Turn Real Estate Investing Into A Wealth Creating
Legitimate Home Business
Real estate investing has made more average people wealthy than any other business or investment. But is it for you? Which business model is best for you? Let me give you the benefit of my experience.
There are many
benefits to owning real estate.
Wealth creation is just one of them. Many people get into real estate investing with the expectation of getting rich quick. Don't be one of them. Real estate is a business more than it is an investment.
Sure, if you buy a property today in a good location, you can expect it will go up in value over the long haul. Millions of home owners and rental property owners have proven that to be true.
Real Estate Business Models
Before you start your real estate business, decide which business model is best for you, which one fits your personality best, and which one fits your financial situation.
Be a Landlord
Many beginners choose to buy small residential properties like single family homes, duplexes, triplexes, etc. and then rent them out to tenants.
Buy and hold is an excellent way, perhaps the best way, to create wealth. How hard can it be, you might say, to buy a small rental property like a duplex and rent it out? It isn't necessarily hard, but the challenge will be can you do it and create a positive cash flow quickly?
Small properties are more expensive per unit or apartment. A cheap single family house may cost $150,000 depending upon where you live.
A cheap duplex may cost $200,000 in the same neighborhood. The duplex cost per unit would be $100,000. ($200,000/ 2 units).
The more apartments there are in a building, the lower the cost per unit. That is why larger buildings, say a 12 family, cash flow better than a single family house.
Are you up to the challenge of dealing with tenants? Remember as soon as you rent your first apartment, you have become a landlord. You are required by law to operate your real estate investing business in accordance with your state's landlord tenant laws. Read my article
Becoming A Landlord
for more details.
Some investors like to flip properties. To flip a property means that you, as an investor, lock up a property on contract, and then quickly re-sell it or transfer your financial interest to another person for a few thousand dollars more, perhaps in days.
This is a quick profit method, but you can do better by holding the property long term.
Flipping properties has a poor reputation because some unscrupulous operators do this many times, (seller A sells to B, who sells to C, etc) without repairing the property, or increasing the property's value.
Often the property gets sold for more than its fair market value. When the last property owner goes into default, then the trouble begins.
As long as you buy the property below market, and re-sell it below market, you probably will not have any problems. But do document your transactions to support the value.
Want to flip a property by assigning your offer to purchase to another person? Add these words after your name on the offer to purchase "and/or assigns".
This gives you the right to "assign" your contract to someone else. They can take your place at closing after you give them a letter of assignment. Talk to your attorney before doing this for the first time.
In my opinion, it is better to buy a property below market, fix the property, and then resell the property for your legitimate profit. This is called rehabbing. It is an excellent way to make money in real estate.
The biggest caution here is, don't over do it. Don't rehab the property as if you are going to live in it. In other words, don't over build for the neighborhood. If you do, you will not get all of your investment back when you sell.
It is best to have your own rehab crew. If you depend on independent contractors, you may lose precious time waiting for them to start your project, especially during the good times called building booms. Time is money, you will quickly find out, when you are paying on loans.
Commercial properties include mini-warehouses to retail strip centers to malls to office buildings. I don't have any experience in this area at this time, so I won't say much about it.
The one major difference is, it is customary to rent these properties on triple net leases. A triple net lease requires the tenant to basically pay for all expenses. That said, when a commercial property goes vacant, they are vacant for longer periods of time than residential properties.
Buying Your First Property
Many real estate agents, especially those who largely sell single family homes, do not take into account the costs that are involved in owning rental properties. After all, their motive is to sell you the property and get paid a commission from their client, the seller.
They will often tell a novice buyer, that all you have to do is get enough rent to cover PITI, that is, principal, interest, taxes, and insurance, in order to break even. That is not true.
You will have other expenses in your real estate investing business. These costs include the vacancy factor, (the cost to re-rent your apartment when a tenant moves), lawn care, snow removal, advertising costs, property management fees if any, telephone, transportation costs, re-decorating costs, etc.
No doubt you will be handling many of these tasks initially or requiring your tenant to do it, but it would be wise to factor these costs into your offer to purchase just in case you are disabled and need to hire someone to do these tasks.
Remember, wise real estate investors make their profit when they buy! When you buy right, you are assuring yourself a profit even if the market does not appreciate. Wise real estate investors are not speculators.
Purchasing your first rental property is an apprehensive time. It was for me at a youthful 25 years of age. It doesn't have to be that way. A good real estate agent can help each step of the way.
You just need to add a few clauses that can give you peace of mind and a legitimate escape route if you need it. Just add one good escape clause that is good up unto closing.
I add "this offer is contingent upon my partners/attorney approval". Should something go wrong, you can invoke the clause and get out of your contract.
Read the article
Investment Property Financing.
You will learn the basics of financing your investment property using banks.
Creative real estate financing
techniques used by experienced pros can help you purchase your property with little or nothing down.
Real estate investment seminars
are an excellent way to get the knowledge to further your real estate investing goals. You will learn legitimate ways to buy "nothing down" using
creative real estate financing
Yes, even if you have bad credit, you can learn how to buy real estate investment properties or even your own home.
Real Estate Leads
Whatever real estate business you choose to pursue, you will need real estate leads.
You will need to learn how to get the best tenants for your rentals. You will need buyers for your properties that you flip. You will need partners to finance your projects. How do you get them? Read my article
Getting Real Estate Leads.
and get people to knock on your door.
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