Why Should You Invest in Real Estate Property?

Why Should You Invest in Real Estate Property-150x150When the recession hit and the housing market started to decline, a lot of investors abandoned the real estate world and started investing in other industries. While relatively slow for the time being, the real estate industry has started to recover and attract old and new investors.

When investing in real estate, if you cannot pay for the property with cash, it is very important to have access to a lender that will accommodate your needs and budget. Knowing people in the real estate industry, such as agents, appraisers, and even home improvement companies can give you the upper hand over other investors. Also, researching the property that you are about to invest in is an important aspect of being a successful real estate investor.

Advantages of Investing in Real Estate Property

Depending on the housing market and many other variables, investing in real estate can be a very profitable business. Here are some of the advantages that you will have:

1. Profit. Finding a home priced low enough and realizing its potential can result in some big profits. Buying a home that is in foreclosure, close to being foreclosed on, or in need of repairs or improvement, is a great opportunity for making a profit. You can buy this home for much lower than market value, repair or improve it, and then sell it for a higher price, netting you a nice profit. Also, renting one or multiple homes that you have purchased will result in ongoing income.

2. Lower taxes. Buying a home will allow you to deduct many expenses, such as the mortgage interest, property taxes, insurance, repairs, and even profit that you make from selling the property.

3. Using leverage. Purchasing a home and increasing its equity without spending your own money is an important part of being successful in real estate investing. High equity will help you save on the mortgage while making profit.

4. Appreciation. Your property can increase in value over time depending on factors such as supply and demand or inflation. Small improvements or repairs can also influence the selling price of your investment significantly.

Real Estate vs. Other Investments

Real estate seems to be the best choice when considering investing your money. The world economy is slowly recovering, but its fluctuations have a big effect on other possible investments, such as gold or stocks. Owning a home has some clear advantages that were enumerated above, besides being a good investment. Besides those advantages, home prices and current mortgage interest rates are very low right now and probably won’t go lower, but will start to increase soon. Other advantages to owning a home instead of other investments are:

  • Having more control over your investment. A home gives you more control than, for example, stocks. With stocks, you depend on big corporations and executives, who don’t make decisions based on your financial situation. If you have a home or apartment that is not being rented, you can always lower the rent, or create other incentives to attract renters.
  • More options. Whether you need some fast cash or passive income, there is a real estate investment that can accommodate you. With stocks or gold, for example, you don’t have many options besides buying or selling.
  • A tangible asset. A home can be rented, sold, or you can live in it. You own the property or the land, and this can give you a lot of peace of mind. Being defrauded in real estate is much harder than in stocks, because you can visually inspect the property or talk to the tenants face to face.

Every investment has pros and cons, but it seems that real estate is the one that offers you the most control, stability and options. But, like all investments, investing in real estate highly depends on your knowledge and financial situation.

 

 

 

10 Mistakes Others Make When Flipping Houses, But You Won’t!

10 Mistakes Other Make When Flipping Houses- 150x150House flipping is the process of buying a house under market value, renovating it if it’s needed, and then selling it at market value for a profit. Flipping a house is a good way to make money in the real estate industry, but it’s not as easy as it looks. TV shows on home improvement channels make it look a lot easier than it is, but the truth is that you will face a lot of competition in this business, especially nowadays.

Finding a house that is priced at least 30 percent under market value is hard, and once you do, you need to move fast. Having access to cash or financing, and being ready to start the home’s rehabilitation right away will make a big difference in house flipping. Acting too late will result in losing good deals and, even worse, money. Here are the top 10 mistakes that you should avoid when house flipping.

Mistakes to Avoid

1. Underestimating the cost. Over spending is probably the biggest mistake you can make when trying to flip a house. It’s better to overestimate the cost before buying the house, than to realize that you have to pay more than you budgeted for to renovate it after you have already bought it. The value of the house will always be relative to similar houses in the area, no matter how much money you invest in its rehabilitation. Asking significantly more than similar houses go for in the neighborhood is unrealistic, and will result in not being able to sell the house.

2. Paying too much. If you pay too much for a house, you will most likely make only a small profit or even no profit at all. When buying a house with the intention of flipping it, you should always make sure that the price is low enough to allow for rehabilitation costs. Theoretically, you should already have a profit when you buy the house. The rehabilitation will be just a nice little bonus.

3. Not having a budget. Over spending on a home’s rehabilitation can also be the result of poor money management. Having a budget will allow you to better estimate how much you will spend on each area of the house. Be careful when establishing a budget, because there will always be unexpected expenses, like hidden damage, that will make the renovation cost more than you anticipated. Don’t buy the most expensive appliances or fixtures. Have a look at the other similar houses in the area to get an idea about what you will be competing against when you put the house on the market.

