Real Estate Investing Mistakes To Avoid
by Jonas Jonsson
You've no doubt seen them or read them. Glossy ads or four-color spreads in magazines and newspapers promising to teach you all the juicy details about successful real estate investing. And all you have to do to learn all these real estate investing secrets is to pay a rather high sum for a one-or two-day seminar.
Often these slick real estate investing seminars claim that you can make smart, profitable real estate investments with absolutely no money down (except, of course, the hefty fee you pay for the seminar). Now, how appealing is that? Make a profit from real estate investments you made with no money. Possible? Not likely.
Successful real estate investment requires cash flow. That's the nature of any type of business or investment, especially real estate investing. You put your money into something that you hope and plan will make you more money.
Unfortunately too few newbies to the world of real estate investing think that it's a magical type of business where standard business rules don't apply. Simply put, if you want to stay in real estate investing for more than, say, a day or two, then you're going to have to come up with money to use and invest.
While it may be true that buying real estate with no money down is easy, anyone who's even made a basic real estate investment (like buying their own home) knows there's much more involved in real estate investing that can cost you money. For example, what about any necessary repairs?
So, the number one rule people new to real estate investing should remember is to have available cash reserves. Before you decide to actually do any real estate investing, save some money. Having a little money in the bank when you start real estate investing can help you make more profitable real estate investments in rental properties, for example.
When real estate investing in rental properties, you'll want to be able to select only qualified tenants. If you have no cash flow when real estate investing in rental properties, you might be pressured to take in a less qualified tenant because you need somebody to pay you money so that you can take care of repairs or lawyer fees.
For any type of real estate investing, meaning rental properties or properties you buy to resell, having cash reserved can allow you to ask for a higher price. You can ask for a higher price from your real estate investment because you won't feel financially strapped as you wait for an offer. You won't be backed into a corner and forced to accept just any offer because you desperately need the money.
Another downfall of many new to real estate investing is, well, greed. Make a profit, yes, but don't become so greedy that you ask for ridiculous rental or resale rates on any of your real estate investments.
Those new to real estate investing need to see real estate investing as a business, NOT a hobby. Don't think that real estate investing is going to make you rich overnight. What business does?
It takes about six months to determine if real estate investing in for you. If you've decided that, hey I love this, then give yourself a few years to really start making money. It usually takes at least five years to become truly successful in real estate investing.
Persistence is the key to success in real estate investing. If you've decided that real estate investing is for you, keep plugging away at it and the rewards will be greater than you imagined.
Showing posts with label Real Estate Investing. Show all posts
Showing posts with label Real Estate Investing. Show all posts
Tuesday, April 7, 2009
Thursday, March 19, 2009
Easy Steps to Gain Success in Miami Real Estate Investing
Easy Steps to Gain Success in Miami Real Estate Investing
by Eliza Maledevic
If you want to be a successful Miami real estate investor, you have to know that there are steps that you should learn and apply in order reach those certain goals of yours. You know for a fact that Miami real estate investing is not that simple; you have to learn and apply those that you have learned.
Definitely, being a real estate investor is a tough one, since it requires lots of your time and effort to become successful. Real estate investing requires lots of work such as finding plenty of motivated sellers. You have to go on your way searching for lots of lots of houses. And in searching for houses, you certainly need to make many offers.
In this venture, you need to give a lot of your effort. You need to work with whole honesty. If you want to gain trust and you want people to deal with you, then you have to be an honest person. A dishonest person will end up being out of this venture, since no one will even think of working with him.
This is really a quite tough job since you need to go to the market, look for lots of houses, make plenty of offers and sell the property again.
Being a real estate investor, you do not just think about how much money you will gain. You have to learn how to listen. You have to pay attention to what sellers are saying. The deal won't work out if you only think about yourself. You have to understand every detail. Ask a lot of questions to make sure you and the other parties are on the right track. You can't win a great deal if you do not understand each other. In some chances, a deal can fall if you misunderstood each other. Your time and money will just be put into waste.
