Real Estate Buy and Sell

The buy and hold investment strategy is the most common strategy in real estate because of how easy it is to understand. It simply involves buying a property and renting it in order to gain on the equity and possibly the positive cash flow. That’s it! So why doesn’t everyone do this if the strategy is so simple? Like all the different types of investment strategies there are calculated risks and when one doesn’t look at these risks it can lead to losses or increased debt.

This is especially true after the Canadian government recently announced new mortgage rules which will take effect April 19, 2010. These new rules involve borrowers to be able to handle a five-year, fixed-rate mortgage, even though they may get a shorter term and lower rates. As well, a minimum down payment of 20 percent will be required for government-backed insurance on properties not lived in by their owners which is up from the previous 5 percent. This makes it much harder for those who wish to go into real estate investment. Therefore, one should start by crunching the numbers before starting to buy properties to see if they are able to meet these new requirements and still make a profit.

The buy and hold strategy’s main focus is to purchase a property and hold it in order for the equity to grow so that when the investor sells they have a large return on their investment. Equity can be calculated and predicted to a certain extent which investors can combine with the knowledge of the market and calculate the right time to buy and sell thus maximizing their profits. Many people attempt to do this especially when they see if the market is down and know it will rise soon after and jump at the opportunity for easy money. However, this is just one part of the calculation and many who focus only on the equity often end up in failure.

The secondary focus with this strategy is to make a positive cash flow where the income is greater than the expenses of running the property. This would provide extra income to the investors business or to them personally. Experienced investors enjoy building portfolios of properties where over time all the income values exceed the expenses for their properties and thus creating a large income for them to live on and invest in other projects.

So, what should be looked at in order to decrease the risk of failure? Expenses would be a good area to start. For example, it is not uncommon to see a property be vacant for at least a couple of months. Vacancy rate is important to consider since it takes into account the possibility of the property being without renters. This can lead to the investor taking on extra mortgage payments. What if there is a problem with the furnace and you need to replace it? Do you have enough money set aside to fix such problems? Expenses can easily determine quickly if you are able to afford keeping the property by seeing if there is a positive cash flow each month.

Besides just looking at the income and expenses what are the other key components to look at for this strategy? Buying the property at a low price especially when it is below market value is another component. The lower you are able to get the less you have to pay for your mortgage payments which contribute to less expenses per month. As well, this generates more equity which becomes more profit in the end when the investor finally decides to sell the property.

Appreciation and inflation rates should be something to look into as well. If both these rates are known then one can predict what will happen over the term of their mortgage. For example, if the property starts creating a debt after the third year then an investor could aim to sell within that time in order to gain from the equity before slowly going into debt. The same holds true for the opposite. If over the mortgage term the increase in income is growing then the investor could think of renegotiating their mortgage and holding on to the property for a longer period to increase on their return on investment and make a positive cash flow.

There will always be a risk when it comes to real estate investment, however just spending the time to do the calculations can help you understand the market and limit the risk. If one can see the cash flow of a property prior to owning the property then it is much easier to predict whether it would be a good investment or one that would give you many headaches and increased debt.

Properly timing the sale of your home could mean tens of thousands of extra dollars in your pockets. Real estate, like many industries has cyclical periods that could have serious effects on buyers and sellers. As strange as it may sound, you can approach the real estate market like a farmer would consider his activities.

We can very easily identify the 4 seasons of spring, summer fall and winter in real estate. Lets use an investment property as an example and assuming that you want to be in the game for a long period of time.

A farmer would typically plant in the spring and harvest in the fall. Plan in the winter and tend in the summer. So how does this relate to real estate?

Real estate cycles don’t necessarily reflect the temperature outside or a particular calendar month. It illustrates the fact that prices don’t go up in a linear motion and there are months or years when prices increase more or less.

Just like a farmer would read books and educate himself about different products in the winter a real estate investor’s job is to take courses, learn new strategies, etc. when prices aren’t increasing at all.

When real estate prices start to rise, investors need to start purchasing or planting their seeds as a farmer would do the same.

Summer is the best cycle to be in either as a farmer or as an investor. When prices are still continuing to grow we need to look after our real estate portfolios. Sometimes we have to complete smaller renovations at our properties, find new tenants etc. At the end of the day our whole purpose is to manage our investments and make sure that our investment will be in great shape for harvest when it’s time to sell.

Fall, this is the most exciting time out of all 4 seasons. Lets rake in the profits! If you are a wine lover, you know that the sweetest wine comes from a late harvest. However the people producing the wine are sometimes risking all year’s work in case of an early frost. To determine the best time to sell, you really need to be on top of your game. I always recommend selling before everyone else does. Never wait to get out at the very top, leave something on the table for someone else to be greedy. To determine when it is the right time to sell, you need to be able to do your own due diligence about what’s driving the real estate industry.

Far too often, we listen to daily news and we only base our decisions on the short term outlook. Not that long ago, I read a newspaper article about our former Premier, Ralph Klein. In that article I was surprised to find out that he never reads the newspaper because he doesn’t care much about the daily news. He rather do his own research from an independent source who has no interest in providing bios information.

