Getting Started in Real Estate Investing - Barnum

Real Estate Agent with Your Castle Real Estate

Investor often ask me what types of real estate investments are available on the market.  Here's what we tell them.

This is the first of several postings on the topic.

Please offer comments - positive or negative!

Assignments.  If you don't have much equity to work with, and/or if your credit power is limited, assignments can be a way to get started in real estate investing.  You will need to have a strong "sales" personality to succeed at it, though. 


Rental Condo or Rental Home.  Purchase of a residential property to be rented out to tenants, usually on a 6-12 month lease term.  This is how most new landlords get started.  You can hire out all of the property management functions, but in many cases you will do many of them on your own.  There are smaller down payment requirements than for larger rental buildings.  The purchase process and financing process is very similar to what you experienced buying the home you live in now.  It's a great way for beginners to get started.


Small (2-4 units) Apartment Building.  Purchase of duplex, triplex or quadplex to be rented to tenants, usually for 6-12 month terms.  Usually what the rental home / condo landlords graduate to.  In most markets they cost a little more than a rental home, but are much more likely to cash flow on the average month.  Less cash flow risk; if one unit is empty you have other tenants that still help you with the mortgage payment so it doesn't all come out of your pocket.  Many owners will start to delegate some of the property management tasks to an on-site assistant (typically the most responsible tenant), such as yard maintenance and showing empty units.  The financing process is only slightly more involved than a residential loan.  Relatively small down payment requirements make it affordable.  The purchase process is also very similar to purchasing a home.  It's a good way for beginners to get started.


Large (5+ unit) Apartment Building.  Still targeting tenants for 6-12 months at a time, buildings with more than five units are considered "commercial" property.  The loans are more difficult to qualify for, and usually a larger down payment is needed.  Uncommon for the new investor; this is usually what landlords with several years of experience "trade up" to.  Cash flows on larger buildings are more stable than for smaller buildings, and the economies of scale make it practical (and desirable) to hire a property manager to take over most the work for you.  This takes reduces the hassle factor of the landlord process. 


Lease Option (L/O) - Acquiring control of a property (though not necessarily ownership), then leasing the property to a tenant.  The lease is bundled with an option, so the tenant can (but does not have to) purchase the property for a given price within a given time frame. 

Lease Options.  Again you are seeking a tenant for a property, but usually for a slightly longer term (12-18 months) and frequently (though not always) with the goal that the tenant purchase the property from you at the end of the lease.  If you purchase the property, then it's an easier process; if you find a highly motivated seller to let you re-lease the property to another tenant, it can be a lot of work to set up.  However, the re-lease method doesn't require any cash out of pocket and does not rely on your credit score, so it is appealing to many investors.  Great for beginners with the right skills and attitude.


Fix and Flips.  Purchasing a home that needs work.  The scope can range from the basic "paint and carpet" to extensive overhauls to scraping a decrepit property and completely starting over.  Usually does not involve tenants, and the objective is to get in and out of the property as quickly as possible.  Great for beginners with the right skill sets or the willingness to learn.


Conversion of Apartments into Condos.  A synthesis of the fix and flip and rental operations - purchasing an apartment building in a neighborhood dominated by owner occupants, then converting the building from apartment building to condominium.  Often requires renovation of the units to meet the expectations of owner-occupant buyers in that area.  Complex and time consuming, but has wonderful tax advantages compares to fix and flips and often has superior returns to all other asset classes.  Ideally suited for the sophisticated investor with extensive experience. 


Scrapes, Pops and New Construction.  Purchasing a small home in an expensive neighborhood that may or may not need work.  The home is bulldozed and a new home or duplex is put on the lot.  Alternatively, the existing home is renovated and more square footage is added on.  A pop-top is adding a second story to an existing home to add more square footage (commonly, a master bedroom suite).


(c) Copyright  2008 Your  Castle Real Estate


Comments (26)

Yen Lai
Your Castle Real Estate - Denver, CO

I agree with the above post.  I do want to add that another factor is that when you have multiple offers on a majority of listings and you are bidding way above asking price that would be another sign we are past bottom of market.

Oct 22, 2008 05:07 AM
Marcus Lee
Your Castle Real Estate - Aurora, CO

One other way to tell we are bottom of market is by looking at the percentage of foreclosures compared to retail sales in each area.  Investors that are flipping are helping :bring back the retail buyer. 

Oct 22, 2008 05:10 AM
Lillian Lively
Your Castle Real Estate - Lakewood, CO

I agree with the post above but I do want to say that I do have "retail" buyers and we are in bidding situations as well.  It seems that anything under 200k and is in good shape are a free for all.

Oct 22, 2008 05:13 AM
Laura Lomba-Berg
Your Castle Real Estate - Centennial, CO

I think that we can all agree that the market under a certain price point is absolutely crazy.   The real question is when will the press pick up on it.  I really hope it will be awhile, we need to keep them at bay for a little while until the floodgates open.

