Real Estate Investing Tips

Tips on investing in real estate

Introduction

I am a software engineer by profession but slowly I discovered that I am an entrepreneur by nature. In this blog I would cover how an average person with no background in real estate can make money in real estate. Like any other area this also needs some work and study to do. But I want to share my knowledge and experiences with you about it, so stay tuned, we will cover as much as we can
in every presentation blog post. Before starting I would also like to put a disclaimer that this is not a professional advice, I am just sharing my experiences with you. So please do your own research before you make any decisions. I am just trying to provide you some guidelines, guidelines that I used and I am by no means an expert. If you have questions about anything that I covered in this blog, feel free to write to me at seegupt@yahoo.com

Ways to invest in Real Estate

There are lot of ways of making money in real estate, I will cover few of them here.
a. Buying a Pocket Listings.
b. Buying a pre foreclosure that is in notice of default, but be aware that you do everything with ethics, some of the
states like california has very stringent rules for people who buy from people who are in notice of default.
c. Buying from an auction
d. Buying as an REO
f. Buying for a discount from owners by finding out from lawyers and accountants.
g. Buying disowned properties.(keep an eye in your neighborhood)

Long term buying, buying for a long term appreciation. If I buy anything for long term, my philosophy is that if I am putting my hard earned cash into something, it should give me something in return on a regular basis, monthly or quaterly.

Short term buying, buying a real estate for flipping is called short term buying and generally you make a short term capital gain on that.

Long Term & Short Term Gain

So what is long term and and short term capital gain, most of you must be aware of those things, but for those of you who don't know I will cover it here in simple words. Short term gain is an income that you earned within a short period of time and that short period of time is defined as one year time frame by the government. e.g. you bought a rundown house on 1st march and you fixed it with in a month and sold it and the deal got closed on 1st may and made some profit on this transaction. So time period of this complete transaction from buying to selling was two months, so the profit that you made on it was short term gain. Another example is stocks, say you bought some stocks so short term is always taxed on your tax bracket for that year. Suppose your total income for that year was X amt and which
including the income that you made through that real estate transaction or stock transaction, falls under the tax bracket of 30%, so you will pay 30% tax on that income also.

Long term capital gain. It is opposite of short term gain, but the tax rate on long term gain is 15% flat, which is a lot less because government want to promote this long term investing behaviour in people as it creates more stability in the market.


Making money in real estate if you don't have any

How to make money in real estate if you don't have money? So many times I hear people say that how can I make money when I don't have any. That is not true, I guess it's just about figuring out things. And I am a firm believer of the philosophy "where there is a will, there is a way"

So let me explain what I am talking about. I was working with a guy who did not have any money to buy real estate, but he was very good at finding good deals. What he used to do, he used to buy a property (just to conceal the identity of this friend of mine, we will call him Joe Wayne)as "Joe Wayne and/or Assignee". And then within the contigency period of the contract he would find an investor who has the resources to buy this property because it is a good deal and the investor looks at it as a way to make money. So Joe would assign his purchase contract to this investor and take an assignment fee. So now Joe made some quick cash without having any cash with him. Isn't that cool.


Where to invest in this market

As we all know that this is a bearish market and bearish market that noone has seen in last few decades. It all started with subprime lending. Lenders started giving loans to people who did not qualify and on top of that the loans were -vely amortized. But you making a long story short, so as a result of all that we are here.....global recession....
Prices of everything has gone down and the industry that was hit worse by this is where it all started, real estate. The prices of property have gone down tremendously. I guess they went down from 70-80% to 20% depending on the area.

It's not good for anyone. But every kind of market creates opportunities for those who are lookers who keep their eyes and ears open. This market created a lot of investors. Investors who were wise and didn't bet all of their hard earned money in stocks, they are coming out to buy discounted real estate.

So this is what people are doing right now, they are looking at their cash resources, if they have enough resources to grab couple of properties with 20-25% down payment(as the requirment has changed now for lenders, now they ask for 20-25% down payment and they are more stringent for investment properties. Do your calculations that after paying your down payment, can your rent from that property cover your mortgage, property tax and insurance and renter's insurance) and if answer is yes and it also gives some cash in your pocket then as per me it's a great buy.

