Should I Get Into Real Estate Investing To Get Out Of Debt
Posted at 3:18 am | Filed Under mortgage-financing-tips.info
As a general rule, real estate investing is an excellent way to build a solid financial foundation and get out of debt.
But — you have to do it under the right circumstances, and for the right reasons.
One of the most common scenarios that I see among the new and inexperienced, who have gotten themselves into big trouble with real estate investing, is jumping into a deal that they don’t understand, in
hopes of earning a chunk of money quickly so that they can pay off existing personal debts.
Someone along the line gave them the idea that they could solve all their financial problems by jumping into a real estate deal to make quick cash.
If you are desperate for $20,000 and you’re trying to think of a way to come up with it in the next 30 days, you can use real estate as a strategy, but you should be willing to get advice or consult with an independent professional who can give your deal an honest evaluation that is in your best interest.
Many folks get into deals that they barely understand and wind up in a worse financial situation than they had to begin with. I recently counseled with a young man who had excellent credit, documented income and had a “friend” who is an appraiser. The friend approached the young man and said, ” I can set you up with
some good real estate deals, I’ve got the connections in the business, we can make some big money quickly”.
So our young investor jumped in, assuming that his friend had everything under control. He also assumed that he was soon to be on the fast track to financial security.
He signed paperwork he barely read. He did not understand how the deals were to work, or how the money would actually be made.
He committed his credit as the buyer for the properties, while
his friend, the appraiser, would be responsible for all the confusing details the young man did not know anything about.
With no legal advice from an attorney, and without consulting with anyone ahead of time, he signed paperwork that was so poorly written and so vaguely worded that I was shocked when I
read it. If only he had contacted me first, this never would have happened.
This young man made three critical mistakes.
A: He thought he was going to make easy money because he had “a friend in the business”.
B: He committed his credit and signed as the buyer for deals that he did not understand.
C: He failed to get an independent evaluation of the terms of the deal.
Turns out, his friend the appraiser was engaged in a bit of loan fraud. He inflated the appraised value of the property so that the lender loaned more on the properties than they were actually worth, pocketed the extra cash, and left this young man holding the bag on properties worth about $200,000 with loans outstanding of about $300,000.
Now he will have to borrow more money to fix the properties
and try to get them sold in order recover as much cash as he can for the lenders. He may still face foreclosure and possibly even bankruptcy.
Given his lack of experience, he should have gotten professional advice first. For the average new investor, who’s never done a deal, who doesn’t understand real estate that well, or has no experience with writing contracts, you should never, ever, in my opinion, engage in any kind of real estate deal, or give cash to anyone, until you have consulted with someone who knows what to do. Someone who can at least give you the benefit of an educated, independent opinion.
Have someone look at the numbers and evaluate your deal
appropriately. They can make educated recommendations about what you need to do. Ultimately, you make your own decision about whether or not to invest.
I waited a number of years before I finally got personally involved in a transaction for investment property.
I wanted to be sure that I understood what was going on.
In my early days, I chose to work for other real estate investors either on a freelance, contractor type basis or in a paid position
just so that I could learn enough about the business to understand what was going on. I also became a licensed agent.
But I did not get directly involved until I understood what was happening.
Real estate investing is, in my humble opinion, is one of the best ways on the planet to generate and maintain true wealth.
You can generate income, and build assets through appreciation. Houses are shelter and provide an essential human need. A house has a value that goes far beyond the price. You can’t live in your stocks. You can’t raise your children inside a bank CD. Real estate makes sense for a lot of very fundamental reasons.
You can make $10,000 in a short period of time. I see it done every day. But the people who are doing it know how the deal works, and most importantly, they understand where their profit is coming from and how they will generate it. They also understand what their risks are and what they will do if plan A does not work out and plan B becomes necessary.
It is a fact that over the long term, investing in real estate is a great way to pay down debts, build income and secure your future — If you buy right and plan well. Get the help you need, do your due diligence, and make sure you understand the terms of the deal.
Donna Robinson is a real estate investor, author, and consultant located in Atlanta Georgia. You may read more of her articles on her website at http://www.RealEstateInvestorHelp.com or you may contact her by email at drobinson@reihelp.com or call 404 542-9903.
