How to Cash Out on an Investment Property

When I got started investing in real estate I took the approach of fixing up "handyman specials" then renting them out. What Learned along the way is it was easier to pay cash for the property, then fix them up, and finally get my money back by taking that cash out of the property. Here are the steps to do just that.

Instructions

Difficulty: Moderately Easy

Things You’ll Need:

• Good to excellent credit

1. Find a property that is a fixer upper. A handyman special if you will. This step by step process assumes that you have some skills to do most of this work yourself. If you hire contractors to do it chances are you won't make much money back.
2. Pay cash for the property. You can do this through your own finances, take out a personal loan, or what I have done was find a partner. A friend and I bought our first fixer upper for $18,000. We each took out a $10,000 personal loan to buy the property. Then we used our credit cards to purchase supplies and so on.
3. We completed the property in 3 months..Yes it needed that much work. Once the property is complete it is time to get your money back. Find a lending institution that will allow to take a mortgage out on the property so you can cash out. Since you do not have a mortgage on the property (even though we took out personal loans) the property shows as you owning it free and clear. Lending instituations like that. We used American General Finance. We were able to 65% LTV or loan to value.
4. The process will take a few weeks, but once it is complete you will get a nice check of 65% of what the bank appraised it at. Just make sure before you buy the property that the house will appraise for more than what you put into it so you can get all of your money back.
5. Now that you have received your big fat check, pay off you personal loans, or friends, pay back to savings or whatever you used to finance this project. Make sure you pay off those credit cards also. Also as a side note since I used my credit card to buy supplies and material I earned enough points to fly first class round trip for me and why wife to Peurto Rico. So if your credit card isn't earning you any points on anything, change it over to a point earning card. I now use the Citibank UPromise card as a portion of each purchase goes towards my kids college education.
6. Wash, rinse, repeat! In other words get the house rented out and start over. You can easily do 3 to 4 per year. That is what we did and that was part time. If you did this full time you could probably do 6 to 8. As you can see you can build a real estate empire rather quickly this way.

Tips & Warnings

• Don't forget to refi this loan in 3 to 5 years when the prepay penalty expires as most cash out loans have a pre-pay penalty and are usually a point or two higher than the national average on the interest rate.