How Real Estate Investors Make Money

How Real Estate Investors Make Money

Introduction

There are two ways investors make money in real estate: renting and selling for profit. Of course, the savvy investor can use both methods, even on the same property. Here we will go over some details of each method.

It should be emphasized that whether renting out a property or selling for raw profit, the importance of location can’t be overemphasized. The fact is that nearly any model of residential or commercial building can be replicated in many locations. However, the local amenities, culture, atmosphere, weather, or historical value cannot be duplicated. It is such factors that give rise to widely different prices and rents for otherwise identical structures.

Cash Flow: Rent

When renting, the first priority is attracting and retaining tenants. Generally, home-like rental properties or long-term commercial leases are a better option than short-term rentals that, admittedly, fetch a comparatively higher monthly rental. This is because vacancies take their toll and are bad for cash flow. Make sure to specify clear lines of responsibilities for tenants and the property owner. Maintenance, repairs, utilities and tax responsibilities accrue as costs to the property owner, so make sure that rental cash flow at least matches maintenance and other necessary expenditures.

Fix and Flip

Buying low and selling high is the holy script of investing. When buying real estate, beware that the purchase price essentially traps liquidity upon sale completion and for as long as it takes to renovate and resell the house. Also consider the opportunity cost of other income-producing activities, including renting, that the property owner could be doing. Such opportunity costs can add up, but if the buyer were to completely outsource the “fix” to others, the added cost would reduce or even eliminate the profit margin upon resale.

Summary

Note that both methods of making money from real estate entail unexpected costs along the way. Vacancies, irresponsible and toxic tenants, as well as competing units can take the steam out of anticipated cash flow from rental properties. Costly repairs, illiquid funds, and all-in marketing and resale costs can deflate profit margin from fix-and-flip properties. Consider the time and expertise required for each investment method and pick whatever works best. Real estate can be lucrative, but is not risk-free.

4 Things Real Estate Appraisers Won’t Tell You

4 Things Real Estate Appraisers Won’t Tell You

If working with a real estate appraiser feels like a frustrating and complicated matter, you’re not alone. There’s a reason it feels as though your appraiser is keeping something from you and that’s because he or she is keeping secrets. Here are a few things you probably didn’t know about your appraiser.

  1. Appraisers are Under Pressure

When the housing bubble burst a few years ago and created the Great Recession, mortgage lenders weren’t the only ones that took the heat. Appraisers also came under fire and the Dodd-Frank Wall Street Reform and Protection Act of 2010 now requires the government to keep a closer eye on all real estate appraisers. This is why the process is so much more complex and takes more time.

  1. Appraisers are No Longer Local

Those same reforms have created a situation in which appraisers are often sent to regions with which they have no familiarity. Since they don’t know the markets that are local to the properties they’re appraising, their estimates may be either too low or too high. This can keep a homeowner from getting the true value for their home and, conversely, can prevent a buyer from affording a home that should be within their range.

  1. Who Does the Appraiser Really Work For?

In a normal home-buying scenario, the buyer pays the fee for the appraiser, which can fall anywhere within the $350 to $500 range. Even so, the appraiser doesn’t work for you and his reports go directly to the lender. This means that neither the buyer nor the seller will likely see the appraisal firsthand. According to federal law, you have to be given a copy of the appraisal, if you submit a written request for it. However, most people aren’t aware of the law, so they never see the appraisal for which they paid.

  1. Always Get a Second Opinion

It can be beneficial to get an appraisal of your own in advance, so you’ll have something to compare to the official appraiser’s findings. This can be fairly simple by asking your real estate agent to deliver a broker’s price opinion. While your lender may not accept the broker’s opinion in place of the appraisal, it does provide that point of reference. A difference in estimates can end up saving you as much as $20,000 on a home purchase.

Appraisers won’t tell you everything about their jobs. This is partly because they have to react to pressure from banks and that affects every appraisal. By staying alert and seeking outside advice, you may be able to better ensure your appraisal is fair and on point with the area market.

 

Investing in Real Estate Without a Property Purchase

The most obvious way to capitalize on the current booming housing market is to invest in traditional real estate opportunities. However, there is a myriad of other ways to grow your wealth through real estate by going through less risky back channels. Here are a few ideas to get you started:

 

EXPLORE NEW HOME CONSTRUCTION: Limited inventory of existing homes has led to an even bigger boom in the new home construction sector. Real estate experts expect this trend to continue for decades to come, making this industry sector a safe bet for your investment dollars.

