July 14, 2012
Topics: Real Estate
Real estate investing is one of the most common ways for people to accumulate wealth. You can buy houses, apartment buildings, office space, retail space, etc and rent it out. You can also make money from appreciation, assuming that real estate prices are rising. To generate a quick profit some investors buy distressed properties, fix them up, and put them back on the market at a premium.
Real estate is also a great tool for generating cash flow, and falling home values have made it easier for investors to generate a positive cash flow. A trend over the past couple of years have been depreciating house prices and rising rents, an ideal situation for a real estate investor.
A thing to keep in mind is that real estate is really a function of jobs and the strength of the local economy. A dynamic and vibrant local economy will support property values and offer an ample supply of qualified tenants.
Many investors are starting out buying a small house or a condo with the intent to rent it out. This may be a profitable venture but the real money is made by buying larger units such as duplexes, triplex, fourplex, apartment complexes, etc. These larger units are more expensive but they offer a much wider margin, while a single condo is not really designed to generate a lot of cash flow.
Buying a condo is a great way to start out but just keep in mind that the real money is in these larger units. If it is too much money to buy a duplex you can always team up with another investor. There is no âoneâ way to do things. There are a lot ways of being creative when it comes to financing in real estate. I will cover a couple of ways you can come up with financing for your next real estate deal.
1 â The conventional and most common way of financing a property is just by saving up a down payment and getting a mortgage from a bank. This is a straightforward process and the most common way of acquiring financing. Most banks will give you a loan with a 20% down payment, assuming your credit is good.
2 â In some cases you can actually finance 100% of the propertyâs value by being creative. Let me give you an example. Letâs say that you are buying a property for $115,000, the rehab cost is $10,000, and the financing cost is $2,000 making the total cost $127,000. Then you find a bank that will give you a generous appraisal. Most banks are willing to lend you 80% of the appraisal value, so as long as the appraisal value is $158,750 or higher the bank will finance your entire purchase.
3 â Being the middle man and paring up other investors is another way to raise money without having to make a monetary investment. For example, some investors go to find doctors and other professionals that are leasing office space. By pooling several people together they can buy a commercial building â thereby lowering the monthly rent for each of the tenants / investors and giving them an ownership stake. By organizing the deal you will keep a portion of the equity for yourself. You can also charge a management fee if you choose to manage the property.
4 â If you donât have capital for a down payment or if you are lacking the credit for a conventional loan you may be able to structure a deal through lender financing. This means that the seller of the property also becomes the lender. You will make payments on the property until it is paid off; at that time the title will be signed over to your name. This can be a win-win situation for both parties â the seller gets a stream of cash flow and you get the property without having to put any money down.
Regardless of how you structure your deal, the most important thing to remember when it comes to real estate is that everything is negotiable and there are a lot of different ways to structure deals. You just have to be creative. Those that have made a lot of money in this industry have found ways to use their ingenuity and leverage their capital to create wealth.
To learn about trends and spot the next investment opportunity read the Casey Report from Casey Research. It's a monthly investment news letter that breakdown economic trends in a way that is easy to understand. They make recommendations based on economic reality and their track record is several times better than the market or any mutual fund for that matter.
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