4. Unreasonable time frame  With flipping houses, you have to be quick, but also realize that the whole process of buying and rehabilitating a house will not happen overnight, like some house flipping shows on TV will have you believe. Having a plumber or electrician ready to start working right away helps a lot, but they can only give you an estimate of how much the job will take only after seeing the house.

5. Allowing buyers to see the house before it’s on the market. You might be eager to start attracting customers as soon as possible, but putting up the “For Sale” sign before the rehabilitation is done will not make a good first impression on potential buyers. Showing a house that still needs work to buyers will not be in your advantage, so it is better to finish the rehab, even though it’s going to be a while longer until you can put the house on the market.

6. Not doing things yourself. Hiring someone to do things like cleaning the trash or taking old appliances to the dump will cut into your profits, and it’s something that you can do yourself. You can even do small repair tasks like changing light bulbs, or even fixtures.

7. Doing all the work yourself. Doing some of the work yourself is not only recommended, but it will also cut costs. But tackling big jobs, like fixing the roof or the plumbing, can quickly prove to be much harder than you initially thought it would be, so it is better to leave this type of work to professionals.

8. Not salvaging bath, kitchen and lighting fixtures. You don’t necessarily have to replace dirty or stained fixtures, such as sinks, faucets, toilets, or bathtubs. Of course, replacing them is sometimes easier than scrubbing for a few hours, but it is also more expensive. Salvaging things that only need to be cleaned is a lot more profitable than just throwing them away and buying new ones.

9. Ignoring the exterior. Being the first thing that buyers will see, the home’s curb appeal is very important to creating a good impression. Home buyers are looking for the entire package, a house that looks appealing inside and out. Having an unattractive exterior may keep buyers from wanting to see the interior.

10. Over-remodeling or under-remodeling. Don’t invest money in the most expensive appliances or fixtures that you can find. This is a sure way of killing your margins. On the other hand, cutting corners will turn the buyers away. Your best bet is to use common sense when rehabbing a house in order to flip it quickly and effectively.

Using these 10 tips when flipping houses will improve your chances of selling it faster and for a better price. Don’t get caught up in the same mistakes others have made. Doing research will get you one step ahead of the competition and on your way to becoming a successful house flipper.

Is Flipping Houses for You?

Is Flipping Houses for You- 150x150TV is great. Commercials make us think we can almost do the impossible if we buy a certain product. The do-it-yourself shows make every project look easy to complete. House flipping, for which there is not one, but two different cable TV shows, is one of those projects.

Although it’s an old investment technique, thanks to television, the concept of house flipping is now mainstream. Entire cottage industries are blossoming around it. Late night infomercial kings tout their educational books, seminars and programs that promise to teach the amateur real estate investor, with very little money, how to become a house flipping sensation and live the highlife.

It’s hard not to buy into the come-on. Flipping houses looks so easy, doesn’t it? While it’s true that real estate investing can be lucrative, there are a few things you need to know in order to be successful. So, before you head out the door to find that old shabby place that’s sure to make you ridiculously rich, set down the checkbook and let’s take a look at flipping, from start to finish.

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House Flipping in a Nutshell

If you buy a house with the sole intention of quickly reselling it for a profit, you’re a flipper. The operative word in the definition is “quickly,” while the operative concept is the tried-and-true “buy low, sell high.” Buying a house at or below market value with the hopes of selling it for a profit some years down the road is wise, but it’s not flipping.

House flippers may or may not renovate the home before flipping it. The typical investor, though, chooses an investment property located in a good neighborhood that needs a certain amount of cosmetic updating, renovates it and then puts it back on the market.

Then, there’s the middleman – the real estate wholesaler. This type of investor locates the properties and makes the deals with the sellers to buy houses for below market value. Then, sometimes before the ink dries on the purchase agreement, the wholesaler flips the property to a rehab investor, pocketing a few thousand dollars for his efforts

How House Flippers Locate Properties

Some real estate investors specialize in a certain niche, such as foreclosures or auction properties. Others research neighborhoods until they find one that’s up-and-coming. Then, there are those who look for keywords in real estate ads, such as “fixer,” “seller desperate,” “must sell,” and “handyman’s special.” Wherever there may be a deal, you’ll find an investor looking for properties to flip.

