There are many ways to make money in real estate. There are also many ways to lose money in real estate. This article will focus on buying residential properties, either to do what is referred to as a “fix and flip” or to keep as a rental property. I will try to present a quick overview of the process with some do’s, some don’ts, and some nevers.
Investing in real estate is like following a recipe to make a cake. Find the ingredients, follow instructions, and pray that it comes out good. Just as with making a cake, if you use higher quality ingredients, you will end up with a better result. Also, as with making a cake, if you don’t keep an eye on the situation, the cake may burn. With real estate, if you don’t keep an eye on things, you will very likely get burned.
Here are your ingredients:
- Money (in the absence of money, you can substitute an investor, a lender, or a goose that lays golden eggs)
- Realtor
- House to purchase
- Title company
- Construction crew/contractor
- Property manager (for those wishing to rent the property)
Now for the instructions. When baking a cake, you blend the ingredients in a bowl, pour them into a pan, and bake at 350 degrees. (Please don’t do this to the ingredients listed above.)
When investing in real estate, you get the money, you find a house, you fix it up, and then you buy a heavy-duty rake so that you can rake in the money by selling or renting. Sounds like a plan.
Now, let’s take a closer look at the ingredients.
1. The Money
You may want to consider starting off by partnering with someone who has done this a few times. Although your profit will be smaller, your risk will also be much less. If you are using a lender, the lender will most likely want to see how many times you’ve done this before. If you have your own money, your spouse will most likely want to see how many times you’ve done this before.
2. The Realtor
Investment properties is a niche area in real estate, especially in Baltimore, where resale values can vary greatly from block to block. An experienced realtor can advise you on what materials and finishings to use when fixing up the house. This will depend greatly on the personality of the area. While a rooftop deck will add a lot of value in Canton, it would be viewed strange in Ednor Gardens. Maintaining an old historic look will add a lot of value in Bolton Hill but will most likely not add much value in Pikesville.
There are some finishes that have become a standard in the industry. For example, if you don’t put in granite countertops (or a similar stone), the end buyer won’t view it as remodeled property. In general, your realtor will be able to advise how much you’ll be able to sell the property for after you fix it up, or how much rent you’ll be able to charge. This requires an extensive knowledge of property values and the ability to analyze real estate comps, etc.
3. The House
This tip may be obvious, but never buy property sight unseen, even when the seller posts pictures online. Even if the house is dirt cheap! If a picture is worth a thousand words, how many words is an intentionally omitted picture worth (for example, a picture of a missing exterior wall or roof)!
Once you’re ready to put a property under contract, make sure you’re ready to take it. Listing agents will remember you if you renege on a contract, and it will be difficult for you to buy other properties in the future.
4. The Title Company
Since a lot of investment purchases are bank foreclosures, ask the title company if they have experience in this area. This is a specialized area of title work and comes with its own set of hiccups. By the way, don’t forget to buy property insurance.
5. Construction Crew
It is crucial to figure out how much it will cost to fix up the property. I suggest meeting with an experienced investor and calculating repair cost. Here is a non-exhaustive list of typical repairs necessary: roof, gutters, drywall, painting, bathrooms, carpeting, new flooring, floor refinishing, kitchen, windows, HVAC system (with or without duct work), basement, deck installation, landscaping, plumbing, and electrical work.
This is one of the easiest areas to lose big money in real time. Having the right crew is essential. Managing the crew is even more essential. Consider hiring a contractor to do this work for you, but watch out for the cost so that you still make a profit.
6. Property Management
Do your homework and get good references. There a plenty of horror stories out there.
In Conclusion
When you do it properly, you can make money in real estate. It will require patience and focus and, of course, Siyata DeShmaya. There are factors like fluctuating market values that are out of your control. As with any investment, there are no guarantees. Nevertheless, when done properly, it can be a very worthwhile investment.
Ari Klein is a licensed realtor who works for Pickwick Realty. He can be reached at 443-499-2721 (O), 410-908-3947 (C), or by e-mail: ariklein7118@mail.com.
