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Fix And Flip Or Buy And Hold: Which Is Better?

Real estate represents one of the most profitable investments today. Most investors choose to either be house flippers or buy-and-hold owners. These popular real estate investment strategies provide a path to making considerable money but through different means.

Whether you should fix and flip or buy and hold depends on your investment goals, personality, skill set and personal preferences. Here’s a closer look at both investment strategies, their pros and cons and how to determine the right path for you.

Why Invest In Real Estate?

Most properties increase in value over time. The need for housing will always be there.

Real estate investing allows you to add monthly income, increase your cash flow, build equity and enjoy some tax benefits, too. While there’s still a risk involved, real estate is a stable long-term investment in most cases. Plus, it’s a great way to diversify your portfolio, adding another long-term income stream.

Real Estate Investment Strategies:

Fixing And Flipping

House flipping is where you buy a property at a discounted price, like a foreclosed home. Then, you fix up the house through renovations and sell it for a profit.

Flipping a house requires an initial investment of money and time. The goal is to buy, fix and flip the property as quickly as possible. Turning over a home quickly is one of the keys to making the most profit.

House flippers either hire contractors to fix up the home or opt to do the work themselves. How you go depends on your personal home repair experience and how much time you can devote outside of other career, family and life commitments.

Buy And Hold

Buy and hold real estate investors are looking for long-term profitability and passive income. They purchase property, intending to rent it out to generate monthly income.

Landlords collect rent each month, using it to pay down the mortgage and build up equity. It also allows you to increase cash flow to invest in other properties or other investments.

Many buy and hold investors opt to use a property management company, so they don’t have to worry about day-to-day issues with renters.

Buy and hold investing can be long-term, keeping the rental property indefinitely or for a designated time and then selling it for a profit. Unlike flipping a house, success isn’t solely tied to the property’s sale.

Pros And Cons Of Flipping

Pros

  • Faster gains: Flipping houses is one of the best ways to turn a large profit quickly. Much of this depends on the property’s cost and the upgrades needed to sell it. If most of the improvements are cosmetic, you can quickly turn the home with a lower time and financial investment.
  • Experience: So much goes into flipping houses. From the home buying process to performing home repairs to selling, you can gain a near-complete real estate education. As you continue to invest in new properties, you’ll learn how to spot good deals, avoid bad ones and how to lessen the risks involved.
  • Flexibility: House flipping is more fluid than other investments. In most cases, your money isn’t tied up long term. This allows you to reinvest your money quickly.

Cons

  • Taxes: The profits you make from the sale of your flipped home are subject to tax payments. Depending on how long you hold the home before it sold, you could end up paying expensive capital gains taxes.
  • Risk of loss: Fixing and flipping a house may be less risky than other investments, that doesn’t mean there are zero risks. It’s possible that the purchased home needs more work than you initially thought. Extra repair costs will eat up your profits quickly. Also, there’s no guarantee that the property sells sell quickly, which means additional mortgage payments, utility expenses and more.
  • It’s expensive: Yes, there are costs involved to buy the property and fix it up. But don’t forget that it costs money to sell a home, which cuts into your profits. Closing costs, real estate agent commissions, and other expenses affect your investment too.

Pros And Cons Of Buy And Hold

Pros

  • Passive income: When you rent out the property you purchased; you’ll receive steady monthly rent checks. Finding a renter is often easier than finding a buyer since there’s less commitment needed.
  • Appreciation: As you hold on to your property, appreciation occurs naturally. There’s no need to flip the property quickly. You can enjoy the increased income each month and sell when market conditions are ideal, and your property value has increased.
  • Tax advantages: While flipping a house could lead to expensive tax bills, rental property owners enjoy a host of tax benefits. The list of tax deductions is long and includes mortgage interest, insurance premiums, property management fees, property taxes and more.

Cons

  • Dealing with people: If you can find good tenants, this isn’t as much of an issue. As a landlord, you have to set rent rates, screen potential tenants, collect monthly payments, respond to requests and complaints and more. Also, tenants don’t have as much invested into the property, so there’s a good chance they don’t keep it in as good of shape as you would like.
  • Upkeep: Just like your own home, rental properties require maintenance. Whether it’s simple upgrades or more serious repairs, you’re responsible for whatever was agreed upon in the rental agreement.
  • Vacancies: Rental properties can turn a great profit, but only if they are filled with tenants. The last thing you want is someone to move out, and the property sits unused long term. Then, it becomes like a second home, with mortgage payments and utility costs.

Should You Fix And Flip Or Buy And Hold?

Both fix and flip and buy and hold can be profitable investment strategies. The right choice for you, if any, depends on your investment goals. Here are four questions to ask yourself to determine which investment lines up with your needs the best.

Are You Looking For Active Or Passive Income?

Flipping a house has a simple premise – get in and get out. It can require considerable work upfront to flip a house, though, especially if you opt to fix it up yourself. However, you get your money faster than if you bought a property and rented it out.

If you plan to buy and hold, you may find a turnkey or other property that requires little work. You could quickly find a tenant and start making passive income each month.

How Much Money Do You Have To Put Into The Home?

Regardless of which path you choose, the amount of money you have to put into your investment will determine what you can afford. Flipping a house requires more capital upfront when you include in any repairs and other expenses. Make sure you have enough capital to finish the flip.

What’s The Risk And Return Ratio?

There’s an element of risk with any investment. It’s essential to decide how much you’re willing to risk and how much you desire to get back in return with real estate investments. Your risk and return ratio compares your investment’s expected returns and the amount of risk required to achieve that return.

Can You Build Your Portfolio To Do Both?

As you invest in real estate, you may get to the point where both options are feasible. Then, it’s a matter of whether it makes sense to do both. Each comes with its own set of risks, time commitments and potential for significant returns.

There’s a reason that real estate is a popular investment strategy – it works. Whether you choose to fix and flip or buy and hold, spend time researching and focus on a game plan going forward. You’ll likely run into issues regardless of which one you choose. Determine your investment needs and how much money and time you have to invest in a real estate project and go from there. Both options require your commitment and energy to turn a profit.

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How Millennials Can Grow Their Wealth Through Real Estate

Investing, as with most things in life, benefits from an early start. Every day that passes uninvested is a day missing out on compound returns, which can then be reinvested to earn more money. Be it through stocks or real estate, investing at young age is how many of today’s 30-something millionaires got on their road to riches.

The great thing about real estate investing is that you don’t need a massive bank account or decades of experience to make money. If you’re a millennial looking for a stable, steady way to grow your wealth into the future, the real estate market is primed for investing now.

Are Millennials Investing in Homes?

