Re: Real Estate Basics
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Things I'm wondering about:
1) What are key factors for selecting properties?
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Location - Properties close to city centers generally appreciate faster than those further away.
Cashflow - Properties further away from city centers generally cashflow better than those closer.
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2) Where do you buy properties from (auctions, foreclosures, newspaper ads)?
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Auctions, foreclosures, probate deals, etc all work (Iv'e never done them though) but they require alot of time & sometimes alot of upfront cash.
I'm small time (I own 2 duplexes & a house), but for what it's worth, here is my opinion on a good way for a young person w/ limited cash to get started (its how I did it).
1) Take a basic appraisal class, or get a book and teach yourself how to appraise RE. IMO the RE market is pretty inefficient (more so by far than the stock market). Knowing how to do your own appraisals will give you a large edge in finding good properties.
2) Befriend a good RE agent, and ask if you can use their logon to the MLS (yes this is against the "rules" but its worth it). With access to the MLS you can stay right on top of what properties are new on the market (the best properties go fast). This will give you a time edge on the average buyer, and it works for the agent because it reduces his work load (all he has to do is physically show you the property after you've done some preliminary research). He may even be willing to work a deal where you get some of his commission (if you have truly made a friend, & you are truly reducing his workload).
3) Look for multifamily properties (duplex, triplex, or 4 plex; because they cashflow better), the mission being to buy it w/ owner occupied financing (better interest rate & lower down payment) and actually live in it while renting out the other unit(s). After living in it for a year (to satisfy morgage co. requirements for being an "owner occupant") the process can be repeated over again. It's called being a 'serial owner occupant'.
Keep in mind that with the lower down payment you'll be making w/ owner occupied financing, it'll be pretty difficult to actually work a deal where positive cash flow is generated. This isn't as traumatic for an owner occupant as it is for a pure investor because - 1) It's your home, which can be viewed as a sunk cost regardless of whether or not you are a RE investor. & 2) you'll have time & appreciation (hopefully) working for you while you live there.
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3) Is buying then renting out the easiest method? (I don't believe I'd have the resources/capability to do things like buy, fix up, and sell.)
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W/ my duplexes, I bought, fixed up, then rented. You don't have to have 'mad' contractor like skills to fix up. Painting, cleaning, basic drywall patching, etc is all you really have to do if you buy the right property. If you can do electrical & plumbing you'll save alot of money, but you can get along otherwise.
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4) How do you advertise the property to get rentors?
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Craigslist
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5) For local properties, do you do maintanance things yourself
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Yes.
Being a landlord can be a pain at times. Being a landlord for a property that is a long drive away would be a nightmare. Both my duplexes are w/ in 15 min drive of home.
Being a serial owner occupant solves this issue because you live there.
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6) Should I save up for something I can afford (like a cheap apartment) or is it possible to get loans from the bank?
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Use OPM. Always. Banks want your business, provided you have decent credit.
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7) How does this usually compare to the market in terms of profits?
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Just like the stock market, RE can put money in your pocket or it can hose you, depending on market direction after you buy. Given an appreciating RE market & and appreciating stock market, it compares very well.
During the first year of owner-ship, your return (on money invested, ie - downpayment) can easily be 100% of more.
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