Don’t Buy and Hold in a Hot Real Estate Market
Many new real estate investors believe the way to achieve long-term wealth is to purchase and rent out a property. It all makes sense, right? You rent out your home and your tenants pay the majority of the mortgage while you kick back and relax. Every now and then you may need to fix something, but for the most part you’re sitting pretty…right? WRONG.
We honestly wish it were that simple. However, in hot real estate markets, housing prices can far exceed rent payments. Have you heard of the 1% rule? It states you should charge 1% of the property purchase price each month for rent. In many hot markets, most landlords are forced to charge only .66% to remain competitive (and that’s on the high end!). As you can see, this presents a losing situation for any landlord. You’ll find yourself losing money each month rather than gleaning the easy riches you were hoping for.
Fortunately, there is another investment solution. When a market is hot, the best course of action is to invest in fix-and-flip properties.
The first thing you want to do is analyze your investment market. If the market is stable or cooling off, you can certainly make some money in buy-and-hold properties. However, if you notice that your current market is taking off like crazy and housing prices are on their way up, find yourself a rehab property quickly! You can research hot real estate markets on Realtor.com and Zillow.com.
If you find yourself in a fix-and-flip hot spot, you definitely want to strike while the iron’s hot. While buy-and-hold properties are more passive than fix-and-flip investments, you’ll achieve a much higher and faster return on your investment. If you’d rather not dive right into the hands-on complexities of a rehab, you can always start with a simple wholesale deal. Wholesaling is an easier, less-risky route. All you have to do is find a property and get it under contract. Then, you sell it to a buyer who will fix it up and sell it for a profit. Though you won’t make as much money with a wholesale deal, you receive returns faster and won’t have to invest as much of your time and energy as you would in a retail fix-and-flip deal.
If you decide you want the BIG BUCKS, fixing and flipping is the way to go. However, properties in hot real estate markets need a ton of work to make a profit. Plus, they will definitely have some competition. To find the discounted properties with less competition, you’ll want to look in more non-conventional locations. First off, STAY AWAY FROM THE MLS. Instead, look for properties on auction sites or foreclosure listings. You can also put in some inquiries regarding probate or divorce situations, where buyers are motivated to sell their houses as quickly as possible.
Once you find a property, a successful deal will depend very much on the following:
- Find a Reputable Hard Money Lender – Do Hard Money sets itself apart from the competition by being more than just a lender. In addition to providing funding for deals, we also give our borrowers access to a wide variety of investment tools and resources so they can grow into expert investors and avoid common mistakes. We are also the only lender out there to provide 100% financing. If your deal is good enough, we will cover 100% of the property purchase price and rehab costs. Many deals qualify for $0 cash-to-close! Whoever you choose, you need to make sure they only fund profitable deals and have an excellent support team to guide you through your investments.
- Creating and Sticking with a Tight Budget – So many new investors find themselves quickly overwhelmed by the costs of a loan. Therefore, you need to go over every single cost and potential cost with your hard money lender and create a conservative budget so you know exactly what to expect. This is also essential so you don’t overspend and eat into your profits.
- Buying at the Right Price – Make sure you invest in property evaluations and comps so you don’t pay too much for your property. Do your homework on the home and the area thoroughly and negotiate with firmness. If you pay too much for a property, you already are behind in your profits. Fortunately, our account advisors can help you pinpoint a good purchase price. Our top account advisor, Janitsa, helped a client named Ed save $40,000 on the property purchase price by educating him on some negotiating points. Check out this video below for the full story:
It’s time to invest in your future and open the door to financial freedom! Fix and flip investments have never been more lucrative and Do Hard Money is here to help you achieve success.
You can start right away! Just click on this link to schedule your appointment with our investment associates. They can discuss your financial goals, walk you through the details of a deal and answer any questions you have. You can get in touch with us sooner by calling 801.948.9774 directly.
You can also get pre-qualified for your next loan by filling out the yellow ‘Get Prequalified’ box in the upper right corner! Take advantage of these hot real estate markets and start your next profitable deal as soon as possible. Schedule your appointment today!