Many assume that millennials are mistrustful of real estate investing. After all, they lived through the housing bubble of 2008, when home prices tanked and there was panic in the industry. The fact is, 85 percent of millennials see real estate as a valuable asset– more than any other age group in the U.S. And while considerable student loan debt has delayed the path to homeownership for many, millennials now represent the largest share of home buyers of any generation.

What Are the Benefits of Investing in Real Estate?

There are many advantages in owning a tangible asset. It’s something you have control over. You can improve it, generate monthly income from it, and after building equity, sell it for a lot more than you originally paid. Here are just a few of the unique financial benefits of investing in real estate:

Leverage – Leverage in real estate means using other people’s money to make more money for you. Say you put down $10,000 to buy a $100,000 home and borrow the remaining $90,000. If the house value goes up 10 percent in a year then you’ve doubled your investment, mostly on the strength of that $90,000 you didn’t have to contribute.

Cash Flow that Grows – After you collect rent and pay off expenses, the rest is pure profit. Plus, as the cost of living goes up through inflation, so does the amount you can charge. Meanwhile, your mortgage payments stay the same.

Tax breaks – One of the biggest benefits of owning rental property is the money you don’t have to pay. Rental income isn’t subject to self-employment taxes, and you can deduct property tax, mortgage interest, operating expenses, depreciation and repairs. It all adds up.

How Much Money Do You Need to Invest in Real Estate?

If you want to start small, you can get into real estate investing for as little as $500 through a crowdfunding company like Fundrise. By choosing the company’s starter portfolio, your money is invested in real estate projects that the Fundrise team identifies, acquires and manages on your behalf. Dividends are paid throughout the year, but these investments are intended for long-term growth – at least five years, in most cases.

If you’re interested in acquiring a property to make money, the first thing to keep in mind is that you shouldn’t rush in. You’ll want to make sure you have enough money to make a down payment on a home in a growing area, make any necessary repairs, and cover your own expenses for at least six months to a year.

How much is enough will depend on your market and the type of home you’re looking to acquire.  Ethan Roberts, real estate writer, editor and contributor for Auction.com, recommends having at least $5,000-$10,000 as a general starting point and minimizing your initial investment as much as possible.

“If you’ve been in the military, take out a zero-down VA loan,” Roberts says. “Otherwise, take out an FHA loan with 3.5% down, or a conventional loan with 5% down. Look for a foreclosure or short sale that has some start-up equity in it.”

If you don’t plan on living in the property you’re buying, check out a rundown of options to get financing for your investment in the Quicken Loans blog.

How Do You Start Making Money in Real Estate?

Most real estate investors fix and flip or buy and hold to accumulate wealth over the long-haul. But you may want to rent out your residence through an online marketplace like Airbnb to get your feet wet first.

Airbnb

While millennials may be the largest generation of home owners, they aren’t the largest group of investors in rental properties quite yet. However, they are interested in making money through home sharing companies like Airbnb. In key US markets, 85 percent of millennials support allowing residents in their cities to rent out their extra living space.

Using a company like Airbnb to host guests is a great way to make some income and prepare for being a landlord at the same time. It may not involve collecting rent or fixing leaky faucets for upset tenants, but it can help you learn about what people look for in their accommodations, and help you get comfortable with the idea of using a property to make money.

Fixing and Flipping

The fix-and-flip approach involves buying bargain properties and renovating them to sell at a profit. Sometimes investors use contractors to do the upgrades. Those with experience flipping houses will often do the work on their own. Roberts points out that if you’re just getting started, you don’t need to need to get in and out of your first home within a few months like most fix-and-flippers.

“Fix it up as best you can (you may have to forego saving in order to do this) and live in the house for no more than a year or two,” Roberts says. “YouTube has great videos on how to fix almost anything for which you don’t need a contractor (in other words, everything except a roof or electrical system). After your rehab, sell the house and use the profits to finance your next home, again looking for a distressed property with equity.”

From there, Roberts boils it down to a rinse and repeat approach.

“Repeat the formula several times over the next decade. Sure, it involves frequent moves, but it’s far easier to do that when you’re single and don’t own much, than after you’re married and have children who are yelling at you for moving them away from their friends.”

Buying and Holding

If you’re more interested in managing properties from afar and piling up passive income – meaning you don’t have to put in any labor to speak of – you’ll want to follow the same initial path as you would fixing and flipping. Do some research and search for homes in a growing area, then put down as little as you can with the most cost-effective loan you can come by.

Again, if you take out an FHA loan, this may mean you’ll need to live in the home for a time. But as a buyer and holder, you can rent out rooms while you do some renovations and build up some investment funds to work with. Saving will involve some sacrifices, and some of the smaller luxuries you might be used to should be the first to go.

“Skip the $5 Starbucks latte and buy your coffee from the convenience store,” says Roberts. “Take a bagged lunch to work, rather than dropping $8 or $10 every day at the local cafe. Forego the clubbing on Saturday night for a fun evening at home with friends or your significant other.” Roberts suggests that the best way for Millennials to save is to pay themselves 15 to 20 percent first and then assign the rest of their paycheck to bills and finally to pleasure.

After 12 months of living in your property, considering refinancing to lower your mortgage payment and upping the rent to bolster your savings even more. As soon as you can, buy your next property the same way you bought the first. Rinse and repeat just as you would fixing and flipping. The only difference is that you’ll be pulling in rental income from your original property and every subsequent property you purchase. Your immediate profits will be less since you’re not benefiting from the equity you’ve built by selling a home, but as you acquire more rental properties you’ll be growing a network of income sources and building even more equity over time.

Take the First Step to a Million by Saving a Few Thousand

For a generation that values independence and financial security, real estate is an investment form that makes a lot of sense for millennials. No investment is without its share of risk. But by putting in the time to research properties and the effort to save a few thousand for a down payment, you can start building equity and generating income that will grow exponentially in the years to come.

Portions of this article have been republished for additional educational purposes. This information was originally published on Auction.com, LLC, the nation’s leading online real estate marketplace. This article is not affiliated with any links or products that appear on the same pages. Read more about our editorial policy. This article has been updated from its previous submission on Aug 24, 2018 to reflect updated information.

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5 Things to Look for in an Investment Property

What makes a property great for investment? These tips can start you on the path to success in the world of real estate investing.

Passive income, appreciation, stability, great returns, tax benefits—the arguments for investing in long-term, hold-to-rent real estate just make sense. Listen to them long enough, and you really start to wonder, “Why am I not in on this?”

Listen a little longer, and that question becomes, “All right, how do I get in on this?”

