Getting Rich in Real Estate Investment
Investing in real estate for profit is
one of the most popular ways of generating additional income in the
United States today.
It is not only a relatively safe way to
make your money work for you, but it also appeals to those people who
favor a common sense approach to making money, to wit: person buys land,
person sells land, person makes profit.
Just about anybody can understand a
formula like that, and often, the real estate game is that easy. If you
have common sense and good instincts, you can get rich fast in real
There are several ways to make money
investing in real estate, depending on how much money you have to put on
down payment, and how long you want your money tied up in your
investment. (The average mortgage runs 20 to 30 years, but your money
may not have to be sunk into the real estate for such a long time).
An attractive thing about real estate is
the great deal of flexability it offers. The amount of work you put into
improving property -- or not improving -- is up to you. You can have a
great deal of capital to invest in your venture, or you may be able to
squeak by with a few thousands of dollar for down payments. You can see
your real estate every day, or you can hire someone to take care of it
and never set foot on a piece of sod. You have a lot of choices and
The 30-Day Wonder
One method of capitalizing on real estate
might be called the 30-Day Wonder. The way to make it work is to put a
few thousand dollars down on what a city considers abandoned property.
Often, you can find a property that is not as bad as its appearnce
shows. Often, you can find a house or storefront that just needs a fresh
coat of paint, a few repairs, and some back taxes paid.
Your first step is to open charge
accounts with area lumber yards and home building centers. This way you
will be ready to get to work on your property as soon as you get title
to it. Next, secure a loan from a bank as close to the sale time of the
property as possible. The few thousand dollars you invest covers down
payment and paperwork charges. It can also pay for repair and material
charges if you cannot get charge accounts at home centers set up.
Once you have title and bank clearance,
get to work on repairs, if any are needed. You have 30 days until your
first payments to the bank and the lumber yards come due. It is your job
to make the house presentable and find a buyer within those 30 days. If
you succeed, you make enough to pay off all debts incurred for the home
and a generous profit for your troubles. If you don't find a buyer
within 30 days, you end up with mortgage, homeowner's insurance, and
charge account payments for at least one month.
The risk is somewhat high, but the
potential rewards are even higher. This is the kind of investment that
beneifts from invesment partners who can share the burden of the
payments and workload, as well as the profits.
Cleaning the inside and outside of a home
can go a long way toward making a house presentable. Painting inside and
out can also greatly help the looks of a home. If you have time, plant
some trees or shrubbery for landscaping. Real estate studies show that
many potential home buyers aren't looking for the fancy patio or
swimming pool in the backyard. Many are simply looking for a decent,
comfortable place to live.
With this in mind, you don't want to buy
a home that is too run down for your 30-Day Wonder home. Find something
which can be made presentable within a reasonable amount of time.
Educate yourself on what to look. Also, look for interesting features in
the house, such as a fireplace, extra bathroom, or large kitchen with
extra counter space. All of the above are very much in demand in today's
real estate market.
If you have the extra time and money to
invest in a home for beyond, 30 days, you could fix a place up and make
it a valuable rental property, or perhaps sell it for a handsome profit.
What to Look Out For in Seized Property
Of course, buying real estate seized for
back taxes or other reasons can also have its disadvantages. When
considering a piece of real estate, there are some items you need to
know about. They are:
* Location - Is the property you plan on
buying located in a decent neighborhood? If it is located in a
neighborhood with a bad reputation, you may have an impossible time
finding an interested buyer.
Another facet of location that needs
looking into is future building plans around your property. If the city
intends to annex and expand commercial developments around your property
in the near future, the value of your targeted investment may increase
* Back taxes - Definitely check to
see how much the back taxes or other liens add up to on your targeted
property. Sometimes, the taxes can add up to an amount greater than you
can initially handle. Sometimes, they are more than the entire house is
worth, even after remodeling.
* Zoning restrictions - Within a city,
each neighborhood is zoned for a particular use. Some are strictly
residential, others are commercial only, and still others are a
combination of both. Before you buy a piece of real estate, make sure it
is located in a zone which fits your future plans for the property. If
the house you buy is to remain a place for people to live, it will be
fine within a residential zone. However, if you plan to turn a house
located in a residential zone into a store, the city probably won't
allow you to do that.
