These Four Easy & Creative Real Estate Strategies Will Work for Anyone
Episode Summary
Want to get involved in real estate investing, but have no clue where to start? Today Allegra breaks down four commonly used real estate strategies that anyone can use to get started.
Episode Notes
Want to get involved in real estate investing, but have no clue where to start? Today Allegra breaks down four commonly used real estate strategies that anyone can use to get started.
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Transcript
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This episode is about real estate. But I just wanted to mention historically, the appreciation for real estate has been 4%. Historically, appreciation in the stock market for long time periods has returned you about 8% On average, and now we're seeing real estate jump up to 14%. So that's almost double what the stock market has been producing, which was double what real estate had been producing. So that just goes to show you that these asset classes are never going to stay exactly as we envision them. And we are talking about theoretical here because we're looking at history to try and project the future and no one has a crystal ball for the future. No one knew that there was a pandemic afoot, and that in the midst of a pandemic, home prices would surge. This is Allegra Moet Brantley, and you're listening to the coffee and coin podcast where women talk wealth. I'm the founder and CEO of Factora, a company on a mission to lead 1 million women to 1 million in net worth. Because when women have more money, we'll have more power to be the change we want to see in the world. If you're ready to hear real women share their real numbers and investment journeys and have a sneaky feeling you should be doing a little more with your money, you are in the right place. Just sit back, relax and turn me up.
All opinions expressed by Team Factora and podcast guests are solely their own and do not necessarily reflect the opinions of Factora Incorporated. This podcast is for informational purposes only and should not be used as the basis for investment decisions. Team Factora. And podcast guests may maintain positions in the securities or investments discussed in this podcast.
Welcome back to another episode of Coffee and coin. Today, we're going to be talking about getting creative with real estate. And real estate is definitely one of my favorite asset classes. However, it definitely rivals business. Obviously, I'm an entrepreneur, I love growing Factora as an asset. But that takes a very long time to see the fruits of that labor, where as real estate, you can get up and running pretty quickly. In fact, everyone's pretty on board with real estate, right, we all need somewhere to live. So we all really understand real estate a lot faster and more easily than other assets, because it's a physical hard asset that we're all used to. So there's good aspects of this. And there's bad aspects as there is with everyone and everything, my friends, unlike my stock market portfolio, I'm never going to be as excited with it as I am with real estate. That's just a bunch of graphs and lines and numbers, charts. Whereas my real estate portfolio, we currently have four properties with six doors, meaning two of those properties actually house more than one tenant at a time. And I know what they look like what they feel like what the light is, what the smells are, what the what the yard has in it tree and flower wise. I mean, there's just no comparison with how real raw and tangible real estate is compared to owning pieces of companies that you might never take part in or walk into their front door or know anything about them other than that they're in your stock market portfolio. If even know that, because I have some funds with 1000s of stocks, ma'am. And I don't know them all by name. So a main reason that our community of women loves real estate is because like I said, it's so much easier to get and understand quickly, because we're all using it. So there are luckily no shortage of ways to get creative when it comes to acquiring real estate and managing real estate in order to produce more cashflow.
And real estate really is awesome because there's two ways to win with this asset class. There's appreciation so I buy a property and then year over year, the value is hopefully increasing. And the second way is via cash flow. So I buy a property, I have a certain amount of carrying costs for that property if I leverage a financial instrument like a mortgage, which most of us do, because we don't have all that cash money laying around. Or even if we do, don't want to spend it to acquire a property in full, then there's still a liability against it until we own it outright. So your carrying costs would include things like your mortgage, your insurance, the taxes, all of the costs that you're responsible for, for owning that asset. And then if you are renting it out, hopefully, your tenant is paying you all of that and a little bit extra. And so the extra that goes beyond your carrying costs, and it's just additional income to you is called cash flow. So two ways to win with real estate appreciation and cashflow. Something worth noting here is that the average appreciation rate for owning a home nationwide. So this is a blended average. But in the last couple of decades, it's been about 4% year over year, meaning that's a great investment if you buy a house, and a lot of people do buy a house in mind for part of their retirement nest egg. When they're done paying it off in 30 years, it's gone up on average 4% a year. So now they have the value of that house way more than they paid for it, which is fabulous. Well, after the pandemic and this crazy surge that we have experienced with real estate prices and low supply very high demand that actually popped up to about 14%, which is wild, because a lot of the averages and examples we use when we're talking about the stock market is an 8% annual return on investment. And again, with the stock market, we're always talking about long time horizons. So this episode is about real estate. But I just wanted to mention, historically, the appreciation for real estate has been 4%. Historically, appreciation in the stock market for long time periods has returned you about 8% on average. And now we're seeing real estate jump up to 14%. So that's almost double what the stock market has been producing, which was double what real estate had been producing. So that just goes to show you that these asset classes are never going to stay exactly as we envision them. And we are talking about theoretical here because