Owning investment property can provide ample opportunities to earn profits, if the investor is both savvy and responsible.  The term “investment property” bears with it the inherent implication that the property was acquired below the market value, since investment means the owner eventually plans to make money from the property.  This is very difficult to do if the property is purchased at or above the current market value.  The greatest advantage of earning money by investing in real estate is that it is not a job which requires one to be in an office working to make money—rather, if approached correctly, a property can be consistently earning its owner profits, enabling the owner to direct his attention and resources elsewhere.  There are two very basic approaches to earning profits once investment property has been purchased: resale and rental.

For the investor who is looking to be highly engaged in the day-to-day affairs of his real estate transactions, resale of property would be the more intuitive choice.  This is because if the property is not currently being rented from the investor, then it is losing money (in the form of both taxes and opportunity costs).  Therefore, if an investor plans to profit by purchasing property and selling it at a higher price (often called “flipping” the property), he must work quickly either to improve the quality and condition of the property, therefore increasing its value for resale, or to find a buyer who is willing to pay at or above the property’s market value.  Although this approach is relatively risky, it does present the opportunity to earn a single, large, lump-sum profit, allowing the investor to move on to his next project.

The other fundamental strategy in dealing with an investment property is to rent it to a tenant.  Although this won’t result in the same kind of major, one-time transaction that we saw in the case of resale presented above, it does give an investor the opportunity to earn a steady, income for as long a period of time as he can manage to rent the property.  If the investor purchased below market value and rents above market value, then he stands to make a substantial profit in the long-term for as long as he chooses to maintain the property.  The advantages of this approach as opposed to flipping include allowing the investor to manage multiple investment properties simultaneously a bit more easily (since each one does not have to be improved and resold in quite as timely a manner).  Still though, the longer a rental property is uninhabited, the more money the investor loses in the form of taxes and opportunity costs.  This approach also bears a disadvantage, however: the landlord must be responsible for the management of the rental property for as long as he chooses to own it.  Unlike flipping, where the investor works for a relatively brief period of time, earns a profit, and moves on, the rental investor must be involved in the property’s maintenance and improvement (if only distantly) for as long as he owns it.

There is no shortage of real estate in which to invest—it is simply a matter of finding the properties that are likely to be profitable.  Although much of this is based on the investor’s involvement in and knowledge of the local community in which he works (therefore providing for informational gaps that give some investors a competitive advantage over others), there are some reliable sources for finding investment properties which can be accessed by anyone.  This includes, but is not limited to: real estate agents, market listings, wholesalers, and public auctions.

Real estate agents tend to be a good source for finding property for those who are not intimately aware of the real estate available in the community.  One would not be hard-pressed to find an experienced real estate investor working through an agent, for those who are relatively new to the process, real estate agents can be an extremely advantageous source of information.  It is the job of an agent to be aware of the local property that is available for purchase, and they tend to use software which organizes those properties into a more effective form where the investor can narrow down the options based on price, location, or any of a multitude of other parameters.  Although agents can be very helpful, the drawback is that their income is derived from the investor’s pocket.

In order to cut out the middle man, one approach is to subscribe directly to market listings.  Although this, too, requires payment from the investor, the market listings do not earn a percentage of the price of purchase of the real estate; rather, there tends to be a relatively small monthly or yearly subscription fee to gain access to a list of available real estate.  Subscribing to market listing organizations requires a proactive investor who is familiar with the language and process of real estate investment, and who is himself willing to search for the right property (as opposed to delegating that responsibility to a real estate agent).

Wholesalers can be anyone or any organization which owns a great deal of real estate—enough that each property does not need to be sold at exorbitant prices in order for the organization to profit.  The most common type of wholesaler is a bank, which usually has a Real Estate Owned (REO) department to manage all properties owned as a result of foreclosure.  Accessing this source requires an even greater familiarity with the process of real estate investment, but the reward is property that tends to be sold well under the market value.  It is something akin to buying groceries from an enormous national supermarket, as opposed to the small mom-and-pop store at the end of the block.  Sometimes REO properties are auctioned off publicly.  This is a forum where anyone can purchase bank-or-wholesaler-owned properties cheaply, but—as all auctions do—it requires competing with whoever else happens to attend on that day, and it can therefore be unsuccessful.

