4 Ways To Get Rich in Real Estate
1. Find foreclosures
If you have enough cash you can buy homes at the foreclosure
auction. Most areas require you to pay cash the day of the
auction. The problem with this strategy is that you might run
into title problems and many times you cannot see the inside of
the home prior to the auction.
My personal favorite is to find people in foreclosure and work a
deal with them prior to the auction. This does not require you
to pay cash and many times you can buy the home with seller
financing.
This situation can be beneficial to both parties. You are
helping someone keep a foreclosure off their record and also
buying a home at a discount.
2. Pay retail and hold for the long haul.
Paying retail for real estate has worked very well lately. The
Sarasota, Florida real estate market, like many areas of the
country, has been booming. You could have purchased pretty much
anything within the last few years and made money.
There has been alot of talk lately about a real estate bubble.
It wil be interesting to see if recent home buyers will keep
their price gains. I believe prices to stabilize in areas that
are forecasted to have large population growth, like Sarasota,
Florida.
In my area almost every property has a negative cash flow if you
purchase using a mortgage. I cannot find one property in my area
that produces a positive cash flow with any kind of financing.
You have to focus on the time value of money when looking at the
long term benefits of real estate. Let's say you buy a $200,000
house today and the home appreciates at a modest 5% a year.
After 20 years that home will be worth more than $530,000! At a
10% appreciation rate for 20 years the home will be worth over
$1,345,000! Let's be negative and say that real estate will only
appreciate at 3% a year for the next 20 years. At this slow
appreciation rate the home you paid $200,000 for would still be
worth $361,222 at the end of 20 years. Keep in mind that at the
same time you or your tenants are also paying down the mortgage.
Can you imagine if you had 10-20 good long term rentals? After
20 years there is a good chance you would be a multi-millionaire.
3. Buy in depressed areas
Find areas that are depressed but have some redeeming quality
such as proximity to the beach or waterfront, a thriving
downtown or some other desireable place. Many depressed
neighborhoods need a pioneer. Someone to come into the
neighborhood, pay retail, either tear down and build or rehab
the old homes. This kind of activity will eventually attract
other investors or home owners with money. Once the money starts
rolling into the neighborhood it changes and starts to become a
more desireable place, which ultimately attracts more money.
I purchased a home in a depressed neighborhood on the water in
Bradenton, Florida. A developer is buying my house and other
depressed homes in the neighborhood to build high rise condos.
The redeeming quality of the house I purchased is that it was on
a river, with a gorgeous view and was convenient to a changing
downtown.
4. Fix up houses
As a Realtor I have worked with hundreds of buyers over the
years. There are people who just won't buy homes that need work.
They either don't have the time, patience, knowledge or desire
to buy an outdated home and fix it up. This is where the
handyman or contractor can make some good money.
I have made money in the past by fixing up and flipping tired
homes. However, I have always purchased them at a discount from
normal market values. Make sure you either get the house at a
good price or have a way of adding some value to the house.
Usually, the investors who get their hands dirty make money
doing this. I see many wanna-be investors get into this game by
purchasing homes at retail or slightly below, contracting out
all of the fix up work and then trying to sell above what the
market will bare. These are the investors who tend to make
little or no money in relation to the time and risk associated
with the project. Would you want to lay out $30,000 for a
downpayment and $40,000 in fix up costs over the course of 6
months to rehab a house only to make $10,000?