Never deceive anyone just to gain a deal. You have a reputation to take care, so you need to be honest and never let your conscience haunt you. Do not ruin your reputation for just few dollars. Your reputation doesn't worth just a few dollars. So do not deceive any one, play nice and clean...
You also have to be open on possibilities that deal doesn't work out. If the deal doesn't work by either party, then it is not a good deal. There will come a point that you just have to accept it and just walk away if it didn't turned out right. Think and look at all the possible outcome, never overlook any point or possibilities. There're some who just think about the few dollars that they will gain with this and soon overlook something and then turned out losing the money.
Yes, in doing Miami real estate investing, you can earn a lot but do not excite yourself too much with the earnings, it is better to stick with the numbers and work on it carefully.
You have fears but you need to face that fear in order to gain success with your Miami real estate investing. If you fear to make an offer because of rejection, then make a lot of offers until you are use with it. It is okay to be rejected, what matter is you move on and look for another...
by Eliza Maledevic
If you want to be a successful Miami real estate investor, you have to know that there are steps that you should learn and apply in order reach those certain goals of yours. You know for a fact that Miami real estate investing is not that simple; you have to learn and apply those that you have learned.
Definitely, being a real estate investor is a tough one, since it requires lots of your time and effort to become successful. Real estate investing requires lots of work such as finding plenty of motivated sellers. You have to go on your way searching for lots of lots of houses. And in searching for houses, you certainly need to make many offers.
In this venture, you need to give a lot of your effort. You need to work with whole honesty. If you want to gain trust and you want people to deal with you, then you have to be an honest person. A dishonest person will end up being out of this venture, since no one will even think of working with him.
This is really a quite tough job since you need to go to the market, look for lots of houses, make plenty of offers and sell the property again.
Being a real estate investor, you do not just think about how much money you will gain. You have to learn how to listen. You have to pay attention to what sellers are saying. The deal won't work out if you only think about yourself. You have to understand every detail. Ask a lot of questions to make sure you and the other parties are on the right track. You can't win a great deal if you do not understand each other. In some chances, a deal can fall if you misunderstood each other. Your time and money will just be put into waste.
Never deceive anyone just to gain a deal. You have a reputation to take care, so you need to be honest and never let your conscience haunt you. Do not ruin your reputation for just few dollars. Your reputation doesn't worth just a few dollars. So do not deceive any one, play nice and clean...
You also have to be open on possibilities that deal doesn't work out. If the deal doesn't work by either party, then it is not a good deal. There will come a point that you just have to accept it and just walk away if it didn't turned out right. Think and look at all the possible outcome, never overlook any point or possibilities. There're some who just think about the few dollars that they will gain with this and soon overlook something and then turned out losing the money.
Yes, in doing Miami real estate investing, you can earn a lot but do not excite yourself too much with the earnings, it is better to stick with the numbers and work on it carefully.
You have fears but you need to face that fear in order to gain success with your Miami real estate investing. If you fear to make an offer because of rejection, then make a lot of offers until you are use with it. It is okay to be rejected, what matter is you move on and look for another...
Wednesday, March 11, 2009
Using Cap Rates in Real Estate Investing
Using Cap Rates in Real Estate Investing
by Tom Wheelwright
If you are new to real estate, you are probably wondering about some of the terms you have heard at your real estate investment group or seen on the Internet. Understanding these terms is important to successful real estate investing. One of these terms is "Cap Rate." Cap Rate is short for Capitalization Rate. Effectively, the Cap Rate is the rate of return provided, prior to financing, by the cash flow of an investment property.
The equation to determine the Cap Rate (CR) of a property looks like this:
NOI/FMV = CR, where NOI is net operating income from the property and FMV is the fair market value of the property.
Let me give you a simple example.
Suppose you purchase a property for $500,000. And suppose your net operating income, after operating expenses but before any interest, principle or depreciation, is $50,000. Your Cap Rate is 10%, i.e., 50,000/500,000.
Now, this is your Cap Rate because you know what you paid for the property and you know its cash flow. But, what about the Market Cap Rate? The Market Cap Rate is the average Cap Rate that an investor in a specific market expects for a certain type of property.
