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Getting Rich in Real Estate Investment
Investing in real estate for profit is one of the most popular ways of
generating additional income in the United States today.
It is not only a relatively safe way to make your money work for you, but
it also appeals to those people who favor a common sense approach to making
money, to wit: person buys land, person sells land, person makes profit.
Just about anybody can understand a formula like that, and often, the real
estate game is that easy. If you have common sense and good instincts, you
can get rich fast in real estate.
There are several ways to make money investing in real estate, depending on
how much money you have to put on down payment, and how long you want your
money tied up in your investment. (The average mortgage runs 20 to 30
years, but your money may not have to be sunk into the real estate for such
a long time).
An attractive thing about real estate is the great deal of flexability it
offers. The amount of work you put into improving property -- or not
improving -- is up to you. You can have a great deal of capital to invest
in your venture, or you may be able to squeak by with a few thousands of
dollar for down payments. You can see your real estate every day, or you
can hire someone to take care of it and never set foot on a piece of sod.
You have a lot of choices and options.
The 30-Day Wonder
One method of capitalizing on real estate might be called the 30-Day
Wonder. The way to make it work is to put a few thousand dollars down on
what a city considers abandoned property. Often, you can find a property
that is not as bad as its appearnce shows. Often, you can find a house or
storefront that just needs a fresh coat of paint, a few repairs, and some
back taxes paid.
Your first step is to open charge accounts with area lumber yards and home
building centers. This way you will be ready to get to work on your
property as soon as you get title to it. Next, secure a loan from a bank
as close to the sale time of the property as possible. The few thousand
dollars you invest covers down payment and paperwork charges. It can also
pay for repair and material charges if you cannot get charge accounts at
home centers set up.
Once you have title and bank clearance, get to work on repairs, if any are
needed. You have 30 days until your first payments to the bank and the
lumber yards come due. It is your job to make the house presentable and
find a buyer within those 30 days. If you succeed, you make enough to pay
off all debts incurred for the home and a generous profit for your
troubles. If you don't find a buyer within 30 days, you end up with
mortgage, homeowner's insurance, and charge account payments for at least
one month.
The risk is somewhat high, but the potential rewards are even higher. This
is the kind of investment that beneifts from invesment partners who can
share the burden of the payments and workload, as well as the profits.
Cleaning the inside and outside of a home can go a long way toward making a
house presentable. Painting inside and out can also greatly help the looks
of a home. If you have time, plant some trees or shrubbery for landscaping.
Real estate studies show that many potential home buyers aren't looking
for the fancy patio or swimming pool in the backyard. Many are simply
looking for a decent, comfortable place to live.
With this in mind, you don't want to buy a home that is too run down for
your 30-Day Wonder home. Find something which can be made presentable
within a reasonable amount of time. Educate yourself on what to look.
Also, look for interesting features in the house, such as a fireplace,
extra bathroom, or large kitchen with extra counter space. All of the above
are very much in demand in today's real estate market.
If you have the extra time and money to invest in a home for beyond, 30
days, you could fix a place up and make it a valuable rental property, or
perhaps sell it for a handsome profit.
What to Look Out For in Seized Property
Of course, buying real estate seized for back taxes or other reasons can
also have its disadvantages. When considering a piece of real estate, there
are some items you need to know about. They are:
* Location
Is the property you plan on buying located in a decent neighborhood? If it
is located in a neighborhood with a bad reputation, you may have an
impossible time finding an interested buyer.
Another facet of location that needs looking into is future building plans
around your property. If the city intends to annex and expand commercial
developments around your property in the near future, the value of your
targeted investment may increase four fold.
* Back taxes
Definitely check to see how much the back taxes or other liens add up to on
your targeted property. Sometimes, the taxes can add up to an amount
greater than you can initially handle. Sometimes, they are more than the
entire house is worth, even after remodeling.
* Zoning restrictions
Within a city, each neighborhood is zoned for a particular use. Some are
strictly residential, others are commercial only, and still others are a
combination of both.
Before you buy a piece of real estate, make sure it is located in a zone
which fits your future plans for the property. If the house you buy is to
remain a place for people to live, it will be fine within a residential
zone. However, if you plan to turn a house located in a residential zone
into a store, the city probably won't allow you to do that.
