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So You Want To Be A Real Estate Investor? - Part 1
November 26th, 2007 categories: Columbus, Local Communities, Real Estate News
With all of the press about the Columbus real estate market, foreclosures, mortgage crises, etc., it is no wonder many folks are jumping on the bandwagon to take advantage of opportunities a down market often provides.
In my humble opinion, real estate is a great investment, especially in a market where properties may be purchased at truly “wholesale” prices. If you are new to the world of investing in real estate, however, there are a number of things you should consider and understand before diving in.
For the sake of this post we will discuss the concept many “flippers” are focused on, which is purchasing and renovating properties to re-sell at a profit. Part 2 of this post will focus on acquisition of income producing rental properties.
I use the term “flipping” cautiously as it can have negative connotations tied to scams involving fraudulent lenders and appraisers over valuing properties and taking advantage of Buyers. Here it simply refers to buying a property below market, making improvements and selling for a profit.
A few rules to live by if this is where you are headed:
- You make your money when you purchase, not when you sell. Be certain you are getting a good value.
- Be conservative. It is better to overestimate improvement costs and underestimate sale price. Doing the opposite can have a bleak outcome.
- Know your numbers. Many beginners simply subtract their purchase price and improvements from the ultimate sale price and assume this is profit. Please do not forget costs such as utilities, insurance(very expensive on vacant homes), mortgage payments, taxes, Realtor fees, if any, and a line item for miscellaneous, just to be safe.
- Determine an acceptable profit margin and stick to it. If the numbers do not work, look for another property. This should not be an emotional process.
- Be comfortable with some level of risk and do not rely on the home selling to stay afloat financially. If you do this right, you should not lose money but there are many factors involved and surprises do come up. If you project a 3 month sale and it takes 6 months, your profit margin may look very different than you anticipated.
The ideas above should offer a good starting point, but be sure to do your research and know your limitations. If you are a good carpenter, but have little or no free time, maybe it is best to hire out the carpentry and budget for this. Often times people overestimate how much they can accomplish on their own and end up blowing their budget when they call in professionals.
Typically, the quicker a home is ready for the market the better, as you minimize any carry costs. Never, however, sacrifice quality for speed as you will lose in the end. Do things the right way and do not cut corners. I have seen many a home sit on the market due to an investor’s shoddy workmanship and “discount” materials.
[…] Eric is airing the laundry on Columbus, Ohio real estate. He has a great post on becoming a real estate investor. […]