Top 7 Ways to Make Money In Real Estate
By Ray Newby
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The rules have changed but there are still great opportunities as long as you know how the new game is played. Here are 7 tips that should give a better footing.
- Buy low- sell high. This has always been the model for success, but now there’s a wrinkle. In the past you could buy, hold, and sell with a profit. The old adage of “you never loose with real estate” is “old school” to tons of folks who are now up side down in equity with no guarantee of an up side in the near future. And that’s enough to encourage many people to just walk away from their dream. Now the buy low feature takes some work and knowing markets. Pay no attention to what a property appraised for last year. And comps aren’t your buy point. A comp only tells you what the property is worth today in comparrison to other similar properties. It doesn’t tell you a thing about where the value will be 6 months or a year from now. And while no one can really give you that “price crystal ball”, you can improve your position and chances by buying at least 30 % under market. At least if prices don’t go up your still under market and in a good place.
- Options. This is a cleaver technique wherein a buyer takes an option (a purchase position for a designated time) but has no intention of actually buying. The idea is to get a good deal, and before you have to buy the property, you sell the “option to purchase” to someone else, and they then can buy under your terms. You’re the ultimate middleman. You don’t make as much, and you end up owning nothing, but you might be able to sell an internet course on getting rich, and doing quite well.
- Fix and Flip If there was ever a battle cry of the hot real estate market this was it. There were even TV shows showing how it’s done and the incredible money made in the process. See a dump, buy it right, fix it up and make a quick profit. And if you were in the right market the profit could be substantial. The process can still work with a couple of caveats: one buying right…see #1 above, and unlike in the past, you have to make your money from the improvements, not the rising market. You might therefore have to fix and hold before realizing the pay day. If this is your muse be sure and buy the worst home in the neighborhood and bring it up to be the best…
Tip: but do not over improve…that will cost you big time.
- Rental. With renting it was simple…buy a home, rent it and let the tenant pay your mortgage. Put it on section 8 and have the payments guaranteed. What could be easier? Well in some places it still might be easy but not in hyper California. You can’t buy a home, even with a 20% down payment, and expect it to debt service. For most landlords will have a negative cash flow and that can cause big problems…imagine a vacancy and repairs on top of a negative cash flow!! And you would be surprised at how many people are in that position. That’s where a ton of the foreclosures came from…speculators unable to sell and having to hold a property they never expected to carry. And they just walked away. Tip: make sure you can rent the property and cover not only payments but taxes and have a bit left over for repairs. If you can’t do it…then don’t buy it.
- Seller credit. This is a buying process wherein you ask the seller to give you a credit for repairs. It’s a common occurrence to get closing cost credits…but this is a much larger and more important credit. And if done properly you can walk away with several thousand dollars.
- Foreclosures. Talk about something that has hit its stride. This is hot. With the collapse of the mortgage markets, and the resulting foreclosure rate, everyone is on the grave train. But before the conductor punches your ticket, remember that a foreclosure is nothing more than a lender having to take a property back when a borrower didn’t pay. It doesn’t mean it’s a good deal. And the lender will list all foreclosures on the MLS and they are competing with everything in the same price range. The key now isn’t weather it’s a foreclosure, but being able to buy enough below market to guarantee a profit. You can do that with a foreclosure in some cases, but you can also do it in a non foreclosure market.
- Short sale, Another hot spot. Tons of people are taking this opportunity to get out from under a bad deal. In essence when a borrower owes more than the property is worth, and then wants to sell, a short sell comes into play. The lender must agree to the purchase because they are in effect agreeing to let the current borrower off the hook and take less for their property than is owed. And why you ask would the nice man at the bank be willing to help the struggling homeowner? To be sure it must be for good cause…and that includes financial problems, a transfer, pending foreclosure or medical problems. The purchase must be accompanied by a hardship letter and is usually a laborious process as no one likes to loose money least of all the nice man in the corner office. This is however one of the best ways to get a good deal on a purchase.
Tip: Use a very experienced Realtor and broker on a short sale as there are hoops to jump through and you need a very good ringmaster.
Ray Newby is a mortgage broker and real estate investor with over 30 years of experience in the industry.
Article Submitted On: December 18, 2007