 

PUT MONEY INTO REAL ESTATE FUNDS: As the stock market continues to see unprecedented growth, many financial experts are recommending investing in both real estate focused exchange-traded funds (ETF), as well as real estate specific mutual funds. By diversifying your accounts across a wide range of real estate markets, you will mitigate risk and have the opportunity to jump into emerging global housing markets.

 

LOOK ONLINE FOR OPPORTUNITIES: In today’s high tech market, digital is king. The real estate industry has not been left out of this trend and it seems like new online real estate companies are popping up every day. To capitalize on this emerging market, it would be wise to look into investing your real estate dollars into commercial and residential markets while receiving cash flow dividends in return.

 

INVEST IN A REAL ESTATE SPECIFIC COMPANY: Savvy investors often look to bypass the traditional real estate investments, instead choosing to place their funds into companies focused on real estate. Some examples of this type of company would be classic residential real estate companies, resorts, and timeshares.

 

REAL ESTATE INVESTMENT TRUSTS: These REIT’s are a popular way to put your money into this strong housing market without having to hold any physical property. This strategy is also an ideal way for novices to the field of real estate to get their feet wet and learn about the market without taking on the risk of buying property or having to learn how to be a property manager. Because REIT’s are required by law to provide a minimum of 90 percent of their taxable income to shareholder dividends, investors are guaranteed cash flow.

 

Invest in Real Estate on a Budget

Mark Twain famously advised, “Buy land, they’re not making it anymore.” For most of modern history, this has been sage advice. Now, more than ever, following this advice can often lead to big investment returns.

 

The stock market has seen a nine-year run up. Many experts expect a correction. Cryptocurrency has been hot, but it’s speculative and risky. Bitcoin and its brethren are no place to park money you are counting on for the future. What if you want more safety but a decent, predictable return?

 

Real estate investing provides the perfect solution. It provides real returns without the risk of a chunk of your cash disappearing overnight. However, many potential investors fail to realize that you can get started in real estate with as little as a few hundred dollars.

 

As noted in an article on Penny Hoarder, real estate starter portfolios, such as the Fundrise Starter Portfolio, have investment minimums of just $500, at a time. Investors buy shares of a diverse real estate portfolio that encompasses rental properties, land investments, commercial real estate, and other large projects. Investors have access to a dashboard that shows the properties they are invested in and their performance. The Fundrise Starter Portfolio pays a quarterly dividend and enjoyed an 11.44 percent gain in 2017.

 

For small investors who want direct ownership, raw land offers big opportunities. The price is generally cheap, and so is the ongoing costs of ownership, as explained by Fortune Builders writer JD Esajian. Property taxes can be as little as $100 per year. You are free to develop the land or sell it at a profit. Many raw land deals can be funded with just a few thousand dollars or less. Buyers should always beware if the land comes with any covenants or restrictions and consider only buying land unencumbered by a homeowners’ association. For example, a neighborhood association could restrict certain types of development or require development by a certain date. They can also prevent you from selling your land or force you to sell it.

 

Those enjoy being hands-on do well with fix-and-flip investment properties. Many lenders provide loans based on the after repaired value, which, if you find the right property, can mean $0 down and even cash in your pocket to fund the improvements. If being this hands on doesn’t interest you, you can get in on the lending side. Many private lenders are seeking investors with investment minimums of just a few thousand.

 

Helpful Tips for People New to Property Renovation

If you’re a first-time homeowner new to property renovation, the idea of fixing up your outdated home is probably extremely intimidating. The professionals on all of those home improvement shows make the demolition and renovation process look so quick, easy, and painless, but you’re smart enough to know it isn’t that simple. For those who are unsure of how to start their first property renovation, this article will give you a few tips on how you can make your home remodel simpler, cheaper, and less stressful.

 

Get to Know Your Builder

If you’ve never renovated a home before, it’s best to sit down with a builder or an architect to better flesh out how you want your home to look. Additionally, are you planning on flipping this home in the near future, or do you want to settle down in this house and raise a family? Your builder will bring his or her experience to your project, and help you find ways to renovate your home so that it suits your needs.

 

Your builder will also help you plan ahead and keep your family and pets safe during your first home rebuild. For example, if you’re re-doing your home’s plumbing and need to shut the water off for an afternoon, your builder will notify you well in advance so that you can make the appropriate arrangements.

