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How To Start A Real Estate Empire With Only $12,500

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Save money for home,Home insuranse Concept

Ali Jamal is the Owner and CEO of Stablegold Hospitality, a real estate investment company.

If you’re not currently a homeowner or haven’t purchased your first multi-residential property, you may still have hopes of building a multi-million or billion-dollar real estate portfolio. Yet that goal appears to be far-fetched amid a global pandemic, while scores of people are losing their jobs and our economy sinks knee-deep into a recession.

As someone whose $40 million real estate portfolio was built on the opportunities provided by a recession, and whose purchasing power for new acquisitions have increased by 50% as a result of our current situation, I can attest that sweeping your hopes and dreams under the rug right now will be one of your biggest mistakes. That’s especially true for first-time homebuyers or someone looking for a new primary home. Laying the foundation of this soon-to-be empire can begin with as little as $12,500.

At the same time, it’s important to be realistic and lower any expectations with respect to the asset class. The first property you purchase will not be a fancy new house, often referred to as Class A/B. You may have some wiggle room with asset class as your portfolio grows, just not initially because your growth potential is largely based on the property’s capacity to be rehabilitated, re-evaluated and then refinanced in the near future.

Here’s a step-by-step guide on how to accomplish a feat that, at first, may seem unattainable.

1. Cap your search at $50,000.

This will allow you to make a 5% down payment of $2,500, which comes from the $12,500 you have in savings, and still leaves you with $10,000 to spend on renovations.

To find properties within this price range, I recommend using the appropriate location parameters. Often, we’re not likely to find a suitable $50,000 property in the urban core. By “suitable,” I mean a property that can be refurbished and reappraised with at least a 25% increase in market value within five years. For now, your best bet is to focus on a tier two market or the suburbs.

2. Apply for a Federal Housing Authority (FHA) loan.

The Federal Housing Authority Loan (FHA) offers federally backed loans to borrowers who have a credit score of 580 or higher and a debt-to-income ratio that’s less than 43%. While most bank loans require a 20% downpayment, FHA loan requirements can be as low as 3.5%. Both first-time homebuyers and investors are eligible if the loan is for their primary home.

First-time homebuyers may also find additional assistance for the down payment through state or local programs. For example, the state of Georgia offers the American Dream Downpayment Initiative (ADDI), which provides first-time homebuyers with assistance if their income falls below 80% of the median income in their area.  

3. Establish a strong financial disposition.

Once you’ve acquired your primary home, your next investment property will likely be financed through another bank. This means you need to create a strong financial disposition by earning money on your primary home through refurbishing and then renting out additional living space, maintaining a good credit rating and holding down a steady job. Give yourself at least four to eight months to create the strong financial standing you need.

4. Refinance.

Once you’ve done all of the above, ask your current lender to reappraise your home. If you’ve played your cards right, you should see at least a 10% increase in market value. Request a $20,000 line of credit against your primary home to make a downpayment on your next investment property. Then take this disposition to another lender along with a thorough business case for your proposal to buy your next investment property.

Your proposal should include an income summary that provides details on how your new property will generate revenue while you’re maintaining a good credit rating and possibly even maintaining positive cash flow from your original, primary home. If your investment property requires major renovations, consider taking out a cash advance against your credit card and then make monthly payments using the rental revenue earned from your new property, as opposed to requesting this additional financing from your lender. 

5. Repeat and upgrade.

As long as you’re in the black, you would continue this cycle every year, with each subsequent home increasing in value. You should also be able to afford a larger down payment on each subsequent property.  

As one can see, the road to your real estate empire doesn’t have to be demolished by recent events and our stagnating economy. Paving it, however, requires a good dose of realism. These guidelines mostly apply to those of you who have a steady job that the bank approves of, with respect to financing, and the financial discipline to save up at least $12,500. For now, that might mean dining out less and no more online shopping for things you don’t need, etc. Like most things in life, there’s short-term pain for long-term gain. And times like these serve as a stark reminder that we really need to kick-start our plans for long-standing wealth in a New York millisecond.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.


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Real Estate

Kimco Realty Adds Weingarten Realty To Its Shopping Cart

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Empty shopping cart in the supermarket shopping mall

Today Kimco Realty
KIM
, one of the largest shopping center REITs in the US, announced it was merging with Weingarten Realty
WRI
for $5.9 billion in a mix of stock (90%) and cash (10%).  Each WRI share will be converted into 1.408 newly issued KIM stock plus $2.89 in cash per share and upon closing the combined entities will have an enterprise value of just under $20 billion.

