Real Estate Investing

[thegreatesthumphrey]

Anyone have any tips, ideas, suggestions for someone just starting up?

[carhill]

My maxim is that one will always run out of money before running out of opportunities so seek to grow business relationships with private money, as well as with people/institutions which supply capital. You can never have too much capital.

 

Secondly, learn about real estate, the nuts and bolts. It's pretty complex. Everything from law to ordinances to construction to management. Sure, one can 'hire' all of that stuff if one has sufficient capital!

 

Thirdly, set a goal. What do you want to achieve by investing in real estate? Most people say 'money', but what does that mean? For some, it means cash flow, for others a tax shelter, for others long term capital appreciation, etc, etc. Each goal is unique and requires a unique approach.

 

As I was writing that, I was just thinking of three examples;

 

One, the guy across the street that has his mansion that he never lived in but built on spec, along with the surrounding ranch, new on the market this month. It's been a great tax writeoff for their farming operation since he doesn't need the money and can only appreciate in the recovering economy.

 

Two would be another customer who bought up whole tracts of finished new homes that were built on spec in the easy money market but languished. He bailed out the developer and is sitting on them waiting for the local economy to recover. He makes his real money farming. Real estate is a hobby.

 

The last would be a friend who owns commercial real estate for cash flow and appreciation. He leverages the purchases short-term and locks in high-profit, long-term tenants, in some cases his own business divisions!, and collects that big check every month.

 

Myself, I like rehabbing houses, especially older solid ones, and use them for cash flow augmenting and appreciation in the recovering marketplace. Is it easy? No! There's always stuff to do.

 

If you're really interested, join a real estate investment forum or join a local landlord or apartment owner's association and learn from the inside out. I took real estate courses in college and learned the trades through experience and have an engineering and accounting background. Whatever your strengths are, play to your strengths and leverage your investment with them.

 

Good luck!

[d0nnivain]

Surround yourself with trustworthy professionals: contractors, lawyers, accountants, insurance brokers etc. You will need all of their skills to make this work. Ideally you should be in one of those professions before you start this.

 

Learn about something called tax sale foreclosures. They are VERY complex but can provide a foot in the door.

 

Do not take any of those pyramid scheme classes advertised on TV or the internet, especially by the house flipper people who already have shows.

[carhill]

OP, I can provide a recent example of what I'm talking about. Tenant calls up: 'No heat!' I call my HVAC guy to get into his queue but head over the next morning to triage the problem. Ran the codes, reset the system and found they had never changed the filter, even though I had left them filters. Cleared that issue but still had my HVAC guy check the furnace of safety and function. Cost? 75 bucks for his service call. Now, do I pay the 75.00 for the call or get into a pissing match with a tenant who pays their rent on time every month? That call was 8% of the monthly rent. See how this works? That's one tiny example.

 

At another property, the tenant was moving in on a hot holiday weekend and the HVAC condenser fails! Yup, it had worked fine for years but chose that weekend to fail catastrophically. I bring over fans and call my HVAC guy after determining that it was dead (compressor locked). Cost to fix? The entirety of their first months rent *and* security deposit, all out of the landlord's pocket, me!

 

Since my best friend and I are both real knowledgeable in the trades, it's usually cheaper/quicker for us to do the work ourselves than pay someone 80-100per to do it for us. Of course there are exceptions, like that HVAC condenser.

 

All this sounds like complaining, right? It could be, but my goal was to buy right, improve on a budget and hold for market recovery. Comps with the first example now have that property at double what I paid for it two years ago and real estate agents are calling me, which brings up another aspect, marketing. How do you want to realize your profits? Sale? Rental? Lease Option? Contract of sale (carrying 'paper'? All part of the plan.

 

Then there's taxes. Don't get me started on that!

[thegreatesthumphrey]

Thanks you guys are awesome. I just needed a direction!

[misternoname]

My wife and I are both licensed realtors and we both have worked with investors. The market has changed big time (and not just in our state). Institutional investors swooped in and bought all the distressed properties and are holding them as rentals. Foreclosures, HUD's and short sales are way down. Prices way up (we're back to pre-recession values in most areas). That being said, real estate is still a good LONG TERM investment. Do not expect bargains or quick flips. They are virtually non existent. Right now there are big bucks waiting to be made in new home construction. New subdivisions are popping up everywhere and the specs are selling at nice profits. But an even stronger market lies in multi family. If I had bags of cash, that's what I'd be investing in...economists are very bullish on them as well.

 

 

My advice to you (although you do need to provide a little more details about your goals)...go to work for a firm that specializes in investor clients as either a licensed salesperson or property manager and learn the trade from the inside. If you have no experience, you could get eaten alive in this market!

[pink_sugar]

My dad wanted me to buy a condo with my brother and his ex fiance a few years back....would have been a disaster considering none of us had stable jobs and regardless, I was only 19 or 20 at the time, definitely not ready for all the responsibilities of home ownership.

[Radu]

One more thing to what carhil said, and this applies to pretty much every business investment you will ever make.

Most ppl think 'i want to make money' and they see only that goal, but the real goal is to reduce losses.

If you manage to reduce losses enough to make something profitable, money will come your way, it has to, and if you follow this principle, you won't end up making bad decisions.

 

In this situation, you should try to find out every little kink you know of, about building a house, about how houses were and are built, about rules and regulations, and about situations where ppl have gotten tricked out of their money.

The goal is to limit your losses, or potential losses, not to get so enthralled with the potential profits that you seek only that.

 

PS: About 1yr ago, we were also looking at making a real-estate investment in the family.

Banks had a bit of a problem, there was some political instability and we really wanted the money put in an asset that would not depreciate.

In the end, we searched like crazy [ok, my mom knew a lot about which houses were built well and in what period through her life experience], and we were tempted many times with what sellers called 'bargains'.

When we almost gave up hope, we found a good property that someone was letting go for about 15-20% under market price.

It was also in an 'up' area [a big development project was announced not even 6months later next door which will increase it's value], and finding renters in that area is a no-problem [it is a problem elsewhere].

So know what you want and don't settle.

Edited March 6, 2014 by Radu

[Hope Shimmers]

I have actually made a lot of money on "quick flips" - but I'm referring to farmland here. Not necessarily land that is being farmed (in fact, usually not) but acreages that may be in the CRP program (which provides additional income).

 

It's harder to get into now because prices have gone up, but ten years ago, the per-acre price on rural farmland/prairie land in parts of the Midwest was generally below $1000/acre - sometimes well below. Increasingly, people have been buying up these farms to use for recreational purposes (mainly hunting). I have bought and flipped probably 10 or 12 farms (each several hundred acres) over the last 10 years. Many were purchased for around $800 an acre and sold for over $3000 an acre. Marketing has a lot to do with it.

 

Did a 1031 tax-deferred exchange to use the profits to buy even more farms. Only own 2 now, but am looking to get back into this.

 

I am a single female by the way. Anyone can do this, but you have to know what you are doing.