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How to Make Money in Real Estate
Making money in real estate may be easier than you think. The value of real estate properties, houses, condos, commercial properties, and even vacant land! Is and will be going up each and every day. Over the past few years, prices for houses have skyrocketed in many areas of the country. Historically low mortgage interest rates have made it possible for many people to be able to afford to own their own home. As demand has increased, prices for existing houses has gone up.
Many renters are coming to the conclusion that it is silly to pay a landlord the same amount of money it would cost to own a home outright. As long as mortgage interest rates stay low, and the economy is good, demand for private housing will continue to increase, and so will the prices of houses. Canada in a latest report is leading other G8 nations in growth!
Still unconvinced? There are two key facts that you need to keep in mind. There is no new land being "built". What is there is all that there'll be. A finite supply of land means that, over the long term, prices for land (and the houses that sit on it), must keep going up! The second is that the overall population in the country is going up by 2% per year. Yes, some areas are seeing drops in population, as people move to other areas. But some areas are seeing growth rates approaching 25% per year! Imagine the profit potential in those areas!
Isn't there risk in investing in real estate?
Yes, there is risk in investing in real estate. There is risk with any investment. Invest in gold? What happens if demand drops? Invest in stocks? What happens if the company whose shares you own go bankrupt? What happened to Enron. Or technological change steals their core market away from them? Same with bonds. About the only "sure" investment would be in government bonds, but they pay miniscule rates of interest 2-3% only. Some areas of the country are seeing housing prices go up 15% or more each year. Compare that to 3% per year for "risk-free" bonds.
In any sort of investing, the key is to get in when the prices are low and get out as the prices are reaching their peaks. It's hard to tell when gold prices are peaking. Or when share prices are coming due for a fall. With real estate, all you need to do is look at the predictions for mortgage rates, growth in the economy, and local unemployment rates. If predictions are for a slump in the economy, or a spike in interest rates or the number of people unemployed in your area, cash out! Until then, it's pretty safe to invest in real estate. Canada ’s unemployment rate is at record lows, the economy is doing great, and interest rates are expected to stay below 6 for awhile.
There are two different plans when it comes to real estate investing. The first is "Buy and hold". You buy a property, and hold onto it, allow the natural increase in prices increase the value of the property. While you're waiting for the right time to sell, you rent the house or condo out. The rent should cover most of the cost of the mortgage, the taxes, the utilities. But remember appreciation will outweigh any costs and that is where there is earning and profit to be made.
The other real estate investing plan is "Flipping". In flipping, a person buys a property for a lower than average price and sells it almost immediately, sometimes after renovating or cleaning it up. Your investment is only at risk while you own the property. The shorter the period of time between buying and selling, the less likely that you might end up losing money on the deal. Instead of gaining wealth from the natural increase in the prices paid for properties, you make money by buying the house at a lower than normal price and selling it quickly. Tens of thousands of people across the country are doing just that -- buying from a motivated seller, and selling to a buy-and-hold real estate investor. Why shouldn't you?
How can you buy real estate at lower than average prices?
There are several different techniques of buying real estate at below market value. We'll touch on them briefly:
Foreclosures
When a person can't pay the mortgage, banks move in quickly to seize the property to ensure that they get their money back. This is called foreclosure. But banks aren't in the real estate business -- they don't normally want to hold onto a property for any length of time, they just want their money back as quickly as possible. By buying a foreclosed property from a bank or other lender, you can end up getting a property at a price way below the market value of the property. You could put in a bid for a foreclosed home, secure ownership and sell it almost immediately to an investor. To ensure a quick sale, you'll have to sell the property at a below market value price, but you should make thousands of dollars on every deal.
Pre-foreclosures
You can probably guess what this entails. A homeowner has fallen behind in making his mortgage payments, and has been notified by his lender that they intend to seize his property. You arrive on the scene as a white knight, offering to buy his property for pennies (or dimes) on the dollar. You then notify his lender that you have purchased the property and that you'll be bringing the mortgage up to date. The lender will end the foreclosure proceedings, and you will find a real estate investor willing to buy the house quickly. The profit potential is enormous! But deals are harder to find.
Fixer-uppers
Some houses look run down, and are in need of repair. Some owners either can't be bothered to keep their houses looking nice, or can't afford to hire someone to do the upkeep. While some fixer-upper houses just need a coat of paint and new windows, others may have serious structural problems. Beware! Before getting into the fixer-upper business, learn all about making simple home repairs and how to inspect houses for defects and potential problems. Don't buy someone else's problems. With experience, you'll be able to see just how much you would need to spend in repairs, and how much of a discount the seller ought to be giving you to buy his property as is. Learn before you attempt this. It may end up costing you thousands of dollars if you don't.
No money down
No money down schemes usually involve looking for motivated sellers, making a zero down offer to buy the property. In some cases, you can end up getting a mortgage larger than the price you are paying. This is not common though. When you do a no money down, you can either flip the property by finding a buyer before you take possession of the property, or buy and hold and rent it out.
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