Real Estate Investing

Don't risk house flipping while the market is like this! You could lose a lot if the house doesn't sell fast. Maybe look into owning a rental home?

Hi L..

You've gotten some good advice already, but here are a few things I'd add:

1. Interview several Realtors and find one with a lot of experience in investment properties, preferably in the area you want to work in. You can call a variety of offices and speak to the sales manager and ask for a recommendation. Explain that you're looking for investment properties. When I started investing it was SO helpful to have a Realtor who owned several properties herself and already had a great network of contractors and repair services. I didn't feel like I was in it all by myself. We still share referrals.

2. In this market, I'd definitely look at buying and holding as a rental for a while. You may find properties that can be rented immediately with no upgrades but that have a lot of potential to upgrade a year or two from now. But you don't have to flip them to make money - your tenants will be paying off your mortgage and you will have equity from that, and depending on how big of a down payment you make you'll have cashflow on top of that.

3. No matter how handy you are you'll need other professionals - the properties with lots of value in them get that way because they've been neglected for a while. The ones that just need some fresh paint and refinished floors are few and far between. My last one, one that I thought would be easy to turn around, needed all new plumbing and electrical, a new kitchen, a new bath, etc. and then we found structural problems on top of that. This is with an inspection, even.

4a. It will take longer than you think to get everything done.
4b. It will cost more money than you think to get everything done.

5. Do you have a relationship with a local banker? If not, get working on that. A small local bank will often have programs that you can't access through a mortgage broker, such as construction loans.

6. Buy something that's relatively close to home so it's easy to get over there and get the work done, and easy to manage if/when you have tenants. You'll also know the market better than something that's a long way away.

7. The Minnesota Multi-Housing Association is a great resource for landlords - you can purchase forms, get the legal handbook, etc.

8. Watch all of those shows - Property Ladder, Flip That House, This Old House, etc. Really. Property Ladder is a good one for showing a more realistic picture - the people on Flip That House never seem to lose their shirts.

9. For anyone who is not already settled into a home they love - consider buying a duplex as your first property, living in it for a few years, and then moving. You'll have your rent subsidized, and you'll build equity quickly and then have a great income property to build on. (I wish I'd done this.)

Feel free to contact me if you have other questions. Good luck!

I think this is a really good time to do this. Home prices are so low with the many foreclosures, etc. You can buy a home and fix it up. The market has to go back up eventually, and you'll be done fixing it up by then.

I only have the experience of growing up with a mom who started a business doing this. She started with a friend and they bought 2 houses side by side (actually I think they were 2 duplexes) in a depressed neighborhood and fixed them up to sell, doing most of the work themselves. They they bought more. The thing that made it really worthwhile was my mom studied for real estate brokerage license (I was 7 and still remember helping her study) so it made it easier to list and sell the properties without another agent involved. This then morphed into a commercial/industrial real estate company that my parents ended up running together (my dad quit his attorney job after her endeavors were successful). With all the foreclosures available today I think it would be a great idea.

All I will say is BE CAREFUL! The housing market here is very bad and you do not want to put your family in financial strain because of it! I would wait until it bounced back some, but I just have had a lot of friends and family that have lost a lot of $ in this housing market.
Good luck-

I would be very careful. My husband started doing this as a side buisness so I could stay home with the kids. He is also a teacher and coach. I rarely saw him since he was so busy. And since the market is so bad, it is not working out for us at all and have only lost money. We are now selling our home because we can't afford it anymore and now i am looking for a job. So i would only do this if you can hold on to the property for a couple of years when hopefully the market gets better. If not, I would not risk it. It is so straining on our marriage, money, and life in general.

Have you considered renovating a duplex? This is less scary and more doable in an unstable market because you can have cash coming in on one side of the property while renovating the other. Also, if you have to hold it for awhile you are more likely to cashflow. Lastly, banks are more favorable to duplexes (and multi family complexes in general) because they are less of a risk and when the housing market is plummeting renting is what folks need to do.

I agree with the person who said to BE CAREFUL. Many people get into this and realize they don't know what they are doing. If you can tell that the foundation is cracked or the roof is bad and how to look for water damage and if you are good at estimating how much it will cost to remodel the kitchen, bathrooom, tear down the dilapidated breezeway etc. then you might be ok. I do own rental properties and my husband is a contractor. My advice is to go into this project if you can afford to hold on to it and rent it until it sells. You have to do the math carefully. If you have enough capital to purchase it, make all the improvements and make payments until it sells then go for it.

There are a lot of bank repo's on the market today, bringing the price of "fixed up" homes down a bit. Get into this only if you are able to sit on a property for some time while it's on the market - turnover is much slower right now than it has been. That said, I know the repo's are selling well as people are scooping up the deals. Many builders are putting their models on sale as well because they've been sitting on them for a couple of years. Be cautious - usually in a flip you want to get it sold as fast as possible to get a good return on your money. It's a buyers market right now.
We recently purchased a home and I have been searching for a long time. I have a realtor send me the listings (he set us up on a search with certain parameters like location, price, style of home, etc.) and every time a new home comes on the market or a for sale home drops it's price, I get an email report. I watched those for a long time, searched models and knew the market when the right one came along. Those types of things will help you too - know the market, know what areas sell well and what areas don't.
As far as financing - I'd say start with a good amount of cash in the bank to back up any difficulties you run into. Beyond that I'm not sure - Home equity line, 2nd mortgage, etc?