Are you an avid real estate investor? Do you have some extra disposable income and have been exploring the possibility of doing some rehab houses? Are you a realtor that is looking to take the next step and advance your real estate career? Are you a past investor that got out of the business because you were not making the margins you expected? If the answer to any of these questions is YES, then read on.. When looking for an investment property –there are several questions to be asked. First, do you want a minor cosmetic fix up or a major renovation? This answer usually depends upon the skill level of the investor and/or his/her contractors, the time that the investor wants to put into it, how many current properties are outstanding in his/her inventory, and how much profit you wish to make. For instance, many investors now do very little of their own work. Ideally, they hire contractors that will guarantee a low rate due to the volume of work that will be provided. You may be thinking that if you hire the work out you will not make as much money. FALSE. This is called working smarter and not harder. You can treat your investment/rehab business like a general contractor new home business. When is the last time you have seen Mr. Builder Class A Contractor swinging a hammer, nailing a two by four and walking on the roof to place sheathing? If he is a profitable builder, I will submit to you the answer is NEVER. Your time can be more wisely spent pursuing the deals, determining when and what to buy, and directing the subs to ensure timely completion of the work. Obviously, the major renovation will be more time consuming but the margins will be greater. This poses the next question. Are you better doing five large projects and making $100,000 or doing ten little cosmetic fix ups and making $100,000? If you are just an investor, then the answer is probably you don’t care. If you are a realtor who also happens to be an investor, the answer should most certainly be TEN FIX UPS. Why you ask. That gives you five additional properties with which to gain commission on its purchase, pick up many, many clients upon its return to the market, and save commission upon its sale. If you are a Realtor/Investor your profit mentality must be different than your Investor. Your visibility in the investment market also helps to add to your visibility as a realtor both for prospective buyer/sellers and also to assist prospective investors. Remember, there is enough investment property to go around. You must have an ongoing relationship with your local bank. A line of credit should be established to give you the ability to purchase property for cash. Yes, CASH.. this word speaks volumes for a seller who usually is in financial disarray, which is why their home got in the condition it is currently in. Your bank may even, depending upon your credit situation, offer to give you fix up costs rolled up in the loan amount so that you are out of pocket virtually nothing initially. A frank discussion along with a well documented business plan with your background should be provided to your lender. Don’t be afraid to ask for purchase money and fix up money for all of your purchases. The other thing to consider when buying is whether or not to do a home inspection. They are just about useless for distress property. If you are an astute contractor or investor, a thorough look at the property should give you what you need to make a viable offer to purchase. NO INSPECTION AND CASH WITH A QUICK CLOSING usually will seal the deal.
If you are not a realtor, you should think strongly about getting your license. You are leaving money on the table that could add to your margins if you could represent yourself in the transaction. There is a whole different section on the pros and the reasoning on whether or not to pursue differing properties if you are an agent. If you choose to use a realtor, select them wisely. Use one that is familiar with investment property. They can provide an abundance of information from areas to buy where properties sell quickly to where to spend your money in fix ups - What really matters to the consumer. Contrary to what you may think or have heard, this market is a great investor market. You can buy low now due to the slowdown in the market and the increased inventory. It is imperative that you spend your money wisely on rehab – your house has to really stand out among the others on the market. It is also wise to choose an agent that is innovative with technology to give you the edge over all others that have listings similar to yours on the market. Most importantly, if you are going to do investment property you must have a strong gut. You can’t second guess your decisions and definitely can’t get antsy if a property stays on the market longer than expected. Remember, you will have more gains on some properties and more losses on some. The measure of success of the real investor is minimizing losses, and maximizing profits with inherent risks. This is done over the long haul. If you would like more information on investment property, or how to become a Realtor/Investor, please contact me.
Compliments of: Kathy Holland, Broker/Owner Resource Realty Services
