Best way to start investing in real estate?
Posted by: admin / Category: real estate investingI’m interested in how veterans of real estate investing broke into the market. I’ve read too many books and listened to too many seminars that pin your start on deal-of-a-lifetime type purchases and shady accounting.
Do you think its worth buying, improving and selling a home in a short time? Do you think buying and renting is the better way to go? (Renting seems better if prices fall but carrying several mortgages is as scary)
What kind of financing did you use? Down Payment? (Yes/No/How Much?) How much was your initial investment if you were improving the property? Did you take out any loans to cover your improvements?
I’m in my mid 20′s. I live in the South Shore MA area. I don’t pay rent and incur about $400 monthly expenses. I have a good full time job (+50K), some saved money (+10k) and good credit. I’m very organized, fairly well educated on the subject (a lot to learn) and i have friends who are listing agents and contractors.
Any feedback/contact would be appreciated
Flipping or renting depends on your long term goals. If you are in for a quick, dangerous, profit, then flipping would be the way to go. If you are more interested in possibly retiring early with a good cash flow throughout your retirement, I would buy to rent.
When you research an apartment building to rent out (duplex/triplex/quadplex or a multiunit building), just be sure that your income will be higher than your expense, and you will be safe. It sounds easy, and it really is. Example? Sure!
Lets say you pay 100k for a quadplex on which tenants pay electric and gas.
100k mortgage would be roughly $1400 a month including taxes and insurance. (Try to get them included and then you don’t have to worry about it!)
Put aside a set amount each month in a seperate account for repairs if you need them. Lets go with $150 for this example.
Lets say each tenant uses $40 in water a month, so your expenses would be easy:
$1400 mortgage
$150 repairs
$160 water
_____________
$1710 in expenses
So each unit would have to pay $427.5 a month for you to break even. If you can charge more than that (say $600 a month?) then the extra is profit in your pocket.
When you do your planing on what you can afford, try to keep in mind that all units might not be rented all the time. For my apartments, since they are in a college town, I figure everything with 3 months of vacancy a year on each apartment.
If you are okay on money at the moment, but want to retire early, get mortgages for like 20 or 25 years instead of 30, and pay over your payment every month. If you pay just $100 over on your principle every month, you can pay your loan off up to 10 years earlier.
To purchase properties, I have had great luck buying on contract. For roughly 10% down, I have had owners finance me for up to 5 years before I had to get a commercial mortgage. All the improvements I’ve made to apartment buildings have come from that repair fund I mentioned earlier.
Flipping is more work when it comes to research. You have to find where to get the money, find out how much (exactly) the repairs are going to cost you, and how much the home will sell for. The first house I put a purchase offer in on to flip had 2 months of planning behind it.
Good luck.
July 17th, 2010 at 8:55 pm
I would recommend to put as much as you can as down payment. After that scramble to pay it off as soon as possible.This will greatly reduce your risk of being suffocated by interest charges. The banks will also be happy to lend you more money if they see you have little debt. You can use the equity you’ve built in your first property to borrow some more. If you have reasonably wealthy parents, you can ask for their help. Borrow from them to increase your deposit. Paying down your mortgage to manageable level should be your priority. By manageable I mean positive cash flow.
References :
July 17th, 2010 at 9:27 pm
I can tell from my own experience. I did buy a fixer upper in AZ but the market was hot and crazy at that time, I overpaid for the house, which was in a terrible shape. I spend about $20,000 for repairs, the house was on the market for 9 months and finally sold but I really had to go down with my price and pay all closing fees about $7,5000- I took equity loan against another property but still it was about $1,000 to be paid to the bank a month.
The house was not rented out, because I thought it will sell fast. The area was not so great and I was afraid if I let someone move in they will damage the house. Most of the buyers had no money down or not a good credit.
My advice buy when the market is low, rent it out for a while if you can’t sell and sell it when the market is hot. Location, location is very important. Good luck
References :
July 17th, 2010 at 9:40 pm
Flipping or renting depends on your long term goals. If you are in for a quick, dangerous, profit, then flipping would be the way to go. If you are more interested in possibly retiring early with a good cash flow throughout your retirement, I would buy to rent.
When you research an apartment building to rent out (duplex/triplex/quadplex or a multiunit building), just be sure that your income will be higher than your expense, and you will be safe. It sounds easy, and it really is. Example? Sure!
