This education in real estate investing information will be delivered in two sections. We'll cover if this is a really a good time for real estate investing and why or why not. In part two we'll discuss the best ways to go forward. This part will apply even if you are looking for that new house for your own family.
I've purchased bank owned properties and renovated them over the years. They turned out great and all sold for a nice profit. I followed the same plan for all of them. That plan included initial research, complete cost estimates, detailed renovation schedules and most important, an exit strategy. Investors need to know when the money going in will come back out.
So is this a great time to buy an investment property? Real estate prices are really low as I write this page today. I was a mortgage broker for over a decade. Rates today are lower than I ever saw them. Could this be the perfect time to buy a rental property? Or maybe just get a real bargain on a personal residence?
All good questions? Many people would say that of course now is the very best time. But much of this website involves contrarian investing. So first we'll lay out both sides of the question. Then we can discuss how to do it. And do it right.
1.) Prices are low.
This is absolutely correct. So it would seem logical to jump in right now. Plenty of folks did that very thing when the foreclosure tsunami was just a growing wave. They didn't have a plan even close to the one in part two of this article. And they just assumed values would not continue to plummet. They watched cable shows featuring "everyday guys", going in and rehabbing a house for more money on one house than they could make in one year on their job.
Those purchases are now part of the vast number of second time foreclosures. Someone purchased a bank owned home without correctly judging the actual value of the property. Or they miscalculated the fix up costs. Then they couldn't sell it for what they had in to it. Now that house is back on the market.
You need to closely review home sales and time on the market in your target area. Six months or a year of extra carrying costs will wipe out most profit margins. And remember that no matter how nice you make this new property, if everything else is selling for $40,000, you will probably have no chance of getting $80,000 when you sell it. No matter how nice it is when you get it sale ready. It is vital to know your target market. Improvements will add value, but the overriding criteria from lenders is always recent sales of comparable houses in the target area.
The biggest piece of education in real estate investing is knowing where you will find the profit. Part two will show you how to arrive at the correct purchase price.
So low prices may be good. Or they may be sign of a rapidly declining neighborhood. Be sure. Don't be a casualty.
2.) Mortgage rates are low.
That is absolutely correct. So it would seem logical to jump in right now. Except that while the rates are low, the requirements are much tougher. I could see this coming a few years ago.
Even if you are buying a personal residence you will be needing more cash, except for a couple programs such as VA mortgages or USDA loans. And you will need stellar credit.
For an investment property, you will need much more cash. And again, stellar credit. These requirements will also apply to your prospective buyer after you do a fantastic job renovating this house. Keep the exit strategy in mind. How do you get to the profit?
And any discussion must include economic conditions. If the area has no jobs, will you even be able to find a renter willing and able to pay your monthly carrying costs. There are great tax benefits with holding rental properties. But without positive cash flow, you will fail.
If people are leaving the area, there is a good reason. And that will tell you to look elsewhere.
My feeling is that if you know for sure that you can buy a house far under value, renovate it following the guidelines in part two and sell in under a year, depending on the needs of the house, then maybe; just maybe it is a good time. Due diligence is vital. Be aware of the down side. If you can live with the down side, it is usually a good deal. But in tumultuous times, it is often the deal you don't do that is the most profitable in long run.
The big key regarding education in real estate investing is the same as using a saw. Measure twice. Cut once. I'd love to suggest a couple great books on this topic. That is what this website is all about. And there are many good books written on this subject. But not within the backdrop of the current and future economic conditions. I always want to give you accurate, timely information.
I think many more jobs will be lost and times will get tougher. That will lead to lower home values. Be aware and keep an eye on the blog page of this site.
Click here to go directly to page two of this topic. It will give you a proven plan if you decide now is the right time to invest in real estate.