we're looking at history to try and project the future. And no one has a crystal ball for the future. No one knew that there was a pandemic afoot, and that in the midst of a pandemic, home prices would surge. But they didn't just surge because of the pandemic, there's also been a lot less building of homes. So I'm not going to break down graphs for you, because that's not fun in a podcast anyways. But this is the kind of stuff I nerd out on. And then we talk about inside the Factora wealth community. So similar to any investment, the return on your investment is definitely your most important, measurable. So what cost did I buy the asset at? What's the appreciation? What's the return? What is the value in having purchased that investment to begin with. And one thing we always talk about in the wall circle is that you don't get a return on your cash, right? cash sitting in a bank account is just gonna stay that cash, you have to invest it in one of these asset classes. So it has the opportunity to appreciate and or bring in additional income via cash flow. So I want to talk through four creative real estate strategies and how I've applied each of them. So the first one is something called House hacking. And House hacking is when you rent out a portion of your real estate. So let's say you bought a single family home, and you live in it. But you decide I also want to make income off this property. So I'm going to rent out a room. And maybe you're just renting out an extra bedroom to a roommate, this is a very viable option for a lot of us and I have done just that. So it basically turns you into a landlord to simply have a roommate. And now the thing that you were paying carrying costs on your carrying costs can be offset by a roommate or tenant helping you pay those down. So here's my example. Our first property we actually looked for a very particular format or layout of the house. We went for a spa lips floor townhome with two ways to enter. So basically, the majority of the living space was upstairs, the big living room, the kitchen, a bathroom, a bedroom, and then another half bath and a dining area. This house was $416,000, it was in Austin, we put 10%. Down, we had a mortgage on that house of $2,600 a month. And then we rented out the bottom floor of that house, which primarily only had a big bedroom suite with an in suite bathroom and walk in closet. And it was directly accessible from the yard. So no one had to go in the front house or the front door except for us to a roommate. And the best kind of roommate, we never saw them. We lived on one floor upstairs, they lived on another floor downstairs and they paid 1350. So slightly, just more than half of our mortgage was paid for by somebody else. So that's an example of house hacking, there are so many women in our community doing it, it's a great way to get started with real estate investing, because it's pretty simple. Another creative option is called a primary into rental, meaning you go and purchase a primary residence. And when you're purchasing a primary residence, you've probably heard that you need to put 20% down. That's not actually true. That's just a thing that is stated pretty loudly everywhere on the internet. And there's nothing wrong with putting 20% down. But let me put it this way. if house prices are rising 14% year over year, it's gonna be really hard for you to keep saving up that 20%. On let's call it a half million dollar property, you need $100,000 to acquire it. But that's only what you think you need, you could actually put as little as 5% down on a primary residence, which makes it a lot more achievable if we're talking about 25 grand versus 100 grand to leverage a $500,000 asset. So I know a lot of women who put as little as possible down, I mean, you still have to back out of the numbers and make sure that you can handle those carrying costs, which really means you need to take into consideration what's the total house price you're buying, because we're backing out of all of this to get the downpayment, and then of course what the mortgage is going to be. But so that first house, I mentioned, we did choose to put 10% down, but for the rest of our houses, we've only put 5% down, because we've now used this primary into rental Strategy three times. And here's how it works. You buy a primary residence that only requires 5% down, which means you can save up faster to acquire it, since you're not waiting to get all the way to 20%. And then you as a primary residence, it means you can only have one at a time it is the primary place you live, which is why it comes with this benefit of only having to put 5% down, because the lenders think you're gonna take the best care of this house because you physically live there. That's a requirement of being able to get a primary residence and the mortgage that goes alongside it. So you do that. And then you have to live there for a minimum of one year. After that year, you can turn that original primary residence into an investment property simply by moving out buying another house or renting or traveling or whatever it is that you're doing and your life and financial goals. And now that property can turn into a rental when you leave. So there's the opportunity for not just appreciation while you live there but cashflow while you don't. And I want to be very clear, we have cashflow analysis sheets, in Factora like this isn't something you need to do willy nilly, there are always going to be all the numbers involved that need to be broken down and considered beforehand, because you don't want to buy something you can't afford and you don't want to buy something that you plan to turn into a rental later on. And renters aren't going to be paying what you need to cover your carrying costs plus, hopefully extra. All right, so that's the primary into rental example. Like I said, I've applied this three times we bought our first property in 2018. A year later, we moved out of that one we bought our second property in 2019 Our Third in 2020, and our fourth, just earlier this year in 2022, we would not have been able to do all that if we hadn't been putting less down and able to save up more faster to acquire the next piece of real estate. I do want to say that it can absolutely be a drawback to move frequently in order to do this strategy. But I felt that the juice was definitely worth the squeeze. And now that we've picked up these four properties, especially in a great market like Austin, where things are San Francisco going off the charts right now, we feel very happy to have this amount of real estate and now we're kind of moving on into other investment goals.
