Be a Real Estate Investor - 10 Important Secrets

When it comes to investing, everybody has certain goals and
aspirations. However, we have found that there are certain guidelines
every aspiring real estate investor needs to know:

1. Compare Property Values and Rents

Financial statistics only go so far; the best measure of a property's
market value is often the sale prices of nearby properties. The same
holds true for area rents. A low price can often be justified by a
reasonable rent; renters who can afford a high rent can afford to buy
instead, so reasonably priced rent is a need.

2. Be Careful - Tax Laws May Change

Don't base your tax investment on current tax laws. The tax code is
constantly changing, and a good investment is a good investment
regardless of the tax code. The right property with the right
financing is what you should look for as an investor.

3. Specialize In Something You Know

Start in a market segment you know. Whether you focus on fixer-uppers,
foreclosures, starter homes, low-down payment properties,
condominiums, or small apartment buildings, you'll benefit from
experience by specializing in one aspect of investment real estate
properties.

4. Know The Costs Going In!

Know the financial statements inside out. What are operating expenses?
What are loan payments? Vacancy costs? Taxes? What does the cash flow
statement look like? These are key issues that must be addressed
before making a solid investment.

5. Know Where Your Tenants Are Coming From

If the last rent increase was recent, your tenants may be considering
a move. If tenants have a short-term lease, they may be living there
simply to attract unsuspecting buyers. It is also important to collect
the tenants' security deposits at closing.

6. Assess The Tax Situation

Taxes are an integral part of successful real estate investing, and
they often make the difference between a positive cash flow and a
negative one. Know the tax situation, and see how it can be
manipulated to your advantage. It may be a good idea to consult a
tax advisor.

7. Investigate Insurance Coverage

If seller's coverage is based on lower-than-current replacement value,
your insurance cost may increase when you pay a higher purchase price.

8. Confirm Utility Costs

Ask the local utilities to verify recent utility expenses, especially
if any of these costs are included in your tenant's rent.

9. Consult Your Accountant

Taxation is a key element of successful real estate investing, so be
sure to find an accountant who is well-versed with the constantly
evolving tax code.

10. Inspect!

Make sure that you always perform a thorough inspection of the
property before buying it. Never, ever buy any property without at
least examining the site. In some cases, hiring professional
inspectors to examine the structural mechanical system may be a sound
investment.

How to Assess the Real Cost of a Fixer-Upper House

When you buy a fixer-upper house, you can save a ton of money, or get yourself in a financial fix.

Trying to decide whether to buy a fixer-upper house? Follow these seven steps, and you'll know how much you can afford, how much to offer, and whether a fixer-upper house is right for you.

1. Decide what you can do yourself

TV remodeling shows make home improvement work look like a snap. In the real world, attempting a difficult remodeling job that you don't know how to do will take longer than you think and can lead to less-than-professional results that won't increase the value of your fixer-upper house.

•Do you really have the skills to do it? Some tasks, like stripping wallpaper and painting, are relatively easy. Others, like electrical work, can be dangerous when done by amateurs.

•Do you really have the time and desire to do it? Can you take time off work to renovate your fixer-upper house? If not, will you be stressed out by living in a work zone for months while you complete projects on the weekends?

2. Price the cost of repairs and remodeling before you make an offer

•Get your contractor into the house to do a walk-through, so he can give you a written cost estimate on the tasks he's going to do.

•If you're doing the work yourself, price the supplies.

•Either way, tack on 10% to 20% to cover unforeseen problems that often arise with a fixer-upper house.

3. Check permit costs

•Ask local officials if the work you're going to do requires a permit and how much that permit costs. Doing work without a permit may save money, but it'll cause problems when you resell your home.

•Decide if you want to get the permits yourself or have the contractor arrange for them. Getting permits can be time-consuming and frustrating. Inspectors may force you to do additional work, or change the way you want to do a project, before they give you the permit.

•Factor the time and aggravation of permits into your plans.

4. Doublecheck pricing on structural work

If your fixer-upper home needs major structural work, hire a structural engineer for $500 to $700 to inspect the home before you put in an offer so you can be confident you've uncovered and conservatively budgeted for the full extent of the problems.

Get written estimates for repairs before you commit to buying a home with structural issues.

Don't purchase a home that needs major structural work unless:

•You're getting it at a steep discount

•You're sure you've uncovered the extent of the problem

•You know the problem can be fixed

•You have a binding written estimate for the repairs

5. Check the cost of financing

Be sure you have enough money for a downpayment, closing costs, and repairs without draining your savings.

If you're planning to fund the repairs with a home equity (http://www.houselogic.com/articles/consider-home-equity-line-of-credit/) or home improvement loan:

•Get yourself pre-approved for both loans before you make an offer.

•Make the deal contingent on getting both the purchase money loan and the renovation money loan, so you're not forced to close the sale when you have no loan to fix the house.

•Consider the Federal Housing Administration's Section 203(k) program (http://www.hud.gov/offices/hsg/sfh/203k/203kmenu.cfm), which lets qualified purchasers wrap up to $35,000 into their mortgages to upgrade their home before they move in.

6. Calculate your fair purchase offer

Take the fair market value of the property (what it would be worth if it were in good condition and remodeled to current tastes) and subtract the upgrade and repair costs.

For example: Your target fixer-upper house has a 1960s kitchen, metallic wallpaper, shag carpet, and high levels of radon in the basement.

Your comparison house, in the same subdivision, sold last month for $200,000. That house had a newer kitchen, no wallpaper, was recently recarpeted, and has a radon mitigation system in its basement.

The cost to remodel the kitchen, remove the wallpaper, carpet the house, and put in a radon mitigation system is $40,000. Your bid for the house should be $160,000.

Ask your real estate agent if it's a good idea to share your cost estimates with the sellers, to prove your offer is fair.

 7. Include inspection contingencies in your offer

Don't rely on your friends or your contractor to eyeball your fixer-upper house. Hire pros to do common inspections like:

•Home inspection. This is key in a fixer-upper assessment. The home inspector will uncover hidden issues in need of replacement or repair. You may know you want to replace those 1970s kitchen cabinets, but the home inspector has a meter that will detect the water leak behind them.

•Radon, mold, lead-based paint

•Septic and well

•Pest

Most home inspection contingencies let you go back to the sellers and ask them to do the repairs, or give you cash at closing to pay for the repairs. The seller can also opt to simply back out of the deal, as can you, if the inspection turns up something you don't want to deal with.

If that happens, this isn't the right fixer-upper house for you. Go back to the top of this list and start again.

More from HouseLogic

What you need to know about foundation repairs (http://www.houselogic.com/articles/what-you-need-know-about-foundation-repairs/)

Budgeting for a home remodel (http://www.houselogic.com/articles/budget-for-remodel/)

Tips on hiring a contractor (http://www.houselogic.com/articles/five-essential-questions-ask-before-hiring-contractor/)

 Other web resources

This Old House remodeling cost estimates (http://www.oldhouseweb.com/how-to-advice/estimated-remodeling-and-repair-costs.shtml)

Check the average return on different remodeling projects (http://www.remodeling.hw.net/2009/costvsvalue/national)

G.M. Filisko is an attorney and award-winning writer whose parents bought and renovated a fixer-upper when she was a teen. A regular contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.

Article From BuyAndSell.HouseLogic.com

By: G. M. Filisko
Published: August 24, 2010

Visit Houselogic.com for more articles like this. Reprinted from HouseLogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS®.