New to Real Estate Investing?
No Matter- Stick to these tips and tools, and you’ll do just fine…
Investing in real estate, as with any investment vehicle, requires careful analysis of market trends, costs and available resources. You’ve researched real estate market trends and talked to real estate professionals about all the ways things can go wrong. Now, you’re ready to ready to plan and execute your investment strategy with these tips.
Managing any investment, but particularly real estate, is time-consuming. Most investment experts recommend beginning with residential property, usually a single or multi-family home.
There are several choices for residential real estate investment:
Buy and hold: Just as it sounds, you are going to hold on to the property for a while because its value will appreciate and you’ll build equity. If you rent the property out, rent will cover most, if not all of the mortgage and maintenance costs. Challenges include high vacancy rate, deadbeat tenants, larger than expected maintenance costs and an inordinate amount of your time.
Flipping: House flippers find a property that has potential, but needs renovation or repairs. Usually, the property is in a desirable location and the asking price is low. If you can bring the improvements in at or under your budget, the house quickly increases in value and sells for a nice profit. The downsides are hidden maintenance and renovation costs, as well as having to hold the property longer than you anticipated because of a slow real estate market.
Wholesaling: In this case, you don’t actually buy the property. Instead, you find a motivated seller who is facing foreclosure or has some other reason to sell quickly. You negotiate an option to buy the property at an agreed price that is well below market value. Then, you approach a real estate investor that you know is looking for a good property at a low price and offer him your option to buy for a percentage of the agreed purchase price. It takes a great deal of time—pre-deal—to build a network of potential buyers. It also takes motivation and time to locate sellers and negotiate the option. You won’t make as much as you would flipping, but you also don’t need much money to set up the deal.
Other investment options
Land—raw acreage to develop or sell to developers—is another investment avenue. Of course, the trick is to know where and when to buy and sell.
Multi-unit Housing — Small (5 – 50 units) or large (more than 50 units) apartment buildings are another investment possibility. However, the number of units multiplies your cost and time considerations
Commercial real estate—shopping malls, office buildings and industrial sites—is a good deal more complex than residential property. Real estate investment novices should avoid such deals unless they have trusted expert advice.
Buy low, sell higher
Pricing and financing are crucial considerations: paying fair market value and obtaining an expensive mortgage will eat into future earnings. To find real estate bargains, check assessor records for tax lien sales and watch for properties in foreclosure. Both require legal notices in the newspaper; review the legal notices regularly.
Different lenders have different requirements, but it usually requires very little down, if any to assume a mortgage. Faced with foreclosing on a property, lenders may prefer to allow you to make the mortgage payments if they have reasonable assurances of getting their money back.
Whether flipping, wholesaling or buying and holding, you obviously want the greatest possible return on the lowest possible investment. In addition to the type of property, its location is an important factor that has a bearing on your investment. A small apartment building in an upwardly mobile neighborhood is a better investment than a neglected duplex in a less desirable area. Before buying residential property, find out the distance to schools, shopping precincts, and transportation lines.
The right property will increase your ROI with the least amount of time, money and work. Careful planning, good systems, and execution will pay off when you cash in on your investment.