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. It’s a real business and not a “get rich quick” scheme and so that means that it’s harder than that but not necessarily hard. Can you get rich from a quality investment guide for real estate? Of course you can. With a full understanding and the right education material, it’s impossible for you not to achieve wealth. It’s really all about having the right answers to your questions about real estate.
Real Estate has three basic ideologies for investing. It’s important to understand what works with each one and why. The secrets of the pros are going to be revealed for just how they invest in real estate.
Ideology #1 – Long term Buy, Hold and Rent
You probably know ten people who have bought a property to buy it out and rent it out for the long term. These people build equity through slowly paying off their mortgage.
Pros:
- Mortgage payments largely come from rents
- Can acquire tax free income by mortgaging the property’s equity
Cons:
- Equity accumulation is very slow
- Small returns with large time commitment
- It will be required for the investor to manage the property on an ongoing basis
Ideology #2 – “Flip that house”
Investors basically fix the home hoping to later profit from the value they have invested into the home.
Pros:
- Generally speaking, a “safe” return although not always
Cons:
- You invest a lot of time which means you basically make money by saving on the hourly wage of a contractor which isn’t all that different than a job
- Fixing a home takes up a lot of time, no ifs ands or buts
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:
- Consistently greater returns for a lower input
- Instantly acquire significant equity
- Little to no physical management through the use of creative contracts
Cons:
- Quality material is hard to find with so much infomercial BS out there
Don’t:
Expect your property to appreciate.
Real estate always goes up in the long run. Really though, how much money could you stand to lose today in the interim if it doesn’t appreciate right away? What if you can’t afford to lose money for 10 years while that property appreciates very little? Do you know just how many headaches can be involved with a property for 10 years that loses money month after month? A few extra bucks for all those tenant pains has been the realization of many frustrated landlords. 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. While the long term appreciate is pretty much a given, short term appreciation (10 years or less) is never guaranteed.
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. Instead of hoping for it to go up in value, why not look a little harder for a deal that allows you to buy equity right at the purchase? Don’t worry so much about the great areas because that matters if you’re paying full market value. Instead, learn to invest in great deals. Fifty percent off in the “ghetto” is better than full price in the best area of town. 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.
I’ve seen investors who didn’t know anything about buying with a discount spend 6 months fixing a project and still lose money. Consider that “flipping” really just means saving out on a contractor’s wages for the fix up by doing it yourself. Exchanging physical labor for time and a preset wage is something employees do, not investors.
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. If you didn’t have to swing the hammer, wouldn’t you get someone else to do it instead? 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:
Physically manage your 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 head aches that the property generates.
Do:
Sell properties with creative terms and clauses to make them self managing.
Part of having creative options involves learning to buy. You’ll have more options available to you than the average Joe if you purchased you for $100,000 property for full market value and you paid $30,000 less. Buying your equity is the most fundamental lesson. 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. Wihout physically managing a property, the bank makes a fortune without all the necessary work. A good creative contract is the secret to the bank’s strategy. By learning what they know, you can profit much the same way.
Don’t:
Not already have the end in mind before you buy.
The numbers have to make sense even in a buy and hold. 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.” Don’t buy a property if you’re not already sure that it will produce a positive cash flow.
Do:
Plan multiple exit strategies.
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 the surest way to have a long lasting real estate business. There’s a commitment required in the form of time and effort to achieve having those options available to you but the results are well worth the required input.
Remember that real estate is a business before you go looking for that “nice home in a nice area.” You think a company will make money when you buy stocks. You don’t ever buy them because you think the CEO is a nice guy or because the company is a close drive by. Buying real estate without using a business mindset 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 with websites like www.theinvestortoday.com.
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