Real Estate Investing

Who does it? What kind of experiences have you had with it? Any tips?

I kindda sorta am. I bought a house about two years ago, and when I sell it, I'll be ahead around $20,000-30,000. Of course there's lots of work.

Tips... buy low, sell high?

Tips... buy low, sell high?

Eh, in a perfect world, that would work I guess. But right now its a buy low sell low market, or buy low,hold,............then sell high.

Do you rent the property, live in it, or just let it sit?

There are many variables, but I think in most areas of the U.S. right now buying real estate purely as an investment is a pretty dicey prospect. I'm sure there is still money to be made out there, you just have to be very careful, and a little luck never hurts either. Most markets around the country aren't experiencing much growth as far as home values go, and in many places homes are expected to lose value for quite a while.

I live in L.A., and know several people who currently own property, but since they don't plan on living there long term they are considering selling their houses at the current market value and renting for a while to cut the potentially larger loss from selling later. Just about every home around here is worth quite a bit less than it was a year or two ago, and smart money seems to be on this continuing.

If you're talking about buying a house and living in it for the next 10 years to ride out the current market fluctuations you stand to make some money in the long run. But if you're trying to buy something and re-sell after a little facelift or something like that, you're probably in for a bumpy ride unless you know there is a certain type of buyer out there that you can appeal to.

The timing seems to be the toughest part to get right. This is sort of an extreme example, but there was a crappy little house on the very large, desireable lot across the street from my place (I rent). Right about the peak of the Southern California housing explosion, the people that owned the house got the idea in their heads to tear down the existing worthless structure and rebuild a damn mansion in its place. After completion they planned to sell it all for a profit, the building costs being more than offset by the increase in the value of the land since the time they bought it. This would have been a good idea if they had started 2 years before, but by the time it was done the market for brand new multi-million dollar homes had all but dried up, whereas only a year before it had been going strong. Now the house has been built for almost a year and it's still for sale to this day. The price has gone way down from what they were originally asking, and are now going to struggle to break even whenever they actually sell it.

I'm not saying that it's not possible to make money in real estate anymore, but it's not nearly as easy as it used to be.

What kind of investment are you contemplating? Buying instead of renting? Buying an apartment complex? There are many ways to invest in real estate and most of them are wrong right now.

Buying for speculation is not the best way but it is possibly the safest as there is little risk beyond market fluctuations. With that said, depending on the area, if you buy sensibly, you won't really lose huge amounts of money unless as you will be putting little extra money into it.
Also, if you are purely buying for speculation, you are also able to let it out while you hold onto the property thus negating what-ever mortgage you have on it.
If the market does rise and rise, then
i) you have a house that cost more than you paid for it
ii) it is rented so it should cover your monthly mortgage costs
i.e it pays for itself.

When it comes to this sort of property purchase, the most important thing is the type of mortgage you have on it. Seeing as you're not exactly a working professional, i'm not entirely sure what kind of mortgage you're going to be able to get.
If the rent doesn't cover the mortgage, don't even think about it.

If this is what you want to do, you're going to have to find out what legal obligations you have as a landlord in your state/country.


Ok, with that bit over, let's talk about the real way to earn money from property:
Development.

In short, buy shitty, make pretty.
High risk, high costs, high stress, masses of work, lots of profit.
Only thing is, it requires that you have decent enough capital to begin with which is the hardest part. After this, it's a management problem, assuming you have a good architect, a good engineer and a good surveyor on your side.

Unless you've got a sizeable down payment to make the amount you finance smaller, I think the chances of being able to cover a mortgage payment using only the rental income the property can generate are pretty slim. The guy I rent my half of a duplex from gets two fat checks every month that are pretty consistent with what is being charged in the area and that doesn't cover his mortgage. He's still out a pretty good chunk of money every month, and that's not even considering things like property taxes, maintenance costs, and all that good stuff. It just seems unrealistic to expect someone to rent a property for the same amount of money that someone else just recently bought it for.

I guess my perspective may be a bit skewed as I'm in one of the worst markets in America right now, but I wouldn't even want to try to fix up & flip a house anymore. Lots of people are looking for bargains right now and aren't as willing to pay a premium for something that may have just been superficially improved. The only way I would say that one will make money pretty much every time is to buy a house and live in it for a decade.

disclaimer:
everything I talk about is based on the property development market in London.

And yes, the more cash you have to start with, the easier it is.
Currently, I have two flats/apartments that pay for themselves, both with a interest payment mortage on them, both putting a few hundred in the bank every month.