INVESTMENT PROPERTIES
In essence there are two approaches to real estate investing. Quick, large one time profit or long term consistent income. A good analogy to real estate profiting is a farmer with a cow. The farmer can sell the whole cow for slaughter and make a large sum of money once, or the farmer can milk the cow and make consistent income ad infinitum, albeit in much smaller sums. Both approaches work well, it’s all about finding the right deal for the investor and which strategy works best for them. In real estate terms investors can get quick, big profits from flipping houses or long term income from owning and holding cash flow rental properties.
Below is a quick overview to investment properties, and whichever route you choose, happy investing!
Below is a quick overview to investment properties, and whichever route you choose, happy investing!
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I am a strong advocate of real estate investing. I’ve seen millions of dollars made by my clients through their investments in single family houses, apartments, and vacant land. I’ve been a successful real estate investor myself since 2004 and CNN called me a “Tycoon in the Making” for my ambitious real estate investments in 2006. I practice what I preach and I am a true believer in the power of real estate investing to build wealth and financial freedom. |
FLIPPING
Flipping houses is probably the most rewarding experience one can have in the real estate investment world, and also probably the most gut wrenching. It requires intestinal fortitude but can be incredibly lucrative. All the classic real estate clichés apply when seeking out a suitable house to flip. We want the worst house on the best block, good bones, location, location, location, motivated sellers, etc. Flipping houses works in down markets and up markets, in every location, at all times. The most successful flippers have either all cash or access to low interest rate capital; the cost of the money used is a large factor in bottom line profits for flippers. Most good flip properties are not financeable with traditional mortgages because of their poor condition so having access to several hundred thousand dollars is necessary for buyers, or they can use hard money at a high interest rate, usually about 12%. Most of the hard work in a flip is done finding the right property. In Los Angeles competition is stiff for flippable properties, so most investors have to write several offers before they get anything. Once the property is bought, the renovation begins. Time is money with flipping so the the investor needs to plan out as much as possible ahead of closing and work diligently to avoid delays. I recommend pulling all appropriate building permits because unpermitted work can become very problematic at the worst possible time, in accordance with Murphy’s Law. The cost and time required to get permits issued by the city are a small price to pay for immunity from the severe and lengthy penalties that can be levied from the city or county for improper permitting.
BUY AND HOLD
Long term holding of rental real estate is perhaps the most common way people can become wealthy. Rents always seem to rise over time and a fixed mortgage payment stays the same. When dealing with buy and hold properties economies of scale become pertinent, for example a $500,000 house will rent for $3,000 a month but a $2,000,000 30 unit apartment building will make $40,000 a month in rent. The bigger you go, the better the cash flow. However, financing multi unit buildings becomes more difficult when they are larger than four units, but as long as the properties debt service coverage ratio remains below 1.20 most banks will lend on it.
