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FAQ For New Investors
This is a simple FAQ (a collection, of frequently asked questions) for investors who might be new to the real estate investment business. We will add to this over time.
Is real estate a safe investment?
No investment is 100% safe. But some investments are riskier than others. An FDIC insured CD would be worthless, if your bank collapses and the Federal Reserve goes under. But of course…the odds of that happening are SLIM TO NONE. There's risk in any form of investment, period.
I like comparing real estate to the stock market. When you buy shares in a corporation, you never know which way those shares will go. You can read financial reports, but you are not in true control of the stock price. It could go down by 25% over the next few years! But if you buy a fixer upper house for a below market price, and fix it up on-budget, you create forced equity. In other words - the value of that asset goes up in value whether you like it or not. It’s almost a guaranteed way to make money - if you do it right. You can then refinance the house & sometimes get all your investment basis back (in the form of a tax-free loan against the property) yet still have equity, and rent it out, and let the tenant pay it off for you … and you get the great tax benefits, increased rents, and a decreased mortgage over the years. Or you can just sell that house right after you're done fixing it up - and take a possible huge profit.
The key thing to making money in real estate…is to buy a house at a below market price, keep your repair costs in check, and know your future ARV or rental rates. Don’t think you cannot lose money…you can. Just be careful, be smart and learn as much as you can before making your first investment. Once you do your first investment, though, the second, third & fourth one become way easier.
Where do I buy properties at bargain prices?
The best ways to buy good deals, is from "any source you can get it". Haha! The MLS is the most traditional way people buy & sell houses, but the problem is the best deals tend to not be on the MLS. Or if they are, they are sold nearly immediately or bid up high in price. Wholesalers and your own marketing tend to get you the best deals. The problem doing your own marketing to buy homes, is you can blow $10,000+ on advertising…and you may find you get no properties. So you have to know what you're doing. When buying from wholesalers, they tend to have properties that are very good deals.
How do I tell if I am getting a good deal?
Always, always, always -- do your own ARV (estimated value after the house is fixed up, or "after repair value") and repair estimates. It's A-OK to listen to the property seller, wholesaler or real estate agent - but always do your own due diligence - and make no exceptions to this. Most ARVs and repair estimates are just that … ESTIMATES and not 100% accurate … so it’s good to gauge your own numbers against what is being advertised. This will help protect your investment dollars. And note by buying below market, that substantially lowers your risk in the event the house does not sell for as high as you want and/or their are unexpected repairs (which can and does happen from time to time)
How do I determine an ARV or rental rates, and how do I estimate repairs?
You can run your own comps and get an ARV, by consulting with a licensed real estate agent, getting MLS access yourself or using a website such as Propelio.com (which is worth it). And it takes time to learn repair estimates, and those figures can vary greatly depending on both your contractor connections (some guys charge 2-3x as much as others), and your experience / knowledge of construction --- which can and will grow with the more houses you do, and the more you learn about the business. You can also hire a general contractor to help you too.
Is real estate worth getting into?
Absolutely. It can be very profitable, and a fun business. But like learning to drive a car - it can be dangerous if you have not have had any lessons. Take the time to read / learn, and then start making some investment moves. And note there are many forms of real estate investing too. You can invest in mobile home parks, raw land, houses, condos, townhomes, or even commercial properties. You can fix & flip houses, owner finance them, rent them. You can subdivide land, build storage units, build warehouses, build new homes … and so much more.
|FAQ For New Investors|