Not all hold-to-rent properties are created equal. If you’re on the hunt for a long-term real estate investment, you need to understand what you’re looking for, and you need to know what your prospective renters are looking for, as well.

Here are the five things that should be at the top of your checklist.

1. An Enticing Location
The reason you hear everyone going on about “location, location, location” is because it really is that important. An appealing location is key to getting a great return on your investment. It determines the amount of rent you bring in, the quality of your renter, and the vacancy rate you’re likely to experience.

A neighborhood with access to plenty of amenities is your best bet when you’re looking to hold-and-rent. Good schools, a thriving job market, public transportation, parks, restaurants, shopping centers, post offices, medical centers, libraries, and entertainment venues are just a few of the things that will make your rental appealing to prospective tenants.

The safety of the neighborhood factors into the location’s appeal, too. Do some research into crime trends before you invest in a property. Start by contacting the local law enforcement agency to find out about vandalism in the area, as well as petty and serious crimes. You’ll also want to ask whether those numbers are going up or down to give yourself an idea of the long-term picture.

2. Numbers that Make Sense
If you’re new to real estate, you might be tempted to choose your investment property based on emotion. That’s a common trap, and it’s one that you really don’t want to fall into. Remember that you’re not going to be living in this rental yourself, so your personal tastes don’t matter.

What does matter are the numbers.

Make a financial strategy before you buy, and don’t forget that you’re covering more than just the mortgage. You also have to factor operating costs and property taxes into the equation, as well as the average vacancy rate.

When you’re working on the numbers, keep in mind that just because rent prices are higher in a certain area doesn’t mean you’re going to come away with positive cash flow at the end of the day. Take the time to calculate what the real payoff will be against your initial investment. Much of the time, median-priced investments with reasonable rent yield better long-term returns than high-profile rentals.

3. Low Maintenance
Some investment properties take more time to maintain than others, like vacation rentals and student rentals. Properties in low-quality areas that aren’t in good shape also have higher turnover rates and will require more work on your part.

The most low-maintenance properties are the ones that attract stable, long-term renters. These probably won’t be the flashiest investments on the market, and that’s okay. You’re going for strong and steady, not a flash in the pan.

If you’re going to manage the property yourself (instead of hiring a property manager), then location also comes into play when you’re looking at maintenance. Make sure your property is reasonably close to your home base. Otherwise, driving out there—or worse, flying out-to deal with every little thing that comes up will become a big headache, fast.

4. The Potential to Appreciate
A smart investment is a rental property that appreciates in value. For you as an investor, appreciation works on two levels: the first is when you buy the property, and the second is when you sell it.

When you buy, look at the appreciation potential that you can get from doing a few cosmetic updates on the place. How much more will you be able to charge for rent after the walls have a new coat of paint, compared to what it would be worth as-is? You stand to save money on your initial investment if you’re willing to put a little work into the property after you buy it.

The other thing to look at is how much the property will be worth when you sell it down the road. All land is going to appreciate a little bit over time, but you want an investment that will increase in value more than the rest. It goes without saying that some areas are more up and coming than others. However, you can take it even further than that.

Look at the appeal of the specific location of the property within the larger neighborhood (for example, being on a cul-de-sac increases value). You can also check with city hall to find out about plans to build new amenities, which will boost future property values in the area.

5. Normal, Through and Through
Long-term, hold-to-rent real estate can be a great and stable investment—when you’re smart about it. When you’re not smart about it, you can find yourself in a high-risk situation fast. In the case of long-term rentals, “smart” means “normal.” You’re not looking to become the next HGTV phenomenon. You want a steady, low-risk investment.

What “normal” means is that you’re looking for something practical, in decent shape, in a place where people want to live. An example of “practical”: A three-bedroom, two-bath house with a normal layout, located near schools and major employment centers. Impractical? The beautifully updated Victorian that has an outhouse in the backyard.

You also want to know the basics about who you’re renting to, so that you can meet that target group’s basic standards. For example, if you’re renting to a younger crowd, you want to invest in a property with units that have an open layout. If you’re targeting a retirement community, you want to find one that doesn’t have a lot of stairs.

In hold-to-rent real estate investing, the bottom line is this: Stick to the basics. They may not be exciting, but they’ll lead you to long-term success.

This information was originally published on Auction.com, the nation’s leading online real estate marketplace. Kristine Serio is a writer and editor with Author Bridge Media specializing in business and real estate. Her real estate roots stretch back to her grandfather, who launched a profitable second career as a real estate investor during the 1950s. Kristine’s authors and entrepreneurs have been featured in The New York Times, O: the Oprah Magazine, and the San Diego Union Tribune.

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How to Maximize Your Returns on Rental Properties

Ethan Roberts is a real estate writer, editor and investor. He’s a frequent contributor to InvestorPlace.com, and his work has been featured on Money.msn.com and Reuters.com. He’s also written for SeekingAlpha.com and MarketGreenhouse.com, and was one of five contributing editors to TheTycoonReport.com. He’s been investing in real estate since 1995 and has been a Realtor since 1998. He also teaches classes on investing in residential real estate.

Investing in long-term rental properties can be quite lucrative, if and when it’s done correctly. However, just as with all investments, there are some risks, and not everyone who invests in rental properties has good experiences. I’ve been a successful landlord of single-family rental homes for 18 years, and during that time I’ve seen more than a few landlords quit because they were either losing money or just barely breaking even.

That’s a shame, because the landlording business should be highly profitable under normal circumstances. So what went wrong for the investors who didn’t succeed? They made some common mistakes, which I’ll describe in a moment. First, let’s talk about a key way to measure success: return on investment (ROI).

Determining ROI
For me, successful landlording is all about maximizing my ROI. Simply defined, ROI measures the efficiency of an investment. It’s calculated by dividing the return you realize from the investment by its cost. The result is expressed as a percentage. Here’s the formula:

(Gain from investment − Cost of investment) ÷ Cost of investment = ROI

For example, say you buy a house with cash for $120,000. You spend another $10,000 on repairs and improvements. Your total investment cost is $130,000. You rent the house for $1,400 a month, or $16,800 gross annually, and have no more repairs over the following year.

Your gross ROI would be: $16,800 ÷ $130,000 = 12.9%. You can also figure out the net ROI by subtracting any additional costs, like insurance and taxes, from the gross rent. Many of my properties have double-digit gross annual returns, and yours should too.

Mistakes that Lower ROI
But maximizing ROI isn’t just about buying a house and collecting rent. You might experience a number of variables throughout the year that will increase or decrease your ROI. For example, landlords can increase ROI by charging a one-time pet fee of $300 or charging a late rent fee of $10 per day. Tenants can decrease ROI by not paying their rent, moving out prematurely, or damaging your property.