There are a number of different approaches to investing in real estate, each of which can be highly lucrative if both the investor’s cash flow and the property itself are properly managed and maintained.  In their most fundamental forms, the three prevalent strategies for successful real estate investment are property ownership, property management, and property rental.

Profiting from property ownership may be achieved in a few different ways.  In simple terms, an investor may buy a plot of land or building under the assumption that eventually that commodity will be worth more than the price for which it was purchased—this is called an investment property.  One way to ensure this is to buy real estate well below the market value, for example in cases of foreclosures or REO’s (Real Estate Owned by a bank after an unsuccessful foreclosure auction).  When banks and other creditors foreclose homes and properties due to the owner’s inability to pay debts, those properties tend to be auctioned off at prices that are well below the market value.  An investor may purchase the foreclosed property or REO for long-term or short-term ownership.  Long-term ownership means the investor will wait for the real estate market to peak, and then try to sell the foreclosed home or property at a much higher price (this strategy usually involves a great deal of property management, since it must be either maintained or improved during the period of the investor’s ownership).  Short-term ownership—also called flipping—is a more risky strategy where the investor purchases cheap, possibly foreclosed real estate, and then immediately tries to sell it at a higher price.  In order for this strategy to be successful, the investor must buy the land or building well below the market value, since flipping does not provide enough time for the real estate market to increase substantially.

Property management is a more labor-intensive approach.  Quite simply, it is the notion of increasing the value of a piece of real estate by improving the quality of the commodity.  For a home, this might mean making repairs, renovating, painting, landscaping, etc.  Anything that a property manager can do to make a home or building more attractive, more efficient, newer—basically better—will in turn allow the initial investor to sell or rent the property at a much higher price.  Property management, as opposed to flipping a home, requires actual labor rather than mere capital, because it is the labor that translates into greater value (and therefore profit) in the eventual sale or rental of the real estate.

Property rental is a relatively reliable approach to profiting in real estate, especially when a tenant is secured for a long period of time, as it is a sort of combination of the previous two strategies.  Of course, a rental owner—or landlord—must still make a capital investment to own the real estate (as in property ownership); additionally, the landlord bears the constant responsibility of property management, as the real estate must be kept up-to-date and in-demand for renters.  The reduced responsibility for the tenant means that the owner of a rental property may charge a great deal more than the actual cost of owning and managing that property, which means the landlord profits on his investment.

The whole point of buying investment real estate is to sell it or rent it out, eventually making much more money than you paid for it.  The real trick is to raise the value of the house without paying too much and thus eliminating your profit margin, or spending so much effort and time that you lose other opportunities to make money.  What follows are some quick, cost-effective ways to raise property values. 

Begin with the most obvious: make the house look more pleasant, new, and sturdy from the outside.  A new coat of paint can do wonders. Give the house some curb appeal by brightening it up with a few flowering plants, either potted on the porch or neatly replanted in the yard. 

Now let’s discuss decorating the inside.  Notice how many homes up for sale look unlived-in, despite having some (obviously unused) furniture and fixtures in them?  This is not a flaw in the decoration; it is deliberate.  If a house looks like it is being or has just been used by an actual resident, a buyer might feel like an intruder, particularly if the house is a foreclosure or REO property.  Light colors and a pleasant, but rather generic atmosphere are your guidelines. 

Furthermore, make sure to conduct important repairs.  Clogged plumbing and malfunctioning ventilation can keep the value of a house low.  While you are at it, you might even make some additions: think of them as “bonuses” to attract customers.  Try to improve the house’s insulation, for instance.  Nowadays, people often want to conserve energy on heating and cooling their residences, both for financial and environmentalist reasons.  Make your property stand out from the rest by marketing it as “green” real estate. 

