General Question

gambitking's avatar

What are good reasons to get into real estate investing?

Asked by gambitking (4176 points ) February 12th, 2013

I’ve seen too much speculation and rhetoric surrounding real estate home investing but I don’t think the housing market is all that bad I just don’t know how to seek out the positive data. Do you have any good reasons why real estate investments are viable?

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20 Answers

KNOWITALL's avatar

Buy low + fix up + sell mid -high = profit

Great time to do it if you know what you’re doing.

majorrich's avatar

My Father used to dabble in real estate. His reasoning was “God got out of the land making business a long time ago”. I think he just liked fixing up stuff because he rarely made a lot of money. Right now the market is depressed and there are a glut of houses for sale. The only thing holding you back would be location and local economy.

dabbler's avatar

If you’re actually improving a property, your investment of sweat equity, and project management skills, can result some good returns, and add value in the community, too.

If you’re just flipping houses after riding a wave of appreciation/inflation then that’s speculation (no matter what they call it in the seminar) and you’d be a parasite, if you ask me, and deserve to get caught in a debt-ridden cash-short freefall in the next downturn.

YARNLADY's avatar

You should find a good investment group and become a partner. Buying and selling houses, one at a time is not a good investment.

JLeslie's avatar

It seems like real estate isbeginning to move again, which means prices should start to come up. But, there is no guarantee of course. Speculating with your money on stocks, real estate, and other investments you can always lose. Usually the best way to make a lot of money is to have a long time horizon.

I think if you are interested investing in residential real estate and renting the property out, this is a good time in many markets around the US. Rents do not fluctuate as much as housing prices, and right now it is fiarly easy to cover your monthly costs by leasing out a property. Basically the tennant winds up paying down the mortgage, so even if the property does not appreciate at all, you still make money when you sell, and you enjoyed a nice tax ride off. We used to say the 1 percent rule, if a house costs $100,000 and you can rent it for $1,000 a month, that usually is a good number. Of course taxes and maintenance and insurance varies around the country. You have to run the numbers. You have to assume the pace will not rent right away, you have assume every so often a tenant might trash the place (in my experience this does not happen often, but it does happen).

Most people I know who are very negative about being a landlord have never been one. I say talk to people who are in the real estate biz in your area and learn from them.

If you are interested in flipping houses you have to account for closing costs, carrying the house while you fix it up, realtor fees, And, the possibility of it not selli when you are ready to sell. People usually fail to thinkabout many of these expenses. A person who buys a house for $200k and then sells it for $240k, probably only made $15k-$20k if they are not realtors themselves, and if they put nothing into the house (no repairs) and if they flipped it in a couple months and did not have to pay months of mortgage. If you flip that fast you likely will pay at the higher tax rate on your gain, unless you reinvest right away. If there were a few repairs and you couldn’t sell for 6 months you easily could have no profit. You need a lot of room in the price to flip.

muhammajelly's avatar

@JLeslie I wouldn’t pay more than 30K for a house which rents for 1K and probably not more than 20K depending on the condition. Buy cash from desperate people. Don’t move walls around. Paint it white. Just the basics and whatever you do don’t listen to any tenant sob stories.

JLeslie's avatar

@muhammajelly If you can find places like that go for it. Nothing like that exists in the markets I have bought investment properties. What is the fair market of these places you are buying for $30? Are you saying they have been selling for $100k and you get an incredible deal? I don’t look for steals usually, I look for places in desirable neighborhoods that should be stable for many years (the neighborhood) and I can make a little income if it is rented out. For me it has actually been condos not single family houses whether it be something I owned or something I was the realtor.

rojo's avatar

Actually, at this time, you should be thinking of selling investment property. Interest rates should be going up soon and it will be harder to sell. And, your investment will not increase in value. It will stay the same overall price but since the interest rate rises, your investment capital will, in reality, decrease.
@muhammajelly good luck finding such an investment for such a price here in the US.

rojo's avatar

@YARNLADY unless you can increase your sweat equity by doing the majority of the work yourself and even then only if you have a good bank that is willing to finance you at an excellent rate.

muhammajelly's avatar

@rojo In some cities you can find them a lot cheaper than that! http://www.realtor.com/realestateandhomes-search/Youngstown_OH/sby-1

However there isn’t a strong rental market in these giveaway cost areas. You need to find something at the intersection of the two.

muhammajelly's avatar

@JLeslie @rojo actually fair market is a hard question since I do not think the term means the same to everyone. For instance is fair-market for a house which needs some work to qualify for a mortgage the same as a house which does qualify? Is fair-market for a house which needs to sell in a week the same as one that doesn’t? I think I pay a fair price for “someone who will give you cash today” but not what someone else might say is fair market price. I also don’t worry about interest rates too much since I earn a profit on the rental income. The real concern with interest rates is liquidity not profit.

JLeslie's avatar

Fair market is the price most likely the market will pay for the property.

mattbrowne's avatar

Two reasons:

1) The absence of excessive supply
2) People will always need shelter

muhammajelly's avatar

@mattbrowne There is excessive supply. Not to be funny but supply and demand of real estate is local by nature. We have both a shortage and an excess. How can there be an excess? The problem is taxation. If I own a property with 10K in taxes/yr but the demand for this property results in a pre-tax net of 8K the property is excessive. This is why property owners walk away even on free and clear properties. Without tax and friends there would be no such thing as excessive supply of property. As it currently stands people kick out tenants (don’t renew) and tear down perfectly fine structures to reduce their tax burden (crazy from a macro-economic standpoint).

mattbrowne's avatar

@mattbrowne – Shortage of low-rent real estate is an increasing problem in Germany. There are too many investors who want to upgrade acceptable real estate.

muhammajelly's avatar

@mattbrowne I believe true “low-rent real estate” is effectively outlawed in Germany. The people don’t want it. Just go around asking tenants if the government should require they have heat and they will all say it should. In the USA it is outlawed as well but a lot was created by decreases in value. Investors would never build low-rent non-subsidized real estate in the USA. I should be able to build a 10 m^2 room out of block with white tile on 6 sides, a single drain in the middle of the floor, a door, and a window and rent it out. Someone should be able to live there for $100/mo and save their money for something better. Instead they want to make everyone pay more than they can afford for things they don’t need like power, heat, and water. For $250.oo one time cost someone can purchase a 30 year solar panel and some rechargeable batteries to run a light, charge their mobile, etc. $250.oo won’t pay the interest on the cost to install wiring.

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AnnemarieGerald's avatar

Here the real estate market mainly depends upon the marketing situations.Regardless of the recent crisis, real estate is still a good, long-term investment. If you look back 30 years, real estate is still valued much higher than it was. It’s no secret that because of depreciation and mortgage interest deductions. your cash flow should be tax-free. And finally if you decide to invest meet with a trusted local real estate agent. i.e., of which if you are in brampton then meet the brampton real estate. Who can help you navigate the ever changing landscape of the real estate market. Because they know when the property should go to the market.

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