Investments in Raw Land and Subdivision Lots
Some of the more fascinating -- and potentially dangerous -- real estate
investments involve raw land and subdivision lots. Each has its potential
for profit, but each also has pitfalls which can quickly sink any chance
for a return on your money.
* Raw Land
Raw land is land which has not been developed in any way. It has huge
potential for profit if it is located directly in the path of city
expansion, or has a gorgeous view someone would sell his soul to own, but
as a piece of property unto itself, it may not have great monetary returns.
Part of the problem with raw land is that it doesn't even make a good tax
deduction, because you cannot depreciate raw land. On the other hand, if
you are looking for something in need of little or no upkeep, you might
enjoy owning a piece of raw land.
* Subdivision Lots
Subdivision lots can be potentially rotten investments because of all of
the hidden costs. Before you buy anything, find out who pays for
development of the land, including the installation of electricity, water,
sewage, roads, drainage systems and garbage collection.
Inspect the property yourself. Make sure it isn't located in a low spot
prone to flooding, or on the side of a mountain prone to landslides. Check
state wetlands laws and make sure the property can even be developed at
all.
Some of the items to look for in the contract are hidden costs, clear title
to the land, and a statement which gives you the right to start building on
the land before it is paid for. Then make it your responsibility to record
the contract in your name at the county clerk's office.
Using a Real Estate Broker to Negotiate Deals
More often than not, you will find yourself making an investment purchase
through a real estate seller or broker. As with any investment deal you may
make, both sides want to come out ahead monetarily. For real estate
investments, it pays to learn some of the common practices sellers
occasionally use to come out ahead in the deal. They are:
* Low Operating Expenses
Sellers commonly make this statement to lure you into thinking it won't
cost you much to run the property. Before you agree to anything, find out
if the seller has been operating the building himself to cut on operation
costs. If so, are you capable of running the building yourself? You may
find that operating costs will have to increase as you hire an employee to
operate the building.
* Reasonable Property Tax
Reasonable property tax may be another way of saying the building has not
been assessed for years. Obtain a tax card or listing sheet from the local
tax assessment office and check when the last time was the building was
assessed. If more than two years ago, the building might have back taxes
stacked up against it.
Another bad tax trap: make sure the amount of square footage listed in the
seller's agreement matches the footage listed at the assessor's office. If
the seller's footage is more than the assessor's, you may end up owing lots
of taxes on a building addition which was never previously assessed.
* Energy Efficient
If the structure in question is an old building, the chances are pretty
good its energy efficiency isn't as great as the seller claims. An easy way
to check for energy efficiency is to go to the local electric company and
find out what electricity actually did cost. The same holds true for
whatever energy source is used for heating.
Make Money Through Discounted Mortgages
One effective way to avoid common real estate headaches while making as
much as 30 percent return on your money is to invest in discounted, or
second mortgages.
The reason this is such a great opportunity for investment is that many
mortgage holders do not like having their money tied up for 20 to 30 years.
Most people like the idea of having ready cash on hand, instead of
receiving monthly payments for what seems like forever.
Your job is to offer the mortgage holder a price which is below the face
value of the mortgage. Usually, you should begin negotiations at 60 percent
of the face value. You can then work up to 75 percent and still make a 25
percent profit on your investment. Sometimes, when the holder of the
mortgage needs cash fast, you can obtain the mortgage for as little as 35
to 40 percent of the face value.
Here's an advantage: Often, the real estate for which you have the second
mortgage, is sold after 10 or 15 years because the owners died, divorced,
or just could no longer make the payments. While the first mortgage holder
is guaranteed payment for his investment before you are, most of the time
the property is sold for a high enough price to pay everyone off.
Before actually getting involved with a second mortgage, check the credit
history of the person who will be paying the bills. If the person has a
good track record of paying all bills completely and on time, chances are
they will be a good risk.
Being a discounted mortgage buyer is especially good for investors who have
some capital-at least $15,000-to play with. You can find second mortgages
available for as little as $2,000 or as high as $50,000, and the returns
can be significant.
As with any major investment, being successful at buying real estate for
profit hinges as much on knowing the market as it does on luck. Understand
what you want in an investment, and know what the market will bear, and you
can end up with a lucrative, long-term investment in real estate.
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