Let me start out this post by dispelling some common misconceptions about real estate investing, especially in the Richmond market. There is no such thing as “No Money Down” or “No Risk Investing”. These are hook lines created by nationwide telemarketers and to sell people books, cd’s and educational programs about real estate investing. Many of those programs DO include legitimate ideas and concepts about finding deals, financing, rehabbing, selling, etc. But, the bottom line is that you can not “invest” in something unless you have something of value to put in.
If you are in a position financially to invest in real estate, especially in Richmond, Va, then now is probably one of the most unique and opportunistic times to get into this stuff. Here is a great article about this. But to summarize, Rates are at unprecedented levels and look to remain that way for some time. Property prices have fallen off a cliff, and rents are going up. This combination truly makes for a perfect storm. But, you have to have money down and be financially solid enough to convince today’s timid banks and lenders to make you a loan. If you don’t have any money, then check out my post about How to Actually get into Real Estate with No Money Down!
For the rest, let’s explore the 3 key strategies in real estate investing: Buy and Hold, Re-positioning and Resale and Value Added Participation.
Buy and Hold – This is probably the most common strategy around. Made famous in the stock market by the likes of Warren Buffett and other “long term investors”. The idea here is simple. Look for opportunities where an asset, in this case real estate, is under valued. Buy it and hold it, and then sell it later for a profit. Finding opportunities like this in today’s real estate market is pretty easy especially in Richmond. Look for areas which are typically always in demand and hunt around for properties that come on the market at a discount to what other properties are selling for. Areas in Richmond that I like are: the Fan District, Museum District, Jackson Ward, Carytown and other areas near VCU. These all represent strong rental markets, where the demand for tenants is high and rents are rising. Finding a great buy in these niche areas is hard, but they come around more often than you think. Get a good Real Estate Agent (I mean someone who knows the market your working in) and keep your eyes open. Other solid areas in the Richmond market are the Near West End, Henrico County, Short Pump, Glen Allen and other strong neighborhoods that historically perform well, but are currently suffering from the overall housing recession.
Re-positioning and Resale – Or more commonly known as “Flipping”. Just for the record, I hate that term. Re-positioning is NOT Flipping. But that name caught on because it made the whole process seem so simple and easy. This was The Big Thing when the market was on fire, of course. And lots of people made a ton of money ( and lost money) with this strategy. Most new investors I come across tend to gravitate toward this strategy because it seems simple and offers a quick in and out of a deal. The basic concept is to find a property that is undervalued in the first place, add value to it (this is the key phrase here) and then sell it quickly for a profit. The common scenario here is finding a property that is run down or needs rehabbing. The investor buys the property, pays for the rehab costs and then sells the property to an end-user, or homeowner in the case of residential and makes a profit. The problem is that this is a dangerous strategy for inexperienced investors. Unless everything goes perfect, you can get caught holding the bag! These types of deals are out there, but you have to understand the market very intimately to know which ones will actually work and which ones won’t. It’s easy to see a nice property and think, sure that’s under-priced, I can flip this one! The reality is, unless you really know the market and understand what is undervalued and what is not, you can get into a lot of trouble here.
Value Added Participation – This is the least talked about area of real estate investing, and the least glamorous. But it is the one I personally think is the best place to start if you are really interested in real estate investing in the long run. This type of investing also doesn’t require money, necessarily. It requires time, labor or expertise. You find this type of investing in all aspects of real estate. There are development consultants that help investors and developers bring large projects to market. These consultants earn a fee or a stake in the project. There are also contractors who do the rehabbing for an investor of a project. They get paid for their input on the deal. Most of the time, its a flat fee or percentage, but I have seen many scenarios where contractors partner up with money investors and make great teams. Also, their are agents and brokers, who find the deals for investors. They typically earn a commission, but again, a partnership arrangement works well to. So the idea is really simple. To create value in any business, you have to have bring something to the table. If you don’t have money, then you bring expertise. Whatever it is that you like most about real estate, learn as much as you can, and master that part of the business. If you like fixing up properties, then learn the contracting side. Become an expert at it, maybe start a business contracting for other people and use that as a way to learn more about real estate. If you like finding deals, then look into getting a real estate license, and becoming an agent. What better way to learn how to find deals for yourself one day, than to find them for other people and earn a commission. I know what your saying, “this doesn’t really sound like investing”, but it actually is. Remember investing is “putting something in, with an expectation of getting something out.” If you truly want to get into this business, what better way than to put in the time and energy into mastering a particular area. Once you do have the money to start investing, you will be a much better investor in the long run.
If you have more questions or interest in these topics, as always, feel free to contact Carter Snipes – Carter@SnipesProperties.com