Here are the top ROI-lowering mistakes I see landlords make:

1. They aren’t selective enough in their choice of tenants.
Expenses like non-payment of rent or premature move-outs are often the results of landlords not being picky enough about who they rent to. You must always choose tenants carefully, and run credit reports and background checks by contacting their previous landlords and workplace. It doesn’t hurt to run a criminal check, either.

2. They don’t treat their investment properties like a business.
Some landlords choose the first tenant that comes along, regardless of their background, and then get stuck with a costly situation. Conversely, some landlords feel that if they know someone, that person will make a better tenant, so they allow relatives, friends, or colleagues to rent from them. But then if the tenant has difficulty paying rent, the landlord is unable to be firm and assertive with them. This is a classic failure to treat one’s real estate investments like a business, and it can crush your ROI.

3. They let small repairs linger until they become more costly.
Still another mistake that landlords make is being cheap about fixing problems in the house right away. Sure, it detracts from your ROI every time you have to make a repair, but it’s always less expensive to correct a minor problem before it becomes a major one. Think of a roof leak that begins with a small stain or drip. At the onset, it doesn’t cost much to fix. But let that roof leak go for a year and see what kind of repair bill you’ll amass.

4. They aren’t selective about the properties they purchase.
Being selective about investment properties will also help your ROI. I only purchase homes that were built after 1978, so I don’t have to deal with lead-based paint issues, galvanized steel pipes, settlement, and other costly problems of older homes. I also favor homes of less than 2,000 square feet, because homes larger than that become much more costly to maintain.

5. They buy homes in run-down neighborhoods.
I avoid homes in run-down neighborhoods because the tenants are often transient, which can increase the chance that they’ll move out prematurely, pay the rent late or miss rent payments altogether. In addition, homes in these neighborhoods sometimes incur additional costs from theft or vandalism to the property. These kinds of costs can crush your bottom line.

6. They buy at the peak of the real estate market.
It’s a good idea to avoid buying homes near the peak of the real estate market. But how do you know when the peak is at hand? A few indicators that I’ve seen are: the homes become quite expensive in comparison to previous prices; rental ROI drops into single digits; and landlords carrying a mortgage have either a negative or flat cash flow.

If you avoid making these mistakes and follow my suggestions, you should find that you’ll have much more success as a landlord, and a much higher ROI at the end of the year. And those higher annual returns really add up over the years to help you build long-lasting wealth from your real estate portfolio.

This information was originally published on Auction.com, LLC, the nation’s leading online real estate marketplace. Founded in 2008, the company has sold nearly $20 billion in assets since 2010. 

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Selecting the Right Property for Investment

Joel Cone is a freelance writer based in south Orange County, California. For nearly a quarter century Joel’s career — both as a journalist and as a marketing communications specialist — has focused on the residential and commercial real estate industries, as well as the legal community. After a decade as a staff writer for the Daily Journal Corp. group of newspapers, Joel was a regular contributor to California Real Estate magazine for the California Association of Realtors; was the original Orange County reporter for GlobeSt.com; wrote executive profiles for OC Metro magazine; and has been published in a number of real estate-related publications.

The choice of real estate-related shows on television can give anyone the idea that investing in real estate is a worthwhile endeavor. It can be, but for any investor – seasoned or novice – there are some fundamental principles to keep in mind when it comes to selecting properties.

Regardless of the present state of the economy or the real estate market, any legitimate investor will not start looking at properties without first determining the ultimate goal desired. That goal depends entirely on the investor’s exit strategy.

Here are the two basic exit strategies most real estate investors adhere to:

  1. Buy and hold. The investor wants to collect a portfolio of rental properties to generate a steady income stream over a period of time, thereby becoming a landlord.
  2. Buy, fix and sell. Better known as “flipping,” in this scenario the investor wants to purchase desirable properties at as low a discount as possible so as to have a good payday at the end when each property is finally sold.

Once an exit strategy is selected, then locating and securing properties that fit the investor’s exit strategy is much more cut and dry.

Investors Learn to Adopt Strategy to the Market

Buy and Hold
Once the question of exit strategy is settled, where and how to buy good properties that fit those strategies is as individual as the investor.

While some investors do not mind buying in different markets around the country, others like investor, author and trainer Tony Alvarez prefer to stay in their own backyard like he has in the Antelope Valley area of Los Angeles for many years.

A former appraiser, Alvarez is a true student of his market, keen on knowing the local economy and housing statistics. In such a volatile market as his, Alvarez said that a long-term hold of an asset is not forever, but only until the market peaks before he sells.

“An investor is somebody buying one unit or a whole complex. They are usually making their decisions based on return of investment and calculating capitalization rates and stuff like that,” Alvarez said. “When I look at purchasing assets, I want to have more than one exit strategy when I make my offer. One eye is on cost of construction and the other eye is on the ability of that asset to generate cash flow. I use a gross rent multiplier.”

When it comes to buying and holding properties in Denver, Colo., attorney and investor Bill Bronchick also looks at the financials except his strategy calls for buying properties that can demand a rent that allows for a 25 percent cushion above total costs (principal, interest, taxes and insurance). After that, he looks for properties that allow him to get in and out with a minimum of repairs before renting it out. And his last requirement is that the property must cash flow.

“You want to be in an area that in terms of long-term growth is going to keep its value,” Bronchick said. “It’s a balance between cash flow and future potential. You want something that’s right in the middle of the pack. Stick with lower middle class properties that are just at or just below the median price for the city.”

Andy Heller, a longtime investor in the Atlanta market, coaches and trains wannabe investors. Unlike Alvarez and Bronchick, however, Heller does the buy and hold strategy with a tweak…

Instead of buying and holding a property over a long period of time, Heller prefers to offer up his properties to his tenants as a 3-year lease option. Doing so allows him to enjoy the tax benefits of being a landlord, while also giving the tenant a sufficient amount of time to either exercise the option to buy the property outright or to either extend the option or to simply move out.

To Heller, the most important factor is finding a property with a sufficient investor discount.

“My model is to lease purchase a property. I do not use a Realtor. I need a 10 percent discount if everything is perfect. I don’t need a 25 percent discount so I know there’s more properties out there for me,” Heller said.

Next, he looks for properties that satisfy his exit strategy – those that will make a good lease purchase to a quality tenant base. With Heller’s model, that’s middle-income properties. Therefore, the investor must know with certainty what the middle-income range is for the market they are working.

Lastly, after locating a property with adequate investor discount, in a middle income neighborhood, the final factor Heller focuses on is the area’s schools. The schools must be good in order to attract the high quality tenant/would-be buyer who would pay a premium to live in the area where his properties are located.

