In the military, we lead super busy lives and are not always privileged with the time to study and learn the secrets of the most of the most successful real estate investors. This causes us to go with the status quo and think that the only way we can make major purchases, or investments, is to go through a bank. However, this could not be further from the truth, and it is time for someone to shed light on the "tips and tricks" other real estate investors have used for decades to leverage funds from different investments to fund future ones. That's why ADPI was born, and we've got your six!
Investing with a HELOC is one of the most powerful ways to invest in Real Estate; especially if you bought your home during your first tour. Owning a home can be like owning your own bank. You have access to almost all the equity you have built up into your home, whether through projects, extra payments, or from the market rising in your area. Much different from a Home Equity Loan, a HELOC serves as a revolving credit line, similar to the functioning of a credit card. You can use the equity you’ve already established to buy a house cash, then use the cashflow you’ve generated to pay back what you owe. Then rinse, and repeat. If you were educated and made your first purchase with your VA loan correctly, you could potentially capitalize on your equity after a 20+ year career and buy a few properties in the Midwest to supplement your pension.
A lot of people don’t realize that you don’t need to go to the bank to sell/buy a house. There are plenty of great deals off the MLS. Seller Financing is all about being creative, buying smart, and the art of presenting a good deal. A seller can finance his home to another buyer by signing a purchase agreement, allowing the buyer to own or lease it via periodic payments for a negotiated period of time. Typically the seller will get interest from financing the property; usually a higher interest rate for those who are doing this for the first time. As an investor, this method is very powerful because it allows a buyer to obtain properties outside a bank; making the process, easier/flexible to negotiate, less difficult and more streamlined. As a service member, it gives you this same flexibility, as we all know our schedules don't match the outside worlds, and you can often conduct these deals without having to be in the area.
Depending on which policy you have, life insurance is an interesting tool to use to finance your property. Unfortunately, you cannot do this with SGLI, but if you purchase a Whole Life Insurance policy, you can capitalize on the cash you have already put into your fund. You are allowed to draw the funds you have placed in each month as a loan back to yourself for duration of time. The biggest thing here to understand is, trading interest for interest. Right now, if you were paying the previous owner 10% each month in a seller financed deal, you can use your Life Insurance Policy to pay everything, and then pay your insurance account monthly at a much lower interest rate. You’re technically paying yourself back that interest. This will be a similar concept for the next one, IRA.
Investing with your retirement account is something most people cringe at doing. The money inside the fund seems to be people’s, “In case all else fails,” accounts. However, there are some that use this as a way to jump start retirement. If you were willing to take a loan from the bank, you might as well borrow from yourself, if you can. This is because you’ll have to pay yourself back with interest! With a little help, you can create a "Self Directed" IRA; which gives you more control over your investments and puts your future in your hands. Though one of TSP's benefits is that it is very simple, it loses the benefit of giving higher returns through real estate appreciation and rental income.
(For information about retirement accounts, check out our podcast: Understanding Retirement Accounts w/ Bernard Reisz)
Private Money Lenders usually work with large funding corporations, such as hedge funds, big businesses, or large scale investors. Going to them is typically hard unless you have established your rapport with them as a competent investor. This will usually come with providing some kind of experience or application and proof of funds. The really cool thing is that, your friends and family can be Private Money Lenders as well. All they need is the money, and all you need is the deal to assign it to. Using friends and family can also be a good way to build networking, and also confidence when talking to other investors. Most importantly, there are less restrictions when working with family, and you will be able to build the experience you need to work with other investors down the road.
Whether in CONUS or OCONUS, you have the power to become a real estate investor. You can do it in between transferring to other duty stations, or you can do it while you’re at your current one. With some of these techniques, you can maximize multiple at a time and double or triple your investing power. Part of being an entrepreneur is about knowing how to take what you have and make the most out it. Sound familiar? That's because it is the same thing we do on a daily basis. Few jobs out there are taught these fundamentals. So, use this to your advantage when conducting business in the outside world!
Author: Mike Foster