26 Oct 09 How To Buy Real Estate Properly
There is tons of money in real estate but it’s more complex than the late night infomercials would have you believe. Just because it’s “harder” doesn’t mean it’s that hard. It just means it’s not the “get rich quick” scheme that a lot of people seem to think it is. Can you get rich from a quality real estate investing guide click here? Of course you can. With a full understanding and the right education material, it’s impossible for you not to achieve wealth. It’s really all about having the right answers to your real estate investin faq.
Three different ideologies are used to get started with real estate investing. If you’re in it for the long term then you need to understand which one works best and why. I’m also going to show you the inside secrets to how all real investors invest their money in real estate.
Ideology #1 – Long term Buy, Hold and Rent
This strategy is used by investors who intent to buy and hold properties for the long run gaining value through market rents and building equity by paying off the mortgage and experiencing appreciation.
Pros:
- Equity appreciation comes from rents which means someone else pays at least a part of their mortgage
- Can acquire tax free income by mortgaging the property’s equity
Cons:
- It takes a very long time to accumulate equity
- If you consider the time commitment of being a landlord, the returns are quite small
- Ongoing property management
Ideology #2 – “Flipping”
This strategy is used by investors who look for homes that need repair hoping to fix them up and profit from the value they have put into the home.
Pros:
- Although it’s not always true, the returns are relatively “safe”
Cons:
- Earning money requires the trading of significant amounts of time
- There is a heavy time commitment required
Ideology #3 – “Creative Real Estate Investing”
This strategy is used by investors who want purchase their equity at the purchase and then they fix contracts and financing situations to profit from properties rather than using physical labor and/or management skills.
Pros:
- The largest achievable returns
- Instantly acquire significant equity
- Little to no physical management through the use of creative contracts
Cons:
- Quality material is hard to find with so much infomercial BS out there
Don’t:
Buy assuming the property will appreciate in time.
Real estate always goes up in the long run. However, what do you do if your property doesn’t actually produce positive cash flow? Can you afford 10 years of losing money just for some appreciation? Do you know just how many headaches can be involved with a property for 10 years that loses money month after month? I’ve seen many landlords put in all that extra work for simply a few extra dollars to meet ends meet. Just because you know someone who got lucky buying in the right area at the right time doesn’t mean you should use the same “get lucky” strategy. There are no guarantees that it will appreciate significantly in the short term.
Do:
Buy properties for less than full market value.
Positive cash flow is usually easy to attain if the property was purchased for significantly lower than market value. Instead of hoping for it to go up in value, why not look a little harder for a deal that allows you to buy equity right at the purchase? Buy great deals that have strong discounts instead of searching for a great area although admittedly both can be achieved simultaneously. A property that is half off in a “slum” is a lot more valuable than a property for full market price in a desirable area. That doesn’t mean you can’t buy in a quality area rather that you need to buy with equity so that the market conditions do not affect your investment.
Don’t:
Unless you actually enjoy it, fix properties.
I’ve seen investors who didn’t know anything about buying with a discount spend 6 months fixing a project and still lose money. Consider that “flipping” really just means saving out on a contractor’s wages for the fix up by doing it yourself. Trading time for money is what you do at your job and it is not something that qualifies as investing.
Do:
Write contracts that make your tenant have to fix up the property.
You might be surprised to know that there are a lot of ways you can structure a creative contract so that someone fixes up your property for you. Swinging the hammer sucks, so wouldn’t you rather have someone else do it for you? Admittedly, you’ll need a background in understanding creative contracts and how to get a tenant to want to do that for you but trust me at least when I say that it’s entirely possible.
Don’t:
Manage properties.
Think of a good rich investor like Donald Trump and then try to imagine the toilets and sinks he’s fixed. Most investors realize rather quickly that returns generated from buying a property for full market rent and then receiving a small positive cash flow is hardly worth all the head aches that the property generates.
Do:
Resell properties under creative terms so that you don’t have to manage them.
Part of having creative options involves learning to buy. You’ll have more options available to you than the average Joe if you purchased you for $100,000 property for full market value and you paid $30,000 less. The first thing you need to understand is how to buy your equity. Your resale options dramatically increase when you achieve that. You can easily resell that property under a “rent-to-own” or by holding some secondary financing to make the home available to “no money down” buyers where you get paid like the bank. Wihout physically managing a property, the bank makes a fortune without all the necessary work. They have simply implemented a creative contract. You can make money the same way.
Don’t:
Fail to know what to do with the property before you buy it.
Even if you’re looking as long term buy and hold as viable income generation tool, you still need to know what the numbers look like. You’re not an “investor” if you don’t take the time to look at the market rents and market value first. Most “investors” buy a 2nd property because it is a “nice place” and they can drive to it. Real estate investing is a business and “nice home” doesn’t mean “profitable home.” Don’t buy a property if you’re not already sure that it will produce a positive cash flow.
Do:
Have multiple options available to you in advance.
Do you have lease-purchase tenants available to you, buyers who need down payment assistance through secondary financing or investors looking for rehab projects that will buy your home from you all cash before you buy it? Take care of that first if the answer is no. Having multiple ways to cash flow a property or generate a large lump sum payment is an easy way to make a living. There’s a commitment required in the form of time and effort to achieve having those options available to you but the rewards pay very profitable dividends.
So before you go looking for that “nice home in a nice area” remember that real estate is a business. When you buy stocks, you buy them because you think the company will make money. You’d think it was pretty silly to buy a stock because it was a close drive by or because the CEO is a really nice guy. Failing to look at your investment as a true business investment is a recipe for disaster.
If you don’t know how to buy your equity, now is as good of time as any to learn with websites like www.theinvestortoday.com.
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