Flipping Out
Being both a real estate broker and a general contractor, Scott Mednick knows what he is looking for when it comes to locating properties with potential to flip. Working throughout the Southern California region, he has established a methodical approach to selecting potential investment properties.

“I’m a negative Nellie. I look for everything wrong with the location first,” Mednick said. “Then I look at what’s right with the house. I try to buy the biggest, ugliest house in the neighborhood.”

For Mednick, the determining factor is strictly price. Before he even inspects the property he has gone on the MLS and done his homework so that he is at least 90 percent sure about the property ahead of time.

“I figure what the maximum sales price could be for that area. I’m going to do the nicest house in the area and get close to that price, backing off the rehab costs, the carrying costs, and what I’m buying it for. If there’s a 10 percent profit at the end, then it’s a go,” he said.

It’s how you play the game

Being a real estate investor is much like playing a game of chess. It all comes down to strategy. Every move an investor makes has to be with forethought and the end result in mind – the exit strategy.

After that, determining where and how to buy properties is an individual decision. For some investors check out the local multiple listing service and build relationships with local Realtors to get the scoop on new properties before they hit the market.

For others, it’s buying properties at auction, utilizing websites such as Auction.com as a prime source of information to find out when and where the auctions are being held and how much the opening bid will be.

But no matter the eventual purchase method, the most successful investors are the best students of their market when it comes to determining a property’s investment potential.

This is an exclusive article from Auction.com, LLC, the nation’s leading online real estate marketplace. Founded in 2008, the company has sold nearly $20 billion in assets since 2010. Auction.com has more than 900 employees and offices in Irvine and Silicon Valley, California as well as offices in Atlanta, Austin, Denver, Miami and Newport Beach. Visit us at www.auction.com, or on Twitter, Facebook and LinkedIn.

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How Real Estate Investors Get the Best Financing

When you’re evaluating a potential real estate investment, one of your top considerations should be cash flow, no matter how much you love the property. For rentals, two factors maximize cash flow: the rental income and the loan terms. Your goal should be to charge the highest rent the market will bear — certainly enough to cover the mortgage payment, insurance, property taxes and maintenance — while keeping the property occupied.

The second way to maximize cash flow is to get the best loan terms. The lower your rate, the more profit you realize each month. Lenders examine three factors when establishing an interest rate for a mortgage: the borrower’s credit scores, the loan-to-value ratio and ability to repay (ATR).

Credit Scores
Lenders use credit scores, also called FICO scores, to help them evaluate the likelihood that a borrower will default. The higher the score, the better the borrower’s credit. For a borrower to qualify for a loan, most mortgage companies require a credit score of at least 640, although some lenders allow scores as low as 620.

Credit scores above 740 get the best rates, while scores in the 640 or 620 range will receive slightly higher rates. Real estate investors with lower scores can still be approved, but they won’t get the best rates available.

Loan-to-Value Ratio
The loan-to value (LTV) ratio represents the percentage of the loan amount compared to the sales price of the investment. Conventional loans require that a borrower make a down payment of at least 20 percent, for an LTV ratio of 80 percent. For a $200,000 home, that comes out to a $40,000 down payment. If the LTV ratio is higher, lenders can require private mortgage insurance (PMI).

In the lender’s eye, the higher the LTV ratio, the greater the likelihood that the buyer will default. Lenders usually offer better rates for borrowers who make down payments of 25 percent or more (an LTV ratio of 75 percent or less). They like to see that the borrower has more “skin in the game.”

One place where LTV ratios play a big role is in assessing loan-level pricing adjustments (LLPAs). These are changes in loan costs derived from a combination of credit scores and LTV ratios — your risk to the bank, in other words. If you have a 680 FICO score and are planning to make a 20 percent down payment, you may be able to reduce LLPAs and get a better rate by putting 30-35 percent down.

Ability to Repay Requirements
On January 10, 2014, the Consumer Financial Protection Bureau’s (CFPB) qualified mortgage rule, which includes new ability to repay (ATR) requirements, went into effect. While lenders have always compared a borrower’s debt to income, the ATR sets down guidelines that lenders follow in order to avoid making loans to borrowers who may not be able to repay them. The magic ATR number is 43: In order for the loan to qualify as protected, a borrower’s total monthly debt may not exceed 43 percent of gross monthly income. Lenders refer to this number as the debt-to-income ratio or DTI.

Simply put, if a couple makes $10,000 per month, their monthly debt, including the mortgage payment, may not exceed $4,300. Qualified monthly debt includes principal and interest, monthly taxes and insurance and any homeowner’s or condominium dues, plus consumer debt such as automobile loans or credit cards. Daily expenses such as utilities, food, or entertainment costs aren’t included.

To get the best rate, the loan needs to conform to the ATR standards, otherwise the loan may either be declined altogether or approved using different types of loans with higher rates.

Different Lenders, Similar Rates
You’ll discover when you’re comparing mortgage rates from different lenders that they’re probably very similar. You won’t find one lender offering you 4 percent while everyone else is quoting 5 percent on the identical loan. In addition, when researching current mortgage rates, remember that the rates you’re quoted are based upon your specific scenario. There’s no “one-size-fits-all.”

At the same time, rate adjustments are typically in increments of 1/8th of one percent, so it’s not necessarily a deal-killer if you can’t make a higher down payment or improve your credit score — but it does affect your monthly cash flow. (Note: FHA loans are available for down payments as low as 3.5 percent at competitive rates, but do come with built-in insurance premiums.)

Another strategy you can use to reduce your monthly payments is to pay more points up front. A point is a fee equal to 1 percent of the loan amount. For the $200,000 home mentioned earlier in this article, a point would be $2,000. “Discount” points are pre-paid interest on your loan in return for a better interest rate. This strategy works best if you plan to own the property for several years, for its rental income.

In sum, optimizing these three factors — credit scores, the loan-to-value ratio and ATR — can help you get the best rates and terms for an investment property. Even if you don’t get the absolute best rate on the planet, you’ll know what to do the next time when you apply for a loan. Get your credit scores up, plan on putting more down and keep your debt-to-income ratios in line.

This information was originally published on Auction.com, LLC, the nation’s leading online real estate marketplace. Founded in 2008, the company has sold nearly $20 billion in assets since 2010. Auction.com has more than 900 employees and offices in Irvine and Silicon Valley, California as well as offices in Atlanta, Austin, Denver, Miami and Newport Beach. Visit us at www.auction.com, or on Twitter, Facebook and LinkedIn.

