Gain $100,000 in Real Estate Equity Fast!
There are a few key factors that go into being able to gain $100,000 in real estate equity in just 2 years. The first is, negotiating the lowest possible purchase price that the seller will take (ideally below market value). The second factor is to purchase property in a desirable neighborhood with a strong rental market (location, location, location). The third, know your numbers and make sure the rent can at the very least carry the property (cover all costs). Also, be lucky.
I highly recommend anyone who is interested in investing in real estate talk to a mortgage broker now even before you are ready. They can direct you on the best steps you can take over the course of the next few months or a year to make sure you will be able to qualify for a loan when you are ready. They can also give you an indication of what you will be able to afford and you can start educating yourself on the market you want to buy in before you are even ready to purchase.
Example of a Purchase
It is important to check with the Homeowners Association (HOA) about your ability to rent out the unit before you purchase. This was why I stayed away from co-ops as they tend to be stricter and some HOAs require you to live there for 3 years before you rent it out. The particular unit I purchased had been on the market for a while, the seller had been consistently dropping the price and was looking to get out of the condo to make another purchase. The pictures were dark, the lighting was old and made the place look dingy despite having new appliances. The seller hadn’t done anything to make it desirable to the demographic looking in that area (young professionals). These factors helped me to negotiate a great purchase price for the neighborhood.
This was only the second property I looked at and closed the deal through my real estate agent dealing directly with the owner of the unit. I ran the numbers, which I will go through below and knew if I got a good purchase price the monthly expenses would be completely covered by what I could rent the unit out for. The premises was well maintained, directly across from a law school on a tree lined street, walking distance to the city center, walkable to the train to NYC and had a parking spot (huge value)! I gave a low ball offer, they countered and ultimately we proceeded with the following deal:
Financial Analysis of The Condo
Purchase Price: $280,000
Down Payment: 5% or $14,000
Closing Costs: $7,000 to 10,000
HOA : $608/month
Mortgage : $1,875 (includes taxes, insurance and PMI)/month
Total Monthly Cost: $2,483
Potential Present Monthly Rental Income: $2,500 – $2,6,000
After closing, I had the entire unit painted a modern color ($900), changed out the light fixtures ($300) and cabinet handles ($50). My parents were super generous and paid $2,000 towards my last rent check, bought me an all in one washer/dryer for the condo and also put in some molding to make the living room look more formal (my dad is a pretty good carpenter!). My boyfriend at the time (now my husband) paid for our actual move from the rental to the condo. In include this to be upfront that you don’t have to an island, family, friends and loved ones want you to succeed and I’m sure will help if they can.
After moving in, money was very tight and it was a bit stressful for the first few months after moving into the condo. I considered getting a second job or changing jobs until everything normalized for me with monthly spending. Ultimately, I was able to secure a raise and an extra bonus in my same position and it all worked out.
Equity Analysis
Currently, there is a condo in my same complex that just sold for $345,000. Therefore, units in my condo complex appreciated $65,000 in just 2 years. At present, I have $250,000 left to pay towards the 30 year mortgage on the unit. Each month as I continue to pay down the mortgage the equity I have in the unit increases.
This single unit has helped me to secure nearly $100,000 in equity in only 2 years. Also, in 30 years, I will own the condo outright and have the equity of the value of the property at that time (I’m sure it will continue to appreciate until then).
I anticipate that in retirement I will be able to net $2,500 a month in rental income. I definitely plan to keep this unit as a retirement investment.
The emphasis is on luck here. This was my first real estate purchase on my own and I think I happened be blessed with purchasing the right unit at the right time under the right circumstances. I truly hope that this happens for every single person reading this and that we can all make wise real estate investments to help grow financially.
Still, there are ways to increase your chances of being lucky too by following the same steps I did during your home search.
A quick recap of the Keys to earning $100,000 in equity include:
- Negotiating the initial purchase price so that you get the lowest possible price upfront.
- Updating cosmetics of the house making a little bit of money go a long way.
- Picking a great neighborhood, location, location, location! Consider the following:
- School district.
- Walking distance to public transit.
- Parking spot included.
- Ability to have pets in the unit.
- Ability to rent out the unit if need be.
- Laundry in the unit or complex.
- Does the unit fit the needs of the rental market (young professionals, families, older communities etc.).
- Making sure the total monthly costs of the unit do not exceed what the unit can command in rent.
