Real estate investing can be a dream career when the process of buying and selling is mastered. The biggest challenge in real estate investing is not the money to get started or the availability of the product. Real estate investing’s biggest challenge is judgment. Personal decisions in making the purchase, fixing up the right things, and making the sale require judgment that comes from experience. The second and 100th property should involve better judgment than the first.
An approach to the first acquisition in a real estate investing career involves analysis of the neighborhood.
If the target property is located in a familiar neighborhood, an analysis is clouded by past memories and feelings. Familiarity can preclude objectivity.
And if the target property is located in an unfamiliar neighborhood, the analysis is shrouded in immediate impressions that may or may not be accurate.
Real estate investing today must consider unfavorable elements like drug and prostitution traffic, crime statistics, and the overall visual impression of neighborhood negligence and abuse by property owners and/or tenants. The windshield view will not reveal the whole story.
Research at city planning and the police department might be a starting point, if the initial drive through the neighborhood does not arrive at a negative conclusion. Casual conversations with neighbors might provide clues. Watching from a perch unobtrusively during certain hours might be helpful, such as after school is out and after dark.
If analysis leads to the formation of good judgment, time is needed to assess “the Neighborhood Factor.” When I plunged into my first year of real estate investing, no one warned me of “the Neighborhood Factor,” and still I sometimes overlook it even millions of dollars in property purchases later. Buying $1 million in rental houses during my first year, and another $1 million in properties the next year did not leave me much time for analysis. However, when placing a makeover house on the market after the work is completed, “the Neighborhood Factor” has often come back to haunt me.
The bottom line for developing judgment about “the Neighborhood Factor” is the consumer’s windshield view. The real estate investor can become enamoured over the potential profit margin in a “good deal.” But the home-buyer and house-hunter make instant assessments upon a first approach to the house for sale. Their initial impression of “the Neighborhood Factor” is untrained and irreversible. And in real estate investing, the prospect’s first impression of “the Neighborhood Factor” overshadows their impression of your labored makeover. More times than I like to admit, I have created a “Dream House” from a junker, only to experience a slow sale because of “the Neighborhood Factor.”
Phil Speer, Ph.D., started his real estate investing career 25 years ago. Without the availability of credit and using only a $10 bill, he purchased $1 million in properties in his first year, and had accumulated $10 million in properties by his fourth year. He was featured in a Wall St.Journal editorial as most successful investor in the Nothing Down Real Estate Movement, and was honored with a Caribbean cruise as top investor of the year. In his hometown of Nashville, Tennessee, he has been a businessman and Human Resources Consultant for 30 years. He is an author, speaker and seminar director. To learn how to profit in real estate investing, even without cash or credit, read his report at http://www.CashinHouses.com/. Subscription is free to his Fix-up Ezine - http://www.AAREIT.com/.
Tags: investing in real estate, real estate, real estate investing, real estate investment, real estate school
In the 21st century, everyone knows the word “gay” refers to people that are homosexual, but back in the 1950s, the meaning was contested. The alternate definition was “full of joy and mirth.”
Can you imagine the confusion? Tell one group of people that you’re “gay” and they’ll assume you’re happy. Tell another group and they’ll reach for a cross and a can of gasoline.
Right now, “flipping houses” creates the same effect. It has two definitions:
1) The process of *legally* selling a property for a fast profit, sometimes using little or none of your own money
2) The process of *illegally* selling property for an artificially inflated value, often involving a group of criminal appraisers, loan officers, and investors
Do you see the similarity with “gay?” One definition is upbeat and accepted, while the other is (currently) unacceptable and downright scary. The majority of the world understands “flipping” as an illegal activity, where a small minority are trying to redefine it as a legitimate real estate investment strategy.
The reason: good old Uncle Sam. When the government talks about flipping, they use the second definition. According to the Department of Housing and Urban Development, flipping occurs when:
A recently acquired property is resold for a considerable profit with an artificially inflated value
Being closely related to the government, attorneys, accountants, and the press are hanging on to that definition. So, the next time you visit them, don’t be surprised if they “flip out” (pun intended) at your strategy.
The exact opposite is true with real estate investors. You can buy a house and then “flip” it to another investor for a small but fast profit, allowing you to reinvest your money and repeat the process. You can also assign contracts for a fee (another form of flipping), allowing another buyer to close on the property in your place.
Which definition will win? If “flipping houses” follows the etymology of “gay,” the more acceptable definition will come out ahead. Who knows? Maybe they’ll make a movie about it.
Jon Morrow is the owner of Real Estate… Answered, a web site that answers dozens of questions about flipping houses for free. He also manages over $20 million of real estate investments, focusing on luxury homes and multimillion dollar transactions.
Tags: investing in real estate, real estate investing, real estate investmentWhen you buy a home it seems like there are so many reports that need to be made. You are advised to get the home appraised, inspected, checked for termites, surveyed and so on. Why so many different reports?
Each report will tell you something different. Yes, sometimes they overlap each other, but they all offer something that another report won’t cover.
Lenders make loans on the sales price or the appraised value — whichever is less. The appraisal is an estimate of value by an independent third party. This reduces the lender’s risk by assuring that the property is worth what you are paying for it. You, the buyer, can feel sure that you are getting a good deal.
The inspection is very important. It is not an appraisal. The appraisal helps confirm the home’s value, the inspection looks at the home’s condition. The professional inspector checks all of the systems of the house, from the structure to the electrical to the garbage disposal. Does the dishwasher work? How old is the roof and when will it need to be replaced? Is the electrical wiring up to code? The home inspection report will tell you what needs to be repaired, when and at what amount the repairs could cost.
The termite inspection is equally important as your home is probably built of wood. Most lenders will require a termite inspection, but not all will require a home inspection. You should insist on both inspections to protect your best interests. You don’t want to buy a home just to find out in a month that termites have destroyed the structural safety and it will cost you $80,000 to repair the home. The termite and the home inspections would help protect you against this.
Buyers must know about a property’s condition. You may think that you can tell a lot about a home by switching light switches and looking in the crawl space, but would you think to look in a basement furnace for rust as a sign of basement flooding? An inspector would.
The survey shows the boundaries of the property, where the improvements are located, the size of the property and other factors such as easements and encroachments.
This is also important. For example, if the current owners have somehow added a garage that barely straddles the lot line, a neighbor could demand its removal. IT may turn out that the property is much smaller than advertised, or that the fence belongs completely to the neighbors.
The survey shows any easements, or right of ways for others to use your property. For example, there is often a Public Utility Easement, or PUE, on a property. This gives that utility the right to enter your property and install, maintain or repair their system. The local electric company might have this right to maintain their poles and wires across your land.
So do you need all four checks? Yes. This is the best way to know exactly what you are getting. In real estate, surprises aren’t a good thing. When all your bases are covered you can sleep at night.
Martin Lukac, represents http://www.RateEmpire.com, a finance web-company specializing in real estate/mortgage market. We specialize in daily updates, rate predictions, mortgage rates and more. Find low home loan mortgage interest rates from hundreds of mortgage companies! Visit http://www.RateEmpire.com today.
Tags: investing in real estate, real estate, real estate investing, real estate investment, real estate school