My Real Estate Investing Success Story . . . So Far

My real estate investment in western Pennsylvania took a positive turn when a buyer signalled that she wanted to move in to the house my wife and I purchased earlier in the year then had fixed up.

During the government bailout week when the medis was reporting havoc for investors, I had a buyer for my house who was willing to pay my asking price because of the favorable terms I was able to negotiate with her.

In my next post, I'll link back to some of my previous posts on real estate investing, and then go through the cycle of purchasing, fixing-up and negotiating the sale.

Here's a link to a post on tips on investing in real estate that I wrote back in July 2008.

While the profit won't be realized for months to come, it did show me how to make a profit and generate a positive cash flow.

It also showed me the criteria needed to have a successful transaction.

We're now looking for our next investment property.

9 Tips for Investing in Real Estate

Real estate - is it a good investment or not for your cash flow?

I invested in a house to fix up and resell in western Pennsylvania and though I'm not an expert I wanted to pass along these tips for investing in real estate. The house my wife and I bought is up, on the market, and waiting for a buyer.

Here is what I've learned about investing in real estate and I may expand on each of these points this week:

1. Capital, cash, money must be available.

Have money on hand before you buy something. The money may be cash in the bank, savings you've desiginated for investing and/or a loan. But you need capital . . . or you need to work with someone else who has capital. A lack of cash flow will hurt.



2. Choose a neighborhood

Headlines on the Internet or your local paper that talk about the bad housing market never talk specifically about particular neighborhoods -- until some story runs about the 5 best cities to buy a home!
I believe there are local economies. In California, for example, Bakersfield is now doing well due to the rise in oil prices. In western Pennsylvania, I've heard many say Westmoreland County is more attractive than Allegheny County due to the local tax structures and local governments.



3. Choose an Agent who Knows Investors

A realtor who knows the local market, and I do mean neighborhood by neighborhood, will be a tremendous asset in knowing what to look for in a home's structure and what people are looking to buy -- and at what price range. Also, a well-versed agent who knows investing will also know HUD homes. Mine was a HUD house.



4. Know Your Goals

Why are you investing? Do you want cash short-term as in a flip -- or do you want appreciation as in buy-and-hold? There are investors who will buy and hold a property for 7 to 10 years to gain appreciation. Understand exactly why you're going to invest.



5. Work with Good People

If you're going to "flip" a house to make short-term cash do you plan to do all the work yourself? Or some? Or none? I had a person who was a former contractor guide me through the steps in my house. He saved me money on items like siding and windows since he knew local suppliers. Instead of pocketing the savings, he told me what I had saved since he really wanted the investment to work for me. It's hard to find good people -- and retain them. Ask around with local suppliers.



6. Do Your Homework, Research Due Diligence

You need to do homework on the market, buyers preferences, and run a budget on the house itself. Also, who is your target buyer or target renter?
Example: my house in western Pennsylvania only cost me $ 26,000. A steal, right? It could have been a nightmare if I wasn't careful.
My agent and the person supervising the work both told me I would have to put in about $ 30,000 - $ 34,000. I projected the market would bear $ 82,000 and up for a sale.
I made a spreadsheet from the roof down on what would need fixing to estimate my costs.
I flew out to see the house and we decided to put in a small bathroom on the first floor. And we got a tremendous deal on new kitchen cabinets. Nevertheless, the $ 30,000 went to $ 42,000 due to the extent of the work. Run different scenarios.



7. Learn Tax Laws

Do you know what you'll pay for capital gains? How long do you plan to hold the property? What is tax deductible? Taxes are an expense item and I think the capital gains tax is largely unfair for small investors. However, you need to take them in to account in your overall profit-loss scenario. Taxes could work in favor for you if you have a higher income, need the write-off, plan on future income, etc.



8. Be Patient

Making money and building assets through real estate may take a few years or longer. But be patient. It's worth the wait.



9. Join a Real Estate Club and Get Info for Free

Get as much free information as possible and advice whether it's on the Internet or in person. Again, a good agent will help. But a real estate club can also be valuable as you learn different strategies that people use.


Real estate is a challenging area. Yet, it's worthwhile to learn since people always need a place to live. Ignore the thought of "making millions" from it. Get one successful investment and then replicate what you did.


As in all investments, surround yourself with people you can learn to trust who have your interest at heart. Real estate investing for cash flow now or in the future can be a good investment if you plan well.

A Good Real Estate Blog

Here's a blog from Tallahassee, Florida that I think is worthwhile reading.

Joe Manausa

He's a real estate agent and he's posted some thought-provoking articles like parents of college students can buy a home, rent it out, and use it to pay their way kids' way through college.

He's got a lot of details in the piece so it's worth reading a few different times.

Are Capital Gains Taxes Fair?

Taxing Capital Gains

Real life real estate investing can teach you a great deal about the truth of taxing capital gains.

My wife and I bought an investment property in western Pennsylvania and we fixed it up to re-sell. Of course, if I own it less than a year there's a higher rate for capital gains to sell it.

Is that fair?

Here's an article I wrote about the problem with taxing capital gains and why I believe it can hurt middle income investors. Senator Obama wants to raise capital gains in the guise of "tax relief for the middle income."

I believe his proposals will certainly cause middle income investors like myself to consider whether or not they should invest and sell.

I simply don't believe a capital gains tax is logical, especially if taxes and permits are being paid locally. This week, I'll make it my effort to educate readers about capital gains and the need for lower, not higher rates.

Investing in Real Estate - Your Team

Investing in real estate

or

flipping homes

to re-sell requires a team with solid knowledge, honesty and a solid work ethic. Finding everyone who meets these requirements isn't easy and it can result in delays. So you have to plan contingencies.

This week, the demo started on the house I invested in. I live and work about 2,500 miles away but I'm getting calls each day from the person supervising the work. He came to me with good references.

One of the reasons I trusted him early on was because before the work started, he spent 3 1/2 days with me helping set up our supplier network and going to the bank with me.

He himself is not making much money on the project but he said the reason why is he wants this job to go well so we can do it again.

He also tried to soften my expectations on how much money I would make. But we ran the numbers, budgeted together for all our expenses including dry wall, paint, siding and all other supplies.

Trust is a mighty big factor. Certainly, you can trust a person before the work gets started and then run into problems later. But if you can't trust them from the beginning then don't bother getting started at all.

It's better to walk away from what seems to be a profitable deal if you don't have the people in place who can truly help you.

Investing in Real Estate - Organizing Your Team

Don't plan to invest in real estate alone unless you're experienced. However, building a good team is a bit tricky.

ORGANIZE YOUR TEAM

Here is who we have in place to fix up the investment property we bought in Latrobe:

• Real estate agent


• Mortgage broker


• Contractor/handyman who can supervise the work


• Carpenters


• Electricians


• Painters


• Supplier or suppliers who will offer good prices on materials


• Insurance agent for Builder's Risk insurance or possibility liability


• Customer service rep at a bank


• Attorney

It also helps to have a trusted friend or financial planner who has invested in real estate themselves.

I will write more on this team later to continue the post. But let me say that last week, I flew from Los Angeles to Latrobe and spent 3 1/2 days organizing the team, setting up an account at Home Depot and doing all the leg work with the person who's overseeing the remodeling.

We didn't touch one part of the house and yet it was a strategic time and well worth setting the foundation.