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Avoid the Mistakes that Kill First-Time Property Investors
Is it a great time to invest in real estate? Or is it a
terrible time?
Today and every day, those are difficult questions to answer. Some things are bad about the current market ... we’ve all read that housing starts are down and that there are many houses sitting unsold on the market. But we are getting a very mixed message. Just last week, a report issued by the Mortgage Bankers Association predicted a strengthening market by mid-2007. Of course, that’s good. So is it a good time to invest, or a bad time? I have a simple answer. It is a good time to invest ... a very good time ... if you know what you are doing. If you have the knowledge and the skills to structure deals that take advantage of the opportunities in the current market and minimize the dangers, then real estate still offers a formidable way to amass wealth. We get comments from Trump University members almost daily that reflect the fact that people who know what they are doing can structure smart deals today. Here’s one such comment posted on this blog just last week, on February 1. Location Location Location! You always
hear that when looking to purchase property; let me
explain my --deal of the century-- that worked. So you see, making the numbers work and knowing your regional market can help investors make great deals today, or at nearly any other time. One thing is certain. You will never make a dollar in real estate if you stand on the sidelines waiting for things to be exactly right for you to take the plunge as a real estate investor.
February 5 2007 at 8:12 AM
Contact me with any other questions you have.
Real Estate as an Investment There are no perfect investment avenues and real estate investment is no exception. Your choices are many and for each advantage on tying up your money for investment property, there is at least one disadvantage. It is important that you go into any venture with your eyes wide open and with your vision not clouded by those who would make you believe that it is the easy way to riches. It may be a great way of increasing your net worth, but it is not necessarily quick and rarely is it easy!
Single Family Property
Duplex and Multi-Family Properties
Long Term Investment In most cases, being a Real Estate investor is a bit more than simply buying property, finding a tenant, and letting the cash flow in. Some people are very comfortable with the kinds of activities that investors face almost daily. Others find them challenging, or worse, find ways not to deal with them. If that is the case, your business will almost surely suffer. Spend a few seconds and take a glance inward to see if you have some or all of the traits that you will find in many Real Estate investors.
If you cannot answer at least 5 of the above questions in an affirmative manner, you may not have the personality needed to be an effective manager of your own properties. No matter what the late night infomercials tell you, being a real estate investor can be a very time (and emotion) consuming activity. If you are looking to go from a net worth of $0 to a net worth of $1,000,000 in a short amount of time, it is probably better that you invest your money in lottery tickets. Although there are instances where investors have made the "big hit," and have mountains of money to show for it, the odds are stacked against it. It is far more likely that you will devote a good amount of time and effort, spread over a number of years, before you begin to see the fruits of your labor. Real estate investment, over the long haul, can be a very rewarding activity, but it takes a little work, time and patience.
Long Term or Short Term One of the first decisions you will need to make when considering any property is whether it will be designated as a short term or long term investment. Are your intentions to purchase a property, repair or improve it, and then make a quick sale? Or do you intend to keep the property, rent it, and go for the long term investment potential? Obviously, the return on investment in a short term is quicker, and the rate will be higher due to the short time of the exposure. There are, however some risks associated with a short term investment. What if the property requires more work (and money invested) than expected? What if you are not able to sell it quickly? In situations such as these, your potential profit could be severely limited.
Turning for Profit One of the easiest ways of getting involved in Real Estate investing is to buy a property and sell it within a relatively short amount of time for a profit. It avoids the hassles of dealing with tenants, and since you are buying and selling at basically the same time, it avoids the potential of the bottom falling out of the market and taking your profit potential with it. Due to the short time span, your return on investment, as a percentage, can be higher than almost any other form of investment. Finding good property to "turn" is one of the most difficult tasks you will face if you intend to do a quick turn investment. You definitely will not be the only prospective purchaser of a property that shows good profit potential. Not only will you have other investors to compete with, more and more first time buyers are competing for the same properties--not to fix up and sell, but to repair and live in. In addition to your own efforts, you may want to enlist the help of a good Real Estate Agent--one who has experience working with investors--to aid in your search. You will also need to develop a "team" of professionals that is willing to give you top priority. When you "rehab" a house, things must be done in a certain order. For example, any inner wall plumbing repairs must be done prior to any sheetrock work, which must be done prior to any painting or wallpapering. A plumber who makes you wait 3 weeks before getting to the work can not only hold up the entire project, but can also cut heavily into your profit potential. Besides the obvious monetary cost of holding the property while you wait for repairs to be completed, a holdup can push you from a good real estate market time (for example, early October) to a lousy one (for example, the time between Thanksgiving and Christmas) and severely limit your pool of potential buyers.
The link below will take you to the IRS Daily Digital website. They have several helpful articles and resources that can answer your questions about capital gains.
Learn all about 1031 exchanges at http://www.excfac.com/ Exchange Facilitator Corporation Asset Preservation Incorporated, Grapevine, Texas Greg Lehrmann (866) 266-1031 - greg@apiexchange.com Hancock & McGill, 1031 Exchange Corporation (512) 459-6010 Learn more about 1031 Tax Deferred Exchange Law firm with offices in Austin, Texas.
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