Real Estate Basics

[chisness]

I'm in college right now using poker as basically my only income. At the end of the year I plan to invest in some mutual funds since these seem easiest, least risky, and will let me frequently add money without paying new fees each time.

I feel like real estate investments would be more interesting since they're more "real" and possibly more profitable. I bought Real Estate Investing for Dummies (but left it at home). I probably should do some searches, but if someone could provide me with the basics, that'd be good.

Things I'm wondering about:
1) What are key factors for selecting properties?
2) Where do you buy properties from (auctions, foreclosures, newspaper ads)?
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.)
4) How do you advertise the property to get rentors?
5) For local properties, do you do maintanance things yourself (this would seem to make sense since it would only be one proprety to start with and would be cheaper)?
6) Should I save up for something I can afford (like a cheap apartment) or is it possible to get loans from the bank? I have no real income, but maybe my dad could do it for me? With these loans, do we only have to put ~10% down and then just profit from whatever the rent is over the mortgage?
7) How does this usually compare to the market in terms of profits?

[chisness]

bump for advice

[Brian R]

How much money do you have? RE investments are the way to go. I parlayed my bankroll into RE and have done quite well. One of the keys to RE is leverage so you gotta figure out your financing. If you really want to make money in RE remember that you make the money when you buy not sell. Buy right is the key and remember RE wealth takes time.

[chisness]

i don't have enough money to do this right now unless it's possible to finance a very large portion of the investments (probably only possible if a parent does it for me).

i do plan on doing this as i build up money throughout the next couple years though.

my understanding is that it's crucial to pick properties that are (a) undervalued and (b) able to be rented for a large amount. how do we best accomplish these?

[Brian R]

Yes those are both important but RE just like poker is a longterm "game", spending more for a better property with slightly less returns might be a better way to go. If you buy a single family house for example you can finance about 90% of the purchase price. If your mortgage, tax, insurance etc is less than you can rent it, your going in the right direction

[midas]

Do you have people do your tests for you?

Read the book then ask questions. Just like poker.

[chisness]

as i said, i'm at school and left the book at home. these are very basic concepts that are useful to hear from the perspective of a few people who have actually been involved with them, not just authors.

[BarkingMad]

[ QUOTE ]
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.

[chisness]

thanks. what is OPM? i assume it's something mortgage, but i won't have credit and even if i did, wouldn't it make sense to buy outright and not pay interest?

[Sniper]

[ QUOTE ]
what is OPM?

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OPM = Other People's Money