When investing in real estate your money is made when you buy not when you sell. There are two basic investment situations, either you’re picking up a piece of property to sell again, or you’re looking for a passive rental income. In both cases make sure you make your money on the buy side.
When turning the property around for a quick sell it is imparitive that you buy the property at below market value. The difference between the purchase price (plus carrying costs, fees, and other charges) and it’s market value is the amount of built in equity that you have in the deal. It means that in all but the most extreme circumstances if you buy below market value, you’ll make money.
In the second case where you’re going to use the property for rental income. It is important to work out all the numbers up front and know that you’ll be making money, and not subsidizing someone else’s rent. How many properties can you afford to buy if each one costs you $200/month? How many properties can you afford to buy if each one pays you $200/month? If you see a possible deal, make sure you negotiate the interest rates and terms on the loan it could make all the difference.
Buying and selling property is a killer way to make some big bucks. But it’s important not to jump right into it. Knowing how to write solid contracts that allow you a way to back out of a deal that goes sour is key to lowering your risk. Risk management is a big part of any investment plan, and it starts with knowledge. The more you know the less likely you’ll fall into traps, and the quicker you’ll be able to evaluate a potential deal and close it before someone else beats you to it.