Buying a SFR vs Townhome vs Condo
Should you buy a single family home, a condo or a townhome. So it all depends in what kind of market you are and also what is your long term or short term goal with your property purchase.

Buying a single family home should be your first choice in any kind of market and with any kind of goal, why because it's turn around time is quick. When you go to market to sell your house, the time it takes is very less, your target audience are more, most of the times there is no HOA in case of a single family. Now when you want to fix a property and flip it, your best bet is a single family house because you want to turn it around quickly, get a profit and get out quickly. And when the market starts changing or starts to go down, single family homes start getting effected in the end as opposed to townhome or condo.


But now if you are buying for long term, there are other factors that come into play. As I said earlier that your best bet is to buy single family only but you can say that buying a single family is expensive and it's not giving me +ve cash flow. In that case, you should look for other options, then look for a town home. Townhomes are not as good as a single Family but they are certainly better than condo. But if you think they also cannot produce +ve cash flow. So buying a condo should be your last resort. Because we are getting a good deal on every kind of house in this market so you know you can pretty much say that when the market goes up everyhing will go up, may not be by same percentage, but still made some money.

Protecting Your Assets
Protecting your personal assest from any lawsuit, now say you own a couple of rental properties in your own name that are giving you rental income and also some +ve cash flow. I know most of the times people are nice and with good conscience. But there are some bad ones also out there and say you got stuck with one of them as your renter, now something happens, e.g. a fire happened at the property and renter gets burnt and he knows that you are a guy with somewhat deep pockets and he can take some of your money, he will hire a good lawyer and file a lawsuit against you and the settlement amount is way more than what you bought that property for in the first place. Now what do you think will happen if that investment property was in your name. You guessed it right, your other personal assests are in danger. So I would recommend that first of all you form an LLC and then when you have renters, take renter's insurance and thirdly, buy liability insurance also for your LLC in case something happens. Based on your market and other situations make a judgement for how much amount you should buy the insurance for.

Building your own team
Now think if you have to buy a property who all you might need. First of all you need a real estate agent who can help you in the whole process of buying a property, then if that house needs fixing up, then you need a good team of contractors, slowly try to make a good team with help of your friend's or agent's referrals. And use them again and again in all your projects, they will be loyal to you and they will also give you good price to do the work. Once your house is all fixed up and needs to be rented out then you need a good property manager to help you in renting out the property.

Now some people say why do you need a property manager you can manage the property yourself. So I will say, hey good go ahead and do that if you have time, but if you are having another full time job or another full time profession/career and you are buying these properties on the side then hiring a property manager is a good option because as such your life is too busy, why do you want to increase more work for yourself, if you have a rental property, something or other will keep breaking in it in every couple of months. If you own a house you know exactly what I am talking about. Do you want your renter to call you at the middle of the night to tell you that flush of one of the toilets is not working and that needs to be fixed urgently and next day morning instead of going to do your regular work you are running around to get that fixed, I would say let someone else handle that for you and you sleep peacefully. My philosophy is that I am buying these properties to better my lifestyle, which means I want to create more money and more time for myself and if I don't hire a property manager and start doing the things that i said earlier than I am taking my current lifestyle also down the hill.

General

Now I will cover few general things, guys whatever you do, always have an attitude of abundance, if you missed a deal, don't think this was the last deal you could have gotten, if you made less money on a property because of any of your mistake don't keep dwelling on it thinking that this was my last deal and I could have made more. Always have an attitude of abundance. There is plenty for everyone in this world, it's just that we need to keep looking and if we keep looking with the right attitude, we will land in the right opportunity. Guys again, I am not an expert in any of the areas I talked to you about so far, so definitely do your own research before jumping into anything
and last but not the least, learn to trust your instincts.

If you have any questions, I would be more than happy to answer if I could. You can reach me at seegupt@yahoo.com
If out of your questions some topic comes up that I may not have covered here, I will do another blog to cover that.

Hope you enjoyed reading this blog and have fun investing and enrich your life and lives of people around you. You can do if I did it and I did not know even A of accounting, taxes or anything and I never even wanted to learn about those things, I was getting a pay check and that's about it.