You may wonder, "What is the significance of the Market Cap Rate for my property?" Well, values go down as Market Cap Rates go up. Conversely, as market cap rates go down, values go up. We can see this simply by restating the formula as follows:
NOI/CR = FMV
Let's take a look at our example when the Market Cap Rate changes.
Suppose the Market Cap Rate for your property goes from 10% to 7%. What does that mean for the value of your property? To find out, simply divide your net operating income (NOI) by the Cap Rate. So, 50,000/.07 = $714,000. Your property's value went from $500,000 to over $700,000 through no effort of yours, but simply because the Cap Rate went down.
Conversely, suppose the Market Cap Rate goes from 10% to 12%. What does that mean for the value of your property on the open market? Again, simply divide the NOI by the Cap Rate. So, $50,000/.12 = $417,000 So, the value of your property has decreased because the Market Cap Rate has increased.
What causes the Market Cap Rate (MCR) to change? It's simply a matter of supply and demand. The more demand for investment property, the lower the MCR. The lower the demand for investment property, the higher the MCR.
So what should the Cap Rate of a property mean to you?
A Cap Rate should tell you two things. The first is how leverage will affect your investment. As long as your Cap Rate is higher than your borrowing cost (interest rate), then you should borrow as much as possible with respect to the acquisition and/or holding of that property. However, if your Cap Rate is less than your borrowing cost, then you should either pay cash for the property or find a different property to buy.
You should also monitor your property Cap Rates to help you determine when you should sell. You should probably sell the property if the Cap Rate falls below your borrowing cost. Why? Because in opportunity cost, you are losing money. Here is an example:
Let's say you purchased your property for $500,000 when the Market Cap Rate was 10%. And let's say your mortgage is at 7%. Now, suppose the MCR goes to 5%. What should you do? You should probably sell the property.
At this point, the property is worth $1,000,000. Let's say you want to maximize your Velocity of Money, so you refinance to a total of $800,000. Your NOI is still $50,000. But you are paying 7% on your money. So now, your interest is $56,000 but your income is only $50,000 so you have negative cash flow of $6,000. With the MCR below your borrowing cost, borrowing out the equity puts you in a negative cash flow position. Instead, you should look at the advantages of selling the property and purchasing a new property with a higher Cap Rate.
Of course, there are some things you can do to increase the value without regard to the Cap Rate. Your value will increase any time you increase your NOI. If you can make changes to your property to increase the rent or to decrease expenses, you will increase the value of your property even if your Cap Rate stays the same.
But any time your cap rate gets lower than your borrowing rate, you should consider selling the property. Many people in Phoenix and California got caught in this trap in the mid-2000's. Cap rates were at an all time low; some as low as 3-4%. These same people lost many of their properties to foreclosure because they could not make the negative cash flow payments.
So pay attention to the Cap Rate in your market for your investments. If Cap Rates are low, it may be time to sell. If Cap Rates are high, it may be a great time to buy more property in your market. A good real estate broker can give you a pretty good idea of the cap rate for your property.
by Tom Wheelwright
If you are new to real estate, you are probably wondering about some of the terms you have heard at your real estate investment group or seen on the Internet. Understanding these terms is important to successful real estate investing. One of these terms is "Cap Rate." Cap Rate is short for Capitalization Rate. Effectively, the Cap Rate is the rate of return provided, prior to financing, by the cash flow of an investment property.
The equation to determine the Cap Rate (CR) of a property looks like this:
NOI/FMV = CR, where NOI is net operating income from the property and FMV is the fair market value of the property.
Let me give you a simple example.
Suppose you purchase a property for $500,000. And suppose your net operating income, after operating expenses but before any interest, principle or depreciation, is $50,000. Your Cap Rate is 10%, i.e., 50,000/500,000.
Now, this is your Cap Rate because you know what you paid for the property and you know its cash flow. But, what about the Market Cap Rate? The Market Cap Rate is the average Cap Rate that an investor in a specific market expects for a certain type of property.
