How to make $1 Million in real estate in five years – Part 1

Making money in real estate is not easy, let alone a million..and to be clear, this article is about making a million in cash, not in the real estate itself.

Like any one with a great talent for music, art, a trade or anything, they make the process look easy. Real estate investing is no different.

Those who have made $1 million are actually in a very elite group. From an outside perspective, many would presume it was easy and even glamorous. The truth is, most people make money in real estate over years and years of perseverance, sweat, stress and taking your lumps along the way as you gain knowledge and experience. There’s no miracle pill to get you around that fact, however it may be possible to shorten the journey.

To make $1 million in five years requires careful, calculated strategic planning, a team of experts, and often a little luck with the market cycle. Please understand there are dozens of paths you can go down, many real estate strategies available to utilize, all of which can take you there.

Real estate investing can be very simple, however it can also be like an onion with many layers and many ways to skin the proverbial cat (Appologies to all cat lovers). The following is merely one suggestion which could, and probably will develop other avenues to proceed.

Let’s consider we are beginning at virtually zero with very little money or even no money. Also, our credit status is irrelevant as is our job status. How come? We are using our database of real estate professionals, a “pre-qualified” (by you) buyers list and a list of “prescreened” joint venture partners to be used as money partners or mortgage qualifiers or both as discussed in my recent series called “The Art of the Joint Venture.”

My thought is to utilize a couple of strategies concurrently and use a number of joint venture partners (which could include private money lending) to make it all happen.

Strategy 1

Create cash through doing fix and flips. (The specifics of the fix and flip are described in more detail in a previous article)
The key is to involve your selected joint venture partners as key player(s) who put up the cash to buy the property, pay for the closing costs, carrying costs (up to 6 months), and repair costs as well as being the mortgage qualifier.

What you must bring to the table is your expertise to locate and identify a great deal, negotiate the agreements and “tie” up the property with an offer. You then do all the necessary diligence required to determine if this is a viable deal before taking it to your JV partners.(Notice the JV partners are in place BEFORE you have a deal to offer them)

To present this properly to your partners, I suggest you use a joint venture pro forma which includes information and pictures on the subject property. Include comparables and projected returns based on historic growth rates. It would also be wise to include the number of days on market (DOM) the comparables took to sell, the percentage of selling price compared to the list price and cost per square foot of each comparable. Also remember to include an alternate exit strategy(s). (Knowing your exit [and a back up plan] is a VERY IMPORTANT aspect to have in place)

You then run the numbers. This will consist of the acquisition cost, closing costs, carrying costs, renovation costs and commissions. Account for slight over runs (10 -20%) and higher lending rates/fees in your calculations. From here you can project cash on cash return, profit breakdown etc. This now gives your potential JV partner a good overview on the project.

The accompanying chart reflects some numbers and how they break down. As of this writing, the average Canadian home price, according to the Canadian Real Estate Association is $480,000.  The assumptions as per the chart are on the high end. For example, let’s assume your lending option is private funds at 12 % per annum with a 2% fee which you presumably use for 4 properties each year. Another assumption is a 2% closing cost for purchase and a 1% closing cost for the sale and a 5 % realtor commission on the sale of each transaction. We will also assume we can get the property for less than the average price and sell for more than the average and that the market will bear the ARV price.

I also recommend a joint venture agreement which outlines each partner’s duties, profit sharing and exit strategy(s). Your duty will be to hire the crew and manage the entire process until the final sale where the profit will be split 50/50 or however you see fit.

It is much easier to work on lower income or middle income properties where acquisition costs, repair costs etc., are more reasonable. Ideally this process should take no more than 90 – 120 days; therefore you should be able to do four per year and depending on the area in which you are working, it is reasonable to make $30,000 to $50,000 or more per deal as your split.

Obviously if you have partners that prefer to fix up high priced homes you may not have to do as many as the profit per deal can be more significant, however the process is often longer and the amount invested can be significantly more. Regardless of what type of property you choose, in 5 years this process could easily “net” you $500,000 or more.  So now you are half way there.

Check for Strategy 2 – where you make the next $500,000 to make your million in cash – ‘How to make $1 Million in Real Estate in 5 Years’ – Part 2

If you’d like more info, to find out about training/coaching or to learn about how you can participate in cash flow real estate which provide above average returns, schedule a free 15 minute call by filling out the form below. And we assure you, no pressure or sales will accompany the call.    Look forward to speaking with you!