Monday, September 25, 2006

Investing in Real Estate

During the real estate boom everyone was flipping houses. Aunt Edna, the Priest, and the high school quarterback would form an investment team, purchase a home, make some minor repairs, and sell it for a profit. The flipping boom was fueled by cable TV shows like "Flip that House." And for the most part these amateur investors did well too. However, as the boom ends, is this realistic anymore? Is flipping even a good strategy at all anymore?

Well, here's my opinion on real estate investing. Take or leave it, but I think it makes sense.

1.) Never count on appreciation when investing. If you are going to put a number to appreciation I think 3% annual appreciation is a good, safe average.
2.) Plan on holding your real estate investment long term. Even if you don't hold it long term, be prepared to.
3.) You have to make the deal going in. It has to be a bargain property at the time of purchase.
4.) Flipping is not a good investment strategy. Usually you are counting on appreciation and a strong real estate market to carry you - that's not smart. Plus. you've got your real estate fees, title fees, escrow fees, capital gains, excise tax, and other fees that eat into your profits.
5.) Single family homes are not a good bet. Why? A single family home is either 100% vacant or 100% full. Multifamily homes spread your risk over multiple units. You can usually purchase up to a fourplex with a residential loan.
6.) Commercial buildings are where most successful real estate investors usually go. This is not to say you have to start out with commercial buildings, but they're a good goal.
7.) Think about your tax burden. How can you use your investments as a tax advantage, not disadvantage.
8.) Are you a real estate investor or is it a hobby? If its a hobby, be sure you have the time, energy, knowledge, and finances to support what you're doing.
9.) Put your heads together. Investing is always done better in teams then solo. It spreads the risk, and you'll gain knowledge from your partners. On the other hand, be careful about investing with friends and family. Deals can go bad, and people can get hurt. Be prepared.
10.) Have fun. Real Estate investing should be a bit of an adventure, so have some fun doing it!

Best of luck to you real estate investors... much success in your future ventures!

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