Where do you start when it comes to investing? One of the first and most important steps is to determine your financing. How much can you afford to spend on your first property? In efforts to ensure the transaction is done responsibly, you should have a minimum of $30,000 down along with authentic sources of financing that ensure your closing capability for any properties put under contract. 

It is a common misconception that attending seminars or some sort of real estate education course is necessary in order to get a firm grasp on real estate investing. While there are some excellent real estate education providers available, it’s advisable for you to consider whether the money should be used as a down payment for your first investment property. The knowledge gained through personally conducting this transaction could prove more valuable than education received at seminars. Often, the lessons in these seminars revolve around hypothetical investment techniques that, while they may sound fabulous during presentation, they are not often proven in reality. 

A distressed property is a home that is typically sold under fair market value. Most distressed properties are in need of some type of repair, but could also need to be sold fast due to the seller facing a situation such as a foreclosure or a divorce, and they are willing to accept a discount.

Traditional financing is typically a bad fit for distressed sales due to the speed at which the seller is interested in selling and the condition of the property.

Wholesale properties are the type of property purchased by investors often to rehab and add value. Wholesale properties are sold by real estate wholesalers that do not sell to retail homeowners. New Western Acquisitions operates specifically in a wholesale market and does not provide properties to retail buyers.

After acquiring an investment home from the wholesaler, the investor then rehabs the property with the intention to resell it to a homeowner in the retail market or to rent it out. Buying a property at wholesale can be thought of as the risk/reward middle ground between the purchase of a property directly on the MLS and buying a property at a foreclosure auction. In most instances, buying a wholesale property is a higher risk than purchasing from the retail MLS since there is no inspection period. However, the property takes much less effort to sell and earns a much better price through a more efficient process. 

At the other end of the spectrum is the foreclosure auction. Which, although these may represent the largest returns, auctions are usually beneficial for only heavily experienced investors. Unlike wholesale properties, bidders do not have access to the interior of the property before the auction and must pay cash within minutes of the sale.

No. Banks can often take as long as 30 days or more to close, and transactions for wholesale properties require a closing time.

Also, traditional banks don’t lend on distressed properties and usually require contingencies that the property is repaired before they will provide a loan. Most wholesale investment properties are distressed or in disrepair and will need rehab.

Although this idea might sound appealing at first, cutting out the middleman limits your available sources to find discount properties. FoxCor is a great source for finding discount properties because we have developed proprietary technology and tools that are unavailable to the general public. Our experienced agents are constantly in-tune with the real estate market and can provide investors with a significant degree of knowledge that can only be obtained through experiencing a frantic volume of investment real estate transactions.

The buy/fix/sell strategy is when you buy a property on the wholesale market, perform repairs on it to improve the value, and then quickly resell the property on the retail market.

Generally, the average time to buy/fix/sell a property takes about 90 days to resell from the time of purchase. However, if there is a project that is going to yield a higher return, then it can take anywhere from six months to a year to complete the process and still be considered a good potential investment. As any good investor knows, when repairing and reselling a property, it is important to allow extra time for delays in case the process goes on a little longer.

Every investor has a different opinion regarding the ideal length of time to hold a rental property. There are several factors to consider when determining your strategy: your ability to buy properties at a steep discount, your future capital needs, your future expectations of the real estate market, and the cost and terms of your financing. 

Many of the risks involved in a buy/fix/rent strategy are the same as the risks associated with repairs and contractors. These could include, improper estimates of repairs, the property’s inability to be resold, neighborhood changes, instances where the contractor runs off with your money or potentially taking a loss on the property. 

With the buy/fix/rent strategy, you also run the risk of liability such as tenants who may be injured on your property because it’s not safe. For example, experienced landlords often avoid properties with swimming pools for liability purposes. Local safety requirements for landlords may vary based on location, but landlords should be aware of safety precautions such as smoke detectors, door-lock security, staircase safety, etc.

If any safety requirements are violated, landlords are put at a huge risk and could be held liable in the instance of an injury. When renting out a property, landlords must also face the risk of tenants damaging the property, or their failure to pay the rent and leaving the landlord with an asset which has diminished in value. If there’s a violation of the leasing agreement and the tenants must be evicted, litigation may be needed, so it’s highly recommended to thoroughly screen tenants before they occupy a rental property. Landlords should be willing to accept that their rental property represents a management proposition that can be time-consuming and stressful at times. However, when done correctly, it could provide a substantially higher return than other investments.

When purchasing a buy/fix/rent investors should typically avoid the low end and the high end of the price spectrum. Although properties that are too low in value may look to return a high margin of cash flow on financial review, there are some risks that come along with this such as elevated maintenance costs and properties in high crime areas can be subject to a higher degree of vandalism. Theft of copper plumbing pipes are quite expensive to replace and common in some areas every time a tenant leaves or is evicted and the property is left vacant. On the other hand, in most markets there is generally a lower demand for rentals in higher valued properties. The rents on higher valued properties are usually not proportionate to the ongoing expenses related to the property, which could result in negative cash flow. Negative cash flow can result in a non-performing asset that could produce a negative return on investment if it outpaces appreciation. A good range for buy/fix/rent property is commonly thought of to be between $80,000 and $250,000 after repair value.

Knowing whether a product is worth purchasing is a critical step in the investment process, and is often the most overthought. With all of the right tools and resources, you should be able to make this decision within ten minutes. 

Before you make this decision, experts advise having access to MLS comps to see what other similar surrounding properties have sold for recently. These comps will help you determine the after repair value of your property, and what repairs will be required to achieve that value. It’s also advised to determine the length of time the other properties had remained on the market before they were sold, this way you can consider your approximate holding time and its related cost. The next step is to calculate the cost of required repairs, which is why it’s necessary to possess an excellent personal knowledge of home repair or have a reliable general contractor help determine this cost for you. 

After obtaining these important figures, you’ll need access to a tool that may calculate your expected return on investment. The majority of professional real estate investors develop their own Excel spreadsheets to determine the return on investment and quickly underwrite properties. This way, they can ensure they aren’t missing any associated costs while quickly and efficiently evaluating the property. If the projected return on investment meets their desired requirements, they can act fast before their competition gets the chance to purchase the property.