Qualities of a House Flipper

So, what does it take to be a flipper? While people from all walks of life may be successful, there are certain items one needs to get started:

  • Know-how – Do you know what type of house constitutes a good deal? Are you familiar with construction costs? Do you know which remodeling jobs will give you the most bang for your buck? Before purchasing a house, successful flippers factor the rehab cost into the cost of the house to determine if a particular house is flip-worthy. Flippers also need to accumulate expertise before they can become moderately successful at it. Real estate industry experts and veteran flippers agree – flipping is difficult and potentially disastrous to your finances. You’d better make sure you’re familiar with flipping before you make a career out of it!
  • Time – If you have a full-time job, you’ll have little time left for real estate investing and the ensuing rehab work. Looking for properties – especially those that are available for at least 25 percent below market value – takes a big chunk of time. Then there’s the fact that the rehab process, dealing with inspections, and marketing the finished house may take months. It’s hands-on work, too, so you’ll need big blocks of free time to deal with flipping.

Pitfalls of Flipping Houses

Flipping flops are the stuff of nightmares, especially for the amateur investor. There’s always a chance that you won’t sell the house for what you thought you would. There’s also the very real possibility that you may not break even on a flip. Especially with older houses, there may be problems you have no way of anticipating. Because of this, many successful flippers adhere to the “quantity over quality” method: To ensure that they make money, they do a lot of deals.

The house flippers on your favorite DIY channel make it look so easy and so glamorous. Houses go from disaster to dazzling in 30 minutes. If you think you might like to try house flipping, back away from the TV, and educate yourself. There are books, websites and investment clubs available in almost all cities. Learn from the pros – about their successes as well as their failures — so that your first flip doesn’t cause you to flip out – emotionally or financially.

Shannon O’Brien is a real estate expert and staff writer for RealEstate.com. She has over a decade of residential listing and sales experience. Her hands-on experience with home buyers and sellers gives her a unique perspective that many professional real estate writers lack.

 

Mistakes to Avoid When Investing in Real Estate

Mistakes to Avoid When Investing in Real Estate- 150x150Historically, real estate has always been a profitable industry to invest in. Over the past 50 years, real estate investments have become very popular, and have resulted in some big gains for those who know what they are doing. Unfortunately, the real estate industry is currently recovering from the recent economic recession, so investing in the housing market is riskier than ever. This, plus the high capital requirement, and the cash flow dependency, makes real estate an industry in which new investors, and even experienced ones, can easily find themselves not able to keep going due to a simple mistake.

Of course, even with the recent economic issues, a nice profit can still be made from investing in real estate, but it will be more difficult to do so. Let’s have a look at the most common mistakes that are made when investing in this industry.

Lack of Education

Educating yourself by learning from your own mistakes is not an option in the real estate world. One mistake is all it takes to put you out of business, so getting an education is an important part of becoming a successful investor. With so many educational opportunities available today, the only problem you will face is finding the best one. This is not something that you will want to try and save money with. Real estate education might seem expensive, but you will quickly realize that it is cheap if you compare it to what you will earn if you make it in this business.

Lack of Good Research

There are a lot of things that determine a home’s value, such as its size, the materials used in construction, the neighborhood that it is located in, and its condition. These are just some of the main aspects of a home that you should be aware of before investing in it. There are a lot of other things that you should know about a house or apartment before buying it, like if it’s located near public transportation or schools, if there are any construction sites nearby, if the area has flooding or termite problems, how old the home’s appliances are, and many more.

Paying Too Much

Closely related to doing good research on the property, overpaying is one of the main reasons you are not making money with your investment. Looking for a property can be time consuming and frustrating, so you might get a little hasty when finding a good home, and end up paying too much. To avoid this, you must have knowledge of what other properties in the area are listed for and have sold for in the past.

Miscalculating Expenses

Your profit is directly related to how long it takes you to buy the property, make improvements and resell it. Costs associated with making exterior and interior improvements, keeping the appliances running, or making changes to the property can quickly accumulate, so you must keep those in mind before investing in a property.

Getting Emotionally Involved

Many new real estate investors make the mistake of falling in love with a home that they have found on the market, which usually leads to them going out of their way to buy it. Decisions driven by emotion will usually result in a bad investment. Another way in which beginner investors lose money is by getting too attached to a home and not realizing that its value is starting to decline. Selling a property in a timely fashion is important in this business, and you will lose money if you fail to do so.

Not Building Relationships

Real estate investing is much easier if you are part of a team of professionals. It’s tough to make it on your own in this business, especially in this economic climate. Being part of a team, or assembling your own team, can be very beneficial to all the people involved. Aside from that, you need to build good relationships with other agents, home appraisers, inspectors, people who work in home repairs, and lenders.

Many big players in the real estate industry have made one or two mistakes themselves, but they have recovered. It is up to you to learn from their mistakes, and try your best not to make some of your own. Investing in real estate is a tough business which takes a lot of work, smarts, and luck, but the rewards are worth it.