Real Estate Investing Guide

Posted by: theinvestortoday / Category: Articles

Everyone has heard at least something about all the money in real estate but knowing how to make that money is harder than most late night infomercials want to make it seem. Harder doesn’t necessarily mean it’s that hard though rather that it’s a real business and not a “get rich quick” scheme. Can you get rich by using a quality real estate investing guide? Yes. The key is to just make sure you know full well what you’re doing before you end up losing thousands from lack of education.

There are three main ideologies for investing in real estate. I’m going to show you which one is the best for the long term and why. I’m also going to show you the inside secrets to how all real investors invest their money in real estate.

Ideology #1 – Buy and Hold

This strategy is used by investors who intent to buy and hold properties for the long run gaining value through market rents and building equity by paying off the mortgage and experiencing appreciation.

Pros:
- Someone else pays their mortgage
- Equity can be mortgaged for tax free income

Cons:
- Poor equity growth
- Small returns with large time commitment
- Property management is required

When people ask me what are the risks of real estate investing, they generally refer to buy and hold techniques.

Ideology #2 – “Flipping”

This strategy is used by investors who look for homes that need repair hoping to fix them up and profit from the value they have put into the home.

Pros:
- Generally speaking, a “safe” return although not always

Cons:
- Earning money require the trading of significant amounts of time
- Large time commitment

Ideology #3 – “Creative” Investing

This strategy is used by investors who want purchase their equity at the purchase and then they fix contracts and financing situations to profit from properties rather than using physical labor and/or management skills.

Pros:
- The largest achievable returns
- Instantly acquire significant equity
- Little to no physical management through the use of creative contracts

Cons:
- So much infomercial B.S. that it’s hard to tell what is actually quality material

Don’t:
Buy real estate planning for it to appreciate.

Yes it’s no secret that real estate will inevitably go up in value over the very long run. However, what do you do if your property doesn’t actually produce positive cash flow? Can you afford 10 years of losing money just for some appreciation? What about all the tenant headaches you’ll incur with a property that loses money for 10 years? I’ve met many landlords who were simply fed up with only getting a few extra bucks for all that extra work. Everyone seems to know someone who got lucky buying a house in the right area at the right time and they think they should too. There are no guarantees that it will appreciate significantly in the short term.

Do:
Buy a property for less than market value.

More often than not, it’s easy to cash flow a property that was purchased for less than everyone else values it for. If you are waiting for long term appreciation, why not search a little harder until you can find a good enough deal that allows you to buy your equity right from day one? Learn to invest your money in the great deals instead of what you think is a great area. A property that is half off in a “slum” is a lot more valuable than a property for full market price in a desirable area. That doesn’t mean you can’t buy in a quality area rather that you need to buy with equity so that the market conditions do not affect your investment.

Don’t:
Fix properties unless you really love it.

If you don’t learn to buy equity off the start, you might find as many investors I know have, that you can spend 6 months on a project and still lose money. In most cases that investors do profit from rehabs, they simply save out on the labor costs associated with the fix up of the property. In that sense, it’s little more than a job where you trade physical labor for money.

Do:
Write contracts that make your tenant have to fix up the property.

You might be surprised to know that there are a lot of ways you can structure a creative contract so that someone fixes up your property for you. Why would you spend your time swinging a hammer if you can get someone to do it for you? Admittedly, you’ll need a background in understanding creative contracts and how to get a tenant to want to do that for you but trust me at least when I say that it’s entirely possible.

Don’t:
Manage properties.

You can’t get rich if you have to run around and fix a toilet or a sink every second night. Most investors realize rather quickly that returns generated from buying a property for full market rent and then receiving a small positive cash flow is hardly worth all the headaches that the property generates.

Do:
Resell properties under creative terms so that you don’t have to manage them.

If you have $30,000 equity in a property valued at $100,000 you have a lot of resale options that are not available to someone who purchased it for the full $100,000. The first thing you need to understand is how to buy your equity. After you accomplish that, your resale options will drastically increase. You can easily resell that property under a “rent-to-own” or by holding some secondary financing to make the home available to “no money down” buyers where you get paid like the bank. Rest assured that the bank gets filthy rich from your property and they do not manage it. They have simply implemented a creative contract. By learning what they know, you can profit much the same way.

Don’t:
Fail to know what to do with the property before you buy it.

Even if you’re looking as long term buy and hold as viable income generation tool, you still need to know what the numbers look like. Very few “investors” actually take the time to analyze what the market rent in the area may look like before they buy. They typically just purchase a “nice home” that is located conveniently nearby their primary residence. Real estate investing is a business and “nice home” doesn’t mean “profitable home.” If you don’t know for sure that the home you are buying will generate positive cash flow before you buy it then don’t buy it.

Do:
Have multiple options available to you in advance.

Do you have lease-purchase tenants available to you, buyers who need down payment assistance through secondary financing or investors looking for rehab projects that will buy your home from you all cash before you buy it? If not, you’d better get started with that. Having multiple ways to cash flow a property or generate a large lump sum payment is an easy way to make a living. It takes time and effort first to achieve having those options available to you but the results are well worth the required input.

So before you go looking for that “nice home in a nice area” remember that real estate is a business. When you buy stocks, you buy them because you think the company will make money. You don’t ever buy them because you think the CEO is a nice guy or because the company is a close drive by. Failing to look at your investment as a true business investment is a recipe for disaster.

If you don’t know how to buy your equity, now is as good of time as any to learn.

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4 Responses to “Real Estate Investing Guide”

  1. Stemar Says:

    There are some really good point in this real estate investing guide. I realize by myself that it is great waste of time and money to fix the properties. I lose a lot of money, because the market value droped and the money I put to fix that house are now simply gone. Never again. And you are right,that is because I didn’t know what to do with the house before I bought it.

  2. James Says:

    I manage to flip a small house last month, but the profit wasn’t high. Can you please advice me how I can get the most of such deal?

  3. theinvestortoday Says:

    James,

    Well good for you for at least flipping them. I’m not a “guru” and I won’t sell you millions of dollars without work. There are enough of those. It’s really just about having a seller who is motivated enough to give you the spreads you need. Keep up what you’re doing and you’ll come across a deal that will blow your mind. I promise.

  4. theinvestortoday Says:

    Stemar,

    …always a good idea to own your actions. You can’t change the market but you can change yourself.

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