6 Simple Steps in Real Estate Investing
If you sincerely desire to enter the real estate field, to purchase property as your investment, there are many ways that you can do it. Perhaps the simplest way of all, and the starting point of many real estate fortunes, is called the “Buy’em, Fix’em Method.” This refers to the strategy of buying properties needing work and fixing them up to increase their value.
There are several steps for you to follow in the buy’em fix’em method.
1. Do Your Real Estate Research
Do your research, in advance. Select an area in which you want to purchase a home and then look at houses in that area until you find one that is under priced relative to the neighborhood because it is rundown and needs a lot of work as your investment. Real estate agents call this type of house a “handyman’s special,” and sometimes they advertise it like that in the paper.
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Often real estate agents will advertise an older house as a home that needs “TLC,” or “Tender Loving Care.” For you, this type of a house is a “sleeper.” This means that it is more valuable than it appears to the average person.
2. Pay the Lowest Down Payment Possible
Once you have found a home that is under priced relative to the neighborhood and has the potential to be fixed up, you purchase the house with the lowest possible cash down payment. Very often, the seller will allow you to buy the house with “no money down,” especially if he is eager to move somewhere else and get out from under the mortgage payments. If this is not possible, you can often get the seller to carry back a second mortgage or trust deed on the property for an amount that represents most of his equity in the house.
3. Move In and Get Busy
You take possession of the house, move in, and begin working evenings and weekends to renovate and refurbish your investment, doing all the work yourself. If necessary, you can take courses in carpentry and home construction, buy your own tools, get advice from other people who have experience in home renovations and gradually learn how to do it yourself.
4. Take Action to Maximize Your Investment
When you have renovated and transformed both the house and yard so that it looks good, you can then do one of three things.
First, you can sell the house for more than you paid. You can then take the profit from the sale of the house and buy another house to refurbish and renovate.
Second, you can rent out the house for a monthly payment that more than covers your mortgage payments and gives you extra cash flow in addition.
Third, you can rent out the renovated house and then go to a bank and refinance the house, often for as much as you paid for it, based on the new earning power of the property when rented out to a tenant. With a tenant paying you a specific amount each month, you can get a higher appraisal of the property’s value. The bank will lend you money, or you can take out a new mortgage on your investment, based on this appraisal.
5. Repeat the Process
You can then repeat this process with another, perhaps larger house, investing your “sweat equity” or human capital, in the renovations until you’ve fixed it up and are ready to either sell, rent or refinance once again.
6. Move Up to Larger Properties
As you increase your investment and assets, your cash flow and your experience, you can repeat this process as you move up to duplexes, triplexes, fourplexes and eventually apartment buildings.
Many of the great real estate fortunes in America started off with an individual purchasing a single house and then going to work to fix it up personally. He then sold the house, bought another and invested his time to renovate that house, and so on. Eventually he built a real estate empire that included dozens and often hundreds or thousands of residential units.
Advantages of Buy’em, Fix’em
There are two main advantages of this buy’em fix’em method. First of all, you can do it while you keep your full-time job, continuing to generate cash flow from your work for repairs and renovations. Second, you can start small, with little or no money, little or no risk, and grow as you gain knowledge and experience.
It is important that you remember that buying and fixing homes is just another way of starting a business. If you start small and bootstrap, or grow out of your own efforts, you are much more likely to be successful, and you have a very short distance to fall if you make a mistake. It is virtually impossible that you will go broke buying and fixing houses.
Thank you for reading this article about your investment and financial freedom in real estate. Please share and comment below!
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