Monthly Archives: July 2016

A Short Term Investor

The world of real estate investing can certainly seem like a vast one full of many different types of projects and opportunities. That can certainly be true, but by asking yourself the key question of what kind of investor you want to be, you can cut through a lot of that material and focus on the activity that you will not only benefit most from, but will enjoy the most as well.

Asking yourself whether you are a short or long term real estate investor will go a long way towards determining the types of project you should spend your time pursuing and the kind of information you should be soaking up from as many sources as possible. For those that answer the question as short term, your primary purpose is to buy low and sell high, no matter how you get there. There are two main ways.

Put A Home Through Rehab
Perhaps the most common way to take a low-sale price home and convert it into a higher sale price home is through renovations on the property that add real value to the piece of real estate. You’ve no doubt heard of flipping homes or renovating homes and this is where those types of investors put their resources.

The draw for this type of investment just like any short-term investment is the prospect for a quick payoff. Indeed that can be the case but those pondering a pursuit of fixer-upper properties should keep in mind that it takes time and experience to get through a real estate transaction efficiently and first time real estate investors can be overwhelmed by the renovation experience.

The key goal here is to find properties that have the potential to sell for far more than their renovations might cost. That search is being done right now by hundreds of real estate investors in your area, so pinpointing the best opportunities can often be a difficult, competitive pursuit. It may be a good idea to partner up with a seasoned investor on a few transactions before setting out on your own to get the hang of renovations and the homes that are best suited for that kind of investment.

Find A Gem
Many real estate investors skip the renovation portion of the process all together and focus on properties that are undervalued on the market and could be resold almost immediately at a higher price. Obviously, these properties can be more difficult to find and the risk involved is usually higher because undervalued homes are usually undervalued for a reason.

One demographic that finds this type of investment particularly attractive is made up of committed real estate investors that also have a license to buy and sell real estate. One of the key barriers to reselling a home is the expense entailed in real estate commissions on both the purchase and sale of the property. For those that act as their own realtor, that cost goes away and the prospect of a profit increases greatly.

Short-term investments can certainly provide many benefits such as quick profits and the flexibility to quickly pursue other opportunities, but there will always be risks involved as well. If you want to get involved in renovating homes, make sure you do your homework and learn what to look for in a real estate candidate.

If hunting down undervalued homes is what you plan to do, think about pursuing a real estate license as well to cut down on the cost involved in the process. No matter what course you ultimately take, the key piece of advice is to become knowledgeable in the field before ever taking your first step. Real estate investors with the best foundation of understanding are more likely to build upon that and forge successful real estate investing careers.

Undervalued Homes

The best possible scenario for a real estate investor is to find a home that is undervalued to be able to then turn around and sell it for a profit. Obviously, this can be a difficult prospect as real estate markets becoming increasingly clogged with willing investors, but what happens we you do find a possible target? How do you evaluate its viability? The real answer: keep your cool.

Finding a target may seem like the most difficult part of the investing process, but gathering a variety of potential real estate possibilities will help you develop a more discerning real estate investing eye. Turning up undervalued prospect is an exercise in targeting sellers that have a motivation to sell quickly.

That motivation could come from a recent divorce, a fresh relocation or some financial difficulties. These situations are often emotional and if you get too wrapped up in the story behind each sale, you might be more prone to simply say yes to every opportunity instead of evaluating each investment properly. Here are some tips:

Develop Guidelines
Before you ever go on a search for potential investment properties, write down the kind of profit margin you would require to get involved in a real estate deal. You will want to build in cushion for cost overruns and market fluctuations, of course, but many investors forget to compensate themselves properly for time.

By setting up your guidelines with time limits attached to them, you can avoid this problem. Getting involved in a property that will eat up six months of your time and return a profit of $5,000 is obviously not worth the trouble. However, not every situation will be as clear as that, so developing a plan on the term of your investment and the profit level you want to target will help you more efficiently go through potential properties, undervalued or not.

