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First Time Real Estate Investor

First Time Real Estate Investor

I am sure that you have already read all of the information that you could on real estate investing and I’m sure that you are well aware that many of the worlds millionaires and wealthiest families have made their fortunes in the real estate market. That is probably the reason that you want to throw your hat into the ring and to start investing and begin your own real estate career.  

There are many ways to make a living and to invest but as an investment strategy using your hard earned money real estate has to be one of the most lucrative ways to build wealth.

CambridgeHomeLoan.com can provide the financing to help you leverage your capital and increase your return on investment.

There is always risk with any investment strategy but there are also many wrong ways that an investor can go about the process of investing. Flipping properties is in my field of expertise and what will be primarily discussed here. Much of the information can be applied to rental properties and other types of real estate investments as well but for the purposes of today we will keep it focused on flipping.

It is truly amazing to watch a property that was once neglected and in a state of disrepair suddenly spark back to life right before your very eyes. There is a lot of work involved in this process though and this is often overlooked. Much like labor in light of birth. The pains are quickly forgotten when looking into the face of the outcome.

 

Keep these things in mind for your first time and you should be well on your way to future success. You should also realize that the first few investments are learning experiences more than anything else. If you do not achieve the success you were hoping for (or success to a lesser degree than hoped) you should not give up on the dream all together simply learn from the mistakes you will make along the way as well as the mistakes that others have made.

As far as being able to finance your flip deals there is funding abound for first time home investors. First timers can typically get 80-85% leverage.  This means that for 15-20% cash out of pocket you can purchase your first investment property.  Some of the first time home buyers scenarios are below.

Two state employees decided to purchase their first investment property. The paid $15,000 for a foreclosed duplex in Maryland with a rehab budget of $95,000.  The ARV or “As repaired value” is over $150,000 and the interest rate on the initial 1 year bridge loan was 9% interest only.  The investors investment equates to $3,000 cash out of pocket.  The investor paid $9,000 for the purchase approx $9,630 in interest payments and 2 points of $2,140.  If the client sells the property they would have made $37,860 with a $3,000 investment.  Thats over a 1200 percent return on their investment.  Needless to say they are looking for their next investment property.  

If they refinanced to a 30yr and rented each unit for $1,250 less taxes insurance and a reserve they could net approximately $11,000  per year on a $3,000 investment.  Real estate builds value over time and the longer you can hold it the more you can make. Many clients wait a few years and then refinance. If in 3-4 years the property value was closer to $200,000 they could refinance cash out  almost $100,000 to invest in other properties… Where else could you get that kind of return from a $3,000.00 investment.  There is still risk. You need to be sure to buy right.  In this case purchasing a city owned property they did that. You need to use someone elses money for the bulk of your investment. CambridgeHomeLoan.com is your answer there and you need to pay very close attention to your overhead and costs. Your fixed costs are easy taxes and insurance.  The unknowns ..taking too long to get a tenant Taking too long to evict a tenant that is not paying, a bad tenant that damages your property are all risks you need to be careful of.  Remember fix and flip and fix to rent investments are your stepping stone to a brighter future. Be patient.

Real estate investing is not an exact science. There is no formula in this business that guarantees success. Even seasoned professionals will find the occasional bump in the road even on a property for which they had high expectations. Stuff happens along the way that cost money, delay the project, or set the project back. These things are stumbling blocks no doubt but should not be allowed to derail the entire project. When these things happens go back to your original plan, reassess the situation and create a new plan with the necessary adjustments in mind. The key is in sticking to a plan the entire time and never throwing the plan out the window and flying by the seat of your pants.

Your plan will be your lifeline throughout the project. You need to have a plan and a budget in writing. One great rule of thumb is that you set aside double the amount of money you plan for in your budget. 

This gives you a bit of a safety net for the inevitable things that will go wrong. Things will go wrong on almost every flip you encounter. Even the seasoned professionals that have television shows about their flipping efforts encounter problems in almost every single flip, rehab, or renovation.

For your first few investment purchases it is recommended that you purchase properties that need little more than minor cosmetic repair rather than complete rehabs or renovations. This allows you to get your feet wet without the incredible risk of going off the deep end mentally, emotionally, and financially. These properties represent lower profits but also lower risk. They also allow you to gain valuable experience and raise a little capital in which to invest in properties requiring more extensive work in the future.  Your lender is key. The advice and documentation that you will be required to fill out are crucial in helping you plan to succeed.

Keep your eye on the carrot at the end of the project. Far too many would be property investors give up just before they reach the point of true profitability. The goal is the profit at the end of the project.  For more information or free consulting about a property that you may be looking at contact info@cambridgehomeloan.com.

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