Late night TV is convinced that investing in real estate is the
best way to make a million. Many investors are looking at big
returns with no money down. While that is unlikely, it is
possible to make money in real estate.
But you have to know that this is simply an investment, and with
investments come risk. If you don't know what you are doing, you
could loose a lot.
Investing in real estate takes forethought and preparation. It
could be broken into two parts: choosing your investment and
exiting your investment.
Choosing your investment
Beginning investors should start with a small project. For
example, Justin has been involved in real estate for over ten
years now, and has invested in many commercial and residential
properties. He has found that the key to his investments are to
purchase in a good location.
Justin started with a simple duplex, which he later refinanced
to buy a four-plex. He painted and made a few changes to the
four-plex, and sold it for a seven-plex. He also bought another
four-plex. He renovated the units and made minor repairs and
sold it for a decent return.
He found that fixer-uppers really work well if you live nearby
and can do most of the work yourself. This cuts your expenses.
Justin learned with each investment and learned to be
conservative. Don't let the dollar signs rush you into anything.
Whether you are looking to buy a house, a duplex or an apartment
complex, you need to carefully review the property's economics.
Are the rents you plan to charge reasonable? Are your expenses
correct? Can you live with the cost of the mortgage? What
happens when a unit is empty? Do you still have enough income?
You may not want to be a landlord and prefer to buy a house, fix
it and flip it. While you can make a lot of money if you are
wise, there are still a lot of issues involved. You have to look
at the neighborhood, the market and the budget you have for
repairs. Do you have enough money to pay the mortgage if the
property does not sell quickly? What if you have to go over
budget on necessary repairs? What if things are uncovered that
devalue the home? What will you do then?
Large cities tend to be better investment areas than small towns
because there are more tenants and buyers. Communities on
freeways are attractive as investments due to the access to
metro areas. Vacation areas and towns are also fairly stable.
Exiting your investment
Things happen. The economy, interest rates, job opportunities
and construction trend impact every real estate investor. You
need to watch the trends and keep in touch with local brokers,
appraisers, investors and real estate attorneys.
No matter what you are investing in, you need an exit strategy.
You need to know when you will sell, if you will take money and
pay taxes or complete an IRS 1031 tax deferred exchange. Does
your plan include enough money for your retirement? Will you pay
off the property or refinance it and use the proceeds to buy
another investment? What if the value of the home drops?
A weak economy is something you should watch. You need to know
if a depressed market will pull out of it or last. This tells
you when to exit. If you can't find buyers when you are ready to
sell, what will you do? Can you restructure your mortgage or
have it assumed by a buyer. Check out what loan assumption costs
are and if financing terms change with an assumption. You should
research your financing options before you make any decisions,
paying attention to more than just interest rates.
You need to think well into the future. Plan for the best and
the worst. If you invest with a friend, what will happen if they
need to pull out? Do you have enough money to handle emergencies
or will you need to liquidate the real estate?
Your exit strategy is vital in making your decisions for the
future. Plan with your goals in mind. The key is to take your
time, pick the right property and live with what happens. In the
worst case, the market goes away from where you expect and the
value of the home goes down -- at least you can have the tenants
pay for the mortgage.
Copyright 2006 #1 Loans USA
About the author:
Martin Lukac, represents #1 Loans USA
http://www.1loansusa.com a
finance web-company specializing in real estate/mortgage market.
We specialize in daily updates, rate predictions, mortgage rates
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