Real Estate Investing / Owning Rental Property – How do I get Started?
Posted by: admin / Category: real estate investingI am very interested in making money in real estate. I would like to learn what, if any, difference there is between real esate investing, and owning rental property. Also, how do I get started and make a profit rather than messing up the process and losing my money? I’d really like to hear from experienced people who have made money doing these things and find out how they did it, how they learned the business, etc.
To make money renting real estate, you need to know what real estae is renting for and what the costs are. In our area, the costs of real estate are way too high for the rental market, and I won’t invest, here anyway. A good real estate agent who has experience in commercial transactions can help you there.
In a good market, you need to make more money on rents than what your mortgage will cost, plus any repair costs. You also need to factor in vacancy rates. If your type of property has a 20% vacancy rate (or in some markets, it’s the reverse and is called the occupancy rate which, in this case, would be 80%), that needs to be factored in to your costs, as that will mean that 20% of the time, you won’t have rents coming in.
If you’re really flush with cash, it doesn’t matter much what kind of property you invest in. ALL real estate is an investment. The home you buy to live in, the apartment building you buy to rent out, or the commercial building you buy to have your business in or to rent out. It’s all an investment, because once your property is depreciated out, you’ll want to sell it. Depreciation is usually only a factor in commercial and/or rental properties because you’re getting an income off of it.
If you’re not so flush with cash, a really good way to get started in renting property is to purchase a duplex and live in one side and rent out the other. I started out this way and it’s nice to get almost enough rent to cover your mortgage. That way, you can live there almost for free!
There are headaches involved with renting. Some people will tear the place up, inside and out. (Ask for hefty, or at least adequate, deposits for cleaning and damages.) The duplex situation is good, in that you’re living right next door. People will be less likely to abuse your property if you are on the premises.
It can be difficult to find good renters. If you have property on the poor side of town, it will be more difficult to keep good renters, if and when you do find them. Don’t purchase property in a neighborhood where there is garffiti. The graffiti is an indicator for crime levels. Just bad all the way around. Don’t go there. Get the best place you can afford in a better neighborhood.
There’s money to be made in just purchasing a fixer upper. Buy a run down property in a nice neighborhood, fix it up and resell it for a fat profit.
I’ve done all of the above, and I’ve always made money. I’ve never had to take a loss, because real estate is almost a no lose investment.
Right now, some of the markets are over valued, and it may not be a good time to purchase a very high end property. But you can’t go wrong with a starter home, the kind that will be a first home for a young couple. They are always in demand.
Those are some high points. There can be a lot of complexity to buying commercial real estate. Find a good realtor who has experience in commercial sales. They can help you find something that will give you a profit after all expenses are paid. Most investors look for a minimum of 12% profit per annum. (Of course, more is better, but that’s a minimum to shoot for).
There are also some REITs out there that can be a way to go. (Real Estate Investment Trusts).
Other than that there are some investment gurus that can give you an education on how to invest, what to look for, what to avoid, etc. Ron LeGrand and his group are very knowledgeable and pretty accurate.
Best wishes in your endeavors.
July 14th, 2010 at 8:42 pm
Here is my 2 cents of advice and be careful about the interest rate.Here is what I will do,I will buy a duplex or 4 plexs for people to rent. I will not buy any single home.4 renters can do better than one renter.It depends on your money also.Remember you need to put 20% down and if this 4 plexs are your first time then you can put 10% down when you first time home buyer.If you are handy you can buy a fixer upper but depends on the condition of your home that we buy and you need to estimate how much you really need to spend and your time.It may or may not be worthy to fix yourself or hire someone to do better.You need to take some classes in a real estate and these classes will help you.You can go to city college and check real estate books and Investment from the public library.Remember read the books and drive around see location of the property and understand the interest,taxes, and the way money handle.You can work with a trust real estate broker and lawyers when you are ready to buy.I urge you spend your time wisely and use common sense,then you will do very well.
References :
My life and common sense.
July 14th, 2010 at 8:58 pm
To make money renting real estate, you need to know what real estae is renting for and what the costs are. In our area, the costs of real estate are way too high for the rental market, and I won’t invest, here anyway. A good real estate agent who has experience in commercial transactions can help you there.
In a good market, you need to make more money on rents than what your mortgage will cost, plus any repair costs. You also need to factor in vacancy rates. If your type of property has a 20% vacancy rate (or in some markets, it’s the reverse and is called the occupancy rate which, in this case, would be 80%), that needs to be factored in to your costs, as that will mean that 20% of the time, you won’t have rents coming in.
If you’re really flush with cash, it doesn’t matter much what kind of property you invest in. ALL real estate is an investment. The home you buy to live in, the apartment building you buy to rent out, or the commercial building you buy to have your business in or to rent out. It’s all an investment, because once your property is depreciated out, you’ll want to sell it. Depreciation is usually only a factor in commercial and/or rental properties because you’re getting an income off of it.
If you’re not so flush with cash, a really good way to get started in renting property is to purchase a duplex and live in one side and rent out the other. I started out this way and it’s nice to get almost enough rent to cover your mortgage. That way, you can live there almost for free!
There are headaches involved with renting. Some people will tear the place up, inside and out. (Ask for hefty, or at least adequate, deposits for cleaning and damages.) The duplex situation is good, in that you’re living right next door. People will be less likely to abuse your property if you are on the premises.
It can be difficult to find good renters. If you have property on the poor side of town, it will be more difficult to keep good renters, if and when you do find them. Don’t purchase property in a neighborhood where there is garffiti. The graffiti is an indicator for crime levels. Just bad all the way around. Don’t go there. Get the best place you can afford in a better neighborhood.
There’s money to be made in just purchasing a fixer upper. Buy a run down property in a nice neighborhood, fix it up and resell it for a fat profit.
