Brian Kusmer 2013-07-17 00:14:20
4 Basic Ways to Earn a Return on Real Estate Investing Brian Kusmer is a long time Scottsdale resident where he resides with his wife, Amber, and their three children. As a local realtor, he is responsible for the sale of tens of millions of dollars’ worth of real estate each year. His clients vary greatly from investors to homeowners to commercial real estate and land development clients. Over the last 15 years, Brian has received many accolades, honoring his competency as a realtor. As a Re/Max agent, he was honored in the Re/Max Hall of Fame, the highest tribute available. He has also earned the Lifetime Achievement Award. Brian previously collaborated with a worldwide direct sales company, providing motivational speaking and consulting for sales training. Currently, he is a member of the HomeSmart Elite Group and is a recipient of the Diamond Club Award. Brian can be reached at 602-469-5823 or at email@example.com. For more information feel free to visit www.teamkusmer.com. All investments carry a risk. As we have seen in recent history, real estate is no different. Fortunes have been made and lost in real estate just as they have in the stock market. The thing to remember is make sure you are confident in the person bringing you the investment. You need to feel secure in their knowledge of the market as well as their track record with real estate investors. Real estate agents are not licensed in securities and any time you speak to someone about investing make sure that it is right for you and that the person bringing the investment is not breaking securities laws. With that being said, let’s talk about a few basic investment strategies that are very successful in diversifying a portfolio. I will briefly cover four ways to invest in real estate that have worked for my clients and me over the years. 1. One of the most popular ways that people have been investing in recent years is the fix and flip. This is when you purchase a distressed or outdated home and make improvements, which are typically cosmetic, list it back on the market and sell for a profit. The gamble in this investment is in the extent of the remodel. Sometimes people begin work and discover deeper issues below the surface, which can cost more in the long run. Additionally, in today’s market it has become difficult to find deals. 2. Another very popular way to invest is the buy and hold. This is when you become a landlord. This strategy whether commercial or residential utilizes cash flow and depreciation to achieve a desired return. It is typically deployed by “leveraging” the property with other debt. This is a long-term strategy that is used to achieve a specific return over time with refinance and/or disposition of the property coming when the investor’s milestones have occurred. 3. Land acquisition is a little more risky and you need to consult with someone who has worked with raw land in the past. A few ways to make money on land is to change the zoning, improve the land and sell once the improvements are finished. On the other hand you can build the product on the land once it is improved. Usually an investor will start with the first two investments I have described in this article before going into land deals. A big risk, one I don’t recommend, is buying and holding land. Between interest carry, taxes and liability, a lot of your potential profit can be eaten up. With that being said, if you can pay cash, the upside is so great and the hold is only for a short time until the market moves to a location, then it might make sense to buy and hold. The real key to land is to do something with it quickly because it does not generate cash flow. 4. Private lending for real estate buyers. Due to the lending crisis and lack of liquidity in the marketplace – hard money lending has become very lucrative for high-income earners with bad credit. As a lender, you can loan money to others, leading to a higher return on your money than you could get from the bank – typically 3-5 points up front fee and 6-15 percent interest. This is where this investment works best. The key to this investing is that the “Loan To Value” ratios are typically less than 70 percent of today’s appraised value. The fees and interest make for a nice return on a fixed amount of money, but if the need to foreclose comes into play – the return can be even more significant. With the volatility in stocks and bonds and the uncertainty of currencies around the world, real estate has always been a great tangible investment. If done properly, it can create incredible returns. Even if you bought during the boom, the market is climbing again. Besides if your portfolio was diverse enough, you may have made a good call. In today’s world we are looking at a recovering market with lots of great possibilities. Remember, as you know there is always a risk in investing and always weigh the risk to reward when making this decision. One final thought if you have been holding real estate, right now is a great time to review and see what strategy is best for you.
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