One of the first questions a buyer has for a Realtor is, how do you make money investing in Real Estate?
The answer to this very complex question is actually very simple. Buy low and sell high.
Some of the best real estate investors are home owners. When a person has lived in a home that they own, they have a better understanding of maintenance and repairs.
To buy low, there is always a reason that a house has a considerably lower price than similar properties on the market. The most common reason is that the property is in need of repairs. This is where knowledge comes in to the equation. Working with a knowledgeable realtor can be extremely rewarding.
The most successful investors that I have worked with, over the years, do the majority of repairs on the property themselves. This reduces the bottom line considerably. The wise investor also knows when and where it is necessary to bring in a licensed professional. I have also witnessed the owner, prior to the arrival of the licensed professional, doing whatever is possible; to reduce the necessary time the professional has to contribute to the project. In short, they are prepared before the plumber or electrician arrives.
The easiest and most advantageous upgrades are painting the interior and exterior of the home, and adding new flooring. Cleaning inside and out, and a well maintained landscape, is also an inexpensive upgrade that makes the home more marketable, and increases the property value.
Before purchasing the investment property, a wise investor has to do their homework. This includes, investigating the condition of the property, and calculating the cost of each repair realistically. This often includes checking the cost of materials, and bids from contractors for bigger projects or repairs. Once the full cost of repairing the house is estimated. The buyer has to then check the historical high selling price of the similar homes in the area. This will give them a good idea of what they could re-sell it for as soon as the repairs and upgrades are complete.
In the initial calculations prior to the purchase, also have to include what it would cost to sell the property, which can be as high as 8-10% of the sales price.
The largest capital gain in real estate investing comes from owning the property for a number of years. The principal balance of the loan decreases, as the market values slowly increases. That would be in a normal real estate market. Some investors have tenants rent the property till the mortgage is completely paid off.
Currently, the US is not experiencing a normal real estate market. The property values are still decreasing in many areas. There are many foreclosures. When a house has been foreclosed on, the previous owner usually remove many of the fixtures and have even been known to take the kitchen sink. The empty houses are also subject to vandalism. This causes the property values to rapidly drop. Real Estate is definitely driven on the premise of supply and demand. When there are more houses for sale then there are people to buy them, the value drops. This is a buyer’s market. Even the country’s greatest economist, do not know when the prices will hit the bottom, and the market will turn around. In the mean time if you are looking to invest in real estate, it is a great time to do so. As a wise investor once told me, don’t be afraid to make a low offer, it is better than no offer at all.