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Women Real Estate Investors Build Long-Term Wealth as Landlords

Ethan Roberts is a real estate writer, editor and investor. He’s a frequent contributor to InvestorPlace.com, and his work has been featured on Money.msn.com and Reuters.com. He was one of five contributing editors to TheTycoonReport.com and has also written for MarketGreenhouse.com and SeekingAlpha.com. He’s been investing in real estate since 1995 and a Realtor since 1998. This post is the second in Roberts’ ongoing series about women in real estate. 

As we saw in the first part of this series, real estate investing is no longer exclusively a man’s world: More and more women are getting involved in real estate investing as a viable way of generating income. Some women, like 53-year-old Leticia who I profiled last month, are “flipping” (buying to resell quickly) homes and making profits on their capital in just a few months.

But other women are approaching real estate investing from a different angle. Their strategy is to buy properties, fix them up and then hold onto them for the long term, renting to tenants who choose to rent rather than buy.

Rental Home Portfolios Funding Retirement
Barilynn, a 57-year-old woman from Jacksonville, Florida, has been buying single-family foreclosures since 1995. She hires contractors to rehab the houses and then turns them into long-term rentals. She now boasts an astonishing portfolio of 23 single-family rental homes, while working a full-time job that demands cross-country travel almost every week.

Her portfolio is noteworthy in that 17 of the 23 homes, originally ranging in price from $35,000 to $120,000, are now completely paid off. That means the income generated from most of her properties is no longer reduced by mortgage payments, so she can use that cash to pay down the mortgages on the remaining properties faster.

Facing Challenges Head On
At the beginning of her career, Barilynn says she faced several obstacles due to her gender. For one, the first few male real estate brokers she contacted wouldn’t take her seriously as an investor.

“One listing broker ignored me when I inquired about his investment property listings,” she says. “After that I found a wonderful female broker, and I bought 12 properties through her until she passed away.”

Another challenge was that contractors initially tried to take advantage of her by charging her more for materials and labor.

“I had to learn more about home repairs so I wouldn’t get ripped off,” she says. “But what was even worse was that none of these contractors would let me open an account or give me credit. I can’t always be there to pay by check at the time of the job, so it helps if they bill me later. In fact, one guy said he couldn’t give me credit, and then offered to do just that for a male friend of mine!”

Her third biggest challenge has been, surprisingly, with other women.

“Some female tenants try to take advantage of me and treat me differently than they do my male partner when he collects the rents,” she says. “They try to appeal to me as a female by talking about how difficult it is for them as single parents to pay rent on time. I just tell them that I’m sorry, but I still have to collect the rent!”

Barilynn wants to buy a few more rentals so that she can maximize her income stream when she retires. Her biggest challenge recently, due to the high level of interest in foreclosures, has been to find good deals on properties that will yield a solid return on investment.

I asked her what advice she would give to other women who would like to begin investing in real estate.

“Don’t listen to people who say you can’t do it, or that tenants are too much of a hassle,” she advises. “I will live a much better lifestyle in retirement because I didn’t listen to the naysayers. Also, don’t invest in real estate unless you have some cash reserves, in case you need to make repairs or file an eviction.”

Women Also Pursuing Commercial Real Estate Investing
Women aren’t confining themselves to residential income-producing properties. An increasing number of women own and manage commercial real estate.

Gerry, 83, has owned and managed a 26,000-square-foot office building in San Diego, California, since her husband passed away in 1990. The building has provided her with a major source of income — supplementing a minimal amount of Social Security payments and stock dividends — that has allowed her to enjoy a relatively high standard of living over the past 24 years. Drawing on her undergraduate degree in business from the University of California at Berkeley, she likes working with tenants and the satisfaction that comes from having a successful business.

“The biggest challenge I’ve faced was probably weathering the recession in the early 1990s right after my husband died,” she says. “Vacancies were up, as were expenses. These days, my biggest challenge is finding competent maintenance and repair people.”

I asked her what advice she would have for women who are interested in investing in commercial real estate.

“You need to do a fair amount of research into surrounding areas, traffic patterns, favorable locations and availability of tenants for your particular facility,” she advises. “And if you don’t have a building manager, you should have some knowledge of accounting.”

How to Get Started
If you’re a woman who would like to get started in real estate investing, either in residential properties like Barilynn or commercial properties like Gerry, consider joining a local real estate investing club, where you can network with other investors — male and female. There are also clubs designed specifically for women real estate investors across the country. One way to find these groups is through a site like Meetup.com.

Just remember: It’s 2014. Women real estate investors no longer have to feel invisible, be ignored or get ripped off by service providers. If men can be successful real estate investors, and make a good living or prepare for a comfortable retirement, women can too!

This information was originally published on Auction.com, LLC, the nation’s leading online real estate marketplace. Founded in 2008, the company has sold nearly $20 billion in assets since 2010. Auction.com has more than 900 employees and offices in Irvine and Silicon Valley, California as well as offices in Atlanta, Austin, Denver, Miami and Newport Beach. Visit us at www.auction.com, or on Twitter, Facebook and LinkedIn.

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Women Breaking New Ground as Real Estate Investors

Ethan Roberts is a real estate writer, editor and investor. He’s a frequent contributor to InvestorPlace.com, and his work has been featured on Money.msn.com and Reuters.com. He was one of five contributing editors to TheTycoonReport.com and has also written for MarketGreenhouse.com and SeekingAlpha.com. He’s been investing in real estate since 1995 and a Realtor since 1998. This post is the first in Roberts’ ongoing series about women in real estate.

Since the early 1990s, real estate investing has become more and more popular as a way for average Americans to gradually build wealth over time. For many years, this type of investing was almost exclusively the domain of men.

But in recent years, women are being drawn toward real estate investing as a viable way to ensure that they will have income or appreciating assets in retirement. Today there are even online investing clubs devoted exclusively to female real estate investors.

Women have a lot to gain. Real estate investing, with its potentially high returns, offers them an excellent way to boost their income streams throughout their lives. This can be especially important in retirement, considering women are at a greater risk of outliving their savings due to their longer life expectancy, fewer years in the workforce and historically smaller paychecks.

Flipping vs. Retailing
Some female real estate investors are making money on “flipping,” where they buy homes in distressed condition and then resell them within a short period of time. One way to do this is to buy an inexpensive property in foreclosure or through a county auction and then “wholesale” it to another investor at a bargain price without making any repairs or improvements.

If one’s goal is simply to earn a monthly profit on each wholesale flip, this is a great way to add to one’s wealth or create an excellent cash flow for retirement years.

