Real Estate Investing Tips

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Planning on starting a real estate business? Many people are making money real estate. Before you start, read these real estate investing tips.

There are many ways to make up a real estate investment. You can become a real estate developer like Donald Trump. At the time of this writing there are a lot of foreclosures where you can buy property at big discounts. Other popular methods are flipping houses. In addition to these, there are a dozen or more ways to make money in real estate, each with it's own intricacies and pitfalls. You would do well to research and study each before venturing further.

Before you get started, I would suggest you join a professional real estate investing club local to your area. You can find them by doing a search online or by looking in your local yellow pages. The groups usually meet once a month at a place local to your home. At the meetings you'll meet other real estate investors where you can pick up real estate investing tips and ideas. It's also a good place to find others who you can partner with on larger real estate investments.

Contrary to what you may have been told, you CAN invest in real estate with no money and bad credit. I should know as I have sold properties to others who have put no money down and have had bad credit. Check out my real estate websites at Gold Key Housing.

One other thing you will need to understand is that real estate goes through cycles. There is what is called a buyer's market and a seller's market. A buyer's market occurs when it is hard for sellers to sell. This can occur if interest rates are rising, if banks are tightening on loans, there is an economic depression and jobs are hard to find, etc..

A seller's market occurs when interest rates are low, banks are making it easy for anyone to qualify for a loan. Because of these conditions many people flock to buy houses and seller's can pretty much demand what they want.

You can make money in real estate at anytime but you'll find the best deals when buying in a buyer's market and get the highest dollar by selling in a seller's market.

When starting out, I suggest you stick with single family residences. Everybody needs a home so they are always in demand. They are usually the cheapest and easiest to buy too. Three bedroom, two bath are the most popular. There are three places where homes usually appreciate the fastest: near the water, on the side of a mountain/hill with a view, or in the path of progress. "In the path of progress" refers to the direction that a city is growing. If a city or county is growing to the west, then go west to buy cheaply. As builders move in and build stores and housing developemnts, your property and/or home will take off in price.

When it comes to buying, I prefer to follow John Schaub's 10/10/10 rule. John states that you should buy homes at 10% or more below fair market value, never put more than 10% down, and never pay more than 10% in interest for your home loan. The last two are easy, but how do you buy at 10% less than value? Find a motivated seller and buy when it is a buyer's market. I recently bought a house under both of those conditions. I paid $485,000 for it in the beatiful Orange County area of California and had it appraised (during my inspection contingency) at $540,000. An instant $55,000 in equity.

Once you have your home, what do you do with it? You could fix it up and then resell it. In a seller's market that would be easy to do, but I very hard to buy a home at 10% below fair value in a seller's market. In a buyer's market, you can buy 10% below value as seller's become desperate to sell, but than after rehab, it becomes hard to sell as there are few buyers and many homes on the market competeing against you.

My solution is to buy homes in a buyer's market for the best deals. Rent the house out to cover your expenses. Eventually, the markets will change and it will become a seller's market. At that time you can sell your worst properties for top dollar and use the proceeds to payoff your better properties for free and clear income.

Let me give you an example. Orange County, California, early 2004. It was a seller's market. Interest rates had declined to around 5.5% for a typical 30 year mortgage. Bankers were lending based on stated income (no need to prove income) and giving 100% financing. I bought two properties at around $320,000 each. I put 10% down on my properties and had a monthly payment of $1800 each plus an additional $333 per month for property taxes. Total payments were $2133 per month each. I rented one for $2100 and the other for $2000. I had a total negative cash flow of $166 per month. A negative cash flow is bad, but when property values are rising it is still a good investment.

Two years later (late 2005) properties values had risen so much that each was now worth $640,000. Real estate was cooling off so I figured now was the time to sell one of the properties for top dollar and hold the other for income. Of course you want to sell the one with the greatest negative cash flow.

After commissions, I had roughly $290,000 profit AND my 10% down payment back on that property. I still owed around $287,000 on the second property (I had put $32,000 down on this property when I bought it). I payed it off with the profits and the few thousand left over repayed me for the few thousand I had lost with the negative cash flow.

After two and a half years, I've collected about $64,000 in rent which recoups the $32,000 down payment I still had invested in the house. Since I own the house free and clear, I no longer have a negative cash flow and all rent is pure profit.

It is now August of 2008 and in a buyers market. I'm buying homes at big discounts through short sales and foreclosures. I rent them out to cover my mortgages, and when the market swings to a seller's market, I'll cash in my profits.

It's easy and practically risk free (as long as you are not forced to sell in bad markets), anyone can do it for big profits.