Don’t Be Over-Eager
Keep many irons in the fire but only pull one out when the time comes. One of the pitfalls of finding an undervalued house is the tendency to forget about needed repairs or other work to get a home back on the market. You might be so excited to find a target after a long search, the story behind a seller’s motivation might prompt you to say yes before going through the math on the investment.

If you have developed guidelines, now is the time to use them. Don’t wait until late in the transaction when a seller is putting pressure on you to move to sit back and think about the investment. You are more likely to make a rash decision or submit to a seller’s negotiating point that you would not have otherwise. Just because a home is undervalued doesn’t mean the seller is resigned to getting the short end of a deal.

Don’t Be Fooled By Volume
While volume might be a valued statistic in the retail industry, real estate investors should avoid counting investments instead of counting profits. Just because you’ve found a handful of undervalued homes does not mean that you need to get involved with each one no matter how small the profit.

In real estate investing, you do not make up your profits through volume. Instead, strong real estate investors will spend time on the properties that will net them the biggest return and focusing on that one strong prospect instead of 10 inferior ones will help you develop that investing skill.

While it is exciting to find an undervalued home that you might think has the potential to be a solid real estate investment, don’t get carried away by that excitement and forget to evaluate the deal properly. Do your math to make sure that the time you put into a property will be rewarded, no matter what the selling price might be. You will be a better real estate investor over the long term if you do.

Real Estate Investment Tips

There are countless tips on real estate investing available and this is by no means intended as a comprehensive list. While every investment has its own intricacies and problems that need to be worked out, there are some very basic aspects that are common to most investment properties. Understanding those aspects and asking questions about them can help you determine whether a particular real estate investment opportunity is for you.

Anything Can Change
Building in the capacity for change in your investment is not only good real estate advice, but good life advice. Aspects of an investment can change at any given time and building in a little cushion in your profit projections for that change will most likely give you a better outlook on the possible outcome of your investment.

This is especially true for something like the tax climate of your investment as changes in tax laws happen regularly. If the tax situation surrounding your investment is the only thing you like about it, it is probably not a sound investment. Solid investments can withstand changes in the tax code, so never rely solely on the stability of tax codes, you will be sorely disappointed.

Do What You Know
It is tempting to get involved in real estate investment opportunities outside of your comfort zone. Maybe the terms look good or the area is nice, but your lack of expertise in the field will ultimately hurt you over the course of the investment. If you are well versed in multi-family homes, do your best to uncover the best investment opportunities in that field. If your bag is fixer-uppers, stick with that. Success is difficult to replicate so if you have a knack for something, exploit that knack.

Compare, Compare, Compare
As any real estate agent will tell you, valuations for a new home put on the market are a direct reflection of other sale prices of similar properties in that area. Your potential investment is the same way. If you are going to rely on rents to make back the money spent on the investment, compare the rents your prospective investment property takes in against similar properties in the area. Are they too high? If so, that may indicate future trouble filling the building at those prices, which then cuts into your profit forecast.

If you are getting involved in a fixer-upper, compare what you think the home will be like in the future to homes that have sold that look similar to that now. Doing so will help you estimate your eventual sale price and the amount of money you should invest to net a decent return.

Hammer Down True Expenses
Just as you want to examine what your incoming cash flow will be on any real estate investment opportunity, you want to investigate your outgoing cash flow as well. What are the key costs involved in running the property? What are the taxes on the property? How much does it cost you when part of your multi-family property is vacant? Sometimes properties can look great when you examine the rent payments coming in but then lose their luster when you look at the cost of running the facility. You need to investigate both sides of the story to get an accurate view of the financial future of your investment.

Know The Building
In real estate investing, surprises are usually costly. Not only should you do a full walk through of the prospective investment yourself, you should also look in to hiring an independent, professional inspector as well. Uncovering problems with the foundation, roof or furnace early can either save you from making a poor investment or give you ammunition to negotiate a lower price.

Not all real estate investments are the same and you will likely run in to a unique problem on every property you pursue. However, by sticking to the tips here, you can give yourself a great foundation from which to operate. Above all, pursue information on the property as vigorously as possible to eliminate the possibility of regretting your investment later.