Oct 22, 2008 05:17 AM
Robin Lucy
Your Castle Real Estate - Aurora, CO

Hopefully the bottom of market will be picked up by the media.  Then people will start buying more and maybe that will create a cycle of more listings, more confidence in our market, etc.

Oct 22, 2008 05:19 AM
Joe Marino
Your Castle Real Estate - Littleton, CO

I think we need a couple more quarters of data to see where the entire Denver market is.  However, certain areas have definitely turned the corner and others are going to see a lot more declines.

Oct 22, 2008 05:23 AM
Annette Marshall
Your Castle Real Estate - Highlands Ranch, CO

As professionals we definitely need more information like this.  We need to be educated and keep our clients on top of what is going on in each local market.  Thanks for the great info, keep it up.

Oct 22, 2008 05:26 AM
Elizabeth Martinez
Your Castle Real Estate - Denver, CO

As professionals we definitely need more information like this.  We need to be educated and keep our clients on top of what is going on in each local market.  Thanks for the great info, keep it up.

Oct 22, 2008 05:29 AM
Jesse Martinez
Your Castle Real Estate - Denver, CO

Excellent information.  The data only confirms what we are seeing on the ground.   With information like this my investors and owner occupants can be more educated on making an informed decision.

Oct 22, 2008 05:32 AM
Sean Mathes
Your Castle Real Estate - Thornton, CO

Everyone benefits from information like this.  Investors, Realtors, Homeowners all need to have info like this, especially in rough times like the ones we are going through now. 

Oct 22, 2008 05:35 AM
Cody McCarthy
Your Castle Real Estate - Arvada, CO

Thanks for the overview.  Knowledge is power and we need to make sure our clients and peers are informed.  I can't wait to see the next version of this blog.  Our clients will continue to benefit from the great info you are posting.

Oct 22, 2008 05:38 AM
Jim McCarthy
Your Castle Real Estate - Aurora, CO

Can't wait to see what is happening in the 4Q of this year.  It seems that much of the map will stay the same.  It would be interesting to hear if any of these areas have it rock bottom.

Oct 22, 2008 05:41 AM
Nick McCoy
Your Castle Real Estate - Broomfield, CO

I have a question for other reader's of this blog.  Have any of you been experiencing bidding wars for homes that are priced under 150k?  I know that almost every offer that I submit under a 150000 will be asking price or above.  This is for investors and "retail" buyers.  From my point of view this market is very hot.  Just yesterday I had to submit an offer almost 40k over asking and I am not sure if we will get it or not.

Oct 22, 2008 05:44 AM
Ryan McCue
Your Castle Real Estate - Thornton, CO

I am also see tons of properties with multiple offers.  Just yesterday I walked into a house that went on the MLS that morning.  It was about 1 pm and the cleaning crew was just leaving the house.  One of the guys said that he just received a call from the listing agent that the house had been sold.  That happened in 5 hours!!!

Oct 22, 2008 05:47 AM
Stephanie Miller
Your Castle Real Estate - Littleton, CO

It all depends on the condition of the property.  There are a bunch of listings that have been on the market for a long time under 150000.  If they have been on for awhile they usually have major problems or the listing agent has not priced it right and will not budge on price.

Oct 22, 2008 05:51 AM
Brian Mills
Your Castle Real Estate - Aurora, CO

I agree with the previous bloggers.  The market is smoking right now for houses under 150k.  The trends map that your castle publishes helps push investors and retail buyers to areas of interest.  The properties under 150k and that are in the red areas are bought usually within 72 hours if the property is in decent condition.

Oct 22, 2008 05:53 AM
Caleb Mitchell
Your Castle Real Estate - Louisville, CO

It seems that even though some of these areas in green are still increasing in price that some areas will see price reductions with all of the things going on in the lending world.  Higher priced homes are probably going to be hit the hardest in upcoming months.

Oct 22, 2008 05:58 AM
Tera Moody
Your Castle Real Estate - Denver, CO

The lending restrictions will definitely not help home sales of properties priced above 500k?  my listings that are over 500000 are not moving.  All of my properties under 200k are getting lots of showings and are still moving. 

Oct 22, 2008 06:01 AM
Ben Dorland
Porchlight Real Estate Group - Denver, CO

Qualified buyers are loving it right now.  If your buyers are FHA or have 20% to put down this is a great time to buy.  First time homebuyers can go into any of these areas and get a great deal.  My main problem is trying to find a "fixer" for a buyer that is not buying with all cash.

Oct 22, 2008 06:04 AM
Andrew Cepeda
Keller Williams Denver Central - Denver, CO
Real Estate Agent - 720.216.7617

I saw an article in the paper about how many of owner occupants are having a really hard time competing with investors.  It seems that even though prices are still declining, the listing brokers for banks are creating bidding situations.

Nov 08, 2008 01:11 PM