Okay, a third way to get creative with real estate is to build what's called an adu, which stands for an accessory dwelling unit. And it's a smaller independent residential structure located on the same lot as your home. So if you buy a single family home, and you have the right amount of space that's required for ad use, and this is going to be different in every city. Every city is going to have specific regulations for whether or not you can do an adu, what amount of land you need, how far it needs to be from the lat line, either from the back of the house or the side, there's going to be regulations. But if you're able to do it, you can build a basically second rentable structure on your property. Or let's say you live in the front house and you build an adu, you can rent the back house. And so now you're able to get some cash flow from renting out that additional unit. And if the front house is already an investment property, now you've just got an additional income stream contained within the same asset. So that's really exciting to in early 2020. We built an adu, I actually have a very good real estate investor friend, Steph Douglas, shout out to her and open house Austin, check them out and tell them Factora sent you if you ever want to do a dedicated real estate investment strategy call. They're very open to doing that, with fact who are women, and they're really good at what they do. So Steph is a huge expander in my life, and she has done all the creative real estate you can imagine. But we actually had properties less than a mile away from each other. So in early 2020, before we knew the pandemic was hidden, we had made plans to build at us and we actually use all of the same contractors so that we were able to get a discount by giving them 280 us to build basically back to back. So that was really exciting. We actually took advantage of an Austin regulation, which is if you live in your primary residence, you can get an Airbnb license and short term rent a part of it but only as long as you live there because Austin has said no more Airbnb licenses except for primary residential owners. So with that, we actually turned that adu into our first short term rental. We hired an Airbnb management service. So it was a really passive, I mean, they did everything they checked in the guest, they did the cleaning, they handled everything, soup to nuts. I've never understood that analogy by the way. I never eat soup with nuts, but they did it all. And we were able to make a lot more cash flow than we would have been if we had rented out this very tiny like it's a 12 by 20. Open studio, one bathroom, kitchenette space, month to month because I don't know about you, but people are in a tiny home living. I'm not a big person I need to spread out I have a big dog, it would not work for me. But it's great for people to stay in if they're just in town for a few days. So that's an adu. And that's a great option for expanding your investment potential inside of the asset that you already have. All right, number four, you could do what's called a split property where you buy a single property and then divide it into separate units. So remember, at the beginning of this podcast, I said we own four properties, but six doors. That's because one property we bought and we added that adu to the back. So that gave us an extra door and a different property we bought and we actually looked for a very particular layout again in which the kitchen and the right piping was next to a two car large garage, and we turned that two car garage into a studio apartment. So now what was a single family home became an A and B unit. And the only thing that is shared between those two units is a laundry room. So again, we looked for a specific layout. In order to do this, and we did it, we actually moved in, we lived in this house during this renovation, we wanted to learn, we didn't just learn, we lived, laughed and cried a lot because renovations are hard, especially living ones. And we got some things wrong. One being the piping we needed was actually not right next to the garage, it was 15 feet across the house diagonally through the tile living room floor. So we had to drill that all up and live with a huge trench in our house for about three weeks. And then we had to put all the concrete back repour and re tile and seal those floors. So kind of a nightmare. But hey, I'm a big fan of learning via experience, I think that it's almost the only way to really learn valuable lessons to do it firsthand. I like to try and listen to other people and take their setbacks as something that I will avoid in the future. But I still seem to hit them. And when I do it myself, I don't make the same mistake twice. So split property is another thing that is really awesome. And was so lucrative from a cash flow perspective, because we looked around at single family homes in that area, what they would rent for, and it was about $2,200 for long term rentals for a four bedroom two bath, which is what the original house was. So when we changed the two car garage into a studio unit, we actually were able to rent that space for an additional $950. So that's basically another $1,000 of cash flow with creating a second door. The final thing I want to mention is that if any of these seem of interest or exciting to you, but maybe you don't have enough money to get started with purchasing a property on your own, or time or the skill set required, you could leverage partnerships. And what I mean by that