Information about real estate ... finding reo properties ... which "refinancing equity loans", "mortgages", "home equity loans" or "home loans" to use ...Inside this article:
How To Get Started In Real Estate Investing
by: Steven M. Strowder
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Real estate can be one of the most, if not the most lucrative forms of investing. If you buy it right, your profits can be substantial for short term profit as well as long term. With so many avenues to take in purchasing real estate, many beginners become frustrated and give up, or make huge mistakes that cost them a great deal of money. I am going to show you the techniques I used to get started and prosper in this business. This is the path I suggest for the beginning investor. It not only guarantees you a profit, but it also eliminates the mistakes you can make by not understanding the market you have entered.
I suggest that newcomers to this business spend the first year rehabbing and selling single family homes. Why?...
1. You learn to find the types of properties that guarantee profit.2. Learn to work with realtors.
3. Learn how to appraise a house to determine its income potential.
4. Learn the ins and outs of real estate investing while earning a profit and avoiding the pitfalls of owning rental properties before you are prepared to handle for part of the business.
The 3 most important concepts of being a successful rehab business are establishing rapport with reliable realtors, choosing the right properties, and financing your venture. A good realtors will become your new best friend. Evaluate them carefully. They have access to the MLS database that lists all properties available, who owns them, and what they are worth. Do you see why a good realtor will be your best friend. I suggest you find one that will work with an investor. Don't waste your time with one that won't. A realtor can provide inside information about the type of properties you are looking for that will soon be available for purchase. They can also tell you what the properties in particular neighborhoods are selling for. You will soon understand why this will be valuable to you. A realtor can also give you first hand information on foreclosures and bank REO's before they become public.
Choosing the right property involves a systematic process that investors have been using for many years. you are looking for distressed properties in good neighborhoods. Notice I said good neighborhoods. Many people think that rehab properties are broken down shacks in the worst parts of town. Please, do not waste your time with these properties to start with. Properties located in bad neighborhoods are very difficult to sell. Our goal is to buy low, rehab, and sell within 90 to 120 days. If you buy properties in bad neighborhoods, you stand to loose a lot of money. Your goal is to buy the worst house in a good neighborhood. These homes usually retail between $50,000 - $100,000. Remeber, your goal is to buy at wholesale. You must determine what price to offer the seller. Your first step is to find out the value of the home after rehab. Personally, I don't place much faith in appraisals. I rely on a realtor to furnish information on what similar types of houses have sold for in that particular neighborhood over the past year. Appraisals are based on what the value of the home is. Economic factors are not taken into consideration. I prefer to rely on hard facts not dreams. Once you establish the value after rehab, the next step is to subtract all of the costs involved in purchasing the property. These will be purchase cost, rehab costs, holding costs, sales costs, contingency factor, profit. Here is an example.
After Rehab Value _____________________________ $90,000
Purchase Cost(down payment,appraisal) ____________ $3,000
Rehab Cost(price of fix up + contractor)______________ $9,000
Holding Cost(taxes, utilities, loans for 90 days)________ $2,500
Sales Costs(closing, realtor fees)__________________ $5,500
Contingency Factor(unexoected costs)______________ $2,000
Profit(what you expect to make)___________________ $15,000
Maximum Purchase Price _______________________ $53,000Do not be afraid to make this offer. Don't worry about the asking price. Motivated sellers in need of cash will go for the deal. Never waste your time with unmotivated sellers. You are trying to get them out of a bad situation, and make a profit. You can't have one without the other. If your offer is rejected, move on to the next deal. But keep an eye on the property. If it's still available next month, make your same offer again. More about this...
Now we come to financing the deal. Let me tell you now, don't expect to get a conventional bank loan to purchase a rehab project. I would say you have a 99.9% chance of being turned down. I rely on 4 different sources for loans... 1. Seller Financing 2. Partners 3. Mortgage Lenders 4. Private Mortgage Lenders(angels or hard money lenders)
All situations are handled differently. You adjust according to the sellers needs. But always remember, you want to use as little of your own money as possible. If the seller offers seller financing, take advantage of it. It will eliminate a third party. If you need cash, one suggestion would be to take on a partner. The only part of your business you want the partner involved in is the funding. You make all business decissions. I advise you to have a limited partnership contract in writing outling the agreement. More about this...
The next two forms of financing are the ones I use most often. Morgage lenders are more flexible than commercial banking institutions. Look for the ones who advertise unconventional loan or specialize in poor credit risks. This type of advertising lets' you know they are open to your type of deals. Most mortgage lenders will lend from 50% to 65% of the after rehab value. The interest rates will be high, but that is irrelevant to what you are doing. You want to sell the property within 120 days. In fact, you figure the amount of the loan payment in the 'holding costs' discussed above. You will pay the rest of the loan off once you sell the property, and pocket the rest. Private mortgage enders act the same as mortgage lenders. The differece being they are individuals (who will probably never meet) who want to invest their money for high returns. They are usually friends of realtors and mortgage lenders who use them to locate potential deals and work out the details for them. Always locate your source of financing before you move on a deal. You don't want to waste a realtor and sellers time.
I have just showed you the basics of how to start as a real estate investor. I have sketched some broad strokes, but this is enough to get you started. To lear more, I suggest you read Profit" by Kevin C. Meyers, and "Creating Wealth" by Robert Allen and "But It, Sell It, Profit" by Kevin C. Meyers. Click on the link to purchase them now...
http://www.entertainmentmust.vstoremisc.com/
http://entertainmentmust.vstoremisc.com/
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About The Author© Coppyright 2001, Strowder Enterprises
Achieve Financial Freedom is published by Steven M. Strowder
Copyright © 2002 ArticleCity.com
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