Investors: Know your Real Estate Market
The best way to know the ins and outs of the neighborhood real estate market is by partnering up with a real estate agent. You do not want to purchase when the market is saturated with houses for sale and they are not moving. This decreases pricing, which decreases profits.
Understand the history of real estate and what is going on currently, then begin researching the future of real estate. Wait until you see the market start to turn around and people trying to buy homes. You will still be investing at a great price — at the beginning of the upturn. I compare it to the stock market, with the only difference being the length of the cycles.
Where is your financing coming from?
Get all your monies in order, whether you are borrowing from a bank, a private party or paying cash. Last minute issues happen (and unexpected costs crop up) with every project, so add some cushion. I live by the words “plan for the worst and hope for the best” and personally look for properties that take cosmetic work costing the least amount of time and money, but yielding a significant difference in the before and after. See more about flipping houses below, including more demanding projects.
Different types of investments
The concept of flipping is huge — nearly every major television channel features a highly-rated show involving the dramatic challenges of quickly acquiring, renovating and selling homes. A “flip” generally involves keeping the current house and updating the interior to today’s customer demands, plus improving the exterior’s curb appeal. For the best purchase pricing, look for foreclosures or for sale by owners.
You’ll find homes in a variety of conditions, from those needing lighter cosmetic work to those requiring an overhaul of plumbing, electrical, foundation, roof, and/or HVAC. Often problematic unseen issues lurk behind walls or under flooring, so any project can present both risks and rewards. Always set aside contingency funds to account for any surprises.
For novice flippers, less complicated projects make the most sense. But once you get comfortable flipping a few homes, you’ll develop the savvy needed for full remodels and rehabs (taking the walls back to the studs). You’ll need to make sure these larger projects fit your budget, time frame… and skill set!
If you have connections with dependable people such as fellow investors, contractors, and a reliable and knowledgeable real estate agent, then flipping is a great opportunity.
If you are interested in acquiring rental properties, do your research in the best areas. Look for multi-family homes, foreclosures and houses that need a little work located near a university. There will be constant demand for rentals in that area in every market.
Yes, there are risks associated with rental properties just as there are with flips. Generally, repairs required in rental units fall on the shoulders of the landlord. Maintenance of rental properties is vital and often involves locating qualified, responsible renters. For instance, renters must respect HOA rules and other regulations. They must be willing to be good neighbors and take care of the basics, such as upkeep on the lawn and general orderliness of the property.
You’ll want to carefully screen potential renters. Be sure to detail renter responsibilities in binding lease agreements. You may want help creating these agreements — which is another instance where a Realtor® comes in handy!