Real Estate Investing 101: The Basics

Real Estate Investing 101: The Basics
  • Opening Intro -

    Flipping houses is a fun and profitable adventure, right?

    Well, don't let the "flip this house" type television shows fool you: it is hard work to buy and sell real estate; making a profit isn't automatic either.

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Done right, real estate can prove immensely profitable and provide a comfortable living for you. To achieve your goals, keep in mind the following points as you set out to build your investment:

1. Build up your funds. You need money to make money. To buy real estate, you will need access to a lot of cash, enough for a down payment. Even better, have the entire purchase price available to buy the home. Cash talks loudest when buying real estate.

2. Know the market. You don’t have to be a real estate professional to know how to invest, but completing a training seminar can help you understand the market and how it works. Become a student of the practice, familiarizing yourself with how the industry operates. You can also join web communities, read books and follow your local market closely.

3. Ready to sell. Find out which sellers are motivated to strike a deal. You may have your eye on a prime piece of property, but so might a lot of other people. Your best deals are with properties that have been on the market at least 30 days and with at least one price drop. A seller may be particularly motivated if the home is languishing and the price has dropped multiple times. Keep your eyes open for distressed properties.

4. Bring along help. Before you place your bid on the property, bring along a friend that can evaluate it. You need to be assured that the foundation and overall structure are sound. You also need to have an idea how much money will be needed to bring the property up to par especially if you intend to sell it. The house may need a new roof, a fresh coat of paint, a new lawn, and other repairs. Know what your costs will be and factor in those expenses when determining if a home is a worthwhile investment or not.

5. Place an offer. Make an offer on the home. If accepted, work diligently to close on it as soon as possible. Unoccupied homes can be closed in under 30 days if your paperwork is in order. Occupied homes take longer to close.

6. Find a tenant. If you plan to keep the property, make required repairs immediately, then find a tenant. Look for an individual with a sound credit history and charge enough rent to cover your mortgage, property taxes and related expenses. Have the tenant sign a one-year lease agreement.

7. Build up equity. Keep an eye on the local market to gauge where housing prices are going. If your market is on the upswing, then you’re building up equity through its increased value as well as your decreased mortgage debt.

8. Tap your equity. If you plan to invest in more real estate, repeat the process by tapping the equity in your investment property to fund a new endeavor. Keep in mind that you will hold down costs by overseeing your growing real estate portfolio yourself. If you bring in partners you will dilute your share, but you also may have the ability to expand your holdings faster.

Investment Considerations

Residential real estate investing is a popular way to get, maintain and expand an investment base. Also consider commercial properties including strip malls, office buildings, and land as you expand your portfolio. Lastly, understand your risk tolerance — the riskier the investment, the more likely you will lose money.

See AlsoSayEducate: Purchasing a Foreclosure? What You Should Know.

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About Author

Matthew C. Keegan

Matt Keegan is a freelance writer and editor as well as publisher of "Auto Trends Magazine", an online publication. Matt covers campus, consumer, business and financial topics on various websites and weblogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".