is buying real estate with either another individual, a group of individuals, or you can even form a corporation to do it. This is a great option for people interested in acquiring property that may not feel comfortable doing it themselves. And we have seen so many Factorio women not only utilize the strategy of partnership, but partner with each other, which is exactly why I believe a wealthy women's community should exist and does exist with Factora. Actually, we just did Session Four of the wall circle last week, and it's all about real estate. And we put up a creative real estate spreadsheet afterwards where women can sign up and share what do they have to offer to a potential partnership deal. So do you have time, talent or money. And so an example of time could be maybe you really do have space in your life to search for properties, walk the properties, get the agent, prepare the deal, docks, manage the property after it's acquired, manage the renovation, if there is one that you're planning to do to squeeze in some additional equity, and then talent, what skills can you offer? Maybe you know how to evaluate investment deals. Or you take Factora and you've got access to our handy dandy cash flow spreadsheets. Or maybe you're just super handy and you could be the property manager and do some of the repairs yourself. Maybe you're an agent, lawyer, contractor logistics person, something that could be helpful to the deal in some respect. Or maybe you could bring the money to the table. Maybe you already have cash available that can be used for a down payment, closing costs, any appliances that need exchanging any repairs that might be required. Maybe you decide to do a short term rental and you could do the furnishing. Basically, do you have money that could go into the deal and something else really important? That helps a partnership is getting access to a mortgage mortgage financing is easier if you have a high paying w two job and quality credit. So I'm talking over that 700, even better would be over 740 range because then you're getting the top a PRs offered, that can increase the purchasing power of the deal. So whatever you have, you can offer and whatever you don't have, you can look to fill in with the right partners. So that's definitely something we challenge women to think about in the wall circle. First of all, what is their current life like with real estate? Do they rent do they own? Have they ever thought about owning in an investment capacity? And then really kind of think through what their real estate portfolio might or what they would want it to look like in the next one? 510 years? And if they do decide that it's something of interest to them? How could they either start going to meetups about it or talking to other women in the community who've done it to get some inspiration and more information? Or how can they start partnering. So that's it for me today, I really just wanted to go through those different examples. So we went over house hacking the primary into rental strategy, the splitting a property strategy, and the building an adu strategy, all of which can happen faster via partnerships. Of course, with partnerships, you need to have a solid operating agreement, you need to be very clear on who's responsible for what that should be stated in said operating agreement. And you should be very clear who's bringing what to the table. And so what amount of equity would they get. But that split property example that I gave you, we actually went in on a partner with that. So we're 5050 with a partner 50%, being myself and my husband, the other 50% being the partner, just to give you the economics of that deal, he brought all the money, he bought the house, he put 25% down, because we wanted to buy it through an LLC that we formed, which it's harder to acquire a property through an LLC, because that gives you a vehicle to if something were to go awry, it's complicated. But basically, they can't come after you the person because you're protected by the LLC. So that required more down, it still would have required 20% Because we were buying it straight as an investment property, but to do this LLC direct purchase through that it was 25%. So he brought the 25% for the $335,000 house that we acquired. And he contributed the $40,000, which was the renovation budget, if we went over $40,000, which we did by about three grand that was on us to pay, but we did all the sweat equity. So we moved in, we manage the renovation. We are currently the landlords for that house. So we're also the property managers for it as well. We like to call our partner, Mr. White gloves. He did nothing but provide cash. And yet, it was really great for both parties because he wanted more exposure to real estate. And we wanted to learn, but we didn't have the capital to do it on. So that's how we formed a creative partnership that's worked really well. And I'll say the numbers on that house we make we cashflow $1,600 A month above the carrying costs. And we split that so 800 to our partner 800 to us. And one thing I probably mentioned on another podcast, but I think is really cool and worth repeating is that I use the money from that house to fund my IRA annually. And that is how my friends you can use one asset to increase your other assets. And I will leave you with that. I hope today was enjoyable. If you want to hear more about real estate, let us know email in at podcast at back Toro wealth.com
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