Lets say you pay 100k for a quadplex on which tenants pay electric and gas.
100k mortgage would be roughly $1400 a month including taxes and insurance. (Try to get them included and then you don’t have to worry about it!)
Put aside a set amount each month in a seperate account for repairs if you need them. Lets go with $150 for this example.
Lets say each tenant uses $40 in water a month, so your expenses would be easy:
$1400 mortgage
$150 repairs
$160 water
_____________
$1710 in expenses
So each unit would have to pay $427.5 a month for you to break even. If you can charge more than that (say $600 a month?) then the extra is profit in your pocket.
When you do your planing on what you can afford, try to keep in mind that all units might not be rented all the time. For my apartments, since they are in a college town, I figure everything with 3 months of vacancy a year on each apartment.
If you are okay on money at the moment, but want to retire early, get mortgages for like 20 or 25 years instead of 30, and pay over your payment every month. If you pay just $100 over on your principle every month, you can pay your loan off up to 10 years earlier.
To purchase properties, I have had great luck buying on contract. For roughly 10% down, I have had owners finance me for up to 5 years before I had to get a commercial mortgage. All the improvements I’ve made to apartment buildings have come from that repair fund I mentioned earlier.
Flipping is more work when it comes to research. You have to find where to get the money, find out how much (exactly) the repairs are going to cost you, and how much the home will sell for. The first house I put a purchase offer in on to flip had 2 months of planning behind it.
Good luck.
References :
July 17th, 2010 at 10:08 pm
I’m in a similar situation- 26, make good money for my age, etc. Although I’m still looking to break into the market same as you, my family is heavily into real estate (50 properties in CA/NV) so I can share some words of wisdom that I’ve picked up from them.
1) Multi-unit properties are valued based on the rental income they produce, single residency properties are not. Right now single family homes are too pricey to justify if you’re looking to rent it out- your rental income will not cover your expenses in most cases. You stand a much better chance of having positive cash flow in this market if you buy a multi-unit building.
2) Screen tenants carefully- it is better to have a unit sit vacant for a month than put someone with a shady record into a lease just to fill up your building. This will lead to many headaches with evictions, property damage, etc.
3) Be prepared for the long haul. Real estate is the sure way to riches, not the quick way. Many rental properties barely make a profit for the first 5 years or so. But given time the rents will rise and mortgage won’t, so you’ll make $$$ down the road. Don’t expect a quick easy return.
Hope this helped. You are certainly on the right track and asking all the right questions. You’ll get there eventually. Cheers
References :
July 17th, 2010 at 10:54 pm
check this database of foreclose homes
http://calihomes.blogspot.com
References :
v
July 17th, 2010 at 11:39 pm
avoid the get rich schemes. there are many ways to invest in real estate. Some will say, "put down as much as you can" others will say "put the down payment on your credit card and leverage yourself". There are alot of opinions out there. You should do what works best for you. What are you goals? Do you want to be a landlord? Do you want to just own the property and hold it? How much time do you have to do this? Do you at least own your own house now? If not, I would start there. Ask your listing agents some information about the market. Try visiting a local REIA chapter (Real Estate Investors Assocation) they can be of some use, but they want to charge for membership. Or, try to find a Cashflow Club as well.
Best of luck,
Angela
-http://www.ratraceclub.com
References :
July 18th, 2010 at 3:40 pm
Good post, I have been looking for a wonderful place to take a vacation and this kind of blogging site actually helps! In case you are aware of any additional like it if possible blast me an email and let me know.
July 18th, 2010 at 8:32 pm
I can’t but agree.I always wanted to write in my site something like that but I guess you’r faster.
July 19th, 2010 at 12:51 pm
Such a well written post.. Thnkx for sharing this post!
July 19th, 2010 at 5:39 pm
Can I just say what a relief to find someone who actually knows what theyre talking about on the internet. You definitely know how to bring an issue to light and make it important. More people need to read this and understand this side of the story. I cant believe youre not more popular because you definitely have the gift.
July 20th, 2010 at 1:23 pm
Aw, this was a really quality post. In theory I’d like to write like this too – taking time and real effort to make a good article… but what can I say… I procrastinate alot and never seem to get something done.
August 10th, 2010 at 6:06 pm
I went here researching goth culture! This post has a strange visibility on bing even if it wasn’t actually the things I was looking about