At Entre-missions, whether your goal is to move overseas to share the Gospel, to start a children’s home, or to stay in the US and do ministry, we believe that it is very possible to fund yourself. We are tentmakers! I wanted to write a few articles about real estate, since it has impacted our lives so much in the last few years.
Real estate is by far the easiest way to create massive amounts of money. One of the biggest misunderstandings about real estate is that you need a lot of money to get started. If you have no money, there is always a way to use that brain of yours and create some money. Like most things, there is more than one way to ‘skin a cat’ so to speak. For years, we were broke, and lived in poverty. But then, we got smart. I am not saying this because we are smarter than anyone else, we just decided to start reading some books and did something that is the most important: we decided to take action.
I will use some general examples of what we have done in the past with real estate, how the deals were set up, and how you can do it too. Real estate does cost money, but it doesn’t have to be your money. Banks don’t like to lend money to poor people, but it doesn’t have to be a bank. It is a lot of work to fix a house, but you don’t have to be the one fixing it. Whether the market is up or down, there are many ways to get into the game. Let’s look at a few examples of some deals that we have done.
Judith working on one of our properties.
How to get into real estate with no money
The amount of money you need to get into real estate depends on if you have a good deal. It also depends on if you have a partner. If you have a good deal under contract, it’s easier to find the money. I will use one of our first deals as an example from a few years ago, on how we put one of these together. This deal, although we didn’t make as much money on it as other deals, was worth far more, because this is where our real education began.
I had a partner with cash, so I found a deal at the county auction for a small 2 bed/1 bath house that we won the bid on for $30,000. The deal we set up was for my wife and I to do the work, and our partner would front the money. We would split the earnings if we sold the house. The original plan was to just flip the house, but our partner decided to rent, and just paid us out $10,000 for our time. We were happy because we learned how to flip our first house, and we earned $10,000 with just a few days of work.
My wife and I went in, cleaned out the brush, repainted the inside of the house, put up landscaping, and just cleaned the place up for around $5000. Our expense was $10,000. Our partner rented the house out for several years, at $600/month. So, our here is the math, in general numbers:
Total cost = $45000
Value of the House after renovation = $68,000
Annual Rent/Year = $7200
Taxes and insurance a year = $1600
Net Profit/Year = $5600
ROI/Year = 12.4%
If you are not familiar with ROI, this is an important number to know. This is a number that investors look at when calculating how fast they will get their money back. Investors want to make money, but what they really don’t want to do is lose money. From the numbers above, at $5600/year in net income, divided into the total cost of $45,000, you will have an ROI of around 12.4%. That means that each year, you will get 12.4% of your original money back. Also, if you factor in tax savings, the ROI increases.
We won on this deal because we had no money or experience, but we found a partner who believed in us, but had no time. “If you’ve got the money, I’ve got the time,” just like that old Willie Nelson song. With zero experience on a house, and about 20-30 hrs work, our first deal cleared us $10,000. If you think that is awesome, It was an even better deal for my partner, here are his numbers:
Total Cost = $45,000
Total Profit (over 21 years)= $139,094
After renting the house for six years, bringing in $43,200, he decided to owner finance the house for $75,000 dollars. The price of the house appreciated since we first bought it. The buyer put down $15,000, and we set up a 15 year note, at 7% interest rate to someone. Note that with the down payment of the house, he recovered all of his original investment. Monthly payments to him would be just $449.41, but as the lien holder, he doesn’t have to pay property taxes or insurance on the property, that is the new owners responsibility. The monthly payments become mailbox money.
The buyers were excited because they didn’t have to worry about going through a bank, and although my partner charged a higher interest rate than a bank, they did have the right to refinance if they wanted, and there was also no PMI. If you’ve bought a house before, after 2008 banks started charging an insurance premium on the mortgage, to protect them against foreclosures, called a PMI. It is robbery really, but when you set up your own note, you can structure one without it. There is an enormous demand for owner-financed homes.
Hopefully this article is helpful to you, let me know if you have any questions or need further clarification. We want to encourage you to find yourself faithful in the little things. If God has called you, he will equip you! Shoot me a line at bcdinvestments@pobox.com!