Investing in Real Estate 101
By Charles Hopkins
Published 04/21/2006 | Real Estate
Riches can be made in any kind of real estate market. A professional real estate investor makes money when prices are high and when prices are low.
No matter what is happening in the market they buy low and sell high. They never buy high and expect to make money waiting for prices to rise.
Newbies buy high expecting prices to rise, and when the prices drop they are left owing 175,000 on a house that is now worth 100,000. So as a real estate investor always buy low.
Everywhere there are properties selling for below market value. There are many homes in average neighborhoods that need a few thousand dollars worth of cosmetics.
For example, take a house selling for 100,000. Since you have done your homework you know it could easily sell for 145,000 or more if it looked better. Buy the house, spend 2,000-7,000 fixing it up, and sell it for a sizable profit.
Never spend a pile of money to completely renovate a house. Just do cosmetic changes such as painting the inside and outside, putting in new carpet, fixing broken doors and repairing leaky faucets. Only do the basics to make the house presentable.
Real estate investors recommend you start out buying three-bedroom, two-bathroom homes. These are the most in demand and so are the easiest to re-sell.
Buy in neighborhoods that are nice. You do not want to buy in neighborhoods that are too nice or too rough. Focus on your average family-friendly neighborhood.
Also, buy homes that are listed at 60-75% or less of their value. Never buy a home that is listed at 100,000 with a value of 100,000. Buy the one listed at 75,000 that is valued at 100,000.
The easiest way to find these homes is to work with a real estate agent. Find one who will be glad to find you homes that meet your criteria.
Why work with a real estate agent? Agents have 85-90% of the properties for sale. They know the area. Tell them you are an investor right up front and what you are looking for. The great agents will be happy to send you all the homes you can handle, and you will be happy to pay them their commission.
Besides having a great agent you also need to have a niche market. Are you going to focus on foreclosures? Are you going to go after fixer-uppers? Are you going to buy and then quickly re-sell? Or are you going to buy and rent it out for a while?
If you are going to rent out your properties be sure you do the math. Will you be able to rent out the house for more than the monthly expenses? Be sure to include a property manager with those expenses. And remember that the house might sit vacant a month or two. Allow enough money to account for no income for part of the year.
So never buy a home that is going to cost you 1,000 a month in finance charges and other expenses if you can only rent it out for 800. That is a fast way to end bankrupt.
But before you do all this, before you get a real estate agent and go out making offers, there is one very important thing you must do first. You must write down your goals.
Is your goal to be worth 1 million within five years? That is very possible. But do not expect to reach 1/5 of that goal in the first year.
Start with a plan to make so many offers a week and stick with it, increasing it as you go. Since most beginners make one purchase for every 50 offers, have a plan to make one purchase a month. That would require you make 50 offers every month. Set the goal and little by little you will achieve it.
So you have your goals, you have a great real estate agent, you know your niche, and now it's time to make some offers. As stated, most beginners make one purchase with every 50 offers.
If you make 25,000 on that one purchase, then in effect you are making 500 each time you make an offer. So never think that you are wasting your time making those other 49 offers.
Just as important as having written goals, a great agent and a niche, you need to have the right frame of mind to deal with success. So many who want to invest in real estate actually cause themselves to fail. They self-sabotage their success.
Believe you can succeed. Learn how to handle money wisely. Educate yourself by reading and attending seminars. Surround yourself with people who have the same goals as you and who are achieving their goals.
There are many real estate experts out there, so find a good one, attend the seminars on learning how to think about money and be financially responsible, and begin your journey to buy and sell properties.