Eight ways to make $ on investment real estate

[redmondjp]

I just received this in an email from my realtor, so I thought I would share:

The market has cooled in various cities across the country and fair weather investors are starting to worry about how they will be able to make money now that their houses aren't escalating at astronomical rates. To these folks I say "breathe". If all you want to do in real estate is make money on the basis of appreciation, then you need a primer on how to make really good money in real estate.

The authors of Investing in Real Estate, Andrew McLean and Gary Eldred, have provided that primer, listing 8 ways to grow your wealth in investment real estate.

The key to building true wealth in real estate is though buying and holding. A good tenant can create wealth for you by paying for the mortgage, insurance, taxes and monthly fees through their rental payment o you. In addition, consider this: you have just taken over an asset leveraged by a fraction of the value. Let's say you purchased a condo at $150K for $15K down payment. If it grows at 5% per year, you're making more than 50% on your money that you actually invested. You can't get that kind of power behind mutual funds.

Real estate investing allows you several ways to make and/or save money that other investment tools will never have the ability to provide. No one can predict short-term price increases, but that is why the savvy investor doesn't look to just appreciation to make money. Here's how you can build wealth through your real estate investing.

Positive cash flow. This is exactly what it sounds like...the rent covers the mortgage, taxes, insurance, fees, etc. and you have money left over at the end of the month. A wise investor will also have enough money in reserves to cover all these expenses for a few months in case the property goes vacant.
Equity Growth via Amortization. As the mortgage shrinks from the mortgage payments, your equity grows. This is one of the most powerful means of wealth growth, using OPM (other people's money) to build your net worth. The tenant is providing the investor with hundreds or thousands of dollars per month to pay off debt, which turns into equity for the landlord.
Capital Improvement. This is the fixer-upper that most people think about when investing in real estate. Purchasing a property for $250,000, put in another $25,000, and voila, the house is now worth $350,000.
Wholesale Purchases. The most effective way to build net worth and equity is to buy a house for a bargain price. These properties would be the pre-foreclosure, foreclosure and tax sales, purchased at well below market price.
Lowering Tax Bills. One of the greatest benefits to investing is all the tax breaks allowed for real estate investments. Uncle Sam allows many tax deductions and credits that can cut your tax bill, thus increasing your bottom line.
Smart Asset Management. Many novice RE investors lose money by not managing the asset wisely. For instance, painting properties before the wood is actually peeking through will keep the asset in good shape and protect it. The RE investment is a commodity, not a money machine, and must be managed and protected to maintain future wealth growing potential.
Asset Value Growth. As your property increases in value, so does your wealth. Buy at today's prices and, with time, your asset will grow in value due to local appreciation.
Rent Appreciation. As the cost of living increases, so, too, should your rental cash flow. Increasing your rental income by 5% per month could result in hundreds of dollars of cash flow per year.

Investing in real estate provides a fantastic opportunity to provide future assets to finance retirement or fund a child's education. If you would like more information about investment properties, please call or email. I am happy to discuss whether a real estate investment is right for you.
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What I find most interesting about this is the fact that there are virtually no properties available at today's prices which meet the first and foremost wealth-building criteria listed above: positive cash flow. Without this, the only other way that this makes sense is if the overall value appreciation exceeds one's own losses and holding (and selling) costs, but then there is no realization of a real gain (ie net gain with cash profits in my pocket) until one sells, which contradicts the buy-and-hold mantra.

So here I am again using RE investment advice from a Realtor to show how truly out-of-whack the RE market really is right now. Shame on me!

Disclaimer: I am in no way against owning investment real estate, as my father owned two SFH rentals and four duplexes for decades (I learned a lot about wiring and plumbing from them, heh heh) and they paid for my college education. But they ALL were cash-flow-positive, from day one.

[perfectfire]

[burritos]

[deejayoh]

[Richardsmith]

Interesting thread,
I have learned many useful resources from your post. Thanks for sharing this information.
As we move into the last month of 2007, mortgage interest rates are continuing to decrease. They are now at the lowest point in more than two years, thus opening a bit wider the door of opportunity for home buyers. It's now at the lowest rate since January of last year. This is a popular option for many homeowners who are now refinancing their mortgage.

[ira s]

Actually there are places in the US where positive cash flow still exists...some claim in the Seattle area but I haven't seen it, but places like Fayetteville, Arkansas and Hattiesburg, Mississippi, you can buy a house and rent it out, and your monthly mortgage payments will be less than the rent you receive.
And there is demand for rentals in both of those places...On the other hand, we are talking Arkansas and Mississippi, and you may be renting to someone and their wife who also happens to be their sister...

[faster]

[2cents]

Hi Redmondip

A nice summary of property investing. I'm very curious about your comments though saying that positive cash flow properties are hard to find. Is that really true? See i'm based in the UK so will need a bit of help here; i'm seeing many US investment websites offering sub $50K properties offering very positive cashflow and i have seen these type of properties advertised everywhere. Now am i missing something or is there a catch to these proeprties being advertised?

thx

K

[perfectfire]

[Ubersalad]

Positive cash flow...if someone can walk me through how to create one in today's overpriced real estate market.

$400k house rent for $1200...how the hell can you create positive cash flow.

[Cougar]

http://commonsenserealestate.blogspot.c ... tment.html

Looks like this was originated June 2, 2006 - and someone revised the original content. Maybe your realitor? A lot has changed in 22 months and this seems outdated to me.