Kimco and Weingarten are highly complementary as they own high-quality grocery anchored shopping centers, and the combined portfolio will consist of 559 properties in top MSAs.

One obvious benefit for Kimco is the fact that Weingarten’s portfolio is focused on coastal and Sunbelt markets that have performed relatively well during the pandemic. This merger creates significant synergies (around $30 million to $34 million) as the costs can now be spread across a $20 billion portfolio.

In addition Kimco expects to benefit from debt synergies, thanks in large part to the fact that Kimco is using most of its currency (90%) in stock and the balance in stock (10%).

I spoke with Kimco’s CEO, Conor Flynn and he explained that this merger will generate “lower leverage and enhance the long-term NOI profile” for the combined companies.

Kimco is currently rated BBB+ with S&P and Baa2 with Moody’s
MCO
and Flynn told me that the “next leg up is the A-rating” that the CEO is hoping to see in 2022 or 2023.

The cap rate on the Weingarten transaction should be immediately accretive and I view the 5.8%-ish cap rate to be extremely attractive and Flynn told me that “you can’t get that (cap rate) in the private market right now”.

According to Nareit data there are 18 shopping center REITs with a combined market capitalization of $52.5 billion. In 2020 the shopping center sector generated the second worst total return (-27.6%) behind regional malls (that returned -37.2%).

Although shares in shopping center REITs have rallied year-to-date (+26.1%) Kimco opted to purse Weingarten so it could use its cost of capital to transact the deal (purchase price was 90% in stock).

Another catalyst worth noting is Kimco’s  ability to drive NAV (net asset value) through a collection of mixed-use projects and redevelopment. The combined company has a potential of 41 projects that consist of 34 mixed-use and 7 master planned projects that include 1.7 million square feet in retail and 9,000 multi-family units.

Conor Flynn will remain the CEO of the combined company and Milton Cooper will remain as Executive Chairman. Weingarten will have one Kimco board seat. There is a break up fee of around 2.5% but I don’t anticipate another bid given the fact that it will take a large player like Kimco to execute on such a large transaction.

KIM closed up 2.31% and WRI closed +12.5%.

I own shares in KIM.

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Vacation Home Checklist: Keep Your Place in Perfect Shape

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Vacation home checklist items to keep in mind

Everyone loves a good vacation, and the option of having a private retreat is one of the many perks of owning a vacation home. With the soaring demand and interest in vacation towns and affordable suburbs, there’s no better time to jump on the opportunity to own a vacation home than now.

Whether you’re taking in the last snowy days at your retreat in Whistler, BC, or you’re looking to invest in a sunny escape in Fort Worth, TX, it’s critical to close up your vacation home properly at the end of the season to ensure your property is safe when you’re back at your permanent residence. To help you get started, this eight-point vacation home checklist will make it easier to maintain your vacant home while you’re away.

Vacation home checklist: what to keep in mind

A home away from home can be a great investment and a handy retreat for vacations. However, making sure you’re sustaining and securing your property during vacant months will help prevent potential problems while you’re away. These can include:

  • Frozen pipes and leaks
  • Downed wires
  • Fallen trees
  • Pests and animals
  • Mold
  • Theft and vandalism

Thankfully, there are steps you can take to prevent these potential issues from becoming a vacation homeowner’s nightmare.

Secure your vacation home

1. Install a home security system

Leaving your home unoccupied for a season could leave it more vulnerable to burglaries or vandalism. A home security system is your first line of defense when you’re away, whether it’s your vacation home or full-time residence, and will allow you to monitor your home remotely. Some security systems can also include flood monitoring or smoke detection, giving you additional peace of mind. Depending on the system you choose, some may even come with an automation function that will allow you to schedule lights or turn a TV on and off, giving the appearance of an occupied home.

Have sufficient lighting in your vacation home checklist

2. Make sure you have sufficient lighting

To deter opportunists from approaching your vacation home at night, illuminate walkways, entryways, windows, and any dark corners with outdoor motion-sensor lights to startle would-be intruders. Indoor lighting is also critical in ensuring your home looks occupied from the outside as well. Simple outlet timers can help turn lamps on and off at intervals to make your vacant home look occupied. Keep in mind that when using outlet timers indoors that you ensure it’s visible from the outside, even through curtains or shades.

3. Consider smart locks

An essential step in your vacation home checklist is ensuring all windows, especially those on ground level, and doors have secure locks. Alternatively, you may also consider installing smart keyless locks that will allow you to grant remote access to neighbors or housekeepers. These locks provide additional control, security, and convenience, and may give you better peace of mind knowing you won’t need to keep track of any keys.