Furthermore, do research about future development projects in the area.  After all, if somebody wants to live in that house long-term, the future of the area is of concern to them.  If you find out about new schools, shopping centers, etc. that will soon be constructed nearby, you can more easily convince buyers that they are investing wisely. 

Try these tips in order to make great returns on your investment and increase your wealth!

  Jay Redding

SuperiorPrivateMoneyReturns.com

Although people often link foreclosure with real estate, strictly speaking, foreclosure is something that happens to a debt, not to a house.  Basically, here is what happens: a person borrows money from a lender.  However, the person defaults on the debt, one of two things can happen: the person can try to keep his/her right of redemption, pay off the debt, and hold on to whatever he or she put up as security, or the lender can foreclose the person’s right to redemption and take the security. 

The foreclosure process enters real estate when the debt we are talking about is a residential mortgage.  This can also happen with commercial property, but we will keep our discussion focused on the residential. Usually, what happens is that the borrower (the person living in and/or owning the property) has made an agreement with the lending institution, a promissory note, which states that they will pay a certain amount of money on a monthly basis over a certain number of years. If the borrower violates the agreement, the lender can repossess the house. 

In the United States, one of the most common ways to carry out this process is called foreclosure by judicial sale.  If you are only going to learn one type, you should probably make it this one, especially since many states require foreclosures to be carried out in this manner.  Here, the foreclosure and sale of the property are done under the supervision of a court.  Then, the proceeds are divided according to who has a claim on the money.  Priority is given to pay off or satisfy the mortgage arrangement.  Then anyone else who holds a lien on the property can also be paid off.  Finally, if there is any money left over, it goes to the lender.  You will notice that the borrower does not get any of the proceeds. 

Another process is called power of sale foreclosure.  Some people prefer this type since it is generally faster and more convenient than the previous one.  You are most likely to be allowed to carry out a foreclosure this way if the mortgage was written out in the form of a deed of trust.  Here, whoever has the mortgage is allowed to sell the house themselves, without a court supervising the process.  The division of the proceeds is much the same as if it were undertaken by judicial sale. 

After a lending entity takes hold of a mortgaged property, it can then be put up for auction, often under the supervision of the county sheriff.  This is one common way to generate funds to satisfy the mortgage and compensate the lender.

However, if a borrower defaults on their mortgage, foreclosure is not necessarily inevitable.  It is possible for him or her to file for bankruptcy instead, or to somehow revise the terms of the debt.  He or she may also choose to short sell the property to an investor or acquaintance.

  Jay Redding

SuperiorPrivateMoneyReturns.com

Understanding foreclosure is particularly important as an investor when it comes to the housing crisis that has gripped the United States. Tremendous opportunity exists for the savvy investor, but only if the investor understands the foreclosure process and how to take advantage of the opportunities that are presented.

A foreclosure happens when a person or entity fails to make a number of payments on a Promissory Note secured by real estate.  A Promissory Note is secured by a mortgage pledging the real estate as collateral for the terms of the note.  If the borrower fails to pay, the lending institution or individual can take the collateral, in this case real estate, as partial or full payment for damages incurred by the lender.  A problem for the bank occurs when the value of the home that they have received from the borrower is worth less than the amount of the original face value of the loan the bank provided.  Banks are not really in the business of owning and operating real estate, they want to be in the business of lending money at higher interest rates than what they pay you as the depositor.    

To be able to move these non-performing assets off of their books, banks will sell these homes at a discount to help recoup part of their losses.  The degree of discount depends on many factors such as the condition of the home, the amount of the original loan on the property, current market conditions in the area around the home etc.  This can be a great buying opportunity for the educated investor.  However, just because a property is a foreclosure, does not necessarily mean that it is a good value as an investment.  You as the investor still need to conduct your due diligence and rehabbing expense evaluation.  

Keep in mind, a foreclosed homed has often deteriorated significantly because no one has lived in the home for over a year.  In addition, the previous owner usually has not kept up with normal maintenance items due to financial distress.  It is also not unusual for there to be damage to the home either by the previous resident or by vandals. 

