Real Eastate Investing

Invest in Real EstateBrian Tracy February 1, 2008 Categories: Wealth /Investing, Wealth
One road to wealth is the acquisition and development of real estate. What must you know and do to succeed as a real estate investor? To be a successful investor, you need to observe five basic principles:
Write specific goals with time lines. Set goals for the amount of money you plan to save and invest in real estate, and for the amount of real estate you intend to purchase in the next five years.
Create a detailed plan of action. List everything you will do, organized by time and priority. The combination of goals plus detailed plans will give you a blueprint that you can follow daily.
Learn the basics of the real estate business. The rewards tend to go to those who do their homework and pay their dues. Learn the basics before you begin investing your time and savings in real estate acquisition.
Back your plans with hard work, sacrifice and persistence. Going into real estate is much like starting a business. You have to learn things that you can only learn by experience. There will be ups and downs, successes and reverses, and you must persist.
Resolve to get into real estate for the long term (a minimum of 10 years). Real estate investment is something you step into carefully being prepared to hold onto it for a long time. Many people buy real estate, hold it for a while, and then sell it before it starts to rise rapidly in value. When they hear about other people making quick or easy money, they sell what might be excellent property and put their money into something that may not be as good. Often, one or two years later, the piece of real estate that they sold increases in value by three or five times. This is especially true with raw land.
For me, real estate is nothing more and nothing less than its future earning power, its value at some future date. The value of any piece of real estate is determined by the income that can be generated by that property when it is developed to its highest and best use, from today onward into the future.
When considering any real estate investment, ask: “When and how will income or wealth be generated on or by this piece of property, and in what amounts?” The answers tell you how much the property is worth today and how much it is likely to be worth in the future.
Start-Up Strategy
The simplest way to start is to buy homes that need work and fixing them up, thereby increasing their value. Here are the six steps that you must follow to use this strategy successfully:
Do your market research thoroughly. Look at houses until you find one that is underpriced relative to the neighborhood, because it needs work.
Purchase the house at the lowest possible cash down-payment , and get the seller to carry back a second mortgage or trust deed for the property. If you can get a low enough price and generous terms you can make almost any property into a successful investment.
Move into the house and begin working on it on the weekends to renovate and refurbish it, doing most of the work yourself.
When you have fixed up the house and yard so that it is attractive again, you then have three options: 1) sell the house for more than you paid, take the profit from the sale and buy another house to renovate; 2) rent out the house at a rate that covers your mortgage payment and perhaps gives you extra cash flow; or 3) rent out the renovated house and then go to the bank and refinance the house, often for as much as you paid for it, based on the higher earning power of the property when rented out to a tenant.
Repeat this process with another house, again investing your sweat equity, or your human capital in the work and renovation until you have fixed it up and you are ready to sell, rent or refinance the second house as well.
Move up to buying and fixing duplexes, triplexes, fourplexes, and apartment buildings. You can do this while you keep your full-time job, continuing to generate cash flow from your job for repairs and renovation; and you can start small, with little or no money, little or no risk, and expand your activities as you gain more knowledge and experience.
Eyes for Opportunity
If you do your homework and take your time, you can make prudent and profitable real estate purchases and sales. You make your money when you buy real estate, not when you sell.
You make your profit in real estate by buying right—by buying the right property at the right place and terms. When you sell, you simply realize the profit that you made at the time of the purchase. Don’t become emotional about a property that you are purchasing for investment. Always look at the property from the viewpoint of a critical purchaser.
Evaluate each opportunity carefully by asking: 1) how much is it going to cost you, in comparison with other properties of equal attractiveness which are for sale in the same area? 2) “How much do you get back?” What will be the net return on your investment, after deducting every conceivable expense? 3) “When will you begin to get a return on your money?” 4) “How certain is it that your return on a real estate investment will materialize?’ 5) “What else can you do with the same amount of money?” Where else can you invest the same amount of money to get a greater return?
Follow these rules if you are planning to become a real estate investor. Excellence in Action: Start making investments in real estate or review your current strategy using these guidelines. Article courtesy of Leadership Excellence.