You may wonder, "What is the significance of the Market Cap Rate for my property?" Well, values go down as Market Cap Rates go up. Conversely, as market cap rates go down, values go up. We can see this simply by restating the formula as follows:
NOI/CR = FMV
Let's take a look at our example when the Market Cap Rate changes.
Suppose the Market Cap Rate for your property goes from 10% to 7%. What does that mean for the value of your property? To find out, simply divide your net operating income (NOI) by the Cap Rate. So, 50,000/.07 = $714,000. Your property's value went from $500,000 to over $700,000 through no effort of yours, but simply because the Cap Rate went down.
Conversely, suppose the Market Cap Rate goes from 10% to 12%. What does that mean for the value of your property on the open market? Again, simply divide the NOI by the Cap Rate. So, $50,000/.12 = $417,000 So, the value of your property has decreased because the Market Cap Rate has increased.
What causes the Market Cap Rate (MCR) to change? It's simply a matter of supply and demand. The more demand for investment property, the lower the MCR. The lower the demand for investment property, the higher the MCR.
So what should the Cap Rate of a property mean to you?
A Cap Rate should tell you two things. The first is how leverage will affect your investment. As long as your Cap Rate is higher than your borrowing cost (interest rate), then you should borrow as much as possible with respect to the acquisition and/or holding of that property. However, if your Cap Rate is less than your borrowing cost, then you should either pay cash for the property or find a different property to buy.
You should also monitor your property Cap Rates to help you determine when you should sell. You should probably sell the property if the Cap Rate falls below your borrowing cost. Why? Because in opportunity cost, you are losing money. Here is an example:
Let's say you purchased your property for $500,000 when the Market Cap Rate was 10%. And let's say your mortgage is at 7%. Now, suppose the MCR goes to 5%. What should you do? You should probably sell the property.
At this point, the property is worth $1,000,000. Let's say you want to maximize your Velocity of Money, so you refinance to a total of $800,000. Your NOI is still $50,000. But you are paying 7% on your money. So now, your interest is $56,000 but your income is only $50,000 so you have negative cash flow of $6,000. With the MCR below your borrowing cost, borrowing out the equity puts you in a negative cash flow position. Instead, you should look at the advantages of selling the property and purchasing a new property with a higher Cap Rate.
Of course, there are some things you can do to increase the value without regard to the Cap Rate. Your value will increase any time you increase your NOI. If you can make changes to your property to increase the rent or to decrease expenses, you will increase the value of your property even if your Cap Rate stays the same.
But any time your cap rate gets lower than your borrowing rate, you should consider selling the property. Many people in Phoenix and California got caught in this trap in the mid-2000's. Cap rates were at an all time low; some as low as 3-4%. These same people lost many of their properties to foreclosure because they could not make the negative cash flow payments.
So pay attention to the Cap Rate in your market for your investments. If Cap Rates are low, it may be time to sell. If Cap Rates are high, it may be a great time to buy more property in your market. A good real estate broker can give you a pretty good idea of the cap rate for your property.
Sunday, March 8, 2009
The Problem of Greed in Real Estate Investing
The Problem of Greed in Real Estate Investing
by Judson Voss
We live in a world that offers temptations at every turn. It is easy to ruin a great thing as the result of greed. However, if you are careful from the beginning you can establish your real estate investment business in a manner that encourages and even rewards altruism rather than breeding an environment that is ripe for greed to take hold.
The problem with real estate is that in order to get the really good deals we sometimes have to be a little unfeeling'. That doesn't mean that you can't be compassionate or identify with the feelings of those selling their homes, particularly if they are at risk of losing their homes and/or any equity they may have had in their homes. At the same time you must harden your heart to some degree in order to get the best value for your money. This isn't to say that you should ever forget that there are real people on the other side of those numbers who have not only a financial investment in their homes (when you are making a purchase) but also an emotional attachment that price tags can never match.
