Investing 101!

There are many different ways to invest in real estate and each of them requires help from someone that knows what they are doing. Help can come from a REALTOR®, a seasoned investor, or someone that is very well educated in the art of investing. Although there are many books and on-line publications devoted to the subject of real estate investment, nothing will take the place of experience/trial and error.

Some investors choose to "flip" homes. "Flipping" homes basically means to buy, rehab, and re-sale. Other investors rather buy low and rent smart. Investing in real estate is a business in itself. It is a multi-faceted process that requires knowledge of marketing, construction, real estate transfer, mortgage, contracts, release of liability, and sometimes proper rental procedures.

Step 1: Financing

Before making a purchase you need to look in to financing. Will you purchase with cash? will you purchase from a hard money lender? Are you eligible for conventional financing? There are many options out there, but they seem to be getting more and more strict with guidelines. Cash is always the best way to invest. Cash is more appealing to sellers because it lessens the contingencies and allows for a quicker closing. It benefits the buyer because it lessens the closing costs of a transaction and it eliminates the need for monthly payments and interest that takes away form total profit. The difference between a hard money loan and conventional financing is that hard money lenders typically have a higher interest rate and they have to be paid back in full within a short period of time, whereas a conventional loan is typically for 30 years and it typically has a lower interest rate.

Step 2: Acquisition

Now that you have your financing in line, it is time to begin searching for the perfect property. No matter what type of investing you choose to do, education is the key. You can take your REALTORS® word for it or have someone that has experience search for the right property, but it is always best if you are educated enough to spot a good deal when you see it, on your own. Spend time searching through reasl estate as often as possible before making your first purchase. To get a better understanding of price per square foot and market areas it is best to look at multiple homes. The best site to begin your search on is www.HAR.com. When looking for properties you need to evaluate price per square foot, age,condition, upgrades and how well the market will support the sell of that particular home. It does no good to buy and fix up a home that will not sell. Another part of figuring whether a property is a good investment or not is to have a good contractor in your pocket. Finding a contractor that is dependable, does good work, and charges a fair price is a battle within itself. Once you find that perfect contractor that you trust, have them visit a few properties with you or write you up a price list. This will help you to estimate how much cash it will take to rehab the property and determine if that proeprty truly is a good buy or not. Over time you should be able to see a home on-line and know whether or not it fits in to your ideal investment property.

Tip # 1: Super-Adecquacy

When investing, it is typically a bad idea to buy the biggest home in the market area. Buying homes that fit in to the average for that particular market area is the safest bet. The smallest homes preice per square foot is brought up by the larger homes and the larger homes have their price per square foot brought down by the smaller homes. You will begin to notice that smaller homes have a higher price per square foot and larger homes have a lower price per square foot within in subdivisions.

Tip # 2: Affordability or Desirability

Find areas that are more affordable or that are more desirable. Affordability: If you buy a home that has an end market value of $100,000, it should be a lot easier to sell that home because the price range is so affordable(as long as it is not over-priced). As you raise the price, you lessen the number of people that are eligible to buy that property. Desirability: Choose a marketplace that is very desirable. Study average DOM (Days ont he Market) and inventory. If a neighborhood has relatively lower inventory your property will have less competititon. If the average home spends less days on the market, then that market area can be considered desirable and should make it easier to sell your investment property in the end.

Tip # 3: If buying new, buy early

Some investors, choose to buy brand new homes and rent them out. Home builders raise the prices of their home based on supply and demand. As they sell out their subdivisions, they will raise their prices. If you buy early, you shoudl be buying at the lowest prices.

Step 3: Writing an offer

Now that you understand your marketplace and you know exactly what you are looking for, when you find it do not hesitate. If you see a property that is HOT based on your research, than it is HOT to everyone else also. You need to be prepared to view the property TODAY, finalize your research TODAY, and write an offer TODAY. If you wait until tomorrow, the expert investor has already beat you to the contract. You do not make money looking at properties. Trust your instinct and go for it. Realize that if you want to lowball an offer, you must do your best to make every other part of your offer more attractive. Think about it... If you are offering cash, you can close in less than two weeks, and you do not require an inspection period, it would be a lot more attractive and the seller would be a lot more willing to accept the offer even if it were lower than other offers. If you have third party financing, you are asking for an inspection period, and you need 30 to 45 days to close, then it probably is not a good idea to lowball the offer.

Step # 4: Rehabbing

This is where it could get expensive and unpredictable. It is always a good idea to estimate on the high side when figuring the cost to rehab a property. Make sure to set a budget and stick to it. It is easy to go over the edge with unnecessary repairs and upgrades that you think will help it sell faster. First things, first... Focus on bringing the condition of the property up standard. Those are the items that will come up on an inspection report and may deter buyers from closing the deal. HVAC sytems, roofing, wood destroying insects, extensive wood rot, water heaters, plumbing systems, Electrical syatems, and foundation issues are amongst the biggest deal breakers. Fix those first. Once you have brought the property up standar, then you can use the remainder of your budget to focus on selling points. I typically advise people to focus on kitchens, bathrooms, and curb appeal before other areas.

Step # 5: Selling or Renting

Price it right, market it well, and know when to cut your losses. Your first month should be a good indicator of the buyer's opinion of your property. To get the most exposure in Pearland and the Greater Houston area it would my recommendation to employ a REALTOR® and make sure it is listed on the MLS (www.HAR.com). If the property is priced to sell, it should get plenty of looks and you should get a contract within the first 30 days. If not, it is time to re-think your marketing and price. In the current market I recommend renting out properties over flipping properties. Due to the increase in foreclosures and mortgage companies tightening the qualifications to get a mortgage it has forced homeowners and possible buyers into becoming renters. Having an abundance of renters has raised rental prices across the board. My suggestion for the current market is to buy low, rent smart, and sell high, when the market returns back to a balanced market.

Investing is just like running a business, but if you run it well, it can be a very lucrative business. Do your research, ask as many questions as possible, and trust your instinct. Hopefully this page has helped begin shaping your investment education. Feel free to contact any of our fine agents with your investment questions. We look forward to helping you achieve your goals.

For the expert investor or the investor with plenty of time and cash, there is a web site that can help give you the jump on some great real estate investment deals. www.RealData.net is a web site that can help an investor find a property before it hits the auction or it becomes an REO. Check it out.