How to save 40K in 2 years and buy 2 apartments that pay for themselves
I have recently met a woman in her late 30s with a middle management salary and no exceptional, grand vision for life. She was about to become a mother, had plenty of zest for life, tons of friends, a boyfriend that loves her, all the good stuff. She did not look or acted like a person that prioritized long term financial independence.
But indeed she had. Not too long after she started saving, she started to research the real estate market in Berlin and build a relationship with real estate advisors. Granted, the people she ended up working with happen to be friends with her family, but nonetheless, she followed professional advice and found her way into making a series of long term commitments that lead to her putting away a percentage of her salary every month so she could eventually put down the right percentage on a duo of investment properties that – once rented – would pay the mortgage by themselves and be fully written off in under 10 years.
She could not have done this without doing her homework. When she first approached her real estate advisors, she made sure to seem keen and knowledgeable of the subject while deferring to the seniority of her advisor to be. She had prepared up front, learning the fundamentals of mortgages, accounting, and how real estate portfolios are built in her country of origin, Germany.
She had figured that real estate prices fell by as much as ⅔ just one hour again from Germany’s capital, Berlin, but rents only dropped by ⅓. If she saved ⅕ of her income every month and preserved her credit rating, it would be possible to take on a €700 monthly mortgage with only 20% down and still have enough room for mortgage insurance to make sure lenders were kept smiling.
She even researched lender offers as far south as Switzerland, where bankers are eager to land to people with long term employment prospects and can offer loans across borders just like their German counterparts. Except that she could only make the numbers work if the interest rates fell below 2.5% which she got thanks to her advisor’s long term relationship with the said bank.
It goes to show that ultimately investing is about building relationships: when people care for you, they will go out of the way to get the best deals on your behalf. Start building relationships as you start saving. You may save a lot of money while making friends in the process.
If you want to do the same, the steps are quite simple:
- Set your mind to it, be hyper-focused like a child wanting candy before finishing lunch. It won’t be easy because it is very likely that you have built bad financial habits over the years and will have ups and downs along the way.
- Start building relationships with real estate-minded people and set your brain to listen mode. A lot of people out there are happy to fulfill mentor roles. In fact, once you start making friends that are obsessed with real estate investing, ask them for mentorship. Once a once for 30 minutes works just fine and it may provide some seriously amazing information that otherwise would take 10 years to get ahold of.
- Start investigating property prices relative to rental prices. These are indicative that you are likely to be making a relatively good investment decision. In addition, the government most likely has performed research regarding the up and coming economic areas surrounding the city. These are likely to be aligned with areas locals are talking about as potentially “becoming nicer”. Another important pointer concerns future developments: if an area has big real estate developments coming in such as shopping centers, stadiums and anything that brings in a lot of jobs to an area: shortlist it.
- Connect visiting properties to find out the realities of buying them. Investigate details that perhaps you have never paid attention to such as energy savings ratings, electrics, quality of the finish, local taxes, neighborhood details relative to the current population sentiment, so on.
- Ask your bank about financing options and make sure that you understand the processes, numbers, and the contractual obligations and ramifications. There are serious personal liability issues hidden in contracts that should not be overlooked. Most bank workers are saturated with boredom, not actual work, so they likely to be happy to be mentors for an hour or two. In fact, visit one bank a month and learn a lot for free.
- Once you are feeling confident, start putting together some numbers that make sense in your mind. Calculate mortgage payments relative to the total revenues accrued after expenses. Make sure you include things like taxes, fees and unexpected expenses so you do not miss other important financial commitments you may have.
- Have 3 or 4 options that you are considering. It is important that you are putting them against the other, in a sort of nice way so they know you are not desperate. Do not get attached to any particular property. This is an investment property, not the Taj Mahal (Casino or otherwise, both are massively silly)
- Remember: If you are not much of a shrewd negotiator, learn to be one. You will not succeed in this business if you are pushed around by sellers in any market. I cannot stress this enough because real estate is such a serious decision with a level of finality that most sellers are more anxious about selling than the buyers are. They may even take low balling offers. I have seen identical properties next to each other being sold with a 200% price difference before of desperation and willingness to simply name a price.
Until next time, good luck.