* Investments in Raw Land and Subdivision
Lots - Some of the more fascinating -- and potentially dangerous -- real
estate investments involve raw land and subdivision lots. Each has its
potential for profit, but each also has pitfalls which can quickly sink
any chance for a return on your money.
* Raw Land - Raw land is land which
has not been developed in any way. It has huge potential for profit if
it is located directly in the path of city expansion, or has a gorgeous
view someone would sell his soul to own, but as a piece of property unto
itself, it may not have great monetary returns.
Part of the problem with raw land is that
it doesn't even make a good tax deduction, because you cannot depreciate
raw land. On the other hand, if you are looking for something in need of
little or no upkeep, you might enjoy owning a piece of raw land.
* Subdivision Lots - Subdivision
lots can be potentially rotten investments because of all of the hidden
costs. Before you buy anything, find out who pays for development of the
land, including the installation of electricity, water, sewage, roads,
drainage systems and garbage collection.
Inspect the property yourself. Make sure
it isn't located in a low spot prone to flooding, or on the side of a
mountain prone to landslides. Check state wetlands laws and make sure
the property can even be developed at all.
Some of the items to look for in the
contract are hidden costs, clear title to the land, and a statement
which gives you the right to start building on the land before it is
paid for. Then make it your responsibility to record the contract in
your name at the county clerk's office.
Using a Real Estate Broker to Negotiate
More often than not, you will find
yourself making an investment purchase through a real estate seller or
broker. As with any investment deal you may make, both sides want to
come out ahead monetarily. For real estate investments, it pays to learn
some of the common practices sellers occasionally use to come out ahead
in the deal. They are:
* Low Operating Expenses - Sellers
commonly make this statement to lure you into thinking it won't cost you
much to run the property. Before you agree to anything, find out if the
seller has been operating the building himself to cut on operation
costs. If so, are you capable of running the building yourself? You may
find that operating costs will have to increase as you hire an employee
to operate the building.
* Reasonable Property Tax - Reasonable
property tax may be another way of saying the building has not been
assessed for years. Obtain a tax card or listing sheet from the local
tax assessment office and check when the last time was the building was
assessed. If more than two years ago, the building might have back taxes
stacked up against it.
Another bad tax trap: make sure the
amount of square footage listed in the seller's agreement matches the
footage listed at the assessor's office. If the seller's footage is more
than the assessor's, you may end up owing lots of taxes on a building
addition which was never previously assessed.
* Energy Efficient - If the structure in
question is an old building, the chances are pretty good its energy
efficiency isn't as great as the seller claims. An easy way to check for
energy efficiency is to go to the local electric company and find out
what electricity actually did cost. The same holds true for whatever
energy source is used for heating.
Make Money Through Discounted Mortgages
One effective way to avoid common real
estate headaches while making as much as 30 percent return on your money
is to invest in discounted, or second mortgages.
The reason this is such a great
opportunity for investment is that many mortgage holders do not like
having their money tied up for 20 to 30 years. Most people like the idea
of having ready cash on hand, instead of receiving monthly payments for
what seems like forever.
Your job is to offer the mortgage holder
a price which is below the face value of the mortgage. Usually, you
should begin negotiations at 60 percent of the face value. You can then
work up to 75 percent and still make a 25 percent profit on your
investment. Sometimes, when the holder of the mortgage needs cash fast,
you can obtain the mortgage for as little as 35 to 40 percent of the
Here's an advantage: Often, the real
estate for which you have the second mortgage, is sold after 10 or 15
years because the owners died, divorced, or just could no longer make
the payments. While the first mortgage holder is guaranteed payment for
his investment before you are, most of the time the property is sold for
a high enough price to pay everyone off.
Before actually getting involved with a
second mortgage, check the credit history of the person who will be
paying the bills. If the person has a good track record of paying all
bills completely and on time, chances are they will be a good risk.
Being a discounted mortgage buyer is
especially good for investors who have some capital-at least $15,000-to
play with. You can find second mortgages available for as little as
$2,000 or as high as $50,000, and the returns can be significant.
As with any major investment, being
successful at buying real estate for profit hinges as much on knowing
the market as it does on luck. Understand what you want in an
investment, and know what the market will bear, and you can end up with
a lucrative, long-term investment in real estate.