A Beginner’s Guide to
Real Estate Investing
grim economic outlook for some industries, one sector is gaining viability --
real estate. According to the 2016 Emerging Trends in Real Estate
which was released by the Urban Land Institute earlier this year, trends such
as “18-hour cities” and millennial parents increasing moving from urban areas
out into the suburbs signal that real estate as an industry is gaining strength
every passing day in 2016. One lending officer at a large financial institution
even went to far as to say that “the next 24 months look doggone good for real
These trends means that real estate is a smart place
to make an investment and grow your wealth. A housing shortage means that
flipped homes tend to sell quickly and for high prices, and an increased demand
across all age groups for rental properties means that finding tenants for your
buy-and-hold properties should be a breeze.
Of course, these trends also mean that the real
estate market is highly competitive right now. If you want to make a foray into
real estate investing, you’ll need to educate yourself and be strategic in who
you work with and where you look for investment opportunities. Read on for our
beginner’s guide to real estate investing.
Assemble your real estate team before you buy
relationships with your team will empower you to make serious offers that will
more likely get accepted by sellers. Among your team members, you will want to
?A mortgage broker or banker, who can help you get the financing for your deal
?A real estate attorney to protect you by reviewing and revising contracts
?An appraiser who can help you get a correct appraisal for your potential property
?An accountant who is well versed in real estate investments
?A good contractor, for repairs whether you’re rehabbing or buying rental property
How to find rehab or wholesale deals
You can buy
properties to fix up and resell (flip) or you can buy and hold properties that
you rent out for monthly cash flow.
of flipping properties is that you can end up with a good return on investment
(ROI) in the short term. For example, you buy a property for $100,000, and
invest $50,000 into repairs. Once it’s rehabbed, your property is valued at
$200,000, and you sell it for a $50,000 profit.
This is an
extremely simplified version of ROI. There are many other factors that you need
to determine to see if the numbers work in your favor — that is, you’re not
overpaying initially when you buy the properties or for the renovations or
properties means that you will need to spend more time looking for fixer uppers
that may be under market value. These may be more difficult to find in a hot
market with rising property prices. Beyond the actual purchase price, you will
also need to factor in fixed purchase costs for inspections, closing, and
need to factor in holding costs. Your budget should include funds for making
repairs, whether you are doing them yourself or hiring contractors. While
you’re upgrading the property, you’ll need to carry mortgage payments, property
taxes, utilities, and insurance.
rising property values, fix-and-flip deals in good neighborhoods can be hard to
find. But once you know where to find rehab opportunities, you can easily
repeat the process by reinvesting proceeds from a previous flip into the next
property, which can be bigger, in a more desirable neighborhood, or finished
out more luxuriously, and therefore sold for more cash!
the right real estate professionals will help you learn which neighborhoods to
consider and determine where you should focus your search. We can help you find
the right fixer-uppers that may be under market value. Also, a Realtor will
have access to many properties that may not be publicly available.
Finding buy-and-hold rental properties
rental property is one that your purchase with the intent of renting it out to
tenants. If you find the right long-term buy-and-hold rental property, you can
earn consistent cash flow each month, which can be a great source of
You’ll need to
carefully review the operating expenses on the property and what tenants are
willing to pay for the space to know if you’ll make or lose money each month.
For example, say your total costs to buy a duplex was $20,000, including down
payment and closing costs. You can rent each of the units for $600. Assuming
your building is 100% occupied, you’ll make $1200 per month in income. Your
expenses include mortgage payments, taxes, insurance, utilities, and management
fees, and you want to set aside some cash each month for capital expenditures
and routine repairs. You calculate that your expenses add up to $1100 per
month. Once you subtract your expenses from your income, you’ll have a positive
cash flow of $100 per month.
this is a very simplified example, and it doesn’t take into account that
problems will inevitably arise. Emergency roof repairs, heating system
breakdowns, broken windows that need replacing, and other unexpected expenses
can eat away at your profits. One of your units may be vacant for a month or
more -- for example, vacancies are high in the summer months in buildings
around universities -- or you could have a tenant who fails to pay their monthly
The more you
can anticipate problems before they happen, however, the easier it will be for
you to recover from setbacks! Moreover, rent isn’t the only way to make money
on a buy-and-hold property. You can also add amenities, such as coin laundry
and vending machines, to increase your potential monthly income. If your
property has space to add a billboard, you can earn advertising revenue from
renting that space, too. And when you decide to sell, your property’s value
will likely have increased both from the overall rising property values and by
the improvements you made to increase the cash flow.
Once you find
and invest in your rental property, you’ll need to decide how you want it
managed from month to month.
Getting the right property manager
Do you want to
manage your own property or hire a manager? Property management can become a
full-time job. As a property manager, you’ll have to deal not only with
maintenance, repairs and tenant issues, but also with insurance, fair rental
regulations, and building code compliance. So if you’re not an expert in these
areas, managing your own properties may not be worth your time and effort.
professional manager can save you headaches over the long term. While you’ll
have to factor in management as a fixed expense, your property manager will
likely know how to better take care of routine repairs, tenant issues, and
keeping your property near 100% occupancy.
estate professional can refer you to reputable property management companies to
help you take care of your investment.
Where should I start investing in local real estate?
Work with a
knowledgeable real estate professional who knows about the different neighborhoods. We can help you
find properties that will fit into your budget and your overall goals. Whether
you’re seeking a duplex or multifamily property so you can maximize your rental
income or whether you want a condo or single-family home to improve for resale,
we can guide you to the best property to suit your needs.
Contact us to
learn more about investment properties in our area. Joseph is our most valued REALTOR with great expertise in this field. He has developed over 100 Condominiums in our areas. Call Joe today at (978) 815-3877 to tap-in on his experience and knowledge!
Joseph Militello, Realtor
VP, J Barrett & Company
Source: The Paperless Agent