Fix-Up and Flip Properties
Real estate is a risky business, and there are no guarantees on every piece of land or property. Be careful and educate yourself before dropping a big chunk of change on any property. First, you need to know the difference between speculators and investors.
Real estate speculators aren't the same as investors. Speculators buy and sell quickly in order to make a fast profit. Investors seek out long-term gains and look for what they can afford to keep for the long haul. You must consider your finances carefully to determine which option is right for you. If real estate investing is new to you, hold off on speculation until you're more familiar with the market. And consider consulting a property specialist to help you get your feet wet without getting soaked.
For the novice real estate investor who wants to own physical property, there are two good options: small rental properties (like single- or two-family homes, or four-apartment buildings), or a house that requires some fixing up. Of all the ways you can invest in real estate, single-family houses may offer the clearest opportunities for new investors, mainly because they're very easy to acquire and usually easy to sell.
If you take a day to paint instead of hiring a painter, do you really save that much? If you hire a painter, you can spend the day finding another bargain property — perhaps one with a $20,000 profit margin. If it takes you 100 hours to find, fix, and sell this property, you have, in essence, paid yourself $200 an hour!
You may be able to reap big profits by buying older, run-down homes and restoring them for resale. This is a very common way for investors to approach real estate, and while it can bring in some tidy profits for some, it's not for everyone. Here are some factors that you'll need to consider before making the decision to invest in a fixer-upper:
Expertise. You'll need to know at least something about building design and construction in order to have an idea of how much work (and money) it will take to get the house into good shape. Figure out what you can do yourself and also how much it will cost you to hire someone else to do it. Remember to factor costs for building materials, contractors, and your time into the property's purchase price.
Staying power. Do you have the patience to withstand the problems that are bound to crop up as you restore the property? Real estate can be a bigger commitment than many people expect. Plus, in down markets, property — even fixed up, premium property — can be difficult to sell for a profit, and you may have to wait for prices to go up again.
Inspection. Hire a professional home inspector to do a comprehensive inspection of any property before you agree to purchase it. It's critical to be fully informed of all the potential pitfalls you might encounter once you start rehabbing the property, but keep in mind that no inspector will be able to spot all the problems.
Location. The location of the property is the most important factor to consider. Study the neighborhood, shopping, and transportation facilities. Think about how the property can be used based on its location and zoning. Residential rental property in a good school district will attract young families. Property with easy highway access could be very valuable for commercial purposes.
If you want to invest in commercial property or executive rentals, look for property within thirty miles of a city. If you are willing to look outside the cities, you can usually find inexpensive land. If you discover a tract of land that appeals to you but is not listed for sale, you might be able to track down the owner by visiting the county register or calling the county appraiser's office. You can always try to contact the owner with an offer — she just might be willing to sell.
If you decide to rent your investment property, be prepared to get rental insurance and property insurance. Your homeowner's policy most likely won't cover renters, and you need protection against any damage done by your tenants. This also covers you if tenants try to blame injuries on you.
Most real estate professionals will tell you to stay conventional in your real estate investment strategies and not to buy white elephants. Of course, you must also look for hidden defects in the property before you buy. If you find any problems after the purchase, you will be the one who has to fix them, especially if you're trying to make the property attractive for resale. Pay attention to what's going on locally, and be sure your planned purchase makes sense. Will there be a demand for this kind of property in five or ten years? Always be on the lookout for things that make a sale easier, like a bargain property or extraordinary features.
Potentially profitable real estate opportunities exist during good economic times and bad, but it is critical to make wise decisions and pick carefully to get the best deals. This can be a tricky proposition for any investor, especially when property values are at their peak, or when a tight credit market makes securing a loan seem harder than winning the lottery. The following example illustrates why you should take demand and location into account in purchasing a property. After watching their children grow up and go off to college, a couple decided they did not need such a big house any longer, so they bought a beautiful place in upstate New York that needed some work. They made improvements and additions, and after just two years the house had increased in its appraised value. However, the house next door was empty. The bank had foreclosed on it, and the structure sat empty and unkempt. Furthermore, an important local industry was laying off workers. To make a long story short, the couple saw that if they wanted to sell, they would have to drop their asking price substantially.
A house with an empty property next door in an economically depressed area is not desirable enough to sell for its appraised value. Any property is only worth what the buyer is willing to pay for it.