A foreclosure can present a great opportunity for a profitable investment.  But like any investment, you must conduct your due diligence to make sure it will meet your profit expectations.

Jay Redding

SuperiorPrivateMoneyReturns.com

The term REO has been bandied about in publications concerning investment property sales, on the assumption that the reader knows what REO means.  Here is a brief explanation of REO, so you, as a prospective investor, can take advantage of the information out there on it. 

REO stands for “real estate owned, which means the bank or lending institution has full ownership of the property.  You can think of it as a property that has “defaulted.”  However, REO is a bit different from plain foreclosure.  Let us look more closely at the process by which a property becomes REO.  First, the party making payments on the house misses payments, to the extent that the property becomes foreclosed.  The lending entity to which the person was making the payments usually tries to short sell the property, or put it on the block at a foreclosure auction.  The bank will most likely be looking to sell the house or apartment for at least the remaining amount of money owed to it by the previous resident.  Thus, the asking price has already been reduced, sometimes quite significantly.  However, a buyer or investor may not be found.  Now the property becomes an REO.

Many banks try to sell their REO properties themselves, or they use a real estate agent.  By now, the property’s price has been marked down even more.  It may be in terrible condition, but the price is often very low, because the bank often cannot devote a great deal of time and/or resources to improving the property for investment purposes.  In basic parlance, the bank often just wants to unload the house.  You can purchase the house, make some repairs, and then sell it on the market for a much, much higher price than the rock-bottom one at which you purchased it. 

If you are interested in REO properties as investment real estate, here are ways to find some:  1). Talk with a local community bank or credit union and ask if they have any non-performing real estate assets on their books that they would like to sell. 2). You can purchase an REO through a real estate agent that has one listed on the Multiple Listing Service (MLS) site. 3). If you have significant funds, you may be able to purchase REO’s from an asset manager at a major bank like Wells Fargo in bulk. Banks of this size have entire departments that are specifically dedicated to handle REO properties.  

Whatever source you use, purchasing an REO can provide tremendous opportunities for profit if executed diligently.

  Jay Redding

SuperiorPrivateMoneyReturns.com

Some people who invest in investment real estate do so as a full-time endeavor.  This is because being a real estate investor can take a great deal of time and work.  First, one must find a reasonably-priced investment property that can be improved upon for sale.  Then, one must purchase the property, while taking into account any bureaucratic, financial, or legal entanglements attached to the property.  Afterwards, the person must plan and carry out repairs, all while trying not to go over-budget.  Finally, one must market the property for buyers.   

However, there are people with other professional jobs who enter the business as a side project or one-time deal.  If you are in the latter group, you may be in a situation in which your own time is a luxury you simply cannot afford to spend on renovating and advertising a property.  Perhaps you already have a demanding full-time job, as well as family or community concerns that eat up the rest of your day.  

If you are in this position, carrying out all the complex processes yourself is doubly daunting.   Therefore, you may want to make your investment in a turnkey property.  This is a piece of real estate that is completely ready for sale, or even for moving in—some turnkey properties can come with furnishings for the user.  Of course, such a property is likely to be much more expensive than one that still needs a lot of work done.  However, if you have a demanding, high-paying primary job, a ready-made  piece of real estate might be your best bet.  To borrow a term from the economists, you should also consider the opportunity costs.  You may save money by taking more time on a cheap property, but you will lose the opportunity to generate more profits from your regular job and side projects. 

When investing in a turnkey property, do make sure to look over the house or apartment carefully.  There is a possibility that it is not as sale-ready as the agent or seller has told you.  You may also want to get a lawyer, para-legal, or alternative realtor to look over any agreements you have to sign, to make sure you are not being stuck with the previous owner’s legal problems. 

In this day and age, time is money.  To save one, you may have to spend more of the other, but to the investor who is also a busy professional, such an exchange could be well worthwhile.

Jay Redding

SuperiorPrivateMoneyReturns.com

Short sales are becoming more common these days.  An investor should not only know what a short sale is but understand how to spot one when he/she is looking for an investment property.  While purchasing a short sale may provide value to your investment, an investor needs to know how to handle such a purchase to avoid certain pitfalls. 

