Here is a clip from one of my lessons on understanding how refinancing a home works and how you can make money in real estate without flipping houses. READ ENTIRE DESCRIPTION! It is a long video but watch it all as I go over not only how to invest in real estate for beginners but all the associated aspects from beginning to end. Specifically I explain how I made $100k in 4 months on a property without rehabbing it or fixing it up. I also explain the strategies you can go about to pull equity out of a house without flipping or selling it. Like I said, watch the video as I go in depth on concepts such as LTV, Mortgage insurance, and the various types of refinancing. Honestly a must watch for everyone trying to get into real estate. I had a Real Estate webinar for the citizens last night and I made it mandatory that they watch this lesson as it is crucial.
To recap and give you guys some notes. The first main concept to takeaway from this is that you can make money in real estate investing (both short term and long term) without flipping houses. The name of the game is location and comparable home sales. Contrary to popular belief, a home isn’t valued based on what is inside it. So lets say you have the exact same home as your neighbor, but you put $80k into the kitchen remodeling it. If you neighbors home sells for $400k it doesn’t mean your home is worth $480k or more, yours will be the same price give or take 5-10k. Why is this so important? Because if you understand this concept you can see how you can make money in Real Estate without doing any construction or remodeling and focus your efforts to the right areas where sales are going through. This will show you how to spend money on a home responsibly and not put too much into a home if it won’t net you profit. A lot of people put tons of money into their home but fail to realize, every type of neighborhood and home has a sort of cap, so it becomes pointless to put in money after a certain point because the house will never get sold for that much simply because no houses in the neighborhood would sell for that much. That being said, this is how I profited so much off this house without putting any money into it.
The next important part is LTV, or Loan To Value, because this will determine first off whether or not you will need to pay mortgage insurance, which can cut into your profits if you decide to turn your house into a rental property and cash flow from it. I explain the formula to calculate LTV in the video, which will help you, understand better but simply, it is how much owed on the loan divided by the value of the home. Understanding this, you can see how if the value of your home goes up, your loan to value will come down and this will allow you to make money if you decide to cash out refinance, getter better rates/lower payment if you do a traditional refinance, or simply eliminate your mortgage insurance payment if you initially put a down payment on the house less than 20% as the home value increased!
Lastly, all there was a lot more defined in the video, refinancing and how it can be used to make money in real estate is very important. Refinancing explained: Pretty much paying off your original loan with a new loan from a new lender with the same terms or better, and usually at a lower interest rate. This is great for most homeowners as you can save tons of money in interest as most people originate their home loan at a higher interest rate. Further, beyond lowering the payment, which can help you turn a higher cash flow, you can also refinance your home to pull out equity from the house without selling it, or flipping it in under a year to avoid paying capital gains tax. This is called cash out refinancing or a cash out refinance. That being said though, there are certain ways and limitations to refinancing, especially cash out refinance, and it has to do with your LTV, which is why we go over it!
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