How can I go about real estate investment?
Posted on March 4th, 2010 in Renting & Real Estate | 2 Comments »
Alex asked:
I have some money which I wish to invest in real estate business but I do not know what steps to take exactly. Do I just look for a property and buy and then sell to a high bidder or what?
San Diego Commercial Real Estate
I have some money which I wish to invest in real estate business but I do not know what steps to take exactly. Do I just look for a property and buy and then sell to a high bidder or what?
San Diego Commercial Real Estate
2 Responses
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You have to factor in the costs of holding on to the property (taxes, utility bills), repairs the need to be done, and selling fees to the realtors (usually 6%). So the house needs to be a great deal to create an investment opportunity especially in this market where prices are still going south. You should be specifically looking for foreclosures or hud homes which are usually priced below their value but may need major repairs. Become friends with a good real estate agent, home inspector, and repair people if you aren’t handy yourself. Best of luck.
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There are several strategies you can use in Real Estate investment and they are:
1. Buy and Hold
This real estate investment strategy is commonly known as rental properties. Becoming a landlord is easier than you think. You buy a property, you advertise it as “for rent” and you sign a contract with your new tenant. That’s where the love story ends. You need to know a lot about your duties and your rights as a landlord or you will find yourself in trouble.
Screening your prospect tenants is your first line of defense. Protecting your property from damage is your first duty. I might paint a little bit dark picture of being a landlord. But dealing with tenants can be the most frustrating job you ever had. Do yourself a favor and visit a bookstore or library and get as many books on landlording as you can get. Armed with this knowledge you will be able to create a positive cash flow and a long term relationship with your tenants every time you put the “For Rent” sign in the yard.
With the buy and hold strategy you basically have 3 income streams going at once.
Amortization; while paying your mortgage you also lower the amount you owe.
Appreciation; while owning the property it increases in value.
Tax incentive; as a landlord you will be able to deduct your investment cost over several years. (See you tax advisor for professional advice).
Based on this information you can easily see that even if the rent doesn’t cover 100 % of your mortgage payment you will still be able to create a positive cash flow.
2. Flipping
This is the art of “buying” and “selling” real estate investment without actually taking ownership. In a flip situation real estate contracts get assigned and the person who assigns the contract to someone else typically gets a commission for their services. That’s how you can make money with real estate without credit checks or no money down. Because you never take possession of the property, you don’t need to apply for a mortgage.
You only need 2 things to be able to flip a home. First, you need to find an attractive property that will sell very quickly. Second, you need to find a buyer within a very short period of time. Typically 2-3 weeks. Then you simply flip the contract to the new buyer and you will collect your commission at a so called “double closing”.
This sounds complicated at first, but with a little bit practice you will be able to create a nice income from this. By the way, this is the preferred concept of most real estate “gurus” who appear in late night infomercials.
3. Rehabs
Rehabs are the most risky form of real estate investments. You hunt for a cheap, run-down property and you hope that your preliminary remodel cost estimates will leave enough room for a nice profit. Well that’s the theory. Most real estate investors are failing with this type of strategy.