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How To Invest In Real Estate

How To Invest In Real Estate

The real estate market has had its highs and lows. When it is high, it draws in a flurry of investors, all seeking to turn a profit. When the market is low, those investors disappear like rats from a sinking ship. In truth, even when the market is low, an investor in real estate can still make money. It just may take a little longer.

The problem with real estate investing is many people get into it without any real knowledge of real estate. They think they can buy an old house, fix it up, and turn right around and sell it. But there is a lot more to it than that. You need to have some knowledge of real estate and marketing. You need to have a good eye for sound construction. And you need to know about financing. If you want to learn how to invest in real estate, you need to do plenty of research. But for a quick overview, here is some advice on what you need to do.

Know Your Real Estate

Before you go out and buy up the first old house you see, you need to educate yourself about real estate. Many investors have a real estate license. This is helpful if you already have one but not necessary. The best course of action is to attend a seminar in real estate or real estate investing.

How to Invest in Real Estate seminars and courses are available from different groups and professionals offering their services. These seminars have a registration fee and last anywhere from a day, a few days, or even a week. You can do an internet search to find seminars closest to you.

Another way to get educated about real estate is to take some courses at your local college. Some universities and community colleges offer a variety of real estate courses. You don't have to finish your degree but a few classes wouldn't hurt.

And lastly, do your own reading. Educating yourself is a good and inexpensive way to learn everything you need to know. You can read blogs and informational websites on the internet or you can check out some books at the bookstore. There are always people willing to share their ideas and experience with you. Just watch out for the frauds.

You'll Need Capital

Before you can invest in anything, you need money to do it. Not only do you need money to buy the property but you need capital to do any repairs and fix the place up. And unless you have a large stash of cash somewhere, you are looking at financing as your only real option.

You can get financing from banks and other financial institutes. You will need to have already located a property and have a firm number fixed in your head of how much you need. Most properties require a down payment of 25%. Remember that whatever you borrow will draw interest so the less you borrow, the less you will have to pay back.

I should mention that the idea here is attain enough capital to make a down payment and do any necessary repairs. You then want to build up enough equity in the property so that you can sell it or borrow against it. You can then pay off the property and the bank loan and still have enough left over to reinvest in another property.

Different Ways To Invest in Real Estate

Investing in real estate is more that just homes. Sure, a lot of people are buying older homes and building up the equity in them but there are other areas of real estate, too. The two basic types of real estate are residential and commercial.

Just like homes, you can also invest in commercial property. Commercial properties include apartment buildings, shopping centers, private businesses, and restaurants.

When investing in real estate, you don't have to be limited to local properties. You can invest in real estate practically anywhere in the world. You can invest in property in other states or even some other countries. When dealing with property that is far off, you may have to use a real estate broker as a middleman.

Finding The Property

Now that you know a little more about how to get started, the next step is to find the right property. You can go about it a couple of ways. You could just drive around a look for property for sale. This is a good way to get a first hand look at what is available but is also very time consuming. Not to mention you use up a lot of gas.

If you don't want to drive, you can check out the classified section in your newspaper. Newspapers always have ads for real estate, developed and undeveloped, for sale. The ads may not have a photo or a price quote but you can get an address and drive out to it for a look. Probably the most convenient method of finding real estate is to use the internet to do a search. Lists for both commercial and residential real estate properties are available on numerous online sites.

Inspect And Evaluate The Property

Just because you find a property that looks good to the eye, don't assume that everything is in good condition. Before buying any property, you need to inspect it. To make sure your money is being invested wisely, hire a professional home inspector. This is an individual who knows what to look for such as structural defects or other conditions that may prove costly later on.

Undeveloped property (just a bare patch of land) is harder to inspect but should also be pursued before purchasing. Not all types of soil are suitable for being developed. Some soil is too soft or too wet and will cause problems in the future. You also need to make sure there are no contaminants in the soil. If they show up later, you could be liable.

Have the property evaluated before you buy it. You need to study its location, whether there are any new developments happening around it, how much it will cost to fix it up, and other factors. You don't want to spend money on a property that is not worth the price.

Buying And Turning A Profit

Once you find a piece of real estate and you get the financing for it, buy it as soon as possible. There are other investors prowling the waters and they are looking for the same bargains as you.

After you buy the property, now you need to decide how best to make a profit with it. If it needs some repairs or improvements, then have it done. You may need to hold onto the real estate for a few years in order to build up enough equity. Remember, the more improvements that are done and the longer you hold onto it, the more valuable it will become.

If you plan on reselling the property, you need to pay close attention to timing. You want to sell the property when the market is at its peak and before the price falls. This is tricky because even professionals have a hard time predicting the rise and fall of the market. Do some research and keep an eye on the prices of other properties.

Another method to making money is renting the property out. Rentals provide a steady income but come with their own drawbacks. As the landlord, you are responsible for the property and any damages that the renters might incur while they are there.

Drawbacks To Real Estate Investing

While there are many positive aspects of investing in real estate, there are also some drawbacks. The most significant is that real estate is not easily liquidated. While other assets can be liquidated for quick cash, real estate can sit on the market for years before it is finally sold.

Real estate investing is not quick money. It takes time for a property to build up enough equity. Investors need to exercise patience as the property will not significantly appreciate until three to five years after the purchase.