Are you looking to get into real estate investing and want to know how to get started? I have 3 Tips for you, Newbies and Seasoned Pros alike: Focus, Get Educated (for Seasoned Pros-keep educated!) and Find Money.
There are tons of options today for profitable real estate investing. Whether you are interested in foreclosures and short sales, or wholesaling, or jumping in to commercial real estate, or investing in residential redevelopment as I do in SE NH and NE MA, it can be overwhelming to decide on the investment vehicle that works best for YOU. My tip is choose one and FOCUS. You are virtually guaranteed to underachieve your potential if you go off in multiple directions at once. Any one of these options, done properly, can give you insane profits.
My second tip is get educated. One way is to decide, after some good research, preferably through your local REIA, on a seasoned guru. Someone you learn is doing the business successfully. You want a guru who is currently investing, not just teaching, because markets change and the strategies need to be updated and finetuned to keep up with the times. It costs a whole lot less to buy education than to go to the school of hard knocks and pay for it there with your mistakes.
Another way is to partner with a real estate investor in your area. There are many creative ways to do that. You can find the deals and then arrange to work one with another experienced investor. You can become a money partner with an investor. You can create any sort of partnership contribution and ownership split that makes sense to you and your partner. Most important, you can tag along and learn.
The third tip is to locate your money for your deal. You can use your own cash, of course. Of course, the money you have is limited to how much you have. At some point you will run out, but if you have money available, it it a good place to begin.
At some point you will want to use OPM – Other People’s Money- to invest in real estate. OPM gives you more funds to invest, and it gives you leverage. There are very few investment alternatives that give you this kind of leverage with the ability to control and limit your risk.
Let me expain how leverage works. Let's say you put up all cash, say on a $100,000 real estate investment, to keep the numbers easy. And you net 20% or $20,000 in 3 months after all your expenses. That is a 80% annualized return on your cash!
But now do the same investment with OPM. You borrow 80% OPM. This time when you make 20%, you end up making 100% cash on cash return, or 400% annualized.
Or, how about a partnership? You have an equity partner who puts up 100% of the money to buy into 50% of your deal. He could use IRA money. Now you make 20% in 3 months. You net 10%, or $10,000, on your investment of $0, and your return is infinite. Your partner also makes $10,000 or 10%....passive income. If your equity partner used IRA money, all income taxes will be deferred. If it is a Roth, no taxes will be due on the gain…ever!
So my tips to Newbies in Real Estate are these: Focus, Get Educated, and Find Your Money.
Best of luck, and Happy and Profitable Real Estate Investing ! You can reach me through www.InvestNERealEstate.com or at sherwoodne@yahoo.com.
Annie Collyer.
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