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Preparing to make the purchase
Real estate investing is a great way to make some extra money and diversify your portfolio. Before you lunge in and purchase your first investment property it is a good idea to have some real estate investing strategies in mind. Savvy real estate investors look for properties that are below market value. A good way to find these is to look at buildings that are foreclosures. Some buildings that have been foreclosed on will be ready to rent or resell immediately at a profit. Other buildings may need renovations or updates in order to sell them. Working with a trusted real estate agent who specializes in foreclosures, knowing what types of real estate you are interested in investing in ahead of time and making the best deal you can is the best way to come out ahead.
Before you begin investing in real estate learn the various investment strategies. The most common strategy that real estate investors use is the one that can lead to the most problems. That real estate investing strategy consists of buying properties which the investor believes will soon increase in value due to market-wide appreciation. Although this strategy can be used successfully, it is based on pure speculation and can fail. There are three investment strategies that can be used and are based on facts instead of speculation. The first is known as the bargain purchase. Investors who use the bargain purchase method when choosing a property pay twenty percent less than market value for the property. This allows them to make up to a twenty percent profit using this real estate investing strategy and is a great strategy to use when purchasing foreclosures.
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The second strategy is known as the increase value strategy.
Using this strategy the building would be purchased at current market value. There must be some improvements that could be done within a six month time period that would increase the value of the building by twenty percent for this strategy to be successful. Finally, many real estate investors use the double digit cap rate. The double digit cap rate strategy is used for buildings that have a capitalization rate of ten percent or more. A capitalization rate is the net operating income from the property which is then divided by the purchase price. These are harder to find unless the market is depressed or you are looking into small market niches. Whatever type of real estate investing strategy you choose it is wise to have a real estate agent on your side who can help you make the right decisions and tell you of any new listings, including foreclosures that you may be interested in.