4. Adjust any blinds or shades and secure the windows

The key to deterring any surprises while you’re away is to make your vacation home look as if it’s being regularly visited, so be sure to include leaving any blinds or shades partially open in your vacation home checklist. Doing so gives the impression that your vacation home is occupied, and those passing by will see the lights through the blinds at night without being able to see fully into the house.

5. Ask your neighbors for help

Getting to know your neighbors can offer another line of defense while you’re away. Instead of leaving your key in a well-known hiding spot, give a spare set to a trusted neighbor so that they have access to the home in case of emergencies. Plus, it’ll ensure that you have another set of eyes watching over your home for suspicious activity.

Assemble a team of professionals

6. Consider hiring a landscaping service

Untidy hedges, overgrown grass, weed-infested gardens, or even overgrown shrubbery are dead giveaways of an unoccupied home. While a lakefront home in Seattle, WA might not need frequent upkeep compared to a beach house with a large lawn in Orlando, FL, investing in a routine landscaping service to maintain your property while you’re away will keep up the appearance of it being regularly visited. Plus, trimming trees and shrubs around the house will prevent them from blocking views of the house and removes any hiding spots for burglars.

Secure windows and adjust blinds in your vacation home checklist

7. Invest in a quality housekeeping service to maintain your home’s interior

If you’ll be leaving your vacation home unoccupied for an extended period, adding a regular cleaning service to your vacation home checklist will make returning even more welcoming. In fact, your housekeepers will be able to deep clean the hard-to-reach areas that are usually left out when your home is occupied for the season – like laundering the curtains, cleaning air conditioning vents, and shampooing the carpets. When you return to your vacation home, you won’t have to worry about dust build-up or stale odors from your home being left unoccupied.

8. Find a reputable property management company

The final item on your vacation home checklist is to find a property manager. If you lack a flexible schedule or don’t live locally, a property manager can relieve the everyday stress of maintaining a vacation home from afar. Property managers act as the point of contact to manage your home and can conduct regular walkthroughs to ensure your home is protected. Some companies may offer seasonal services such as preparing your home for winter.

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Median Home Listing Prices Hit Historic High Of $370,000 According To Realtor.com

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Golden Austin Texas sunset over Cityscape

Median home listing prices hit a historic high of $370,000 according to Realtor.com. Recently releasing its latest Monthly Housing Trends report, realtor.com saw year-over-year median listing prices rise 15%.

While that’s good news for sellers buyers continue to compete in markets where multiple offers often come in six figures above asking price especially in those desirable California markets like Silicon Valley and Los Angeles. Competition remains stiff with 117,000 fewer homes “being listed each month compared to recent years,” according to the report.

In Silicon Valley recently there were 76 all-cash offers on a home as it went on the market according to CNN Business. A fixer-upper in Silver Spring, Maryland a Washington DC suburb boasted 88 offers, 75 were all-cash. Fifteen of those buyers had not even set foot in the home.

Realtor.com tracked the 50 largest metros in its data. Some metros saw those listing prices shoot even higher than the national average increase of 12%. Consider that Austin’s listing prices increased by almost 40%. Right behind it was Buffalo at 28.3% and Los Angeles with a 24.8% median listing price increase. Despite these price increases homes are selling a week faster than a year ago.

Listen to realtor.com Senior Economist George Ratiu. “The trillion-dollar question is of course how long can this continue? It’s the market reflecting typical economic problems.” Ratiu goes back to econ 101 on the law of supply and demand. “I do think as we move through summer sellers will be confident to list their properties as vaccination rollouts increase.”

The news gets even worse when you dig a bit deeper. Consider that nationally, the number of homes for sale in March decreased by 52% compared to March 2020. That’s even lower than this past February when inventory fell 48.6%. Crunch the numbers and that means there were 534,000 fewer homes for sale in March 2021 compared to March 2020 as we were just beginning the pandemic.

Since Austin is the best market in the country it’s no surprise inventory declined there 72.7% from last March. Other metros with strong declines included Jacksonville, Florida down almost 71%, and Raleigh, North Carolina where homes for sale fell 70.3%.

Here’s a deeper dive into realtor.com’s numbers. The supply and demand fundamental is evident in markets across the country. The Austin metro saw the year-over-year median listing price increase almost 40 % to $520,00. Median prices rose 18 % in Phoenix to $477,000. Raleigh once considered “affordable” had a 12% increase to a median listing price of $420,000.

“I think as mortgage rates creep up as well as home prices, we will see the number of people who can qualify for mortgages dwindling,” Ratiu forecasts. If that’s true then we may see a shift away from a sellers’ market. Now that could be good news for buyers.

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