I’ve done all of the above, and I’ve always made money. I’ve never had to take a loss, because real estate is almost a no lose investment.
Right now, some of the markets are over valued, and it may not be a good time to purchase a very high end property. But you can’t go wrong with a starter home, the kind that will be a first home for a young couple. They are always in demand.
Those are some high points. There can be a lot of complexity to buying commercial real estate. Find a good realtor who has experience in commercial sales. They can help you find something that will give you a profit after all expenses are paid. Most investors look for a minimum of 12% profit per annum. (Of course, more is better, but that’s a minimum to shoot for).
There are also some REITs out there that can be a way to go. (Real Estate Investment Trusts).
Other than that there are some investment gurus that can give you an education on how to invest, what to look for, what to avoid, etc. Ron LeGrand and his group are very knowledgeable and pretty accurate.
Best wishes in your endeavors.
References :
July 14th, 2010 at 9:43 pm
Would you consider delaying your plan? Professional investors are careful in choosing each investment that would be near or immediately cash flow positive. With overpriced housing market, that is not possbile.
For example, it costs $500,000 to $550,000 to buy a two bedroom units in Sunnyvale California. Mortgage monthly payment with nothing down is $3500 to $4000 a month with 7% APR. The rent one can collect from such unit would be $2000 a month. Therefore, for each unit you buy, you would lose $1500 a month.
* We assume tax benefits would cancel out with tax and maintenance fee. Please consult your CPA.
**If you have large down payement, the rate may be lowered.
Another important factor to consider, home price may not appreciate as much anymore.
http://money.cnn.com/2006/09/08/real_estate/caught_in_the_bubble/index.htm?postversion=2006090814
http://money.cnn.com/2006/09/05/real_estate/Ofheo_home_prices/index.htm?postversion=2006090514
————–
Housing market continues to slump. Now we can calculate true value of a property easily. As price decline, we don’t need to guess and factor in the potential price appreciation while calculating home value. Without the guesswork, figures are more accurate.
Let’s use following example:
Today, a typical 15 years old, two bedrooms condo/townhouse is priced around $500,000 and $550,000 in Sunnyvale, California. Rent for similar condo/townhouse is $2000/month.
If you are a home owner, $2,000/month in rent means $20,000 a year in profit ($24,000 per year in rent, minus $4,000 maintenance costs). A $20,000 income is equilevant of owning $400,000 bonds or CDs, because current yield of 30 Years U.S. treasuries are 5% (5% of $400,000 is $20,000). Bank CDs have similiar yields.
In our example, the two bedrooms condo/townhouse is 20% to 25% overpriced. They should be priced at $400,000.
It is interesting to note that if we redo the calculation from buyer’s perspective instead of seller’s perspective, the figures are even more shocking.
Mortgage payment consists of two parts: mortgage interests and mortgage principal. The interests portion is similar to rent. If you pay interest, it disappears and doesn’t add equity to the property. To fully simulate characteristics of renting, we assume buyer will apply for a zero down, interest-only loan.
It turns out that rent of $2000/month is equivelant to mortgage payment of a $340,000 loan at 7.0% APR. And comparing $340,000 loan to $500,000 or $550,000 price tag, from buyer’s view, the two bedrooms condo/townhouse is 30% to 35% overpriced.
One may ask, why is there a discrepancy between two perspectives of the buyer and owner?
The discrepancy is a result of 2% differences in interest rate that buyer borrow comparing to yields of bonds and CDs that owners would get. We understand that buyer would always pay more. That is the premium of buying to own. However, looking from home owner’s perspective, current housing market is probably 20% to 25% overpriced. We recommand investors to wait for a better entry point.
References :
http://nobubble2006.blogspot.com/
July 14th, 2010 at 10:29 pm
Lay a good foundation, I started by becoming a property manager- and then I became a realtor, and then I went into Insurance 15 years ago, knowledge is power.
References :
July 14th, 2010 at 11:19 pm
You should get plugged in to your local REIA (Real Estate Investment Assocation) and start reading some books.
There is alot to know but not impossible.
-Angela
http://www.ratraceclub.com
References :
July 14th, 2010 at 11:57 pm
You absolutely NEED a website.
The NAR put out a study in 2005 saying that the use of the Internet to search for a home has risen from 2% in 1995 to 77% in 2005 and agents with websites has increased 129% over the past 5 years. It also said that In terms of lead generation, only referrals and repeat clients rank above the Internet as the most effective methods of gaining new business.
Unfortunately the real estate industry is a little bit behind in marketing themselves online, so having a website that displays the MLS data with an integrated IDX feed is probably your best bet to beat the competition. Especially since most of the real estate being sold is being done so by the newly established realtors who have mastered online marketing.
Some good website design companies are http://www.bayshoresolutions.com or http://www.13avenue.com
But the real kicker is being able to display MLS listings on your site and integrate search tools using an IDX feed. IDX Broker is definitely a superior product: http://www.idxbroker.com
Good luck!
References :
July 15th, 2010 at 12:11 am
Im a real state invester.
I prefer , commecial real state,
is were your client make money …..
look for the rigth location, and look for neigb. who have a high pay capacity…… Institutions for example .
Try to sale, and go ahead with more invest.
Or rent first , but looking for sale (or you can be frezze and stay in only 1 or 2 invest./////
start with some of your own money.,
and always with excellent credit Classi.
You can take a look for remodeling too.
Sorry , my english, is not my first language.
References :
I start with small houses, then big houses, then industrial locations, but now i move to Institucional location .
A couple of big institucions pay me pretty good for my investment.
The most important element , is your commiment to work hard and use all your capacity to go ahead………………
Determination, courage …………..and Jump…………..