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Five Ways to Get Ahead in Real Estate Investing

By Daniel Doran | June 4, 2012

There are many methods for acquiring wealth in the world today. One of the most easily accessible ways, even for the new investor, is real estate investing. Many people have made millions of dollars by investing in the real estate market in one form or another.

Real estate investing ideas

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Real estate is a profitable vehicle for any investor who is dedicated to learning about all of the different types of investments, option, risks and potential rewards that come with real estate investing.  There are many different ways to invest in real estate.  Here are some of the more common ones people use to get started.

Rental property 

This is one of those rare real estate investments where you can make money even if you pay top dollar for the property.  The reason is you are going to hold onto this property for the long term.  You're only requirement is that the property generates a positive cash flow.  This means after you sum up all of your expenses on the property like financing costs, taxes, insurance and a vacancy rate, the amount you are collecting in rent surpasses this figure.

This is one of the classic “get rich slow” methods of real estate investing.  You are making a small amount of money each month from the property in rental income, and you are also slowly building up equity in the property over time as you pay off the financing.

Pre-construction investment 

Also known as buying property on “spec”, or on the speculation that when the property is finished it will sell for a much higher price than you have invested in it.  Pre-construction investments are mostly made on new condominium projects where investors fight to buy the units before they are built assuming the price will come up once construction is complete.

I have known investors who have purchased several condo units in a facility being built and put $5,000 down on each unit as a down payment.  Before the property was even constructed, they “flipped” their contract to an end-user buyer who was willing to pay them as much as four to five times their down payment just to get in on the deal.  The major problem with this type of investing is it normally only works when a market is going up regularly.

In a down market like we are experiencing right now, it's  much harder to make a quick buck although there are still some good deals out there, the tricky part is identifying which places are going to be seen as desirable to live in and experience market growth in the next 12-24 months.

Flipping houses 

House flipping or condo flipping has come on leaps and bounds in the last few years thanks to the popularity of many popular home improvement and house flipping shows on cable networks in the last few years. Even so, flipping has caused many investors to lose a great deal, as many have no real idea of what it actually takes or costs to renovate and flip a property.

People tend to think “I saw it on television and I can do that”, and then before they know it they can get themselves in heaps of trouble.  Investors have to remember, television doesn't show you the whole picture.  You have to be aware of all of the hidden costs like marketing the property, closing costs, plus carrying costs if the home doesn't sell right away, etc.  You need to make sure you are buying the property at a significant discount to cover yourself completely.

Buy and hold

As mentioned above, real estate almost always gains value over time (eventually!)  Even the worst properties in the baddest neighborhoods will probably accrue equity if given enough time (so long as the neighborhood isn't knocked down!).  History has shown us that even  when a large market correction occurs like has happened now, properties do eventually recover and increase in value.  The secret is to make sure the property is at least covering it's own costs while you wait for the equity to build up in it.

Lease options

Not everyone has perfect credit.  For those who have credit issues, finding a lender to purchase a home can be an impossible task.  These people need time to get their credit repaired.  They are however, perfect candidates for lease options.

With a lease option, you can expect to pay above market value for the property, and you'll also have to come up with a non-refundable down payment. The whole idea behind this is that you're paying for the privilege of rebuilding your credit score faster, while working towards the ultimate goal of home ownership.

For anyone in a bad credit situation, lease options present a solution to their lending problem and buy them the time they need to get their credit score ready to go to a traditional lender.

Daniel Doran is a 20+ year veteran in the real estate industry. He is a previous owner of a law firm, mortgage and title company. Daniel has also written several books on mortgage modification, short sales and real estate investing. He currently specializes in Commercial Finance and Real Estate Development and is a graduate of Manhattanville College and Brooklyn Law School. You can contact Dan at Buildings By Owner
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