 

Stick to Your Budget

 

Creating and maintaining a budget is the most effective way to ensure that your home renovation will actually add value to your life, instead of leaving you in financial ruin with a partially remodeled property.

 

One rule of thumb to keep in mind is that your home renovation will always be more expensive than you anticipate. Experts suggest that you should save at least 20% more than your projected budget to cover unanticipated emergencies or hidden costs.

 

Think About Comfort

 

One thing first-time renovators often overlook is the idea of comfort during their rebuild. A good question to always ask yourself is, “How can I make my home more comfortable?”

 

Comfort doesn’t always have to be about adding high-end appliances or fixtures in your home. Instead, comfort can be as simple as making sure you have enough electrical outlets in your living room, or that you’ve got the right lighting in your kitchen for meal-time socializing. As you progress in your first property renovation, always be thinking about adding comfort to your new space.

 

How Social Media has Changed The Real Estate Industry

We all remember scanning the newspaper when we were kids and seeing local real estate agents advertising alongside family-owned restaurants and used car dealerships. At the top of these old ads, you probably remember seeing a head-shot of a smiling real estate agent, inviting you to look at the homes they were listing. Below this picture, there’d be small thumb-sized photos of ranches, bungalows, and mansions with pricing information and listing details printed out in minuscule font under each picture.

 

You probably didn’t think about it then – because who knew any better at the time – but what an impersonal and ineffective way to sell homes! Would you feel comfortable finding a good home for yourself if all you had was that small picture and those limited details to go on?

 

It’s no surprise, then, that social media platforms and home buying websites have transformed the real estate industry over the past few years.

 

Real estate agents who are interested in building a customer base with millennial home buyers have begun utilizing YouTube and Instagram to appeal to young families and upwardly mobile professionals.

 

For example, innovative real estate agents have begun posting entire photo albums of glamorous hi-res photos of the various homes they have available on their personally branded Instagram account. These real estate agents use things like hashtags to target Instagram users who want to move to a particular neighborhood.

 

Another huge benefit of using a social media network like Instagram to advertise homes is that people from all over the world are using Instagram. It’s never been easier to sell to buyers outside of a real estate agent’s particular area.

 

YouTube has also become a hotspot for real estate agents looking to add another visual dimension to their listings. The agents who are most effectively using YouTube are doing virtual house tours where they walk through a home with a video camera and a tripod. A video works well because it shows off the size of rooms and bathrooms much more effectively than traditional photographs do.

 

Another intriguing way that sellers are showing off homes to buyers is that they are using hand-held drones to take aerial footage of how a property looks from above. These aerial videos are so much more captivating than the thumbnail photos real estate agents used to rely on to make a purchase.

Two Ways That LinkedIn is a Vital Tool for Business Owners

In an effort to separate themselves from the pack, businesses owners and entrepreneurs alike have turned to social media platforms to give their products and services an edge. Some companies create short viral video campaigns for YouTube, live stream their latest product launch on Facebook, or produce compelling photographs for their audience on Instagram.

 

One social media platform that’s sometimes overlooked by people in the business world is LinkedIn. While some entrepreneurs believe that LinkedIn is just a network for resume posting, the platform actually offers a wide range of tools for business people looking to grow their company.

 

To learn more about the ways that LinkedIn is a vital tool for entrepreneurs and businesses, read on below!

 

LinkedIn is Great for Professional Networking

 

While social media platforms like Facebook, Twitter, and Instagram focus on the social aspect of networking, it can be difficult to make serious inroads on these networks if you’re interested in growing your network on a more professional basis.

 

LinkedIn, on the other hand, makes growing your professional social network easy by allowing users to search for like-minded professionals in their particular area of expertise. LinkedIn allows users to build relationships with people on both a local level, as well as on national and international levels, too, making the social network unique in its ability to help entrepreneurs quickly find other business savants who are revolutionizing the business landscape in their cities.

 

LinkedIn has message boards and groups that further allow people to identify who they might want to connect with to grow their business venture. This feature can be an extremely invaluable tool for entrepreneurs who want to expand their product or service into new areas.

 

Using LinkedIn as a Tool for Product Launches

 

One innovative way that business owners are using LinkedIn as a vital tool to grow their companies is by creating product-specific LinkedIn pages. That’s right — not only is LinkedIn an excellent option for those posting up your resume, but the platform is also great if you want to showcase the benefits of a product you’ve recently launched.

