Investment Real Estate: Is it REALLY for you???

//Investment Real Estate: Is it REALLY for you???

Investment Real Estate: Is it REALLY for you???

An all too common occurrence in the life of a Realtor® is the inevitable day when a “new” property investor comes into their office.

With the relentless stream of real estate based reality television, just about everyone has dreamed of the riches to be made in the world of real estate investing. I mean, it’s sooooo easy! Just turn on HGTV and you are likely to find a show where a stay-at-home mom, and an NPO director dad, drop $1.6 million on a run-down property. After a measly $65,000 remodeling investment and 3 weeks of time, (condensed to a 60-minute show of course), they’re able to sell it to the first person who walks in their “self-hosted” open house for a huge profit!

WOW!!! Who wouldn’t want to jump head first into investing! Alas…you should seriously PUMP THE BRAKES before you go cashing in your retirement, or taking out a massive second mortgage on your home and running out to score your first investment property.

Don’t misunderstand, investing in real estate IS a good idea for some people…the problem is that it simply isn’t for everyone!

Here are a couple of things rookie investors should consider before buying their first property.

1.) The Most Successful Real Estate Investors are Diversified

Real estate is typically always a good investment, but what happens when it’s not? The best real estate investors typically have a lot of other investments all at varied degrees of risk. If someone hasn’t properly done their homework and makes a bad investment, it’s usually not the end of the world unless it’s their ONLY investment. As with ANY investment that has a strong upside potential, there will be RISK.

2.) To RENT or to FLIP? That is the question!

Now I am sure that at least 90% of the people reading this instantly said (or thought) FLIP, but is that REALLY the best course of action? The non-televised reality

is that most property investment comes in the form of RENTING. The problem here is that collecting rent just doesn’t make for good TV! What it does make for in most cases is a good, well planned, and wise real estate investment! Property does appreciate, but unless you are able to just stumble on to that “once in a lifetime” great deal, most investments take time whether they are in real estate, or any other investment vehicle. Rental properties derive income in the form of monthly rent. This income stream won’t make you rich over night, but it will serve to create a very valuable asset in the future! Keep in mind, when looking at your income on a rental, you will need to ensure that it generates a POSITIVE cash-flow. When reviewing the income received for monthly rent, you will need to consider, debt service of your mortgage (assuming there is one), set-backs for future updates and repairs, basic monthly upkeep, insurance, taxes, and a whole host of other items! In a perfect world, your TENANT pays enough rent to cover all (or most) of the expenses and YOU get to enjoy the appreciation real estate brings to your investment portfolio! It’s not a get rich quick scheme, and it doesn’t make for entertaining television, but it DOES make good investment sense!

3.) I still choose FLIP!

Ok…so even though I have laid out WHY most real estate investments are based in the long game, you still want to shoot for the stars and “Flip or Flop” (sorry HGTV…it’s just a really good name)!

Fine!

Do you have any idea what this really takes???

MONEY!

Cold hard cash!!! See…that is the part that is left out of all of these reality shows! These investors ALREADY HAVE MONEY!!!!!

The real world truth of the matter is that banks don’t take these kinds of risk! You can’t simply walk in the bank and borrow the money for the house and all of the renovations on YOUR speculation that you will make a profit with little to no skin in the game. Have you applied for a mortgage on a personal home in the last 5-7 years? They all but require a physical and blood work for your personal home loan (slight exaggeration, but you get the point). Banks make sound investments in the post real estate bubble burst era (say that one 5 times fast!). The oversight and regulations passed after “The Emergency Economic Stabilization Act” of 2008 have changed the way mortgages work. These types of subprime loans are virtually non-existent in most banks today, so without serious cash in play, the chances of making it rich in the flipping world are right there with winning the weekly pick 5 at your local lottery retailer!

4.) GRRRR…I HAVE MONEY and I want to Flip!

I get it…you have money and you are looking to spend it! Ok…let’s jump in the car and go look at some houses!

Who is taking care of the demo and renovation work for you? ME…

Ok…so do you know the permitting that will be involved on this particular project? YEAH…I called my buddy who is a contractor.

What kind of margin are you looking to make? I mean…I’ll be happy with $20-$25k

Ok, what is your budget for this project? I have $50,000 to spend!

So, the asking price on this property is $49,000...What are you thinking of offering? $30,000 sound alright? (probably not or it wouldn’t still be here but ok…)

What all do you intend to do in your renovation? Some carpet, paint, probably paint the cabinets, and some new appliances.

Well…you did notice the roof is shot, it needs windows, and the electric is a train wreck, right? My contractor buddy can FIX the roof, and the windows seem ok. Besides, as long as it’s all clean and new that’s all people will really notice!

What kind of timeframe are you thinking to complete this in? I’m not messing around! It will be done 2 weeks after closing! 3 weeks MAX!

Do you know the banking regulations for buyers purchasing a “flipped home”? NO…What’s that?

So, what are you thinking of asking for this home when you are finished? I am thinking it should easily bring $115,000…

{SIGH}….like a REALLY LONG {SIIIIIIGGGGGGGHHHHHH}

Ok, maybe this example is a bit dramatic…

However, the context, thoughts, and preparation that should go into flipping a house are NOT!

Flipping a house takes tons of time, resources, and an immense amount of homework! More than anything else, a team of professionals around you with the required knowledge of the questions that should be asked, and what pitfalls to avoid, should be in place before day one of your search! Even with all of this prep work, and the required resources, there are still times that unforeseen things happen and even seasoned investors still lose money.

My goal with this is not to discourage ANYONE from investing in real estate! My entire life has been devoted to some aspect of the real estate world, and I have been very successful, but I have also made mistakes!

I have lost money…(lots of money actually!)

There have been struggles and pitfalls along the way, and yet here I am today still in the heart of the real estate world!

I am a full-time Realtor® producing at a very respectable level, I am the President of my local Area Plan Commission, the President of my local Board of Zoning Appeals, a former mortgage lender, AND a real estate investor!

I LOVE the real estate world, and real estate is a “fan-flipping-tastic” way to make money, it’s just not as easy as what you see on TV

and THAT IS MY POINT!

Should you have ANY questions about real estate investing, I am ALWAYS happy to share my experiences, both good and bad, as well as any additional knowledge I may have! Simply comment on this post, shoot me an email, text, direct Facebook message, or call, and I will be happy to help in any way that I can!

 

By | 2018-02-28T06:17:24+00:00 November 28th, 2017|Buyers|0 Comments

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