However, increasing numbers of women now “retail” the home — referring to the practice of repairing or improving the home’s structural and cosmetic flaws in order to sell it as a primary residence for full market value. This takes longer and the process is more involved, but the profit potential greatly exceeds wholesaling. Profits on a retail flip may range from $15,000 to $50,000 or more, depending on the price paid, amount of work needed and the ultimate selling price.

Start-to-Sold Strategy
One woman leveraging this strategy is Leticia, a 53-year-old divorcee who lives in Jacksonville, Florida, with her two children, one in college and the other in high school. She started flipping homes in 2004 as a way to make extra money. Her first project was moving mobile homes away from an area being taken over by an airport under eminent domain.

When she first began, she knew nothing about the process. But slowly, over time, Leticia has learned much more, to the point where she’s able to project manage the entire flip.

To date, Leticia has owned and sold six primary residences. She helped design two of them and managed the contractors performing the work. She also does some of the work herself on flips, such as painting and landscaping, as well as ordering and buying materials.

Flipping homes isn’t just a hobby for her — it’s her full-time job, and she uses a “hard money” lender to finance the deals. A hard money loan is a short-term, very-high-interest loan (12 to 15 percent), in which the lender provides about 65 to 70 percent of the after-repaired value (ARM) of the home to the borrower. For example, if a foreclosed home is worth $150,000 after repairs and is selling for only $100,000, a hard money loan would finance perhaps 70 percent of the $150,000, or $105,000.

While the investor might have to pay for materials and labor out of pocket, they use hard money loans so they don’t have to come up with a 20 percent down payment, as is usually required with other types of conventional loans. The idea is to fix up and sell the home fast so the high-interest loan can be paid back as quickly as possible.

Leticia’s long-term goal is to achieve financial independence so she doesn’t have to return to a 9-to-5 job. She hopes to flip five to six homes per year, and make a $20,000 minimum net profit on each. That can be challenge in itself, given the nature of the property she’s buying. For example, hidden plumbing problems have caused her to go over budget on her most recent project, a 1,500-square-foot ranch home in Florida that was a bank foreclosure.

“Luckily, I was able to find some great deals on cabinets and granite countertops,” she says. “And home values have risen since I bought the home.” In fact, within three days of listing the home on the Multiple Listing Service, Leticia received a contract for sale. With a fast contract in hand on this home, Leticia is already looking forward to searching for the next potentially profitable “flip.”

Leticia suggests that anyone interested in real estate investing “shadow” other investors to see what they do. “Also, read books and have a keen interest in learning everything you can about real estate,” she counsels.

Next up: Women Build Long-Term Wealth as Landlords

This information was originally published on Auction.com, LLC, the nation’s leading online real estate marketplace. Founded in 2008, the company has sold nearly $20 billion in assets since 2010. Auction.com has more than 900 employees and offices in Irvine and Silicon Valley, California as well as offices in Atlanta, Austin, Denver, Miami and Newport Beach. Visit us at www.auction.com, or on Twitter, Facebook and LinkedIn.

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Location, Location, Location: 5 Ways to Evaluate a Neighborhood

Real estate investors calculate an investment’s potential cash flow by comparing the financing and maintenance costs with current market rental rates. If the rental income more than pays for the mortgage, taxes and associated costs, the property is up for further consideration. But regardless of the initial calculations, buying in the wrong neighborhood can erode the property’s value and lower rents.

Whether you’re buying an investment property for the rental income and long term-appreciation or looking for a house you can flip for a quick profit, you need to invest in a neighborhood that will support the home’s value and continue to appeal to buyers and renters. You might be able to find one of those diamond-in-the-rough gems, but if the rest of the surrounding neighborhood is also in that category, your investment may not turn out as you hope.

Buyers and renters alike usually have a good idea where they want to live. Perhaps they’re drawn by good schools or proximity to employment. Whatever the draw, the neighborhood can be as important as the property itself. As a real estate investor, you should have the very same mindset. So how do you properly evaluate a neighborhood? Here are five factors you should consider.

1. Research historical values.
You or your real estate agent can research the area to find out how the homes in a neighborhood have fared over the years. Go back 15 or even 20 years and see if there is a history of a gradual increase in home values. In certain areas, you can discount the “blip” in values that occurred in the mid-2000s, when both home ownership and real estate values hit record levels, but you can research public records that show what homes have sold for in the area over time. You want a neighborhood that has a pattern of gradual price appreciation, not one that has experienced multiple spikes and corrections.

2. Check out the quality of the schools.
The quality of the public school system is a big draw for families. Established neighborhoods located within a noted public school system will command higher rents than similar properties in an area of average or poor public schools. If the school system is exceptionally strong, people will move there simply for the schools. Individual states vary in whether they rate public schools with stars, categories or even an “A-through-F” grading system. Use popular sites like GreatSchools or SchoolDigger.

3. Look for employment opportunities.
Are there jobs nearby? Are there major employers that attract high-paying jobs in the area? There will always be a demand for housing in a neighborhood with consistent employment opportunities. And that doesn’t always mean that there has to be a major manufacturer in town. Colleges and universities are big employers, as are state capitals or county seats.

In addition to identifying a cadre of established employers, look at the convenience of the location. Relatively speaking, is the commute manageable or do most residents have to drive a considerable distance before arriving at their jobs every day?

The availability of employment will also be reflected in the demographics for a given zip code or codes. Look for household income higher than the local median. You don’t need to look for the priciest real estate in town, but you can identify neighborhoods where the aggregate household income is greater than in adjacent areas.

4. Do a rough count of the number of nearby listings.
Are there several “For Sale” signs in the neighborhood? More homes for sale can indicate that you may get a better deal, but for the long haul, it can also be a sign of trouble. Why are so many properties listed? And for those that have sold, how long did it take to sell them? Real estate agents pay attention to the “days on market” number, as it’s a good indication of whether it’s a buyer’s or a seller’s market. If it’s taking more than six months to sell a home, you may want to reconsider the investment, unless you can document a long-term history of appreciation or identify why so many homes are on sale.

Ideally, you want an established neighborhood with less turnover. If possible, you want to be one of the few rentals in the entire neighborhood. Too many rentals in the area mean you’ll be competing for the same tenants, suppressing your rent.

5. Drive it home.
To get a first-hand experience of the neighborhood, hop in your car and take a drive. Make a physical inspection of the area with your own eyes. Get a feel for commute times by driving to the neighborhood in rush hour to check out the traffic. Visit the neighborhood on different days and on the weekends to soak in its personality.

How are the homes kept? Are the lawns mowed and do the houses have a fresh coat of paint? Are the streets clear of debris? Can you see an overall pride of ownership? Real estate investors look for homes that need some work but are located in an ideal neighborhood. There might be one or two owners who don’t take care of their properties, but you can get a clear picture of a neighborhood’s overall identity with a personal visit.

