Real Estate Investment 101

Real estate can be quite a profitable investment, when handled correctly. One of the biggest keys is to buy low, and there are several ways to achieve this. Divorce, death and foreclosure are great ways to find real estate deals. Keep tabs on the newspaper classifieds for foreclosure announcements and estate sale ads. With foreclosures, a low offer could be accepted, because the property will soon go to the property owner’s worst case scenario – the auction block. Estate sales generally occur after the property owner is deceased, so the sale coordinators may be planning to put the house on the market. A little detective work can make sure you are one of the first buyers in line. Buying when the market is down is also a good way to nab property with relatively small investment. Not only does this mean less competition for you, but it also means you have the upper hand. A slow market is a buyer’s best friend. So you bought a fixer-upper and you don’t know where to begin? Save on overhead costs and maximize profits by doing as much work yourself as possible. In certain cases, the seller would have been so eager to unload the property that they will have already done many improvements. However, structurally sound fixer-uppers are the best way to go for low-cost investments.Whatever the appearance of the home, it is important to remember not to fall in love with the property. Do not become emotionally attached. Consider factors like cost, potential profit margin, location and any features that will help you sell the property. This is where research and homework come in handy. It can help immensely in the negotiation phase to know a thing or two about the surrounding market – for instance, the direction the neighborhood is trending toward and whether there is currently a price ceiling. Real estate investment is all about numbers. Develop an investment plan and find several different houses to fit into that plan. Another key aspect of real estate investing is to do your own homework on your own terms. Whether in the form of a class, an article or a “How-to” guide book, find the information that speaks to you. Real estate investing can be a bit baffling. It is crucial to find a source of information that breaks it down into understandable language. Below are some of the most common mistakes new real estate investors make, and how you can avoid them: •Pay too much – The importance of a budget and an investment plan cannot be overstated. You must determine your price range and stick to it. Don’t be afraid to walk away – there is plenty of opportunity on the auction block if nobody will agree to your terms.•Failure to network – Picture everyone you could possibly need to know in the real estate industry. It is important to establish good working relationships with at least one trustworthy person in each industry. Networking is a large part of real estate investment. Membership in the local Chamber of Commerce or BNI can be a great way to establish those much-needed contacts.•Move too quickly – Something the late-night “Get Rich Quick” infomercials won’t tell you is that real estate investing is a game of patience. If you wait to buy, a better deal may be right around the corner. At least sleeping on the deal overnight can help you avoid paying too much. Waiting to sell can also help maximize your profit margin. Timing is critical. If the market is down, rent the property until you are ready to sell. •Invest far away – What is the best way to keep an eye on your property and the surrounding market? Not by living in another city. It will be most convenient for you – and you will be most motivated to maintain and fix up the property – if you invest relatively close to home. A good rule of thumb is within a 30-mile radius.• Underinsuring – You would not underinsure your health, your car or your life. Why would you underinsure your home? Fire, natural disaster and flood insurance are key, as is accident insurance for unforeseen on-property incidents. •Underestimate – Above all, do not underestimate the cost of investing in a piece of real estate. If anything, you should underestimate your cash flow. Overestimate the amount of time and money you will need to get the property ready for market. Most experts will tell you to double your time estimate and triple your cost estimate. This will keep your real estate investing machine afloat.

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