By Lindenberg Junior
Back in the days of the Wild, Wild West, when easterners traveled across the U.S looking for opportunity in the newly opened territories, they were often referred to as a “tenderfoot”. This wasn’t a complimentary term but it was a rather apt one. The easterners wore “city” shoes that weren’t designed to withstand the rigors of the western terrain. Their hats didn’t have wide brims to protect them from the sun and their clothing wasn’t made of tough material like denim.
These new westerners didn’t know how to take care of themselves and because they didn’t know where and what the dangers were they didn’t have any idea how to avoid them. If you are just beginning to consider the idea of investing in real estate you are a tenderfoot and you do need some instruction to avoid losing your shirt…and pants. First you will need to determine what is gone be your strategy. Do you want to buy, fix it up and sell it quickly or do you want to buy a property, hold it and wait for the market to increase? Do you want to deal with renters? All of these questions are ones that you need to answer before you invest in any piece of real estate.
You can learn how to investigate the value of properties yourself. There are several online sites that are helpful in determining the real value of real estate. Do not rely on tax values. They are not reliable and they are not accurate either. Another option is using a friendly realtor with much experience in the market to assist you in this starting process and then work out with him/her for the buying process.
After you have learned how to determine property values yourself and/or have chosen a real estate agent, the next important step is to find a good mortgage broker. Your real estate agent usually has trustful associates brokers to assist you find out about interest rates and closing costs. Take copies of your three credit reports and choose a sample property for each broker to run hard numbers on.
The next step is to choose the lowest price house in the best possible neighborhood to put a contract on. Remember that a realtor with years of experience usually knows good deals in short sales and forecloses. Let’s say the cheapest two bedroom house in the best neighborhood of Anaheim cost $300.000 and the next cheapest, comparable home is listed for $330,000. If you buy the home that is priced at $300,000, you can raise your price to $315,000 or $320.000 the next day (flipping) and make a dandy little profit. Most Americans is a bit lazy to make small repairs and usually prefer make offers to “ready to move” homes.
As mention above, a good option is buying a house with simple things to work out like the front/back yard or simple repairs to be made like wall paint and wood floor set up. Before you close, you might want to think about a Purchase and Renovate loan. A Purchase and Renovate loan wraps the cost of construction up in the loan so you don’t have many outof- pocket expenses. This may require an estimate from a general contractor and plans from an architect as well.
Let’s talk about closing the deal. First show the seller your pre-qualification letter from your lender. Then get the required inspections for termites and get your appraisal. Once you have all of your “ducks in a row” so to speak, it takes about 30 days to make the final close. Back to the “strategy” theme, is time to think in some “action” for flipping it during the next weeks; make the renovations to sale it later; or if you bought with the strategy of renting, is time to looking for tenants. The point here in this article is to show you that having a strategy for profiting from the purchase of any piece of real estate must be your first decision because everything that comes after that is dependent upon it.
There is the tired old real estate saying, “The only three things that matter in real estate are location, location and location.” That really is not necessarily true. Do you remember playing the board game Monopoly when you were a kid? Remember those first little properties that were located right at the beginning of the game? They were cheap. They were really cheap. If you bought one of those rights out of the gate, so to speak, you could have a hotel up on it almost immediately and every player in the game was going to have to land on it and pay you. It was a pretty good location but not an expensive one. It was one that you could afford to make improvements on quickly.
There is a good rental market in an urban area. There are lots of people who need housing and that housing is very often government subsidized. Areas near Universities have great potential for investors and those with focus in rental. Investing in real estate did bring thousands of dollars to the pocket of millions of people in America for many years and it can be a very good decision if you have some money, a good credit and a smart strategy, but you should always do your homework before you any real estate investment.
* Special thanks to realtor Vladimir Bellemo for the support and consulting. Vlad is a professional with many years of experience in Real Estate business, specially foreclosure and short sales. He is based in Orange County, California and also speaks Portuguese and Spanish – www.bellemo.com