Of course we want to make as much money as possible from our real estate investments but we also need to be able to look ourselves in the eye the next morning when we face the mirror. Deal honestly with people and while it could cost you a few extra dollars of profit on the front end it will return itself in spades over time as you gain a reputation for handling people with respect and having integrity in a business that is increasingly filled with sharks.
There are a few other areas where greed can cost you big however. Those most often come when it's time to sell or rent a home. If you have ever flipped a house you know what a monumental task that can be. If not, be forewarned this is not a task for the faint hearted. However, you need to seriously consider the offers you are turning down before you turn them down. Can you really afford to wait for a better offer? Carrying costs are expensive and the longer a house sits on the market the harder it seems to sell. For this reason you need to really thing long and hard before holding out for more money�"especially if there is already a profit involved and you are just holding out for a bigger profit.
If you make money on a deal and learn a lesson in the process, then you've had a successful flip. However, if you hold onto the property in hopes of a bigger pay off it could sit empty for months or even years. In other words, greed can lose every ounce of profit on a property and place you in a negative cash flow situation. This is one place you do not want to be when investing in real estate, especially when it could have been so easily avoided. Don't take a loss on a property and try to recover some compensation for your time and effort, but don't allow greed to place a price tag on a property that the local market cannot recoup.
Rather than allowing greed to light your path when it comes to asking and selling prices it might be a wise plan to hire a professional realtor to give you a reality check as you go. Keeping things in perspective and not charging according to your personal, and often emotional investment in the property in question.
by Judson Voss
We live in a world that offers temptations at every turn. It is easy to ruin a great thing as the result of greed. However, if you are careful from the beginning you can establish your real estate investment business in a manner that encourages and even rewards altruism rather than breeding an environment that is ripe for greed to take hold.
The problem with real estate is that in order to get the really good deals we sometimes have to be a little unfeeling'. That doesn't mean that you can't be compassionate or identify with the feelings of those selling their homes, particularly if they are at risk of losing their homes and/or any equity they may have had in their homes. At the same time you must harden your heart to some degree in order to get the best value for your money. This isn't to say that you should ever forget that there are real people on the other side of those numbers who have not only a financial investment in their homes (when you are making a purchase) but also an emotional attachment that price tags can never match.
Of course we want to make as much money as possible from our real estate investments but we also need to be able to look ourselves in the eye the next morning when we face the mirror. Deal honestly with people and while it could cost you a few extra dollars of profit on the front end it will return itself in spades over time as you gain a reputation for handling people with respect and having integrity in a business that is increasingly filled with sharks.
There are a few other areas where greed can cost you big however. Those most often come when it's time to sell or rent a home. If you have ever flipped a house you know what a monumental task that can be. If not, be forewarned this is not a task for the faint hearted. However, you need to seriously consider the offers you are turning down before you turn them down. Can you really afford to wait for a better offer? Carrying costs are expensive and the longer a house sits on the market the harder it seems to sell. For this reason you need to really thing long and hard before holding out for more money�"especially if there is already a profit involved and you are just holding out for a bigger profit.
If you make money on a deal and learn a lesson in the process, then you've had a successful flip. However, if you hold onto the property in hopes of a bigger pay off it could sit empty for months or even years. In other words, greed can lose every ounce of profit on a property and place you in a negative cash flow situation. This is one place you do not want to be when investing in real estate, especially when it could have been so easily avoided. Don't take a loss on a property and try to recover some compensation for your time and effort, but don't allow greed to place a price tag on a property that the local market cannot recoup.
Rather than allowing greed to light your path when it comes to asking and selling prices it might be a wise plan to hire a professional realtor to give you a reality check as you go. Keeping things in perspective and not charging according to your personal, and often emotional investment in the property in question.
