When I teach my real estate investing class at Columbus State Community College we get a lot of students that would like to become a real estate investor, or may already have dabbled in the real estate market. One of the things we always preach to students is that the successful investor has a plan, and just doesn't buy any house in any location for any price.
So to start off this series on investing, the first thing I want to tell anyone about investing in real estate is you need to start with a plan. And the first part of that plan is to determine what goal you want to achieve at a later date.
You need to understand that there are basically 2 ways to invest in real estate, the short term and the long term. Short term is cash now, while long term is appreciation later. Generally properties will fall into 3 categories: Flip and sell, short term cash flow, or long term price growth. It is very difficult to gain both cash flow and long term appreciation on the same property.
Homes that produce cash flow are normally lower priced, multi-family dwellings in areas with mid to high rents. The upside is that you may have a $65,000 double with a $600 mortgage payment that rents for $700 a side-a nice positive cash flow. The bad part is that in about 10 years you could expect to sell that double for right around $65,000.
More expensive single family homes in better areas may run you about $150,000 and have a mortgage payment (PITI) of $1200 and if you are lucky will rent for maybe $1150 a month. You may have to subsidize the payment a bit each month, and you need to save up in case it goes vacant for a month or two. The positive side? That home, in 10 years, may be worth $200,000 to $225,000.
See the difference? So back to square one: to be a successful investor you need to have a plan, and the plan starts with a goal. Do you want to accumulate monthly cash flow now and save that up, or do you want a place that breaks even and you acquire wealth through future appreciation? Or, what if you had a few of each type?
Stay tuned for future articles.....
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