How Does Real Estate Investing Really Work?
July 3rd, 2009
By now, many people have heard about real estate investing. But, few of these people really know what real property investing entails. In fact, most knowledge about investing in real estate only extends to the point that it has something to do with making money in houses. Indeed, the simplest explanation of real property investing is that money is made through the buy and resale of real property. Anyone who has an interest in property investing needs to know more than this to be successful in the arena.
All real property investments start first with a buy. Once the real estate investing property is bought, there are several things an investor can do with it. The quickest way to gain a profit is by reselling the property at a price higher than what was paid for it. To do this an investor either has to buy the property at a price much lower than market value. Or, the investor can make some enhancements to the house to improve its equity and then resell it.
After purchasing a real estate investing property, the investor might choose not to resell the property. Instead, the investor chooses to rent or lease the house for monthly rent. In most cases, this method of real property investing does not yield immediate profit because the investor still pays a mortgage on the property. There are some instances when an investor has completely paid for the property and then rents or leases the property. In these cases, the monthly rent for the property is all profit for the investor.
The primary objective of real property investing is for the investor to make a profit. To do this the investor needs to buy the real estate for as low as possible. This is usually where the creativity of investors comes into play. Investors are constantly coming up with new methods of creative real estate investing to increase their profits.
One of the most well loved ways to buy a property for cheap is to buy a distressed property. These properties are prime for real estate investing. Distressed properties usually have some negative affect on their value because of appearance, condition, or the financial situation of the owner. Real property investors can buy distressed properties for a low price, do some work to fix them up, and then resell the property at market value for a profit.
Another property investing strategy that is commonly used is purchasing foreclosed and pre-foreclosed homes. Investors can buy foreclosed homes from an auction by bidding on it. The lower the bid, the higher the profit an investor is able to make. Another real estate investing strategy is offering help in pre-foreclosure situations. Investors can provide capital to the homeowners to keep their homes from being foreclosed. In this situation, the investor takes the place of the mortgager and allows the homeowner to pay a lower monthly price for the home.
The key to real estate investing is to buy a home for as low as possible then resell it for as high as possible. The excitement comes in figuring out techniques to do both of these.
T J Madigan
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Posted in investing
I was wondering if anyone has done real estate investing with the “no money down approach?” How does it work?
I see all of these infomercials that talk about how simple it is to invest in real estate with small or no money down. I was just wondering if anyone has tried this, if so does it work and how?
I doubt they have any fantastic secrets. While real estate seems like a fantastic way to make a quick buck, it requires a excellent amount of work. You also need to be sure to plot properly when you work out your budget for the property(iinclude all expenses and expect some vacancies). In today’s market you will find few if any properties that will work at their initial aksing price. This means you will have to make a lot of low ball offers and few of them will likely be accepted.
Most decent real estate advice recommends starting with a home that you live in first and then rent rather than sell when you go out. This helps you get off to a excellent start because you are financing it at an occupant rate rather than an investor rate.
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My husband and I bought a repossessed house from Fannie Mae about 3 years ago. It was slated to be auctioned on the courthouse steps to the highest bidder. The house was appraised at $40,500 dollars "as is". We made an offer through the real estate agent it was listed with using a 100% loan. We paid $28,500 for the property. We’re now plotting on selling it at at least a $15,000 profit.
The key is to find foreclosed and repossessed properties that are for sale. (Which are owned by the previous financing bank or government entities like Fannie Mae and Freddie Mac) These banks and the government don’t like these houses on their books any longer than necessary, and are usually willing to sell them for less than they’re worth, just to get them off their hands. All you have to do is find these houses, which you can do through any real estate office, and find one you like within your payment range. Then, find a bank which will lend you 100% of the buy price. This part may be the most hard, as you need pretty excellent credit to get these types of home loans. When you find one you want, get the loan, and you make an offer. Any knowledgeable real estate agent could walk you through this process, and there are even many agents who deal with repossessed houses exclusively.
With a small elbow grease, you could own a home for yourself, to rent out, or turn it over quickly and sell it at a pretty decent profit.
Best of luck to you.
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Personal Experience
If it seems to excellent to be right then where’s the catch? I have owned apartment buildings before, and if you are around long enough you get to know people in the banking business. At one point I got to know the vice-president in charge of real estate at Hudson City Savings Bank in New Jersey. I had already been a party to one transaction with the bank, a 29-unit half-abandoned building in Jersey City. One day he offered me a property, and suggested I go take a look at it. Turns out it was a massive brick apartment building, really abandoned, sitting on on entire city block just off Bergenline Avenue in Jersey City. As I recall it had something like 42 apartments. He offered to sell me the building for just one dollar.
I turned him down. That is as close to ‘no money down’as you can get, heck, this was no money at all, yet even at that price it was a terrible deal. Sure, you can get these things for no money, I’ve been there, but you better have access to massive amounts of capital for renovation and upgrades, and I’m talking anywhere from tens of thousands to millions. If you don’t have the means to carry it and improve it, you better reckon twice before you get into something that can literally kill you.
A lot of the real estate moguls who sold seminars on no money down deals in the late 70s and 80s finished up bankrupt, which ought to tell you something.
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No animals were harmed in the answering of this question. Any similarity with any person, living or dead, is purely coincidental and unintended.