We must start off by saying this. We are not trying to sell anything here. Real Estate Investing can be lucrative if done correctly. We would like to share with you what we consider a beginners guide to real estate investing.
Beginners Guide
You should not plan on making $50,000 on your first deal. This happens on TV only. On one of the more popular shows about real estate investing they always say “And if this deal closes, we stand to make $xx,xxx.00. Have you ever wondered how many of the deals actually close? As beginners in the real estate investing market, a 20% profit is nothing to shake a stick at. So many times we speak with “Investors” and they want to make 40%, 50% or even 60% return on their investment on every deal.
Investing is different from flipping houses. If you are new and just want to flip houses, we wish you the best of luck. We have seen many people have house flop on top of them. This is a good way to make money, if you have the money available to cover the costs. So many times when we speak with beginners or new investors, they will explain that they have financing arranged for the purchase and rehab. But when we ask about the cost it is amazing how silent they get. We have spoken with a few local hard money lenders in the area. And they can charge in excess of 12% for a short term loan. And over 15% for loans over 6 months but less than 1 year. So with that said that is pretty much going to force you to try and make 25-30 percent per deal.
Now when you watch these TV shows, you will notice that the crews who do the work seem to be the same on every episode. That is because they have a crew of trades people who will do the work for these investors at a reduced cost. This is because they know that they will do multiple rehabs over the year for the investor. Now if you a beginner or new to the market, you will probably not be as fortunate as these seasoned veterans. Let’s consider a roof for this example. If we came to you and “We plan on purchasing 10 homes this year and there is a good chance we will have to replace 7 roofs, what will you charge us per roof?” Chance are you will give us a better rate opposed to if we called you and said we need a roof for this one house. Would you agree?
Investing and making a steady flow of money. We work with several investors who know that holding on to an investment for a prolonged period of time will net them a higher return on their initial investment. One of our investors purchased 5 homes in 2012, all were rented in under 30 days from the time they went on the market. He has since added 6 more homes and has about $1,250,000 invested in these homes. We on a monthly basis deposit a check into his account for just over $10,000. So if you total it up, $120,000 a year is what he receives. That is after Property Management fees. So now he has Taxes, Insurance and any HOA dues to deduct to figure out what his return on investment is.
We hear a lot of people talk about they need to make 10% Return on their investment after expenses. How this is possible is hard to fathom. Or we should say it is pretty hard to do. Our investor is making about 8% ROI across the boards. Some homes individually may be higher and other may be lower. His mentality is he is looking at his total investment not each one individually. Which to us is the way to look at it. We would ask you to consider how much your money is making sitting in the bank over the course of one year. And we believe that you would have to agree that 8% would be gladly welcomed by you. We know we would be OK with it. His plan is to look at the homes values at the five year mark and evaluate each one and then look at the overall investment. He could sell, or he may continue to rent the homes out for a few more years. This will be based on what the appreciation in the home value is, what the return is and finally what is going on in the local housing market.
Cindy and I own two investment properties ourselves. One we purchased in 2005. And yes we may someday be able to sell it for what we paid for it. But we will tell you that it has been rented consistently and always for more than the other similar properties in the community. And a loss is not always a bad thing when tax season comes around every year. Our second property is a little 2 bedroom 2 bath 900sf condo we purchased 3 years ago. It was a small investment $27,000, monthly dues of $200 and we have it rented for $700 a month to great tenants who never miss a payment. This little investment is boasting over 13% annually after expenses and has increased in value to above $60,000. So as you can imagine we will be holding onto this gem for a while.
Investing is a process, it is not a get rich quick, we like the word methodical approach. So hopefully if you are a beginner in investing you take something away from this. We have a property management division in our business and work with several investors. We know what to look for in a house to make it a true investment for you. Our approach always takes a few things into consideration. One we have to be able to rent the home out for our client and two we will have to be able to sell it for our client in the future. So rest assured, we will not just sell you a house that may wind up flopping on top of you.
If you are interested in having us assist you. We are always just a call to 813-300-7116 or a simple click here away.