Like all real estate investors, you may be wondering "what type of real estate" should I invest in to jumpstart my real estate career.
First, if you are planning to invest in any type of real estate, short or long-term, make certain that you have created and finalized a business plan and strategy. Now the business plan doesn't need to be a Fortune 500 level plan, but it does not to be more sophisticated than an idea on a restaurant napkin! So many investors have experienced early failure as a result of not having a basic business plan. (See Real Estate Business Planning 101).
After you have all your preliminary plans in place, then it's time to take a hard look at all the types of investments that exist for any willing and qualified real estate investor.
The first investment property that seems to appeal to many investors is a fix-n-flip. The initial excitement and interest comes from stories of big money made in fixing and flipping real estate. For an investor just starting out doing a small fix-n-flip can be a good way to get your feet wet and put some extra cash into your pocket for doing more investing. That being said, the first thing to know about flip properties is that they require a lot of attention. Attention to small and large details. Typically, these types of properties are found in existing and well-established neighborhoods.
The reason for flipping properties in more mature neighborhoods is that the history of sales in any particular neighborhood will in many ways determine your level of success. Fix-n-flip properties require the following criteria to make the investment experience a positive one.
First, purchase the property for well less than what other properties are selling for in total area. Buying below retail helps you to see the actual margin you may have for fix-ups and resale.
Second criteria is what is the current appreciation rates in this neighborhood. For example, if the home is in the area that is appreciating 2 - 3% per month and the location is extremely hot with people who "gotta live there," then you will have to add those percentages on to your anticipating resale of the property.
Analyze the recent SOLD comparables is also important to your projects overall success. Having a handle on the low, mid and high SOLD sales will help you to see where your property will realistically sell.
Knowing the number of days on the market for any given property will also help you build a strong business and financial plan. This data is often critical when you are borrowing money from a bank or mortgage company or when you are considering a private financial partner and need to build a strong business case to support this financial involvement.
Remodeling costs can make you or break you. First of all, evaluate all the areas that must be repaired or updated before ever selling the property. This is one area in particular, when people can lose their shirts from overdoing the fix-ups to running out of money and cutting corners to complete the project. All of these reasons can create a formula for disaster if you aren't careful.
The one area that new investors underestimate is the cost of lining out vs. doing the fix-up work themselves. While investors with construction trade experience have a leg up on the competition, many new investors are equally talented in other aspects of fixing and flipping properties. The bottom line is you must keep your own limitations before jumping into a fix-up project.
Last, but not least, you must determine your finance and resell costs. The cost of financing your project will impact the final outcome of your project. For example, you may get a great interest rate on your loan but it could cost you 1 - 2% extra points if the property is sold in less than 12 months. Or your loan rate may double if you aren't out of the project within 6 months. Basically, there are thousands of loan programs as there are investors, so before signing on the bottom line, make certain you understand the terms.
The last item to consider for your project is the costs of reselling the property. From realtor commissions to title insurance the fees are typically unavoidable. In some states, you may be required to pay the state tax stamp fee on the purchase and on the resale. In some states, a seller can pass a majority of these expenses on to the buyer. In all cases, make sure to review the resale costs with your trusted real estate professional.
|
