Real Estate Investment Guide
If you listen to the news, the real estate market is in the toilet. Houses are tanking fast. Some might think it is not a good time to invest in real estate, but the smart real estate investors are cashing in on the fear.
This real estate investment guide is full of helpful tips for a variety of investment strategies. Even in this economy, this is a great time to invest in real estate.
It’s a Buyer’s Market
In this buyer’s market some real estate investment strategies are working better than others. The world is on sale at bargain basement prices. There are motivated sellers everywhere.If you have the money to invest, either your own money or Other People’s Money (OPM), and you follow some guide lines, you can make money investing in real estate, even in this economy.
In this real estate investment guide we have attempted to outline some strategies that are working in today’s market. I suggest you pick one real estate investment strategy and learn all you can about it. I would be happy to recommend some good real estate investment courses.
Lease Options
For the most part, this is not the best time to sell real estate. If you have real estate that you would like to sell, but you are not in a hurry, a good alternative is to rent with the option to purchase. This is also called a lease option.Many people are in situations where they are financially challenged in some way so they have to rent. Lease options provide renters who take good care of your property. They want to own this home at the end of a year or two years so they are going to treat the property with respect.
Make sure you have a motivated buyer because you want them to exercise their option to buy. Provide resources to reputable credit repair, mortgage companies, and people that can help them with their chances to become home owners.
Wholesaling
Create a buyers list: real estate investors that are looking for deals. Ask what price range, # bedrooms, # bathrooms, and specific neighborhood they are looking to buy real estate in. Find out what they are looking for, and then provide it at impossible to resist prices.There are tons of properties out there, and different places to find them. Use this real estate investment guide as a starting point, find a niche and educate yourself. Investing in real estate can improve your cash flow, your bottom line, and your retirement nest egg.
Pre-foreclosure
When a home owner misses their first payment, the foreclosure process begins. Missed payments can be negotiated and paid at a later date with late charges. Between day forty-five and sixty, the lender sends a certified letter, or letter of intent, demanding payment. After ninety days, the case is referred to the foreclosure department and papers are filed.During pre-foreclosures, the property can be bought directly from the home-owner if there is equity, or a short-sale can be negotiated with the bank if the home-owner has sufficient hardship and the liens are greater than the value of the home.
Foreclosures
Each state has it’s own foreclosure process some require court approval, some do not. Research the area you are investing in and be aware of how foreclosures hit the market. Foreclosures can be bought at public auction which eliminates negotiations with the home owner or the bank.Real Estate Owned (REO)
Bank owned properties are also called Real Estate Owned (REO). These are properties that are owned by a lender, after an unsuccessfully foreclosure auction. Banks are not in the business of owning real estate and they are typically very motivated sellers.Title search
Know who holds the title, and always check for liens, junior liens, tax liens, and mechanic liens. Work with a reputable title search company.Have your financing in place
Investing your own money is the best option since there is no cost. Not everyone has the money to start investing in real estate, so here are some other options to get started.If you have a line of credit, or a HELOC, you can use this to get started. Traditional lenders like banks and credit unions can take months to complete the process, and are not real estate investor friendly for the most part.
Private lenders, partners, hard money lenders and credit cards are just a few ways to use OPM to start investing in real estate.
Research Markets.
Many people believe they must invest in their own back yard, but that is not true. Virtual Investing is the way to go if your area is not a good investment opportunity. The three major factors you should look for to determine the good markets are:- population growth
- rent v/s cost
- large affordable housing crunches
- Stay away from communities that are relying on one industry to support them
- Look for diversity and growth.
- 1. Research Properties. Look for a low asking price v/s after repair value; the higher the spread the better the deal. Don’t invest in high crime, neighborhoods that look like war zones. If you are investing virtually, you will enlist the help of a real estate agent to help with high and low comps and and a property manager to research neighborhoods.
- 2. Buy it right. Use comps, tax information, sales history and average rents to decide on the best rental properties to invest in. Properties with a high number of days on market often can be snatched up for well below the asking price. Make sure your property cash flows!
- 3. Make sure you have an exit strategy and a Plan B! Hard money loans are short term and usually have to be refinanced in six months.
The cap rate formula is:
Cap Rate =Net Operating Income(NOI) / Total Cash Invested
NOI = Gross Income – Expenses
If you run the property efficiently Net Income should be 65% of gross income. Use this figure to estimate until you have actual figures (taxes, insurance, property management expenses, etc).
Example: Market research shows 3 bedroom, 1 bath apartments are renting at $700-800. In my calculations and here in this real estate investment guide we will use the low side for calculations and so, $700 x 12 =$8400 x 65% =$5460. Figuring in my minimum 10% Cap rate, the most I will pay for this property (including all repairs) is $54,600. Since the average rehab is 10-15K my offer will be below $40K.
I have invested thousands into my real estate investing education. If you are considering investing in real estate, use this real estate investment guide as just that, a guide. This is a wide overview of many real estate investment strategies and is not to be used as legal advice.
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