For Beginner Real Estate Investors, Fix and Flip May Not Be the Best Strategy

Contrary to what all the “Real Estate Investor seminar” companies that roll into town from out of state to teach people how they can get rich investing in real estate, I believe fix and flip may not be the best strategy for a beginner real estate investor.

I often go to these real estate investing seminar sales pitches, because I find it entertaining for me to hear these out of state “seminar pitchmen” – self proclaimed market experts, on my local real estate market, mainly because it gives me a better understanding what people who want to become real estate investors are being told and where they are getting these ideas.

Yes much of what they teach is true and valuable information, and yes wholesaling and fix and flip should return your investment in a much shorter time frame than a buy and hold strategy, but Real Estate is local, local conditions (the market may be different on one side of the street than the other), local laws, state laws are different etc…

Historically real estate has been a good long term investment vehicle, apparently many investors feel, judging by investor buying activity in the area this past year. An example of the current market would be a sign a builder had up saying homes starting in the 130’s my being familiar with the community I know of several houses that same builder build 2 and 3 years ago that are listed as bank owned or short sale starting at 71k. As a matter of fact I was in one that closed a couple of months ago that was move in ready that sold for 58k which was over the listing price at the time so that would have been a better time.

But even a 71k slap a little lipstick on it (new carpet, paint the inside, a few scented candles ) for 59 thousand less.

Some are seeing the opportunity they have and taking action. Some are watching what is happening, and some will wake up someday and wonder what the heck happened.

And in all fairness their some see the opportunity and would like to take advantage of the opportunity now but don’t think they have the money to invest.

Until you have a professional team assembled, I think you might want to keep your day job, maybe rollover your money from your IRA into a self-directed IRA to use to invest in real estate with, preferably, investments that don’t require much in repairs, at least until you have a good contractor on your team, (oh you are good with a hammer and plan to do it yourself, didn’t they mention at the real estate investor seminar that, in Arizona, if the repair costs, you know, labor and material cost were over $1000 and you sell or rent out the home within 12 months, that all the work must be completed by licensed contractors in AZ) that you can trust and are confident will not go over budget eating into your potential profits.

This information is for informational purpose and not intended to be investment advise, and should be explained to you in detail. You should always feel free to consult an attorney and/or tax adviser to obtain further information you deem necessary. I want you to be prepared.

Choosing a Reputable Real Estate Appraiser

When you are considering purchasing a property; either for investment or personal use you will need to hire a real estate appraiser. If you are financing the purchase through your credit union or another financial institution will most likely be required to hire a real estate appraiser to perform an appraisal on the property. This is because your Credit Union wants to ensure that your dream home doesn’t become a nightmare and that the purchase they are financing is really worth the amount loaned.

In the best case scenarios the appraisal is returned indicating that the fair market value of the home meets or exceeds the sales price. The problem comes in when the appraisal indicates that the fair market value of the home is less than the sales price. In the latter case, the prospective buyer would either need to drop the deal or renegotiate the sales price with the seller.

As you can see, it is critically important that you find a reputable and competent real estate appraiser. That one appraisal can easily make or break a deal. Even if you are not financing the purchase through a lending institution it is still worth the effort to insure that the property you are investing in is really worth the amount of the purchase. If you should hire a less than competent real estate appraiser you find out the hard way later on that the property you purchased was not really worth the amount that you paid.

Real estate appraisers perform an evaluation of a property and then provide a written evaluation after consulting standardized checklists and comparing the property in question to county land value sources and sales information on nearby similar properties. The estimation of replacement costs is also taken into consideration. Finally, real estate appraisers must be able to verify legal land descriptions. As you can see, there is quite a bit of work involved in performing a competent real estate appraisal and it is important that each step be performed accurately.

You real estate agent will most likely be able to suggest a real estate appraiser but this does not necessarily mean this is the right person for the job; it merely means this is the person they most often work with. To get the job done right you need to find a real estate appraiser who is able to perform a completely objective evaluation.

Look for someone who has been formally trained and who possess a license with the state real estate commission to perform such appraisals. Also look for someone who possesses adequate experience in performing real estate appraisals and who is knowledgeable about the local real estate market. Some states require real estate appraisers to have experience as a real estate agent and to hold a current real estate license; even if your state is not one of these it may be a good idea to look for someone with these qualities anyway because they probably have their finger on the pulse of the local real estate market.

Like real estate agents, appraisers commonly specialize in certain types of real estate. Some specialize in commercial properties while others work only in residential properties. Some appraisers even specialize in only high end or luxury properties. Many consumers find it beneficial to select a real estate appraiser who specializes in the specific type of property they wish to have appraised. Finally, don’t forget to ask for references and/or recommendations from any real estate appraiser you consider.