 

On LinkedIn, entrepreneurs can create a page for their product or service that is similar to the resume-style profile pages the platform offers. These product pages are a great way to quickly highlight what makes your new product great.

 

LinkedIn is such an effective tool from a marketing standpoint that a new study indicates that 81% of business-to-business companies are using LinkedIn to advertise their product launches.

 

Is Airbnb Affecting the Housing Market?

Is Airbnb Affecting the Housing Market?

With more and more people flocking to popular towns and cities, combined with the increase of all things digital, Airbnb is a company that couldn’t have arrived at a better time in the digital age. In fact, there really wasn’t another time where Airbnb could have thrived in the way it does now. And while it has helped countless people make their vacations more affordable, as well as benefit those renting out their own properties, is it possible that this app has also brought some trouble to the real estate market along the way?

Property Owners are Catching On

Property owners are concentrated on buying properties in cities that draw large crowds of tourists. You may be wondering where Airbnb ties into this statement, but this is where it gets interesting. Current property owners and people looking to purchase property to rent out have grown keen to the fact that Airbnb can be a helpful indicator of places that are seeing a booming influx of visitors, which in turn signals to property owners that their city may very well be a hot commodity for all things hipsterdom and tourism

So, what has happened as a result is that many property owners are beginning to raise the prices of their rental properties in an attempt to capitalize on a bustling metropolitan area. Also, current property owners in cities where this is occurring are also optimistic as it provides them with a chance to sell for a much higher price than they bought.

Growing Competition

Airbnb rental properties can be money-making machines. If you operate an Airbnb in a sought-after travel destination, you are likely to acquire a continual, large-sum of revenue each year. With this in mind, property owners have opted for renting their spaces out short-term for the whole year as opposed to on a long-term basis (short-term means more money). Now, since long-term rentals are becoming increasingly less available, this has pushed property owners into a heightened sense of competition, which in turn causes prices to go up due to demand.

Airbnb is a great tool for people looking for places to stay while vacationing and for people looking to make some extra profit. But if the invisible hand of Airbnb continues to increase the prices of the housing market, we may be headed for a destination that no one wants. The conversation on how to create and maintain sustainable housing costs while allowing people to continue their ventures on Airbnb is a dialogue that is certainly worth having, both for the tourists, locals, and property owners.

Why Your House Flipping Flops

Why Your House Flipping Flops

House-flipping has become a trendy and exciting career for many hungry professionals looking to establish themselves in the housing/real estate market. But in an attempt to chase after a truly promising career, far too many people repeat the same mistakes.

To help remedy the recurring problems that come along with house-flipping, below are two all too common pitfalls that seem to perpetually plague real estate moguls longing to turn a passion into a paid project.

What is Flipping?

First, we need to establish what constitutes “house-flipping” in the first place. “Flipping” is a type of real estate strategy in which the buyer purchases a house for the sole purpose of renovating and selling the property. The way that profit is made in this business is by purchasing low and selling high.

For instance, investors who flip properties might buy a property in an especially “hot” market, renovate it, and then sell it at a price that makes sense with its newly added, state-of-the-art upgrades. This is also where the true work comes in, too. House-flipping doesn’t just require smart investment purchases, it also requires home renovation and remodeling skill.

Mistake #1: Poor Time-Management

Renovating and flipping can often be a time-consuming business. Not only do you need to find a property, but you have to have enough time built into your project to account for inspections. After that, of course, you need to play the waiting game that comes along with listing. It takes a lot of confidence in your skill to be patient through this whole process, especially if your goal is to make enough money to at least break even.

Mistake #2: Not Enough Skills

House-flipping isn’t easy, and the competition is certainly present. Many skilled plumbers and carpenters often flip houses as a side project. If you desire to excel in the industry, there’s a lot more to it than buying low, taking a sledgehammer to the bathroom, and listing it on the market. Like it or not, the real money in the house-flipping industry comes from what the professionals call sweat equity. If you’re comfortable (and skilled) with a hammer, hanging drywall, and laying a carpet, then you just may have what it takes to make it in the house-flipping industry.

In the end, patience and hard-work are equally as important as any other skill in the house-flipping industry. If house-flipping is a passion of yours, then going into the industry with research and guidance is imperative. It won’t be easy, but with the dedication needed to accomplish the task at hand, house-flipping and renovation can be a great career full of excitement and fulfillment.