses," he says.

"I've learned that to be successful, you must have a why, and the bigger the why, the more successful you can be," says Jason. Jason's work as a firefighter gives him the opportunity to make someone's day better, he says. The couple give 10 percent of their income to their church, they're active in the local United Way, and they're founding a nonprofit to pursue community mentorship and international aid.

"The more money we make, the more we can give away," says Jason.

The Rectors live comfortably but don't need a "crazy, fancy lifestyle," Jason says. In 2018, they bought a lake house that they share with family and a new group of guests each weekend. They gave each of their two children a rental property on their first birthdays, and as the kids get older, they'll help manage the property. When the children reach college age, they can use their houses to generate money for school, income or seed money to start their own businesses.

If you are interested in exploring this investment strategy, I highly recommend Gary Keller's book, "The Millionaire Real Estate Investor".