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awomen
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Posted: Mon Aug 13th, 2007 03:52 pm |
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Real estate is a good way to diversify your portfolio, to build wealth slowly and, in some special instances, not so slowly. Like any other business, you have to know what you're doing.
John Reed is a respected real estate advisor, a veteran landlord, the author of 20 real estate books and a longtime newsletter publisher, Reed has been rating the experts for 25 years on his Web site, http://www.Johntreed.com.
I would take his caveats/warnings very seriously, particularly regarding "real estate gurus" who will try to tell you it's easy to make money with nothing down in real estate, when their real agenda is making money off you:
John says: "this business requires capital. You've got to have it or borrow it.
"Nothing down" is not a strategy that works. I prefer the "save for the down payment" strategy.
Gurus pitch "bird-dogging" as an entry-level technique. This is new jargon used to describe a finder's fee - you find a good deal and pass along the lead for a few hundred bucks. But this is an activity for a licensed real estate agent. If something goes wrong, you could be in legal trouble in some states.
They also push flipping. Flipping is to real estate investment what brain surgery is to the medical profession. The folks who make money on quick deals usually own real estate brokerages with a staff to find cheap properties and a team of contractors to bring the property up to snuff. An individual doesn't have the man-hours to do this fast enough.
Q: Can't you make money fixing up a house and selling it?
Reed: Cosmetic renovations don't pay. The costs are so high that you can't recoup them when you sell. To profit from fixing up a property, it must be a wreck when you buy. Fix the worst problems and sell it as a fixer-upper. People will overpay for one because they underestimate the costs of renovating.
Q: But you'll make money if you buy and hold, right?
Reed: This is probably the way most money in real estate has been made, but it's not an investing strategy. If you cannot forecast or control something you invest in, then you are speculating. No one can forecast or control market appreciation."
So where *do* you start?
The first and most obvious purchase is your own home, because of appreciation, forced savings and tax deductions. If you want to see thiis all spelled out, go to
http://www.advancingwomen.com/real%20estate/why_buying_home_is_a_good_idea.php
The second area is one where I have made money and where I have some nuanced difference with Reed -- although there might not be a difference if we sat down and discussed it in detail. Although you cannot predict the future, you can predict the implications of the present.
To me, the simplest way to make money in real estate is to buy property which is in a transitional area - which is either *already* in transition or soon will be because of something you are going to do to change the nature of the property.
For example:
Residential areas: Look for a pricey residential area with few if any lots left. In older neighborhoods there are often smaller, less expensive houses on the fringes of these areas. If you see that several of these houses have already been upgraded to the level of the pricey area then you are not trying to predict the future, you are looking at a trend. If houses there haven't peaked, you can buy one at a reasonable price and sit back to gain the gradual appreciation.
You can also make money fixing up a house and selling it but the catch is, as John says, you can't flip it fast enough for the financing to work unless you're a big company in the business. What you can do is buy the house and live in it for several years while you fix it up - thereby avoiding an extra mortgage, then flip it in a couple of years when the time is right and move on to the next good buy/fixer upper. I know a number of people who do this, but they have to be willing to move ever few years, at least for the period of time they're doing this.
Other factors can speed up a transition: rezoning a residential area to commerical; an even more pricey condo skyscaper going in to a neighborhood, generally on the fringe itself; changing the land usage, say from rural to urban or cattle grazing ---- it takes a lot of acres for a cow to munch on--- to vineyards, which get a much more expensive product out of a lot less land therefore.....since this kind of land is valued for its productivity, the price goes up, sometimes many hundred fold.
Here are some real estate resources recommended by Money.com which might be useful for you:
Best listing site for sellers flying solo
http://www.ForSaleByOwner.com
This site is the most heavily trafficked in the world of FSBO; in fact, the average listing sells in just over two months, according to chief operating officer Colby Sambrotto. For about $200, you can add your home to the site's listings. Or pay a higher fee (up to $900) to have it put on the multiple-listing service. If an agent approaches you with a buyer, you'll have to pay his commission (between 2% and 3%), but that's half the cost of working with a full-service brokerage.
Best site to jump-start your renovation ( or that of a home you've invested in.)
http://www.LetsRenovate.com
Bigger bathrooms and custom kitchens are the stuff of homeowners' dreams. Actually remodeling, on the other hand, can be a nightmare. Not to worry. LetsRenovate.com guides you from the first decision - renovate or move? - to the final inspection. The site aggregates function (check reviews of ovens), fashion (see how others painted their bedrooms) and finance (learn how to do the whole thing under budget).( However, be warned: not many people are 100% happy with their contractors who are, in turn, dependent on subcontractors, some of who are unreliable at best.)
Best site for real estate window shopping
http://www.Realtor.com
Just plug in the zip code: the biggest online listing service, this site has more than 2.5 million homes for sale or rent across the country.
Best hourly rate for an attorney
http://www.Real-estate-law.freeadvice.com
The real estate law section of FreeAdvice.com covers common issues suc as easements and mortgages that buyers, sellers and owners face: Should I sign a letter of intent? Specifics vary from state to state so advice is general and basic.
Best bird's-eye view of a neighborhood
http://www.HomePages.com
HomePages.com gives you an eye in the sky. Enter an address, and the site loads aerial maps with retailers, restaurants, schools and other landmarks plotted ( although, like most maps, the info is probably a year or so old.)
I prefer picking out a neighborhood I become intimately familiar with then driving around it every so often to track any change or opportunity. Sometimes the same neighborhood can provide new opportunities for 10 to 20 years.
If you have any real estate techniques you'd like to share, we'd be interested to hear them.
advwomen
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