This guest post is by Malhar Bhagat
So you hear the real estate market is coming back. Great! Your neighbors, friends and Grandma (well, maybe not Grandma just yet–when Grandma is ready to start flipping houses, you better sell ;) are all talking about it. All the major media sources are saying real estate is roaring back and you can sell your home fast. Awesome! You’ve been meaning to get involved after your stocks took a nosedive in the last several years and you’ve barely made it back to what you initially had… 5 years ago. You’re thinking diversity. Maybe you have a friend that owns some rental real estate and talks about 10% or more returns on investment (just on cash flow). Maybe you saw some statistics somewhere about the advantages to owning rental real estate. Wherever you heard it or saw it, real estate is an excellent method to long term wealth building. As I continue to build my income stream, I rely less and less on my day job (flipping properties) and more and more on continuing to build my passive income portfolio. A $3-5K return per year per property isn’t much, but when you multiply that by 10, 20, or even 30 properties, you don’t have to work too much longer now, do you? So now what? How do you get into your first rental property?
You could get in touch with a real estate agent and find a “good deal”. Now, this is not a knock at all realtors (so if you are one, please don’t mind the next comment), but realtors get paid on commission, i.e. they make money when you buy. There are some GREAT realtors out there, but as an investor, I’ve come across more realtors that have told me what a “good deal” is, and, frankly, it wasn’t. Just because it’s a smidge under market value doesn’t necessarily make it a good deal. Alternatively, you could do all the marketing for motivated sellers, take the calls, do the analyses and then negotiate with the motivated seller inorder to sell your home fast. Sounds easy, but wait until you start doing it. It is a lot more entailed than the one previous sentence.
There are many things you have to look at. To name a few:
1. Look at the comparables, both rental and resale
2. Survey the neighborhood (what’s going on there?)
3. What’s your demographic?
4. What type of renovation, if any, is needed to sell your home fast?
5. Which elements will increase the value of your home? Which will give you the most bang for your buck?
And that, is just the tip of the iceberg. Now, as most experienced investors know, you pay for education in the real estate investment arena one way or another. You either pay upfront, by educating yourself or you pay with experience. So, if you decide to do the latter, here’s some quick things of how the process should work:
1. Locate a real estate property that is a “good deal”. I can’t necessarily get into that, because a book can be written on that one topic alone.
2. Determine the comparables, both resale and rental to sell your home fast.
3. Determine a scope of work by visiting real estate properties in the neighborhood to ensure you’re not under or over rehabbing the property.
4. Interview at least 3 contractors for every trade. Check their references, insurance, and license.
5. Hire a contractor for each trade and create a contract with each.
6. Manage the renovation so as to finish in the most time efficient manner while still staying at or under budget. You did have a small “oops” contingency right?
7. Make sure to pass all required permitting inspections. You did pull permits right? You’d hate to have, say, an electrical fire in the house because your uncle Bill said he knew how to ground all the outlets because you’re going to be dealing with the consequences, not uncle Bill.
8. Ensure the renovation work has been done properly–wait, you didn’t go through a contracting course/code course? Well, you can hire someone for this.
9. If the renovation work is not done properly, get the contractors back out to fix it… wait, you paid them already? Well, that wasn’t the smartest thing to do huh?
10. Now, if you made it through all of this successfully, great! You’re 50% there. Now you got to rent or sell it. And what about price?
The list goes on and on, which, FINALLY brings me to my point. You could just purchase a renovated real estate property from an investment company that has a proven track record and raving fans. There is a HUGE value that companies like this bring to the real estate investing arena. First of all, they identify a property with good value. They run all of the numbers and negotiate the best deal possible. Thereafter, they manage the renovations. Most have done this 10s, if not, 100s of times over and have relationships with contractors, agents, mortgage brokers/bankers, property management firms, inspectors, etc.; you name it, they likely have a contact for it. If they don’t, they know who to go to for a solid referral. Finally, some of them can even put you in touch with a property management firm that can bring you a tenant to rent the property or to sell your house fast. Some may even have done this for you already. Although you’re paying for the service, the headaches of learning a brand new business are minimized. You can continue on with your life and collect checks on a monthly basis. So, you could do all of the stuff (and that’s only a small subset of the stuff you need to do) outlined in the 4-5 paragraphs above, or just what was written in this paragraph and still end up with a similar product. Yes, it will cost a little more, but the time and headaches that are saved are well worth it, depending on your interests and time commitment. If you like spending your Saturdays and Sundays chasing contractors, great! I prefer to spend my time with my friends and family! Shoot, if you learn it, maybe I’ll give you some of my business! ;)
Malhar Bhagat has been a full time real estate investor for 5 years now. He got involved with his first rehab property using a credit card and a hard money loan. Today, he has completed over 75 renovation projects and continues to expand his market area involved in several markets throughout the USA. Feel free to connect with his company on Facebook at http://www.facebook.com/M2REST.
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