Real Estate Investing

There are various types of real estate investing.  Real estate investing is such a broad topic so we will narrow real estate investing to single family homes on this blog.
Real estate investing was extremely popular until the real estate market collapsed in 2008.  Real estate values were appreciating every year and financing was easy to get until the whole real estate and credit markets collapse in 2008.  Thousands of real estate investors faced foreclosure and many of them filed for bankruptcy protection.  Home values plummetted and foreclosure rates have reached historical highs.  The housing market has recovered but has a long way to go.  Many homeowners are sitting on homes that are underwater, where their mortgage balances are higher than the value of their homes.  Real estate investors are getting back to real estate investing and many of them are now making money.  However, there are risks associated with real estate investing.

Tips In Real Estate Investing

Location, location, location is the key in real estate investing.  Target in an area/neighborhood where you are familiar with.  You should thoroughly study the area and be familiar and be expert in the area you plan on investing.  Know what has sold in the market, the current inventory and what the average market time is, the foreclosure rates, the length of time it takes to sell the property, properties that sell fast and the properties that have been sitting on the market for long, and the ammenities in the area such as whether it is close to shopping centers and expressways.

Figure out what your real estate investing business plan is.  Do you want to purchase a short sale and/or foreclosure and flip it right away?  Do you want to rehab it basically and flip it?  Do you want to do an extensive rehab and make a substantial profit?  Do you want to buy it, rehab it, and rent it?  With all of the above reasons, the aquisition cost is what determines on how successful you will be.  Just because a property is a foreclosure, REO, or short sale does not automatically mean that you are getting a deal.  Many foreclosure, REO’s , and short sales are selling at market prices.  You need to do your due diligence.  Another important factor you need to consider is the rehab cost.  Home values have plummeted, however, building material prices have gone up in recent years.  Purchasing a property at market value may mean that you need to sit on the home purchase for several years until the property appreciates in value.

 Create Your Real Estate Investing Team

If you are planning on being a serious real estate investor, start building your real estate investing team. You should have a team of real estate agents, contractors, lenders, insurance agents, appraisers, home inspectors, architects, title companies, and marketing team.  Realtors will help you with leads on potential properties for aquisition, contractors will help you with cost analysis, appraisers will help you with future value, lenders will help you with financing of construction and future financing for your home buyers, and attorneys will help you in all of your compliance and legal needs.

Real Estate Investing: Consider Worst Case Scenario

Real estate investing has a lot of risks associated with it.  Always consider the worst case scenario.  Nobody has a crystal ball so nobody can predict how fast your rehabbed home will take to sell.  What is the worst case scenario?  What if your home does not sell in a year?  Do you have reserves to be able to make the mortgage payment?  What if the market values decline and so does the market value of your property?  Are you ready to take a loss or can you wait it out?   Are you open minded in renting the home if it does not sell?  All of these questions should be explored and answered before you go into real estate investing.

Are You A First Time Home Buyer And Want To Become A Real Estate Investor?

If you are a first time home buyer and plan on becoming a real estate investor, you should consider a four unit multi unit property as your first owner occupant home.  Any residential units up to 4 units are considered residential homes and the Federal Housing Administration allows a 4 unit home purchase with a 3.5% down payment.  You can get a 4 unit with only a 3.5% down payment and all you need to do is live in one of the units and rent the three other units out.  You can use up to 85% of the potential rental income of the three other units to qualify for income as well.  If you play your cards right, you may be able to live mortgage free with the income of the three other units or even might be able to generate positive cash flow.  How long do you need to live in your four unit?  FHA requires that you need to live in the four unit owner occupant building for at least a year.  With conventional mortgage loans, a 15% minimum down payment will be required to purchase a four unit multi unit property.

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The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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