Previously published 2015
Disclosures, Disclaimers, Due Diligence Statements at the Bottom of this article.
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Investing in real estate doesn't require the investor to be a Mr. Fix-it, doesn't require a lot of money, but I do believe integrity with the quality of being honest with strong ethical principles is required. Your word is your bond, protect everyone, put it in writing.
Frustrated, lacking confidence, it's natural. Opening a door to a dark room you wonder what is inside, what dangers are before you. Join a real estate investment club, network and have contact with experienced investors. Sharing experiences will build your confidence and you will realize taking some reasonable risks is worthwhile.
Today with the Internet real estate investing is easier, faster, and yes, very profitable. There are tactics and strategies to real estate investing, such terms as "buy and hold", "flips", "wholesaling", "rehab" seem pretty much self-explanatory, yet they could be a little puzzling to the new investor,
Lets look at wholesaling.
The great thing about wholesaling real estate is that you have limited ownership of the property. There is little risk, and you can do it with little or no money down. Wholesaling real estate is a strategy used by real estate investors, where a property is put under contract usually with an end buyer ready to take title and the investor walking away from the closing table money in hand.
Wholesaling real estate provides an opportunity for someone to build income with little capital or credit. All it requires is ambition and some specialized knowledge. The more ambition you have, the more money you will make. Wholesaling does not require a real estate license. A license is not required to buy or sell any property that you have an equitable interest in. That interest can be a contractual interest (you have the property under contract) or you actually own or have title to the property.
Flips can describe both wholesaling and renovations, fixing up, for resale. Simply turning over in a short period of time. Sellers (investors) of lower priced homes seeking first time home buyers or buyers with limited financial resources need to be aware of FHA or Veteran's home loans. Especially holding periods before resale, inspection requirements and special financing conditions, lender points, title inspections, escrow, government fees and various other closing costs.
Buy and Hold is what most people think about when you picture a real estate investor, not a "real estate dealer". You are buying a property letting the market work for you. Using financial leverage, a down payment controlling the property ownership while making mortgage payments. The greatest share of these properties are rentals. Using the money received from tenants to pay for the property, taxes, insurance, expenses and override or income for the investor.
The buy and hold is a little bit of a long-term strategy, and this is where you are building for the future and let the forces of the market work for you. A rental property is a business and as such the government allows the cost of doing business to be deducted from the income prior to paying taxes. When you work on wages, the income is subject to various taxes with little or no deductions. Payroll taxes, social security, medicare are deducted before you receive your check.
With investment income, dividends from stocks, bonds, and real estate you are allowed various costs of earning the money to be deducted before you are subject to taxes without the usual payroll tax deductions. What a break! Like the saying goes, it takes money to make money. Plus it is a lot easier if the tax code is in your favor!
While you are allowed depreciation on the improvements to your real estate property, you also are the beneficiary of appreciation. Property appreciation is the growth in value of property over a period of time. Economic conditions, population increases putting pressure on the availability of property and inflation of building costs. Buying and holding is the wealth building phase of your real estate ownership. Warning: There are periods of time like the recession period that we are just recovering from when property values can "tank", reducing the value of your real estate investment.
Avoiding get-rich-quick schemes, real estate investing isn't an overnight wealth attainment, no work program. Invest when you feel comfortable and expect planning for the long-term even when one transaction can make you a great deal of money on a quick flip. It's building several of those profitable transactions that will provide you financial security.
*****Take out a minute...one of the most important ingredients for real estate investing is the knowledge and the access to money...it was once said money is made round to roll around. It is critical every investor has a "money plan" and investor money smarts! Click here to keys to the life blood of real estate, funding.
Make sure buying property makes financial sense for you.
Got that carrot out in front of you, say you are interested in that first real estate investment, ready to buy, where to start?
Let's sit back and we are in our first few weeks as a licensed real estate agent. What considerations to making money in the profession? Understanding "marketing" is number one priority. Marketing isn't just putting up a for sale sign on a piece of property.
Marketing is a two way street, One side of the street is the selling, the other side of the street is listing or finding the property for sale. Some agents are content with a one way street. Looking for buyers, sitting in the office doing "floor time" taking calls from signs on properties for sale, answering ads for our company's properties for sale. The ambitious agent will schedule an open house and find prospective buyers there.
