The regional real estate market has been on fire the last few years, which is inspiring many new investors to enter the market. These investors are primarily looking at either “buy & hold” or “fix & flip” properties but are learning it may not be that simple to get started.
Real estate investing is a complex world. When you filter out the noise on where to get started, it comes down to these areas: finding the right property, and funding the purchase and renovations.
Finding the Right Property
Location, location, location! This has always been the most important aspect of an investment property and that won’t change. What does vary is the condition of the property and the seller’s motivation. Finding that motivated seller (i.e. one that needs to sell ASAP) and the property that you can improve to gain immediate equity is the trick. So where do you find this property?
The MLS Real Estate is considered the retail market for properties. There are thousands of agents and their buyers looking through the MLS Real Estate each day for both dream homes and investment opportunities. Generally speaking, finding the right investment property will not happen on the retail market. I say generally speaking because you may find a motivated seller that has listed their property on the MLS Real Estate and would be willing to sell below retail market value or at the wholesale price.
Finding a house for sale off the retail market searches is the key to great real estate investment. You can find these wholesale priced properties in other places rather than on MLS Real Estate such as Craig’s List, For Sale by Owner, estate sales, as well as those properties that are not even listed for sale. Looking for properties that are neglected and look as though the owner may not be able to afford repairs is a great place to start. If they can’t afford repairs then they may not be able to afford payment, taxes, and insurance, which means they may be motivated.
Funding the Purchase and Renovations
Most investors are not using their own money to fund these properties. Most are using private money. Private money is not available through your typical mortgage lender that will either service your loan for the long-term or sell it. Private money on the other hand is short-term lending so you can buy the property and complete the renovations. Once the renovations are completed then you can either sell a property or you can refinance it with a traditional mortgage lender for long-term rental income.
The private money lenders will be willing to loan 70% – 75% of the property value after renovations are completed – the term will be 6 to 12 months and rates will be double or triple that of a conventional loan plus points to originate the loan.
This is just the beginning of the story with real estate investing. Once you find property in the right location, and at a wholesale price, the fun really begins. Renovations, much like you see on TV, and then holding or selling for profit is next. Risky business but highly profitable if done right. What do you think? Is real estate investing for you?