I know very little about real estate investing and I’ve always wanted to learn, so I had the brilliant idea to ask fellow blogger Trisha Allen to write a guest post on the topic and she agreed! What Trisha sent me was a very comprehensive article that I’ve broken out into several parts based on their topics and will be introducing them over the next few days.
I asked her for an intro and here’s how she described herself and her experience:
Leave it to me to start a real estate career at the beginning of a real estate bust! But, like a red-headed bumblebee who doesn’t know she shouldn’t be able to fly, I’ve forged ahead to purchase/remodel/lease/flip seventeen houses and one quadplex for profit. Believe me, it’s certainly been no bed of roses! Each deal has been its own unique struggle and learning experience, and I’ve been blogging about it for the world to see since 2005… all the good, the bad, and the ugly!
In early 2006, I decided to bite the bullet, volunteer for layoff from my day job, and get my real estate license in order to open up new avenues for our investing. I’m currently working for one of the largest local real estate offices as a sales/leasing agent, and juggling that with investing, remodeling, flipping, sleep, and very little sanity!
Brace yourself. I’m about to utter the two dirtiest words in investing lately: Real Estate!
Everyone can agree that making money is the fun part of any investment. Late-night infomercials and real estate guru books feature lots of cheese-eating grins with captions that say things like, “I made five million dollars in five days using these techniques. And, you can, too!” They’ll tell you it’s easy to make money once you buy their program. Some of them even offer money-back guarantees if you’re not satisfied. But, are you guaranteed to succeed investing in real estate? No. In fact, it’s easy to get yourself into trouble. As with anything worth doing, there is an element of risk.
Real estate investments are a great way to add another stream of income. But, contrary to what the gurus may tell you, real estate income is hardly ever truly passive. Some lucky investors do experience periods of “passive income” — which implies that checks arrive in the mail with no effort invested. It seems the majority of real estate investors find that they spend many more hours than they originally intended with finding and closing deals, managerial tasks, bookkeeping, and tax preparation. While an investor with deep pockets can afford to outsource these tasks to professionals, most beginning investors probably will have to shoulder some of the work themselves. Even investors with a team of professionals will find that they still have to manage those managers. After all, no one cares about your business more than you!
In this economy, an investor can build a portfolio with foreclosures and pre-foreclosures. They’re a great way to purchase property for less. After all, lenders aren’t in the real estate business—or, at least, they don’t want to be. They’re in the “collecting interest” business. When they have a supply of properties, they’re forced to be in the property management and real estate sales business. It’s very costly for a lender to have to foreclose on a property—not to mention, it’s not what their investors want to see on the books. Foreclosures can usually be found on the MLS with the help of a qualified Realtor. Pre-foreclosures can be purchased by “short-sale”, which means that they’re purchased from the owner prior to the completion of the foreclosure process with the permission of the foreclosing lender(s). The owner is forced, sometimes reluctantly (sometimes happily), to abandon their equity stake to the investor-buyer. But, they may be able to walk away without a foreclosure on their credit record. In that case, the investor has performed a service for the both the owner and the lender.
OK, let’s say you’ve finally sold your herd of goats to get your downpayment for your first property. Where do you start? Well, first you’ll need to figure out what type of real estate investing is right for you. I’ll go through the usual types of real estate investments and tell you the general entrance difficulty level for each. In addition, I’ll score them each from one star for “Active” investments to five stars for “Passive” investments (Totally Active = *, Totally Passive = *****).
Next Edition: Buy and Hold Investments
I’ve done real estate investing successfully since 2003 and have blogged about it since 2005. A word to the wise: before you invest, check with an attorney and a CPA to evaluate your goals, investing options, and the laws in your state.