A short sale is when a house is on the market for less than what is owed on the mortgage. If an owner feels they may have trouble making mortgage payments, they may wish to do a short sale in order to avoid foreclosure. Foreclosing on a house can be devastating for a borrower’s credit.  A short sale is somewhat less harmful. 

Short sales are sometimes done because the home’s value was originally inflated.  The borrower was loaned more money on the mortgage than the house’s worth.   A lender may choose to do a short sale to recover most of what is owed on a house. Foreclosures can be expensive with fees and downtime between payments and not advantageous to a lender as well. But, both the borrower and lender have to approve such a sale and this can be tricky. 

The borrower can decide they wish not to do a short sale and prefer to foreclose.  Sometimes a borrower will still owe the bank the difference between the short sale amount and their loan amount.  Foreclosing may become more appealing.  An investor can be in the middle of negotiations and find the deal falling apart.  Also, the bank will have final approval of the contract.  The borrower and new investor can finalize the deal but the bank may not approve of the sales price.  

If there are other lenders on the note, their approval may be necessary.  A borrower who tries to do a short sale for $300,000 to cover their mortgage to their first lender, will not have anything to give the secondary bank owed $100,000 for example.  The new investor may still not gain the title to the house.  

When looking for an investment property, if a listing has a lower price than other comparable properties or just seems like too good of a deal, it may be a short sale.  Recognizing this kind of sale is important.  The investor can then decide if he/she wishes to pursue the deal.  

The best way to purchase a short sale home is to employ a real estate agent with short sale experience as well as a good real estate attorney.  Delays are common.  It can take months to close.  Title searches should be run to ensure there are no additional liens or mortgages on the property.  A good agent and/or attorney can help keep the deal on track. 

 :)  Jay Redding

SuperiorPrivateMoneyReturns.com

Marketing your investment rental property requires only a few decisions.  How much rent to ask, where to advertise, the length of your lease, improvements to be made and do you need to stage the property?  The answers to these questions also depend on the current market environment. 

Determining the asking rent is the most important piece.  Most tenants base their search for a new space on the rent they can afford. The easiest way to see what similar properties are renting for is to peruse your local paper.  Much of your research can also be done online.  Many towns have their own real estate sections on their websites with links to local agencies listing rental prices and properties.  These same places are where you would advertise your own property. 

Second, for how long are you willing to lease your property?  You might think the longer the term the better.  That way you always have a stream of income on your investment property.  But, remember, rents are usually going up and you wouldn’t want to miss the opportunity to increase them because you are stuck in a long term lease.  

While twelve months is typical for residential properties, sometimes shorter or longer terms can be desirable for the landlord or the tenant.  A prospective tenant may need a temporary space, while building their house perhaps.  Short-term rentals can be advantageous to a landlord because they fill the space quickly, often with little or no improvement to the property and at a higher rent.  Additionally, the investor will now have more time to market the space to a long-term tenant while still receiving rent.  Not a bad deal for the investor.  

What improvements do you need to have done prior to marketing your rental property?  Showing an apartment in the middle of August in a hot climate without a properly working air conditioning unit may indicate to the prospective tenant that the landlord will not handle necessary repairs during their lease term.  However, purchasing all new SubZero kitchen appliances may be overkill for your market.  

Additionally, in a slow market, staging your property may help prospective tenants see how terrific the space looks once they have moved in.  You may want to consider a fresh coat of paint, some basic furniture and perhaps a wall hanging or two. Some potted plants on the front stoop and a nice bowl of fruit on the kitchen counter can go a long way to making the rental look welcoming.  Knowing your market is key. 

If this seems overwhelming, then remember, it is always a good idea to hire a real estate agent.  For a small fee, you can have an expert on your side, looking to rent your property for the highest rent with as little cost to you as possible.  Often, an agent can rent your investment rental property faster than you would on your own and for more money, easily outweighing their fee.

  Jay Redding

SuperiorPrivateMoneyReturns.com