Real Estate Basics
| | Monday, December 20, 2004 @ 10:07 AM EST
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Contributed by: John Michael
John Michael Properties
Read more archived articles about Buying
The fundamentals of real estate investing require basic knowledge of the following:
- Understanding what is a good deal on a property for a good return on investment (r.o.i.)
- Using skills to locate a profitable transaction (comps, other sellers, tax assessed values)
- Evaluate and structure a good transaction
- Preparation of the contract and/or offer
- Negotiating and presenting your offer
- Knowledge of what to do with the contract that will lead to a profit
One of the most overlooked elements in the process is simply what to do with the contract. When you go through the evaluation you need to ask your self-one simple question.
"How do I make money on this property?"
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Most will fall into one of the following three categories:
- Buy, hold and rent.
- Buy, hold and sell.
- Buy, assign or sell.
You will come across multiple deals that fall into the above listed three categories on a weekly basics if you are actively out their in the mean streets of investing.
You need to focus on what you want to do as an investor and this is simply dictated by one of two major factors:
Do you have the cash or credit to make purchases?
You can do all three!
- Buy, hold and rent.
- Buy, hold and sell.
- Buy, assign or sell.
If you have no cash and no credit you simply have one choice and that is to get a property under contract and sell your contract interest to another. Until you have the cash or credit to make purchases
As you evaluate properties you will come across the opportunity to do each of these things. Keep the outcome in mind as you structure the offer.
Single family homes vs. other real estate investment
You can lease option an apartment complex, assign a contract for a commercial property, or use negotiation tactics for any real estate property.
However, I suggest you begin your real estate investment in single family homes. Single family homes have distinct advantages for the beginning investor.
- There are many homes for sale in the marketplace. At any one-time events are happening in property owners’ lives that indirectly create opportunities for the investor.
For example, individuals losing a job, moving, a death in the family, or getting transferred from current employment. These situations give rise to property discounts.
- The sales market is large. The demand for homes is growing. Therefore, you can usually turn around a good purchase in a short period of time. Especially if the sale is well structured or at a reduced price.
- Limit the need for management skills. If you invest in multi-dwelling units or apartment complexes you may run into property management problems. Investing in single family dwellings reduces the need for management skills. In most cases the property will be sold, rented using a lease option contract, or assigned immediately all of which will reduce tenant problems.
- You may not know much about commercial real estate or apartment complexes but chances are you know a little about homes. Start with what you know. There will be opportunity for other investments later after you have more experience and venture capital.
- The home market is the easiest to borrow against.
For example, home equity loans are fairly common in the single family property market. This can allow outstanding opportunities for financing and pulling equity out of the property.
6. At any one time a large amount of the population in the us is selling a home, buying a home, or knows someone who is selling or buying a home.
Note: John Michael is the author of many guides that can help you become more successful as an investor. See http://www.thecreativeinvestor.com/ChanPart-JohnMichael.html
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