Tags: mortgage financing, mortgage lenders, real estate, real estate financing, real estate investingHow To Pick An Investing Strategy That Will Work
Posted at 2:01 am | Filed Under mortgage-financing-tips.info
I often get email’s from investors asking me how they can tell which real estate investing strategy is ideal in their city. From the perspective of a new investor it can often be difficult to decide what particular strategy you should use in a given area.
There are two essential ways to break down a real estate market for residential real estate investing. One is geographically and the other is demographically.
In the case of Geographics let’s say we have an investor who lives in Cobb County, GA and he or she only wants to buy and sell properties in Cobb County. Since this investor has chosen to limit themselves to a specific geographic location, they will be limited to the deals (i.e. Strategies) that they find most readily available in Cobb County.
For example, if you are in a suburban area that has lots of new construction, you may find more retailing opportunities to owner occupants. You will also find some rentals and virtually nothing suitable for Wholesaling because everything is too new. And, the majority of properties in new areas have very little equity.
If you are in an older area such as inside the city of Atlanta where there are thousands of older properties and many fixer uppers, you are much more likely to find wholesale and rental property deals but relatively little new construction.
So when it comes to choosing a strategy, your choice will be dictated by the situation. Is there a lot of equity to work with? Perhaps wholesaling is the best choice. Is there very little equity to work with? And it’s a
pre-foreclosure too? Then a short sale might be the only way to make the deal work.
On the other hand many investors choose a strategy and then try to find a house that fits that strategy. For example if you want to be a real estate wholesaler, you have to go where the wholesale deals are.
This is what most professional wholesalers will do. They don’t limit themselves to a small geographic area. They travel all over the metro area in order to find all the potential wholesale deals that they reasonably can. They may limit their territory somewhat, but generally they will cover a wide geographic area to find only the wholesale deals.
Their focus will be on contacting owners of older properties that are abandoned, or need lots of repairs. This is because these properties generally represent the best opportunity for lots of equity and a flexible seller.
If you are a wholesaler you don’t want to waste your time contacting owners of 2 year-old houses with no equity.
Wholesalers who do this are using the demographic method. They are not looking in a particular location, they are looking for a particular type of seller.
Demographic prospecting means using more of a mass marketing technique, and targeting pre-foreclosures, health issues, job transfers, probate, divorce, and the whole range of life related events that can lead a person to become a motivated seller.
It is more common among professional investors to search for deals demographically rather than limit themselves to specific geographic locations. However this means you must have a willingness to drive sufficient distances to check leads. I personally have driven more than 200 miles in a single day, while viewing as many as 12 properties. At that point I was specifically looking for wholesale opportunities so I had to go where those opportunities were.
Had I wanted to stay close to home, which is located about 45 miles from downtown Atlanta, I would only pursue strategies that work with pretty houses, such as lease options, subject-to or buy and hold, because my geographic area is newer and therefore it contains very few wholesaling opportunities.
It can take you some time to get a feel for the types of deals that are most likely to be found in your area. If you are in an older area mostly built prior to 1970, then chances are very good that you would find more wholesaling opportunities.
If you live in a new area where most of the construction is less than 10 years old you would find more opportunities with less equity.
Retailing to owner occupants on a Lease with Option to Buy, is my personal favorite strategy in suburban neighborhoods that are predominately owner occupied. You can make that deal work at 80% LTV, instead of the 65% LTV you need for wholesaling.
So, one key to determining what strategy to use in what area is to look at the age and condition of the properties in that area and make offers that work for those properties.
In Atlanta, the outlying suburban areas are much more likely to be ideal for retailing, or buy and hold strategies. The in-town neighborhoods in the older parts of the city are better suited to strategies like wholesaling, because older houses tend to have more equity and need repairs.
Newer houses usually have less equity and therefore are better candidates for creative cash flow strategies, like “lease with option to buy”, or “subject-to the existing mortgage”.
Creative cash flow strategies may require less equity where Wholesaling strategies will require more equity in order for the numbers to work.
Any strategy only makes sense if the numbers work. Regardless of where you are located, and whether your market is “hot” or “cold”, the bottom line is — what will cost you? and, Can you sell it or rent it for more than it will cost?
Donna Robinson is a real estate investor, author, and consultant located in Atlanta Georgia. You may read more of her articles on her website at http://www.RealEstateInvestorHelp.com or you may contact her by email at drobinson@reihelp.com or call 404 542-9903.
Tags: mortgage financing, mortgage lenders, real estate, real estate financing, real estate investing