As a Hemet - San Jacinto Valley CA REALTOR®, I have the opportunity to meet all kinds of people - many are looking for ways to jump into the current real estate market as investors...wanting to buy at the bottom of the market.
My personal belief is we have beenseeing properties that can be purchased and rented out for a positive cash flow. The debate rages on if we have 'bottomed out' yet or not. The simple truth is every home for sale in the Hemet - San Jacinto Valley today, in October 2009, is priced below the cost of construction. We still have great newer homes being offered in the $60 a square foot range - plus and minus.
I've sid it before and I'll say it again - this will most likely be the best time in your lifetime to buy real estate as an investment.
For those who are looking to make the leap into a full fledged real estate investment, I caution them and yet encourage them simultaneously. There are lessons to be learned!
1. Don't EVER believe it is as easy as it appears on TV! The multiple TV shows that air everyday showing how easy it is to find a great property and re-condition it for sale and make a huge profit are just that - TV shows!
They never show how difficult it is to find the "right" property, even though many are "out there", they still require skill, time and effort in locating and identifying.
The other issue is the industry relationships that have to be built in order to make sure a project comes in at or under budget. There are numerous horror stories that circulate about contractors, budgets and time lines and none of them are pleasant.
Investing is hard work, yet it is work that can be very profitable if done right...did I mention very profitable?
2. My Father used to say, "Slowly but Surely". This drove me nuts because I always wanted it all right then and there - after all I was raised in the generation of instant gratification, wasn't I?
When getting into real estate investing, it is important that the new investor learn as much about this industry as possible. Take baby steps with minimal risk before you go jumping into large riskier projects. Train yourself as an Olympic athlete would train for their event. Remember that a single mistake can be very costly and ruin an entire project and possibly your motivation for future investments.
A great first investment might be a home you can live in while doing the rehab work, that way you can minimize your exposure and take your time doing the project right. Perhaps the single biggest mistake that novice investors will ever make is underestimating the carrying costs of a project - not only during the rehab period but during the vacancy - whether the property is a rental of a flip for some quick cash - if no one id biting at your apple, you will still have to make the payments plus pay the insurance and taxes on the property.
3. Flipping equals Cash Flow - Buy & Hold equals Wealth The true path to wealth is in holding real estate. Buying an older home and fixing it up to sell for a profit sound like a fun project and easy job... but it is usually neither. To flip a house you need to have industry knowledge about the market as well as construction knowledge and skills. Flipping requires a pool of liquid cash to back up any contingencies in addition to the hard work that is put into every project.
Flipping properties in the Hemet - San Jacinto Valley and elsewhere will have tax consequences as you consider the capital gains taxes with everything else.
On the other hand, if you buy rental property, it will be nice to get a check in the mail every month. Once the property builds some equity and rents go up, it will be very nice to have a check with positive cash flow every month, in addition to tax benefits that will help you earn even more money from your investment - of course you need to check with your tax professional to see just how that will work, as I am only a humble REALTOR®, licensed by the State of California to assist you in buying and selling your real estate - not offering tax advise.
4. Fail to Plan and Plan to Fail- That's right Real Estate Investing in the Hemet - San Jacinto Valley, CA or anywhere else in southwest Riverside County of the Inland Empire requires a plan...a strategy. Real Estate investing should never be considered a "by-the-seat-of-your-pants" type of operation. There is too much at stake and too many things that can go wrong.
When investing in real estate you should first determine what type of property you want to be involved with. Are you in the property for the long haul or a quick flip - either way, go into the project with an exit strategy. Know about the holding costs, and over allow by at least twice what you think you will need in reserves to carry the property until it is either rented or sold.
If you are planning on holding the property, then be sure to conservatively analyze the cash flow - including all of your tax benefits. There are a number of "formulas" that successful investors develop to access a particular property - figure out what it is that needs to be figured out. Write everything down and anticipate the absolute worst-case scenario and then figure out how you'll get out of that predicament.
Once you have developed your own successful "formula", stick with it. The key to being a successful real estate investor is not just having a great plan...rather it is in the execution of the great plan.
5. Paralysis by Analysis - As important as it is to have a formula for determining which properties are right for you, you have to have the motivation to get off the fence and take action, once you find the right property.
In just about every contract to purchase real estate, there are always escape clauses - whether they be inspection clauses or the ability to obtain favorable financing - there is always a way out.
In my opinion, it is always best to tie up a property with a contract while you do your own due diligence than it is to find the right deal and then work out every conceivable angle, only to want to move forward but find out that another investor was dead on your heels and scooped up the rights to the property before you exercised your right to make an offer.
6. Play Devils Advocate - Once you believe you have a solid deal then go ahead and play a round or tow of Devils Advocate and try to talk yourself out of the deal. Explore everything that can possibly go wrong - yes, I know you are hoping for a smooth transaction, but prepare for the worst-case scenario. Whatever you do, do not get emotionally attached to a property - as that could be the kiss of doom to your project.
If after looking at all of the negative aspects of the deal it still looks like you should be able to turn a profit, then go for it. On the other hand, if it looks like there is the POSSIBILITY that you could lose money - then simply walk away.
7. Real Estate Investing is a TEAM Sport- When you are investing in the Hemet - San Jacinto real estate market, do not try and do it on your own. First and foremost you need a tax professional to help devise your plan, so that your investments reap the maximum profit potential from you and minimize your tax liability.
Another integral player on your team is your REALTOR®. Know that there are many good REALTORS® as well as many bad agents. Meet several - interview and find the ONE who you can communicate with and one who knows how to find investment quality properties for your consideration.
A good REALTOR® is worth their weight in gold to a successful real estate investor, so let them do their thing and earn a fair commission for doing it. What ever you do, do not try and squeeze your REALTOR on commission - even if you are successful in the battle, you will definitely lose that war. Remember, every REALTOR® has multiple clients and if they are good working with investors, they have many investor clients. So, when the next great deal comes along, you certainly don't want to be the last call the agent makes...you want to be their first call.
Just remember that real estate is not as easy as it appears on the TV shows, late night infomercials or in the books at Barnes and Noble. If you are a novice investor, make sure you have a good idea of what you are doing before you do it. Talk to as many established investors as you can and form your team of trusted advisers early. Follow these simple tips and you should be on your way to scoring your first real estate investment in the Hemet - San Jacinto CA Valley.
Now Have a Blessed Day,
John Occhi, ePro, Hemet - San Jacinto Valley, CA REALTOR®
This blog and the contents written here is the intellectual property of John Occhi, Hemet - San Jacinto California REALTOR®. The views and opinions expressed are just that - views and opinions of John Occhi and those who comment. Please note that I am not an attorney or a tax professional and any time I discuss either topic, I suggest you consult with the proper professional for relevant assistance.
This blog is part of the ActiveRain Real Estate Network, which is a social network highlighting the best of Web 2.0. Information is provided with the intent of educating and assisting home owners, home sellers, home buyers and real estate investors with information the can be used to make better real estate decisions.
I am proud to be a full time REALTOR® who is proud to be a contributing member of the ActiveRain community.
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