Last Updated on Mar 11, 2020 by James W
If you are already a homeowner and you have either paid off your mortgage completely or at least have it under control, it’s not unthinkable that you might begin to wonder exactly how much you could make from owning a second home and either selling it on for a profit, or leasing it out. It could be a possible career path if you really take to it and at the very least, it could offer a decent secondary source of income.
Of course, knowing that the housing market is effectively in the tank might leave you more than a little hesitant to pull the trigger (and rightly so), but with patience and clear vision of exactly what you want, and how you intend to use it, consider the following guide.
One of the most important aspects of real estate investment is making sure the financing is in place. It’s not like running a store where you buy a product for a wholesale price and then sell it on for a profit; it’s far more complicated than that. First you obviously have to decide whether you’re going to be renting or ‘flipping’ the house (to ‘flip’ a home is industry speak for selling it on) for a short-term gain. If you are considering flipping the property and already have a buyer lined up, look for an adjustable mortgage with a low temporary interest rate. These mortgages have seen some bad press of late as they tend to rise dramatically, but if you know you definitely have a sale in the bag, you’ll be able to sell it for a profit before the mortgage resets and maximise your incomings by only paying the interest. If you’re looking to rent the property however and “Play the long game???, a fixed mortgage is a much better idea, as they’ll let you plan your in-goings and outgoings accordingly.
Many first time real estate investors might feel a little desperation kick in at first as they could be in a hurry to pay the property off. Remember though that you’ll be using the rental income paid by your tenants to subsidise the mortgage and if you really are in it for the long haul, you can at least feel a bit smug knowing that someone else is paying more of the interest every month than you are.
All of the money you make or lose in the real estate game is very much ‘behind-the-scenes’. For example, you might sell the property on after a couple of months and make a decent profit on the sale price. But, if you factor in the lawyers, estate agents, renovation costs and more, you could end up losing money overall on the deal. As such, it always pays dividends to do as much of the work yourself as is logistically possible.
Home improvements such as adding new cabinets, landscaping the garden and tiling are all jobs that can add significant value to the property and can be done without hiring in professionals. You’d be surprised how simple most renovation work actually is and there are numerous online tutorials you could use as a guideline to help you on your way. Of course, you should never push yourself to do something you’re imply not capable of doing, as this will either result in a shoddy job (which could harm the property value) and result in so much damage that you’d have to get a contractor in anyway. Consider your skill set, and the skill set of your close friends and family (at least of those who are willing to help you) and then think realistically which jobs you’ll need to hire someone in for.
A Helping Hand
Speaking of friends and family, before you ‘go it alone’ and invest in the property completely by yourself, consider asking a friend or family member to share the financial burden with you. Two heads are always better than one, and your partner (or partners) might have ideas and skills that you simply don’t.
Only hire the estate agent when it makes sense to hire the estate agent. This is especially important if you’re flipping the property. Of course if you want to flip it as soon as possible and an estate agent will be able to net you a sale far sooner than you would on your own, it makes sense to get once early on as that’s potentially a lot of mortgage payments you get to miss out on. It will depend very much on your specific situation, but when you do decide the time is right, don’t just head straight for the first agency that will take you. Consider using bespoke sites such as Agent Harvest, or shop around the high-street stores and do a little research.
As well as an estate agent you will also need to hire an attorney (or lawyer) to handle the paperwork. Leaving them to deal with the figures, will be a huge load of your shoulders and will leave you with extra time to get the property ready for sale.
Make sure you’re completely up-to-speed with current market trends. You’re a first timer and there will be other people (and businesses) doing this that have spent years building up contacts and skills that won’t come to you until later, when you’re more established.
Research home prices by reviewing both the newspapers and the internet.
Research the decoration trends that are popular with buyers at that moment in time.
Visit the local banks and ask about typical local loan volumes and down payments.
Keep your ear to the ground!
Ultimately, the best real estate investors are those with a good deal of common sense and those with decent business principals. If you feel this sums you up then there are few professions as rewarding, so welcome aboard!
Linda Short flipped her first property over a decade ago and is now on her fifth. There is a buzz from real estate investment that she is certain can’t be found elsewhere!