6. Become the expert.
Once you’ve bought your first real estate investment, you may soon find that you’re scoping out the neighborhood on a regular basis. When you’ve found the ideal area, make sure the residents know you’re an active real estate investor. Ask them to call you first if they decide to sell for whatever reason. Once you’re an expert, you’ll almost immediately know if a new listing is worth your attention.

This information was originally published on Auction.com, LLC, the nation’s leading online real estate marketplace. Founded in 2008, the company has sold nearly $20 billion in assets since 2010. Auction.com has more than 900 employees and offices in Irvine and Silicon Valley, California as well as offices in Atlanta, Austin, Denver, Miami and Newport Beach. Visit us at www.auction.com, or on Twitter, Facebook and LinkedIn.

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10 Tips for New Real Estate Investors

Looking to buy your first investment property but not sure how to start? Ethan Roberts is a real estate writer, editor and investor. He’s a frequent contributor to InvestorPlace.com, and his work has been featured on Money.msn.com and Reuters.com. He was one of five contributing editors to TheTycoonReport.com and has also written forMarketGreenhouse.com and SeekingAlpha.com. He’s been investing in real estate since 1995 and a Realtor since 1998. Here’s some of the advice he shares when he teaches classes on investing in residential real estate.
Many investors today want to add real estate to their investment portfolios, but they don’t understand the complex nuances of real estate investing or how to begin the process. Real estate investing is substantially different from investing in stocks, bonds and CDs, and it can seem overwhelming to brand-new investors.

Several years ago, an investor called me to buy a rental property after losing a great deal of money in the stock market. He was excited to begin his real estate investing career, but was terrified of investing in something new. In fact, at his first closing, his hands shook so much that he could hardly sign his name on the documents. Today, he owns eight houses and has become quite successful. We laugh whenever we recall how nervous he was in the beginning.

But real estate investing doesn’t have to be difficult or scary. When I teach people how to invest in real estate, my philosophy is to maximize return while minimizing the risks. When done correctly, real estate investing is one of the safest and best long-term wealth-building tools in the world. With that in mind, here are 10 tips to help you successfully launch your real estate investing career.

1. Real estate investing is a business, and you should treat it as such. 

Start by developing a good business plan, detailing the nuances of starting and running your business, with realistic goals over time frames of one, three, five and 10 years. If you don’t know how to write a business plan, you can find help at the Small Business Administration’s website (www.sba.gov).

2. Check your credit report to determine your ability to finance investment property. 

Most lenders today require a 700 or better FICO (Fair Issac Co.) credit score from borrowers who want to buy investment property. Also, make sure that your total debt-to-monthly-income ratio is low. Often it makes sense to pay down outstanding credit card debt or car loans in order to improve your debt ratios. You’re entitled to one free credit report per year from the three major credit bureaus (Trans Union, Equifax and Experian), but they’ll only provide your history, and not your score. Instead, try Credit Karma (www.creditkarma.com) to get both.

3. Find a good bank or mortgage broker in your area if you’re financing your investments. 

Real estate agents are good sources for recommendations, or you can ask other investors whom they’ve used. You might want to do this even before you start your property search. If you’re paying cash, you’ll need to prove you have the funds by submitting a recent bank or brokerage statement when you make an offer.

4. Determine the best areas to look for properties. 

Some new investors make the mistake of limiting their search to areas close to their home. But often better rental areas may be located a little farther away. New investors may think they need to live near their properties in case tenants call about repairs or other problems. But in reality, if the home is put into good repair before your tenants move in, those calls should be few and far between.

5. Talk with other investors about local real estate. 

Join a real estate club in your area (do a quick Google search to find them). Real estate clubs are great places to network with other investors, lenders and repair service providers. You can often pick up helpful advice about your local market from other club members. Some communities offer courses on real estate investing through adult education or local real estate brokerages. If you can’t find a real estate club or course, consider an online investing forum. Yahoo Groups lists dozens of real estate groups. The Real Estate Investors Forum of Tampa Bay, for example, has been around since 2002 and has more than 1,100 members.

6. Consider multiple sources for buying properties. 

New investors may think they can only purchase homes through their local Multiple Listing Service (MLS), or by banging on doors in run-down neighborhoods looking for distressed sellers. But sometimes you can find much better deals on real estate auction sites, and these sites make it possible for buyers to easily make purchases in locations beyond their immediate area.

7. Spend time reading about real estate investing. 

A tremendous amount of free information exists today online about real estate investing. When purchasing a book, look for those that offer practical guides on buying, flipping, renting and selling properties. Avoid books that claim you can make huge sums of money in 30 to 60 days or 25-year-old books detailing techniques that may no longer work.

8. Find a good real estate agent to help you locate properties. 

Not all agents are experienced or even adept at helping investors. Before the real estate crash in 2007 and the subsequent onslaught of foreclosures, only a small percentage of real estate agents would even work with investors. Since then, agents have taken courses and suddenly claim to be “experts” on foreclosures. Make sure that you choose an agent who has sold a large number of investment properties, and also understands concepts such as return on investment (ROI), net operating income (NOI) and debt service.

9. Look for a return greater than 1 percent per month of sales price. 

An old maxim of real estate says that a rental property yielding 1 percent of the sales price per month is a good deal. In other words, if the home cost $100,000, you should get $1,000 per month in rent, or about 12 percent annual yield. But in many areas of the United States today, home values have declined substantially and investors can now achieve greater than 1 percent per month returns.

Let me share two examples of homes that I purchased with cash in 2013. The sales price of the first was $62,000. It rents for $1,050 per month, an annual yield of more than 20.3 percent. I bought the second one for $39,900, and it rents for $795 per month, an annual yield of 23.9 percent! Even factoring in repairs and other initial expenses, the yields are still 15 percent and 18 percent respectively on the two homes.

10. Learn from the best. 

To achieve success, model your investing decisions after what other successful real estate investors in your area have done. Search Google for real estate clubs in your city, or try Meetup.com.

Above all, remember that like anything else, the harder you work and the more effort you put into your real estate investment business, the greater your ultimate reward will become over time. Good luck!

This information was originally published on Auction.com,
LLC, the nation’s leading online real estate marketplace. Founded in
2008, the company has sold nearly $20 billion in assets since 2010.
Auction.com has more than 900 employees and offices in Irvine and
Silicon Valley, California as well as offices in Atlanta, Austin,
Denver, Miami and Newport Beach. Visit us at www.auction.com, or on Twitter, Facebook and LinkedIn.