Knowledge is the Map to Greater Wealth,
Real Estate is the Easiest Path.
Leveraging through Financing will take you on that Path the Quickest!
Investing In Real Estate
Developing Your Strategy
The following are some of the Investment strategy outlines and how the market conditions affect them. Your strategy should also incorporate your personal circumstances.
Purchasing an Investment to Lease
This strategy is one of the mainstays through the
years. The idea is to get a property at a reduced price or with
creative financing so that the income from leasing the property will
produce a profit above expenses or at least break even.
This is usually done long term with the mortgage being paid off by the
renters. There are 2 major factors with the current market which affect
this strategy. The first is that the increase in median prices have
been as much as 30% a year. Unfortunately the rental rates have not
come close to increasing at this level, making it almost impossible to
get a positive cash flow without investing a high percentage down
payment. The second is that even the distressed properties are selling
at close to or the same values as average properties. However, there
are ways to adapt to these conditions and still increase your wealth at
a higher rate than possible in the Stock Market. These conditions
are slowly but surely changing and our market may yet offer good
opportunities for this strategy.
Buy Low Sell High
This is the strategy that most of the Real Estate gurus
extol. In this one, you find only properties which are at least 30%
below market value, spend up to 10% fixing them up and reselling
at market value. There are many variations on this strategy, from
finding foreclosures to, “We Buy Ugly Houses,” but the underlying
process is the same. Again the major factors affecting this strategy
are the same as mentioned above. Although we have a large supply, it is
challenging to
find anything extremely below market and when they do come on the
market there
are plenty of other investors ready to pounce. This strategy is almost
a full time job finding the properties that will work. Even the
foreclosure auctions are getting popular enough that the bidding
usually goes above the levels needed to make this work. Again,
our market conditions are in a period of change and as more inventory
becomes available, better deals are starting to show themselves.
Low Down payment Short Term Exposure
This is one that we use in this high appreciation
market utilizing High Leverage and Tax Deferment. Here you procure 90%
to 100% Financing and the money not used for down payment is instead
used to offset the negative cash flow. This is a short term strategy in
which you will usually hold for 1 year and a day which will allow you
to qualify for a 1031 Tax Deferred Exchange and or long term treatment
for capital gains. The most important aspect here is to have enough to
offset the negative cash flow for the one year period and to maintain
disciplined control of these funds. By using High Leverage and Tax
Deferment you are able to continue to roll over profits exponentially.
(Word of caution to the wise: absolute discipline is required to avoid
future problems and pitfalls.) This technique is becoming much
less attractive as inventories rise and appreciation slows. It
has been very good while it lasted.
Equity Sharing: Investor/ Occupant
This is a great investment method. An Investor and an Occupant purchase a property together. The investor usually supplies the initial capital and the Occupant uses the property and is responsible for the carrying cost and the upkeep. It usually is set up for 3 to 5 years. The best part is that the investor has little or no responsibilities after the purchase. There is a legal and enforceable agreement which lays out exactly what is expected of each party. No land lording, no finding tenants and usually no carrying cost. To find out more on this visit the Equity Sharing Section of this site.
Equity Sharing: Investor/ Investor
With this strategy 2 or more investors pool their resources and abilities to purchase and manage property. It allows investors to control better properties than they would find possible alone. It could also be set up to enhance each parties abilities. Such as one investor has more capital and the other time and ability to manage the property. To find out more on this strategy, visit our Equity Sharing Section on this site.
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