SWOT AnalysisInvesting in real estate has always been promoted to some degree over the years. Either you’re told that you need to buy now because housing prices are going up and you don’t want to miss out,

or the real estate market has taken a nose dive and it’s time to pick up properties while they’re on the cheap. So what do you listen to, buy on the way up or buy while real estate has hit rock bottom?

The fact is that real estate investing can be profitable in most any environment, properly practiced. Yet at the outset, it’s crucial to understand the difference between the terms “investing” and “speculating.” Speculation is a gamble, an educated risk. When speculating in real estate, you’re betting that home prices in general will continue to rise, and more specifically, the property you just bought increases in value so you can turn a profit.

That’s what happened in the mid-2000’s. Home prices began their upward climb and, fueled by easy money, property changed hands regularly, with each new buyer making a profit each time the home was sold. After all, banks were lending money to almost anyone under nearly every circumstance. But the music stopped, banks stopped lending, and the foreclosure wave began. At some point, the luck of pure speculation runs out.

Today, banks are sitting on an enormous amount of foreclosed properties, providing an opportunity for investors to buy a property for less than what it’s currently worth yet the foreclosure rates are slowing. Real estate values appear to have bottomed out, at least that’s the word from the highly regarded Case-Shiller report, and oh, mortgage interest rates are still at or near historic lows.

Low rates mean more consumers can qualify for financing, widening the potential pool of buyers for your property. In today’s environment, this is no speculation; it’s investing.  And whether it’s for long term hold or short term flip, as you read this there are opportunities in any given direction. So what’s best for you?

Long Term Hold

The historic combination of low real estate prices now on the rise and interest rates never before seen means it’s easier to cash flow on a rental property. Buy a home, finance it cheap and let your tenants pay your mortgage for you while you put in a little extra each month in your bank account.

For example, take the median sales price for a single family home in the greater Chicago area. In early 2012, the median sales price was $135,000. Recent figures show the median sales price for that same period is now $158,000, for an increase of just under 13 percent.

If interest rates for rental properties are around 3.75 percent on a 30 year fixed rate loan, the principal and interest payment is about $700 for a $150,000 mortgage. Throw in monthly property taxes and homeowner’s insurance and the total monthly payment adds up to around $970.

Now, what’s the average rent for a two bedroom apartment? As of March 2013, it’s $1,975. That’s not a misprint, and it’s not speculation, that’s investing.

Property Flipping

The concept of property flipping became featured in the last decade and popularized by a variety of cable television shows, seminars and books. 10 years ago, properties were bought and quickly sold in order to take advantage of rapid price appreciation.

Today, flipping is more studied, where undervalued or distressed real estate is bought at rock bottom prices, renovated and sold within a relatively short time frame, say four months or less. Again, this is an opportunity for significant investment returns but requires a bit more homework.

First, the prospective investment must be identified. Foreclosures can be found by visiting the county recorder’s office, homeowners who are fearful of losing their property begin receiving certified letters in the mail from their mortgage company warning them of a potential default. All public record.

Once a property is discovered, its current condition must be expertly evaluated to determine the cost of refurbishment as well as compare the home to recent sales in the area do establish a potential selling price.

Finally, the property must be marketed, a buyer found, then profits distributed. Finding profitable flips takes a bit more experience compared to buying and holding a single family home for long term appreciation.

Turning a successful flip means having a full time real estate agent, a licensed contractor, an attorney and a lender at the ready. And unless you’re someone who is good at all these four professions, you need additional help before you start depositing your sale proceeds.

Financing

In terms of financing, unless you have sufficient cash in the bank to cover your acquisitions along with any necessary repairs or upgrades that need to be made, you’ll need a loan. Both holds and flips have different requirements for financing which means you should have more than one source of funds.

Read the Fine PrintLong term holds mean you need the lowest fixed rate available anywhere. That means you need to find a solid, dependable mortgage company who will provide financing using today’s low mortgage rates. For long term holds, the lower the rate, the better.

Flips on the other hand, value speed and flexibility more than a low rate. Flips aren’t held very long, hence low, long term rates aren’t a priority; acquiring the property is. Properties that need repair won’t be eligible for conventional financing. That means your first consideration is borrowing funds to both acquire the prospective property as well as prepare the home for conventional financing. Your buyers will typically need a mortgage, and unless you get the property in shape, you’ll have to depend upon a cash buyer or another investor.

Such funds for flips come from private money investors, sometimes referred to as “hard money” loans. Hard money lenders evaluate not only a property’s current condition but what the property will look like and be worth once the renovations are complete. Hard money lenders help you acquire as well as prepare a property for sale and can make real estate loans that traditional lenders won’t touch. Successful real estate investors have hard money lender contacts in addition to relationships established at local banks and mortgage companies.

How much can you make investing in real estate? That depends upon your individual requirements, but if your real estate investment goals mean buying a single family home and moving on, all you really need is a real estate agent and a friendly bank. But if you want investment returns, returns approaching 10, 20 or even 30 percent on an annualized basis, real estate investing provides that path.

On the Other Hand...Turnkey Investing

Investing in real estate is not for everyone, regardless of what cable TV says. Real estate is indeed real property, it’s fixed, and if you make a mistake you can’t exactly bring a copy of your receipt to the seller and ask for your money back. Mistakes can be costly with real estate because you incur selling costs on both ends of the transaction and often times the margins are either too thin to make a real profit or upside down altogether.

Real estate investing means a full time effort. Or more. Finding a potential property doesn’t mean browsing online listings. It’s not a method of attending a real estate investment club or getting on a real estate agent’s mailing list along with a thousand or so others. If you want the returns that professional real estate investors get, you need to employ the services of professionals who work in the industry every single day.

Real estate agents, financiers, inspectors, appraisers, attorneys…all need to be part of your team and if you don’t have the professional services at your disposal then you’ll be spending more time making up for mistakes instead of watching your bank account grow.

It’s also sort of scary, real estate investing means thousands of your hard earned dollars are at play.

“We understand how tentative a first time investor can be. I know for a fact because I was a first time investor hundreds of properties ago,” says Jerry Cohen of EquityBuild. “You can read all the books you want and take as many seminars as you can manage, but when it comes down to putting your hard earned money at risk, you’ll take pause, believe me.”

His partner, Shaun Cohen adds, “Not everyone fits the profile of a real estate investor at first glance, but if the investor finds a way to take incremental steps while working with a company that provides all the professional services needed for a successful real estate investment, not only is the fear removed but it’s actually quite fun.”

Sold - Easy Real Estate InvestingA “turnkey” real estate operation performs all the necessary professional services for real estate investing which includes all phases of the transaction from finding the property, the rehabilitation and ultimate sale of the home.  Potential investors have the choice of financing all or part of a project, limiting the exposure and offering an incremental introduction to real estate investing.

“We do all the work and have a track record to prove our success, all our clients ever need to do is provide the amount of funds they want to invest, and we take it from there. It’s a model we’ve developed over the years, and it works,” said Shaun.

Real estate investors have their choice to form their own group of professionals or they can select a turnkey provider but in either case, going it alone can frustrate an investor and ultimately cause the individual to pull out of the real estate industry altogether.

Yet relying on the experience of others who have proven themselves to be experts in the industry is perhaps the most reliable, cost effective means to realize double-digit returns year after year. There’s no reason to reinvent the wheel or go it alone any longer.

by, Sydny Cohen: EquityBuild News Editor

SWOT Analysis (image top left): SWOT analysis (alternatively SWOT Matrix) is a structured planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture.