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How To Start
Investing In Real Estate
How does real estate investing work?
Most people have the misconception that if you are buying houses
that automatically makes you a real estate investor. If that
definition makes your ego swell then good for you… but it is my
contention that real estate investing is when you are investing
in real estate for a profit.
Any fool can go out and buy a house, hope
for appreciation, and then sell it for a higher amount. But
that is not investing, that is speculation where you are hoping
things go up in value so you can realize a profit. Have you
ever heard the expression “Even a broken clock is right twice a
day?”
A real estate investor is looking for
several things:
- To purchase a property below market
thereby insuring an instant profit.
- To purchase a property where they can
force the appreciation. This could be done by improving the
property, changing the use of the property, changing the
collectable income, or property development.
- To purchase a property that generates
a cash on cash return.
- To purchase property that provides
passive income.
If the property doesn’t make money
immediately or in the near future don’t buy it. Sounds simple
but a number of so called real estate investors will purchase
properties that have no sound real estate fundamentals going for
it. Let’s say you want to purchase a $300,000 home with 5% down
and the loan payment works out to $1900 per month including
principle, interest, taxes and insurance. Unless you are able
to rent the property out for $2400 per month you will be losing
money after you account for property management, vacancy, and
miscellaneous repairs.
Learn to buy properties
wholesale. By wholesale we mean to buy a property at least
20% below market value less the cost of repairs. The percentage
you buy below market will vary by the area and typically runs
30-35%.
Learn how to use other people’s money.
They key to your success as a real estate investor is learning
how to use leverage to your advantage. For instance if you buy
a $100,000 house with $100,000 of your own money and make a
$10,000 profit your ROI(Return On Investment) is 10%. If you
buy the same house and use only $10,000 of your own money to
generate a $10,000 profit your ROI is 100%. Sources of other
peoples money includes bank financing, private money lenders,
hard money lenders and purchasing properties subject to their
existing financing.
Real estate investing is a numbers game.
If it was as easy as buying any house that’s on the market than
everybody would become a real estate millionaire. To be a
successful real estate investor you must realize that you will
have to sort through a number of leads to find the ones that
meet your investing objectives. Do they exist? Absolutely.
Imagine if one deal can make you $30,000 and on average you buy
one out of 10 properties you look at. Would it make sense to
stop after looking at nine?
Read the book
Real Estate Magic 101 – How To Get Rich In Real Estate Even If
You’re Dead Broke. If you are looking for a complete answer
to “How does real estate investing work?” then this book is a
must read that takes you through the vary basics into advanced
strategies.
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