What if you aren’t looking at real estate as an investment? Rather you just want to decide what is the best time to sell your principal residence?

July, August, December and early January are usually the best times to buy. The reasons have to do with prices softening during these months and less buyers to compete with as most have taken a break from the market to go on vacation or they have committed themselves to some family time with holidays or recently succeeded in buying their home in the spring or fall.

Another reason these months can be good for buying pertains to the cycle of price increases–often in September (the fall market) and early spring (the spring market) the prices go up in our appreciating market. Just waiting an extra few weeks at certain times such as mid-August or early January can cost one 5-10% on their home purchase. Paying tens of thousand of dollars extra is an insane amount of money for waiting a few weeks longer for what one was planning on doing anyway when it was more convenient just because you waited an extra month.

Usually the increase in the fall is less than the one in the spring but several percent on a $500,000 house is very significant. If one is going to buy… it’s non-sense to do it several weeks late and spending $10,000s of extra for the same property. In the fall the buyers come back to the market again as they get into their routines–kids going to school, working, vacation planning and a whole new set of buyers that are just starting with the hopes of being in a new home by the end of the year.

For sellers, the worst time of the year to sell are the months listed above that are the best time for buyers to purchase. Sellers listing in July/August/late Nov/Dec/Jan/early February are not going to get the highest dollar for their house. List at the time the demand is highest and when inventory takes a dip.

It pays off to think ahead a little bit and plan your moves in advance. Remember, just like a farmer knows when to spend time to educate himself, plant the seed and bring in the harvest. If you do the same, chances are good that you will maximize your profit.

Today’s market benefits two groups of buyers: first-time buyers, and buyers moving up. It is an excellent market to buy, especially if you don’t have a current home to sell. For this reason, we’re seeing a lot of first-time home buyers opting to buy instead of rent. Since these first-time buyers are not having to make contingencies to sell a home before buying another, they are able to use that negotiating power elsewhere (price, for example).

Even if you have a home to sell, it’s a very good time to move up. It may take a little while to sell your current home, and you won’t get for it what you would have gotten even a year ago. But, remember that you’ll also be paying considerably less for the home you’ll buy if you’re moving up. For example, let’s say your current home is worth $250,000 on today’s market. If you move up and find a larger or nicer home for, say $350,000, you’ll be saving a lot of money in the long run by buying now. Depending on area, you’re looking at a roughly 5-8% drop in prices for the past year. That percentage difference for savings is much higher for the more expensive house – in other words, that 5-8% loss in selling your house will be more than made up in buying a more expensive house now rather than later.

Many buyers are using this opportunity to move up, since prices in the next couple of months seem to be about as low as they’re going to get. We’ve seen a lot of past clients coming back to us to move up, as well as buyers who have been sitting the fence waiting for prices to get as low as possible. This is a great time to buy with Charleston’s strong buyers’ market.

In short, today’s market is ideal for first-time home buyers and buyers looking to move up. On the other hand, it’s not beneficial for buyers looking to downsize or liquidate assets. So, if you’re considering downsizing, it would be better for you to wait until the market picks back up. Less than a year from now prices should be well on their way back up, and you should get considerably more money for your home than if you sold now.

The world is getting more expensive to live in, isn’t it? The cost of living has no where to go but up, up and up. There seems to be no end. So, what can you do about it? Ever thought of earning through property marketing or real estate? If you haven’t, then try considering it. It’s a great way to earn money. A lot of people have made a living out of it.

How It Works

There are a lot of ways that you can earn money through real estate. You can work as an agent and sell a house or two every now and again. Or you could buy a property, improve it and sell it for double or triple the amount you spent. It may seem like a risky business. But, as long as you have the skill and you have an in depth knowledge about the business – you have nothing to fear.

Getting Started

Keep in mind that ‘Little Knowledge is Dangerous’. That is why it is highly recommended that you know as much as you can about this type of business before you plunge head first. Never assume anything. If you don’t know something – do your research! Ask the experts. Study all the materials that you can get your hands on. Spend time on the web looking for sites that offer information regarding the world of real estate. You can also further your knowledge by working as a junior agent in a real estate firm. That way you can learn the ins and outs of how to sell a house or a property.

Investing Can Be Steep

The main thing that scares people away about this type of business is the fact that they have to invest a lot of money in order to get started. Some people take out loans while others use their life savings. Some start with their own house. They renovate it, sell it, move to another house and repeat the cycle. The only problem with that last strategy is that life can get nomadic. And not a lot of people want a nomadic lifestyle.

Sell, Sell, Sell

Once you know all you need to know about the world of real estate and you have the financial support to meet your drive. Then, it’s time to get started. Start small, think big. Buy a property that you know will attract buyers. Improve on it, sell it and enjoy your revenue. If you get lost along the way just think what Jeff (Jeff Lewis from “Flipping Out”) would do.