Wednesday, March 4, 2009
Real Estate Investing - Make Big Profits in a Down Market
Real Estate Investing - Make Big Profits in a Down Market
During the housing boom, a lot of novice real estate investors where bragging about much money they made by flipping houses and selling properties at astronomically high prices. However, nowadays, a lot of investors who purchased properties in the hope of selling them quickly found that there is so much more to real estate investing than simply flipping houses. Those who took mortgage to buy properties during the boom are now feeling the crunch, especially because they cannot offload their portfolio immediately. Meanwhile, property investment experts who were on the sidelines during the housing boom are now starting to increase their real property investments. These people are aware that during a crisis, there are so many opportunities to buy houses, apartments, and other properties at very low prices. If you are interested in joining the real estate industry, the one thing you need to remember is to buy low and sell high. During a housing growth, the prices of properties are very high so your potential profit in reselling the houses and other real estate that you buy will not be that big. Because of the rise in the number of home sales in the last quarter of 2008 (which is mainly due to the acquisitions made by seasoned property investors), there is actually a 115% rise in home sales compared to the same period in 2007. The figure shows that expert brokers and real estate investors have waited for the proper time to boost their property portfolio. So if you are not having mortgage problems and have substantial amount of money to spare, you can learn from these experts and start gobbling up low-cost property which you can then sell for profit in the next few years. Another way in which expert real estate investors are making money during challenging times is through renting out the houses and properties that they have just acquired. As more homeowners default or fail to pay their mortgage obligations, the number of homes being foreclosed steadily increases. This ultimately leads to an increase in the number of individuals and families who opt to rent for a place to stay. So, even if you are not able to sell the property that you buy during a housing crisis, you can still earn from your investment by renting it out. There is really nothing wrong with flipping houses. In fact, there had been a lot of people who earned big bucks because of this investment strategy. However, if you are a serious real estate investor, you know that earning a substantial amount of money from your property investments should take time. If you are planning to use mortgage or your hard earned money to invest in a house or any piece of real estate which you intend to sell in the future, you have to be prepared to hold on to your property for a long period of time. You need to wait until the demand for housing is rising again. Just like in any industry, the housing market is also affected by cycles. Even if the price of houses and properties are low these days, they are bound to pick up in the next few years. Remember that the population is increasing so there will always be homebuyers in the future.
During the housing boom, a lot of novice real estate investors where bragging about much money they made by flipping houses and selling properties at astronomically high prices. However, nowadays, a lot of investors who purchased properties in the hope of selling them quickly found that there is so much more to real estate investing than simply flipping houses. Those who took mortgage to buy properties during the boom are now feeling the crunch, especially because they cannot offload their portfolio immediately. Meanwhile, property investment experts who were on the sidelines during the housing boom are now starting to increase their real property investments. These people are aware that during a crisis, there are so many opportunities to buy houses, apartments, and other properties at very low prices. If you are interested in joining the real estate industry, the one thing you need to remember is to buy low and sell high. During a housing growth, the prices of properties are very high so your potential profit in reselling the houses and other real estate that you buy will not be that big. Because of the rise in the number of home sales in the last quarter of 2008 (which is mainly due to the acquisitions made by seasoned property investors), there is actually a 115% rise in home sales compared to the same period in 2007. The figure shows that expert brokers and real estate investors have waited for the proper time to boost their property portfolio. So if you are not having mortgage problems and have substantial amount of money to spare, you can learn from these experts and start gobbling up low-cost property which you can then sell for profit in the next few years. Another way in which expert real estate investors are making money during challenging times is through renting out the houses and properties that they have just acquired. As more homeowners default or fail to pay their mortgage obligations, the number of homes being foreclosed steadily increases. This ultimately leads to an increase in the number of individuals and families who opt to rent for a place to stay. So, even if you are not able to sell the property that you buy during a housing crisis, you can still earn from your investment by renting it out. There is really nothing wrong with flipping houses. In fact, there had been a lot of people who earned big bucks because of this investment strategy. However, if you are a serious real estate investor, you know that earning a substantial amount of money from your property investments should take time. If you are planning to use mortgage or your hard earned money to invest in a house or any piece of real estate which you intend to sell in the future, you have to be prepared to hold on to your property for a long period of time. You need to wait until the demand for housing is rising again. Just like in any industry, the housing market is also affected by cycles. Even if the price of houses and properties are low these days, they are bound to pick up in the next few years. Remember that the population is increasing so there will always be homebuyers in the future.
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