Actually the second avenue of your marketing program starts right there. Consider the prospect not just as a buyer, but just like a new car buyer they may have a property that needs to be sold before they can qualify to buy another property. In that case do you have a property trade-in program? Can you make them a "qualified buyer" clearing them of their existing house?
You should jump at the opportunity to explain the benefits of selling their existing property and being prepared to be in the very best position to make an offer at the most favorable terms to them on purchasing their new home?
In other words for you, putting the horse before the cart. Taking a listing, putting the property up for sale. Finding a property to market, a listing, then going about the selling. It is that part of real estate investing that is really the most difficult, finding that investment grade property. Not for a listing but to buy/invest. Many say the investment profits are made on the purchase, not the sale.
You can enlist the help of a real estate agent to lead you to an investment property, but that may be difficult without a track record with several agents. There are a lot of wishful thinkers, thinking about investing but never actually buying one. With a little experience a real estate agent knows since it doesn't cost people they can be wasting a lot of time with people dreaming about finding that "great bargain".
{Here is an actual story of such an incident. Some fifty years ago I met my wife while I was selling real estate with her mother, we worked out of the same real estate office. My wife's mother, Kay, received a call from a woman who said she was in town to shop for a home. Her husband was being transferred and they were in the market to purchase a home in town. She described the type of home, price and all, then made an appointment with Kay to pick the lady up at a downtown hotel and show her some properties for sale. Kay found some suitable homes to show her and in the process also bought her lunch. They covered a lot of nice homes in the better areas of the city, showing her the sights of the neighborhoods and the city. Kay took her back to the hotel expecting a follow up call after her prospect spoke to her husband about the properties she had seen. After a day not hearing back from the woman, Kay called the hotel to speak to her and she was told they checked out, the conference was over and they returned home. Kay wasn't acting as a real estate sales agent, but a tour guide while the woman's husband attended a conference in town. What's wasting a couple days time as a tour guide to a commission sales agent?}
A real estate agent usually has lots of clients looking to buy investment property, and as a novice investor we won't be on the top of the list. How about looking for an investment property among ads on properties for sale, especially for sale by owners? Is the owner trying to merchandise the property themselves to save a commission? Well, good luck there. I'm trying to find an owner selling themselves to save the commission myself.
But, really another source of investment property, maybe finding an owner with a small equity and reasons to sell. They owe what the property is worth and no room for paying sales fees. Lots of legitimate reasons they want to sell without a real estate person. So contact them view the property. If you can, find out the motivations of the seller. What causes them to want to sell, and how much do they expect to NET from the sale after all costs? Gives you an idea where to start with any offers and how flexible they will be when it comes to the sales price.
Wait, forgot one of the most important sources of possible investment property leads. Your "bird dogs", friends and family members interested in your success or at least what you're doing these days. Let the people around you know you are looking for something reasonable in price and terms to buy to fix up and sell or hold on to for a little rental income. No need to go into a lot of financial details, just let them know about your stepping out into a new venture and let them work for you. If someone happens to land you that "right property". "The lady around the corner who lost her husband and wants to move closer to her son."
Remember a generous thank you reward that they can point to with pride will introduce you to a lot more "bird dogs" and repay you with more leads.
Disclosure-I am not a CPA, Attorney or Licensed Real Estate Professional, I am not offering advice and encourage the reader to seek out such professional counsel as needed.
INCOME and EARNINGS DISCLAIMER
ANY EARNINGS OR INCOME STATEMENTS, OR EARNINGS OR INCOME EXAMPLES, ARE ONLY ESTIMATES THERE IS NO ASSURANCE YOU'LL DO AS WELL. YOU MUST ACCEPT THE RISK OF NOT DOING AS WELL.
NO CLAIMS OR REPRESENTATIONS, AS TO INCOME EARNINGS ON ARE MADE THERE CAN BE NO ASSURANCE THAT ANY PRIOR SUCCESSES, OR PAST RESULTS, AS TO INCOME EARNINGS, CAN BE USED AS AN INDICATION OF YOUR FUTURE SUCCESS OR RESULTS.
Entering to any contract for purchase or sale of real estate, the reader's Due Diligence including searching out and researching professional opinions is recommended.
What you read is the first-hand experience of over 50 years of real estate practice and real estate investing. I first was licensed to sell real estate in 1962 and three years later purchased my first real estate property for investment. In 1967 I was licensed as a real estate broker and became an independent broker in my own name. I sold my real estate brokerage and continued to invest in real estate, now retired from business, but I continue to hold limited real estate investments.
