Wednesday, February 20, 2013

Best Practices For Investing In Real Estate

Below is a guest post by Doug Chapman from HomeDaddys.  As I mentioned in my previous post, real estate investing is a viable way of making good money; this post will give you some more insight on that topic.  If you would like to write a guest post, please contact me.  Click on the About Me link for my contact info. 

When you are thinking about buying real estate, it sometimes gives us all a little bit of an uneasy feeling of whether or not the investment is going to be profitable or not. It isn’t just about buying your dream home anymore; it has become something that many people have done on the side to make an investment both personally and professionally for their future.

I’m at stay-at-home dad but I also do real estate investing on the side, so I have direct knowledge of what are the best ways to go about investing in real estate. It is more complicated than we all think, but it also has the chance to make profitable gains. Don’t get me wrong, there are risks involved and not everything will always pan out, but if you follow the right guidance there is a chance for success.

When I first started an investing real estate gig on the side to help provide more financial support for my family, I got to pick the brain of Del Walmsley, who is big in and around the Houston area after he successfully made his real estate investments a major success in a very short amount of time. His advice, along with hours and hours of research online and in print, got me to where I can confidently speak about what the best practices are for investing in real estate.

Investments as a Rental Property:
This is pretty much the most common practice of investing in real estate. If you buy the property and are the landlord, you obviously are in charge of paying the mortgage, taxes and upkeep costs of maintaining the property. However, being the owner, you will charge enough rent to make up for the costs of these mentioned items as well as possibly making a small chunk of change above the monthly costs for general maintenance. One method that typically works though for the long-term investment is to exercise patience, charging the bare minimum at first to cover the definitive costs of the property and wait until the mortgage is paid off. At that time, the most profits come into play because not only will the property have upped it appreciation value over time, it will also have stood the test of time where it will be a more established property down the road.

However, there are risks as well that you will need to take it upon yourself to manage properly. The amount of time you invest into the property may become a factor, maintaining it appropriately to get the most of the investment. And you need to make sure you always have a tenant, because if not your monthly value cash profit diminishes. A good marketing plan is needed to ensure you always have a tenant, and a property manager, whom you would have to pay, can easily take on the basic upkeep and maintaining of the rental property.

In-Depth Knowledge of Property Investments:
This all sounds fine and dandy in taking the calculated risk of making profits on investing in real estate, but you need to make sure that you don’t just jump into the process before doing all of the proper research. And I’m not talking about just leafing through the internet and reading a few articles. I’m talking about gaining the expertise that will be necessary in making the most off of your investment. This includes understanding the laws and regulations of managing a property, as well as having someone who is already in the business in your back pocket to guide you along. Too many times people that have a few extra bucks and want to instantly try making a profit on real estate investing, and they turn out to have major financial losses because they didn’t do the diligent work on the front end to help in the long run.
You need to know whether you want a residential property compared to an office space, industrial or retail. There are so many minute details to each separate property that you want to make sure you focus on just one of the potential properties, rather than trying to explore many different options, at least from the start.

Investment Groups:
When you join an investment group, you are placing your property into a pool of investments with other investors, allowing the company who operates the investments run the many different properties among your group. This might alleviate the hassle of the daily/monthly upkeep of the property that you personally are invested into. The company will do the dirty work and take a portion of the profit, but by being in the investment group it takes away the pressure of having vacancy in your property while still making enough profit to survive in the short term.

In the investment group, members typically work together to understand the current market trends and how to best maximize the profits from them. The group also allows members to become more and more familiar with how to manage your property best, and you also tend to gain extensive information about investment practices.

To conclude this brief, Cliff Notes version of investing in real estate, please make sure you realize that there is definitely a ton of potential in investing, but you need to make sure your decisions are based on what you’ve learned throughout proper research rather than just making a knee-jerk reaction. Your profits will benefit greatly by taking the extra time to learn exactly what the ins and outs of investing in real estate are.

Author:  Doug Chapman is a staff writer for HomeDaddys, a stay at home dad blog.  He specializes in diapers and sippy cups, but is a successful real estate investor on the side.