Between 2001-2005, I made quite a big chunk of money in real estate and learned early on that regardless of the economic climate, there is always money to be made in the housing market. Similar to trading, the rules change often and so do the investments. The real estate market is no different, while the way you invest might change in the short or long term and the types of properties might too, the idea of real estate investing is, and always will be, a good call. You simply have to adapt to the changing times and economic climates.
Although buying and holding might make sense in the long run, especially when coupled with a few thousands made in rental income in the mix, there are better opportunities out there in the ‘buy and flip’ market. While it may seem that the risk is higher in flips than it is in holding and selling a few years later, it is actually much less. There is a misunderstanding in the industry that all foreclosures require lots of fixing and repairs in the short run and that without cash in hand, it makes it very hard to make a profit. The foreclosure market is like the used car market, while there are a few houses out there that are full wrecks and need a fix, there are many diamonds in the rough as well that need very little touching up and are solid investments. For myself, I have found this particular niche where I am still able to remain in this game and continue to invest as if the economic conditions still haven’t changed.
Here are my tips on how I select properties in today’s market place and ways I continue to make great side income through this medium. Please keep in mind that this is not a system or concept in which you are going to learn how to make millions or how to beat the market. Everyone here at Secret Entourage is a believer in sharing tips and insider ways in which you can improve, not ways to get rich overnight or take all the work out of the equation for you.
The Trackers: No real estate investor got far by searching listing themselves and trying to find when the next great property would come on the market. Having a few well known realtors working with you and keeping you up to date on the latest properties is key to eventually finding the right ones. Look for realtors who are doing this full time and well known in the community for finding cheaper homes, or foreclosures. When your realtors know what you are looking for, you are going to receive a lot more homes in your inbox. The key is to find great homes before they become known by all. Maybe on the first and second day they come available and being ready to jump on them is also key.
The Bankers: Nothing like having the financing ready to go. While all of us eventually turn real estate investing into a cash game, some cannot do so when they start. Having the right Bankers and Lenders on your speed dial is key. Before even finding a property, make sure they know you well and your real financials as well. Its almost a better bet to keep a continuous pre-approval every 30-60 days to ensure you can buy the right home immediately when ready. Find Mortgage Department executives as they are very quick and much more in the biz than their employees. You can usually find them at networking events hungry for business. Find a few and have conversations that are transparent so they can help you structure deals, while a few may walk away, many will help you especially if their role is only to sell the loan after they book it. Find two to three who work for brokerage firms and make friends with them, before even engaging them in business.
The Backers: If the lending side seems to be a bit of a burden and your cash flow won’t allow you to buy the entire house cash, you can still find a few backers. Many investors are looking for partners to buy and sell properties together. While one person’s cash isn’t enough, 3-4 people together create much more capital to play with. Finding the right people for the first 3 trades is often a good bet in order to generate enough to move into 1-2 properties on your own. Remember that the bankers like 30% down on investment properties and are nicer when approving large down payment deals than when trying to approve under 20% down FHA deals.
The Fixers: Just like buying an exotic car, it is key to know some amazing plumbers, electricians, and handyman who do drywall and remodeling. While you may find all these people in the phone book, the prices you receive won’t be profit friendly for you at the end. I have found quality connections on Craigslist as contractors go out of work often and love side work even when they are employed. Look for those offering to do work without owning a company, make sure they have references and are insured. Its a bit riskier but needed if you want to capitalize at the end.
The Right Trades: While everyone always looks for the lowest price, you should instead look for the best value. You need to look at every possible buy under two scopes:
1. What if you get stuck with it? Can it be rented? Is the investment going to make a profit on a monthly basis?
2. What is the margin of play? While something may list higher, it can also come down faster for the right person. The expression “cash talks, bullshit walks” comes to play often. Don’t assume, make an offer. I have bought $650,000 homes for $490,000 because the sellers were leaving the country and no one had offered anything.
Look for the best value and the properties you want, and then use your negotiation skills to bring them down, rather than get caught in bidding wars with people who all want the lowest price and will get stuck with the highest repairs.
Also look at the community around where you are buying as an indicator of future values and future sales. If all newer, there might be more foreclosures on the way if the lender cheated the buyers at time of purchase, especially on newer home constructions less than 5 years old.
Try to stick to non equity properties and homes that have lower Home Owner Association fees. Highly regulated properties make it harder to sell to lower income individuals even if the deal is great. Start with lower priced properties that you can secure for under a $100,000 and move up from there. This may be difficult if you live in an area where property prices are no less than $300,000 for an apartment like in New York or Los Angeles.