Building Your Wealth Through Real Estate
So you are finally ready to start building your future and having money work for you, but you don't know where to start. That is perfectly okay. Most of us, myself included, are unaware of the various routes of investments. To get us started I must say that I am an expert in real estate, not any other forms of investing. Be aware that I, nor any other real estate professional, cannot guarantee future values.
Now that we have that out of the way lets get into it. There are three main ways to invest in real estate:
- Purchasing investment properties for the purpose of renting them.
- Purchasing land for the purpose of developing it.
- Purchasing homes in distress or that are in less than ideal condition for the purpose of flipping them.
Investment Rental Properties
When you purchase any property in South Carolina that is not your primary residence, you will be subject to the .06 tax ratio as opposed to the .04 tax ratio. This is important to remember going forward because it will change how much you owe your lender each month if you finance the purchase.
The main draw for this type of investment is that you can rent out the property and have someone else pay your mortgage. Look at it as a savings account. Every month you get the rent and pay your mortgage and at the end of your loan term you have a paid off asset that you can sell or leverage. Over the course of ownership you will find that your property value will increase if you have purchased intelligently.
The drawbacks for this type of investment is that you become a landlord, and as such, you are responsible for maintenance of the property.
This seems very straightforward, you buy some land, have someone build houses on it and then sell them for a profit, right? Well maybe. So with land there are a lot of things that can go wrong. One of those being permits. If your city has a moratorium on building that can cause problems. For professional developers in my area there is about a two year time frame between conception and breaking ground. Another common misconception is that you can build anywhere. This is false. You will need proper zoning, and also check the land prior to purchase with a perc test to make sure the land is build-able.
My advice on this is that you need to have a good amount of cash to float your investment for a while, if you don't, try another route. However this particular route can have large payoffs at the end.
This avenue of real estate investing is high risk/high reward. Please read the following carefully.
When buying a flip house I don't mean that you buy a house that needs some paint and new appliances and call it a day, I mean the houses that need full updates, and potentially a total renovation. These houses usually come in as-is condition and can have many issues hiding below the surface. It is IMPERATIVE that you have a real estate professional that you trust to help you get the proper inspections your investment requires. For example, if the home has a crawlspace, get someone under the home to check it out, get them on the roof, get them in the attic, use moisture meters, check the plumbing, and check the electrical system. There are no guarantees to what you may find when you start ripping things out either.
So why do this? With the proper price point and a realistic renovation estimate you can potentially make a lot of money back. there are a few steps to check on that front. First, you need an accurate assessment of what the home needs. Next you're going to need to get quotes, an idea of what the project will cost. Lastly, have your real estate professional gauge what the home would be worth in today's market if all the renovations were completed.
Remember what I said in the beginning, I, nor any other real estate professional can guarantee future value. When you take on a project that takes 6 months to complete, the market can shift. The market can go up or down. Hence the high risk. Although there is risk there is a good bit of reward, and it can be a ton of fun while you do it.
How do I start?
Starting your investing career is pretty simple. First find yourself a Realtor or real estate agent, that you TRUST. It is likely you will do future business with this person so go ahead and vet them now. Next, if you are financing, talk to a mortgage professional. If you aren't, talk with your financial adviser and see if it is a smart move for your portfolio.
I tend to liken the previous three options to other savings options. I see the rentals like savings bonds, Developing is like buying into a start up, and Flipping is like buying into a high volatility stock. Those are just my views.
If done CORRECTLY these can all be very profitable options. Do your research. Talk to the professionals. Get an accurate idea of the scopes of your project. If you don't know where to start, give me a call. I'll point you in the right direction.