How to Invest Real Estate

Many people hear and read about how to invest real estate but do not really know what real estate investing really entails. They know that it has something to do with making money buying and selling houses which it, in simplified form, actually is. To be a success as a real estate investor you will need to learn a lot more than just knowing how to buy and sell houses. Study real estate investing thoroughly before starting to invest.

The first thing you will do as an investor is to buy a property. This property could be many things: a house, a mobile home, land, apartment buildings, office buildings, etc. Before you purchase your real estate you need to know what you are going to do with it. Have a plan in place with the exact steps you are going to take to make your profit from this purchase.

One of the easiest ways to get started as an investor is to buy a single family house at a below market price, improve the house to raise it’s value, then resell for a profit. This is now commonly known as flipping a property. Of course, there are a lot of other factors involved such as financing, finding the right property, etc.

Another way for beginners to get started is by purchasing real estate to be used as rental property. You will not get a large amount up front but you will generate a monthly income. You can buy one property at a time and slowly build up your real estate portfolio with your equities building on each property.

Buying foreclosed and pre-foreclosed property is another way to make money from real estate. These properties are usually below market value but most of them need a lot of repairs. Buying foreclosure properties usually involves bidding on them at an auction, but sometimes they can be bought through a real estate agent or straight from the lender.

Buying distressed properties can also be a good way to get a property cheaper. These are usually pre-foreclosures. Distressed properties usually have some negative effect on their value because of appearance, condition, or the financial situation of the owner. You will likely be working with a bank that holds the mortgage on these properties.

There are many ways to invest real estate and these were just a few. Once you start investing you will start seeing other opportunities for investing in real estate such as short sales, using hard money for investing and many other investment strategies. Some require very little down, like wholesaling or bird dogging. Start researching, studying, and learning about how to invest real estate and maybe soon you will be building your real estate portfolio.

How the Demand That Drives Investment Real Estate Prices Gets Created

Demand is one of the proven ways investment real estate appreciates in value. The logic is straightforward. When somebody (perhaps many) are interested enough to pay you more money for your property than you did originally, value is added to the property by virtue of that demand.

In this article we will consider four economic principles related to demand. We will describe the circumstances under which they might occur, and why they could increase the demand for (and result in adding value to) your investment real estate. Maybe even suddenly when you least expect it, and perhaps beyond your wildest dreams.

1) Scarcity of land

When your rental or commercial building occupies a plot of land where land has become scarce, chances are good that a demand for your investment real estate will increase.

This occurs commonly in metropolitan areas where there is little undeveloped land available. Twenty years ago, for instance, I saw three-story office buildings in Newport Beach, California demolished and then replaced by twenty-story office buildings. In this case, due to the scarcity of land in such a prime location, there was a demand for those (smaller) types of buildings created by developers.

Likewise, I once sold a ten-unit apartment complex to a customer that five years later resold the property for twice its value to a hospital that wanted that specific location for purposes of expansion. In this case, due to a scarcity of other probable sites in the surrounding area, the hospital was willing to pay a healthy sum (not for the structure, but for the land), and it enabled my customer to walk away with a hefty profit and real estate investing return.

2) Ease of Transferability

This concerns the demand created by potential buyers when the investment real estate can be readily financed. Whereas a duplex you own, for example, might appeal to many buyers due to the availability of adequate financing, the demand for your building could drop off sharply when you own (say) a thousand-unit complex where financing is limited to fewer buyers engaged in real estate investing.

So the ease (or lack thereof) of transferring your real estate from one buyer to the next plays an essential part in the demand for your property, and thus to the value that can be added to it.

3) Utility

This simply refers to the usability of the property and concerns its highest and best use. A commercial lot located near a railroad-loading yard, for example, might be better used for a manufacturing plant than for an office complex and therefore of higher value. Similarly, a single-family residence on an acre of land zoned for multifamily housing would likely be more valuable as the site for an apartment complex than as a single rental house.

4) Demand

This correlates to the upward desirability of the property mostly due to general trends in the economy. Investors typically move their money from one investment vehicle to another based on the investment’s ability to make a profit. That is, when stocks are hot investors put their money there; likewise when real estate is moving, investors start buying.

We saw this change of gears dramatically played out a few years ago when the stock market started to melt down. Frantic investors pulled their money out of Wall Street, and unless they stuck it under their mattress, chances are good they were dumping it into real estate.

Of course there is another (less spectacular) way you add value to your property even where there is no increase in demand from investors. It concerns the real estate investing principle that governs all real estate investments. Namely, that investment real estate prices are directly related to the net income that the property produces. So in this case, because there is a demand from tenants willing to pay more rent to occupy your building, you generate more income and therein increase your property’s market value.

Why You Should Use a Realtor to Find Your Investment Real Estate

Once you reach the point that you seriously want to start investing in real estate, it’s time for you start searching for the real estate investment that best fit your investment goals.

In this article, I want to discuss why it could benefit you to develop a working relationship with an investment Realtor to help locate investment property, the qualities you should look for, and how you can find that person.

Why Use a Professional?

Let’s start at the top. Why would you want to use a real estate professional when you can find your own rental properties?

Foremost, because the right Realtor can guide you from your initial goal setting phase through the selection, acquisition, and subsequent management of your investment. They can direct you into investments you may not have discovered on your own and then negotiate the purchase for you (generally more easily than when a buyer and seller meet face-to-face). Moreover, they are equipped with the tools like real estate investment software and the expertise to help you crunch and interpret the numbers.

Who is a Right Realtor?

Most importantly, you are not looking for a licensed agent who sells houses for a living without ever having become active or knowledgeable about investment real estate. You do not want a house salesperson with no or minimal clue about rental property.

You want an agent who works full time in the business and not only understands and practices real estate investing, but also knows the market.

The Realtor you want understands investing and is familiar with such things as taxation, depreciation, financing and tax-deferred exchanges. You want a specialist who can create rental property cash flow, rates of return, and profitability analysis presentations and then help you to interpret that data against your investment goals. A real estate investment might be the largest sum of money you will ever spend, and you want a broker who not only cares how you spend your money but also handles it amply as if it was their own.

How to Find the Right Realtor

You can locate agents in your area qualified to work with investment property in any number of ways.

Contact the brokerages and ask if they have an investment specialist in their office with background education in real estate investing; contact the CCIM Institute; contact the MLS and see who regularly lists rental property, the local Board of Realtors, and maybe a local appraiser, property management firm, or perhaps a friend or colleague who has been investing. You should have little trouble building a short-list of potentially qualified candidates that specialize in commercial and investment real estate full-time that you can meet with and interview. How you make your selection afterward will probably boil down to chemistry; whom do you prefer to work with.

As an investor, especially if you are a first time investor, you will discover that having a good investment specialist on your side will truly benefit your investment goals and well worth your effort to locate one and utilize their services.