So You'd Like To Generate Wealth From Real Estate?2 years ago
In spite of real estate values increasing on an almost daily basis for houses, buildings, even vacant land!!!......making money in property investments could be easier than most people think. Many parts of the country have experienced skyrocketing prices of late and many people can now afford to purchase their own home, particularly with historically low mortgage interest rates. With increasing demand, existing house prices have also increased. Despite foreclosure increases in certain areas, it is still a seller's market and people are willing to pay the ever increasing prices.
Renters have finally come to realise that paying landlords the same money as what it costs to own your own home is counter-productive. With the economy recovering from the latest recession and provided interest rates remain low, private housing demand will continue increasing, as will prices.
Still not convinced? Well, keep in mind two key factors. "New" land is no longer becoming available. What is currently allocated is all there is. As a result, over the long term, land prices (and the houses that sit on it), continue to go up in price. Secondly, population growth across the country is going up by 1-2% per year. Although some areas are dropping in population because people move to other areas, other areas are experiencing growth rates approaching 10% per year! Imagine the profit potential this gives you!
You may ask yourself, "Isn't real estate investing risky?"
While investing in real estate has its risks, it is no riskier than any other investment. Take gold for instance. What happens if demand for gold drops? Stocks and bonds? If the company you own shares in goes bankrupt, what then? Or perhaps technological change eliminates their core market. Government bonds are considered the 'safest' investment, but rates of interest are pretty small. With some parts of the country experiencing a 15% or more increase in housing prices, a 4% return for 'risk-free' bonds is no comparison.
The key to any type of investment is buy low, sell high. However, it's difficult to tell when gold prices will reach their peak. The same with share prices getting ready to tumble. With real estate, however, a little research will give you predictions for future mortgage rates, growth in the economy and what local unemployment rates are. If an economic slump is predicted, a spike in interest rates or unemployment in your area set to increase - cash out!! Until then, real estate is a pretty safe investment
Planning to invest in real estate successfully can be done in one of two ways. The first is "buy and hold". In this scenario you buy a property and hold on to it while the natural increase in prices increases the value of your property. In the meantime, as you wait for the appropriate selling opportunity, you rent the house out at a price which covers the cost of the mortgage, taxes, utilities and even a small income. Sounds great so far but the problem with 'buy and hold' is if housing demand takes a turn for the worst (increase in interest rates/sudden layoff in your community), your property value could go down. As a consequence the average rent will also go down meaning you have to cut the rate you charge your tenants. Suddenly, there goes your income as well as your profit and you're left with a "negative cash flow" something you don't want to experience.
The second real estate investment plan is called "flipping". You buy a property for a lower than average price and sell it almost immediately. This way your real estate investment is only at risk during the period you own the property. The shorter the time between buying and selling, the less opportunity you have of losing money on your investment. Rather than wait for the natural increase in housing prices, you profit by purchasing a house at lower than normal prices and selling it quickly, for a profit. Thousands of people across the country do just that buying from a motivated seller and selling to a 'buy-and-hold' real estate investor. Why shouldn't you?
How can you buy real estate at lower than average prices?
Purchasing real estate at below market value can be achieved in different ways. In a nutshell they are as follows:
Foreclosures and pre-foreclosures
When a mortgage can't be paid, banks quickly move in to seize the property in an effort to get their money back. This is a foreclosure. Banks, however, are not in the real estate business. Rather than hang on to the property for any length of time, they just want their money back as quickly as possible. Generally speaking, when you purchase foreclosed property from a bank or any other lender, you are purchasing real estate at a price well below the market value. Once you secure ownership of a foreclosed home you've bid on you can sell it almost immediately to a real estate investor. Of course selling the property at a below market value price will ensure a quick sale, but thousands of dollars can still be made on every deal.
Just what does all this entail? Firstly, a homeowner falls behind in his mortgage payments and the lender notifies him/her the property will be seized. The Good Samaritan (being you) arrives offering to buy the property at a huge discount. You notify the lender of the property purchase and arrange to bring the mortgage up to date. Foreclosure proceedings will then cease, allowing you to find a real estate investor willing to buy the house quickly. Profit potentials are enormous!
Some homeowners can't be bothered to keep their houses looking nice or can't afford hiring someone to do the upkeep, hence a run down looking property in need of repair. Many fixer-upper's just need a slap of paint and maybe new windows while others may have serious structural problems. Buyer beware!!! Don't buy another individuals problems. Before investing in fixer-uppers, learn to make simple home repairs and how you inspect a house for possible defects and potential problems. Experience will tell you just how much you need to spend in repairs and just how much the seller needs to discount the property for you to purchase it as is. Do your research well and learn as much as you can before attempting this. Otherwise it could end up costing you thousands of dollars.
No money down
These schemes involve looking for motivated sellers and making a 'zero down' offer to purchase. Sometimes, however, you could end up with a mortgage larger than the price you are paying, although this is not common. With a no money down scheme, you can either flip the property by finding a buyer before you take possession or simply purchase on a 'buy and hold' plan and rent it out.
Optioning a property
Lastly, with optioning, you find your motivated seller and offer to purchase an option for a small amount (say, $100). Your option states that you will guarantee the property purchase at a fixed price, by a specific date. If you fail to make the purchase, you forfeit the fee. Then you try to find an investor/buyer to purchase the property at the same time as you make the purchase from the original seller. Although a tricky option, the profit potential can be huge. As each option only costs $100, it's possible to have several different properties on option simultaneously. Again, however, learn as much as you can before attempting this. You could end up forfeiting your options because you can't get a profitable deal.
Generating real estate wealth has huge potential. However, as with any other investment or endeavour, before you risk your hard-earned money you MUST learn all you possibly can before you make "money from property".