How to Invest in Real Estate
If you are interested in real estate investing at all, I’m sure you have seen, and possibly bought how to books, videos, or courses on the subject of how to invest in real estate. Learning how to invest in real estate also means learning when to invest in real estate.
There are many different ways to go about investing in real estate. There is, however, one lesson that all the gurus teach, and advocate. You have to learn how to buy low, or at least low enough to make your real estate investment plan be profitable.
Learning how to find properties at the right price is easily the most important aspect of real estate investing. If you don’t do this step correctly, it will make it much more difficult, if not impossible to make money trying to fix and flip the home, or trying to fix and rent the home, or any other method you may choose to use.
This is true in all areas of investing, and business, but do to the large amount of money that is usually put at risk in real estate investing, it is even more critical to buy low.
You have to know your numbers well enough to know what price you can buy a given property for in order to make a profit you are happy with.
Of course, depending on whether you intend to buy and flip, buy and rent, or buy and live in, will determine how much leeway you have when you make your purchase decisions.
By knowing your numbers, I mean that if you intend to buy, fix up, and sell or flip your investment, you must know what comparable homes in the area have recently sold for. You need to know what repairs, and upgrades are needed, and how much it will cost you to do the repairs, and upgrades.
You also need to know what real estate commissions, and closing costs will be. At this point you can figure in how much you want to make in profit, then deduct all of your costs( you may want to add another 5%-10% to your costs for unforeseen expenses), and this will give you an amount you can purchase the home for.
The better you know your numbers, and account for all possible expenses, the better chance you have of making a profit you can live with.
One mistake I have seen investors make, is they buy the home based on what the minimum amount of expenses they expect to have is, and the maximum amount they think they can sell or rent the home for, instead of on the maximum possible amount of expenses, and a reasonable amount that they can sell or rent the home for.
Many real estate investors use the 70% rule. Never pay more than 70% of the value of the home that you intend to flip.
If your numbers don’t make sense, don’t buy the home. This seems like a no brainer, but you’d be surprised how many times I have seen this happen where buys are made based on dreams, instead of reality.
.You may be able to get away with this in a rising market, but in a down or level market, you could go broke very quickly if you haven’t done your homework, pun intended.
If you are new to the real estate investing game, I highly recommend that you learn as much as you can about this potentially lucrative area first, before you put your hard earned money at risk.
Knowledge is power. It’s true that you can make a lot of money, but you can also lose your money, if you don’t know exactly what you are doing.
I have heard that as many as 97% of the millionaires in the USA have made their money in real estate. But you can bet that these successful folks invested time and effort, and probably money in learning, before they invested their capital, and started earning.
Depending on the economy, and the state of the real estate market, will have a large affect on how your investing plays out.
For instance, in a down market, such as we in the US have had for the last 8 years or so, all during the Obama Administration, there have been many properties available to buy, and a lot of foreclosures available for purchase.
Unfortunately, during a down economy, many people lose their jobs, and/or can’t find adequate work, and thus have trouble making their mortgage payments.
Although this is bad for some homeowners, it is good for investors. This means excess foreclosure inventory, which also means lower asking prices, and more homes for sale to select from.
Since I believe that the foreclosure market offers you the best chance to find a bargain property, I also believe you should focus your attention on how to buy foreclosures.
Can you find bargains in the privately owned real estate market? Yes, absolutely. But, these are harder to find, and sometimes dealing with homeowners can be a headache, and take longer to close than with a foreclosure.
One of the misconceptions that I come across, is that some people think only certain people are allowed to buy foreclosures. This is not the case. ANYONE can buy a foreclosure. This means anyone can buy HUD’s, Fannie Mae’s, Freddie Macs, Bank Owned, or REO’s, VA’s, and USDA’s.
Another common misconception is the idea that you have to qualify for specific financing in order to buy a foreclosure, especially government foreclosures. This too is simply not the case.
It’s true that you still have to qualify for a loan, just like you would for a privately owned home, but you don’t, in most cases, have to do anything more to buy a foreclosure. In fact, in some cases, like with HUD, special incentives are given, like $100 down, or with USDA‘, like 100% financing(nothing down), makes it even easier to buy a foreclosure.
There are certain loan options like FHA for HUD homes, and USDA loans for USDA’s, that are available to you, but you can also use conventional loans, in most cases to buy these foreclosures, and of course, cash is always accepted as a purchase option.
So, learn the best ways to buy foreclosures, do your due diligence before you buy your next home, and you will ensure that your real estate investing will be profitable.
Learning how to invest in real estate summed up means, the more you learn, the more you earn.
To learn more about how to buy HUD homes, click here.
To learn more about how to buy other government foreclosures, click here.
To learn more about how to buy bank owned or REO foreclosures, click here.