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One of the most commonly asked questions in real estate is, "How do I get started?" For those on the outside looking in, real estate can seem a complex, even arcane field with strange rules and even stranger conventions.
To answer this question, most books I've read (including many of my own) offer a series of chapters explaining different aspects of the field. While this is certainly helpful, it's not really the hands on instruction that I suspect most beginners really crave.
Therefore, to help those new to the field get their feet wet, I've designed this first chapter in the form of a narrative. In it we'll follow a couple from the time they decide to purchase their first real estate investment-a house they will live in-through their first trades and more sophisticated property transactions. Of course, the characters described are fictional; they are drawn from many real estate investors I've known over the years. However, the situations they are in and the profits they make are indicative of what real people are doing in the field all the time.
If you are an experienced investor, you might prefer to proceed directly to later chapters. However, at some point you may want to return to this chapter to review the basics of investing in real estate. You may be surprised to find information here that you thought you knew but in fact aren't quite up on. Making Choices to Get the Most from Your Real Estate Investments David and Leslie wanted to get financially ahead in life. David was 31 and Leslie was 28. They hoped to make enough money to retire comfortably within 20 years.
They had already tried buying stocks, but they had lost their investment in the market crashes of the early 2000s. Because of their bad experience, David felt that all investments were inherently risky, and he wanted to simply put their money in the bank. Leslie was more adventuresome and wanted to try other investment venues. In addition, although they lived in a comfortable apartment, they also wanted to move up to a house where they would have more privacy, more space, and more control over their environment.
Thus, they turned their attention to buying a combination shelter/ investment house. The combination of investing their money and improving their living situation seemed to be a lot safer than buying stocks and it seemed to make for a much more stable future.
The spur came when they learned from their accountant that if they owned a home, they could deduct all of their property taxes plus the interest on their mortgage. (None of their apartment rent was deductible, for them.) No other investment offered this type _of tax relief. Thanks to help from the government in the form of deductions, making the house payments would be far easier than they had at first thought.
So they set out to find their first real estate purchase-a house to live and invest in.
David and Leslie were immediately faced with lots of choices for their first real estate investment. They could purchase a single-family house or a condo/co-op. They could buy near to work or far away. They had dozens of neighborhoods to choose from. They wondered:
- Where should we buy for the best investment?
- What kind of a home should it be?
- How big should it be?
- Should it be new or a resale?
- Will all homes be equal as investments?
Trying to find answers, they visited several Realtors®. [A Realtor is a member of the National Association of Realtors (NAR), a trade organization that promotes better business practices.] One of the Realtors they visited, Leo, was an old hand, having been in the business for over 30 years. He took Leslie and David under his wing and explained some of the insights he had gathered. The first thing he said about investing in property was, "You make your profit when you buy, not when you sell."
When Leslie and David looked at each other with puzzled expressions, Leo explained that profit was, basically, the difference between their purchase price and their sales price (less, of course, costs). While they certainly would try to buy a home as inexpensively as possible, if they bought the right property, they could boost the other end of the equation, the selling price, thus increasing their margin of profit.
"What I'm saying is simply that when buying for profit, you should think less about what you would ideally want in a house and much more about what the next buyers will want." ...