Real Estate Investing

Realtors these days are a little less busy than in the past. Although the spring boost will hit the housing market soon, many realtors currently have far more free time than they would like. So how is a real estate agent to survive? The Arizona Republic recently offered some ideas.

Diversify your skills. Realtors probably already have a diverse set of skills that they aren’t even acknowledging. Identify and develop some of those, and see if they might be applicable in another field or another niche of the real estate industry.

Become a professional negotiator. Help homeowners negotiate with lenders to avoid foreclosure and stay in their homes. Not only can this work be lucrative and personally rewarding, but it can also lead to referrals and more clients.

Go commercial. The commercial real estate market is staying pretty strong in most areas of the United States, so realtors should try their hand in that arena. They may find it suits them even better than the residential market.

Market mortgages. There is certainly a growing demand for reverse mortgages, as baby boomers search for income streams other than social security. Marketing these can be lucrative enough to help realtors through the slow real estate times.

So what about the mantra we hear from so many different real estate investing gurus? “To learn how to invest in real estate today with no money down, attend my seminar … or read this book … or listen to this tape … or watch this video …” Is zero-down investing really possible, or is it merely an appealing myth that the gurus cash in on?

For the purposes of this article, we are going to assume your investment plan is long-term renting, not short-term flipping. The short answer is yes, zero-down investing is possible. Even if you have to resort to seller financing, you could eventually own property that you could rent (but probably not until the whole thing is paid off). Banks may be a little tighter these days and you would certainly need to have pristine credit, but there was a time not so long ago when lenders happily handed over full financing. We’re reaping the rewards now with the foreclosure circus, but I digress.

The more complicated answer — and the one most people don’t want to hear — is that zero-down investing is not a practical way to invest. Presumably, with 100% financing, you don’t have a lot of cash flow. You may view real estate as a way to generate cash flow. However, unless you plan on being a slumlord, you’re going to have to fix things. The HVAC unit, roof repairs, broken windows or doors, rotting floors … the list of things that could need replacing is virtually endless. Combine that with monthly obligations like insurance, the mortgage, homeowner’s association dues and the property manager’s paycheck, if applicable, and you’ve got yourself a very small profit margin (if any at all).

Is that worth the headache and responsibility of being a landlord? You are on call virtually around the clock, because emergencies can’t wait. Furthermore, with 100% financing, your interest and monthly mortgage payments are going to be sky-high. Your rental income might be enough to cover the monthly payment, but the loan will be stretched out over so many years that you will simply be treading water. It’s certainly not a profit vehicle for you. In fact, it will probably turn into a money pit and you will rue the day you bought it. The Dough Roller blog has a great post about real-world experiences with money-sucking investment properties.

Investment real estate that is paid for in full, or at least purchased with a significant down payment of around 50% or more, is so much more profitable and practical. Don’t sour yourself on the idea of investing in real estate by ruining your first experience with an impractical strategy. This can be a great money-maker, but zero-down investing is not the way to accomplish that goal. If your cash flow isn’t great, you’re better off investing in mutual funds until your cash flow improves. In most businesses, cash is king, but especially in the unpredictable real estate investment market.

Sometimes the best place to look for an REO (real estate owned) property is straight from the source. The REO divisions of banks are useful resources in this quest. They are generally listed on a web site, and for thousands less than market value. These properties accumulate when homeowners default on the loan and go into foreclosure, something that has been happening in epidemic proportions lately. So, one man’s mistakes are another man’s treasure. It takes some digging, but these finds pay off big time, and lenders’ web sites can be the greatest gold mine of all.

The biggest lenders’ sites are:

-Countrywide Home Loans

-Coldwell Banker

-Bank of America

-HSBC

-Wells Fargo

-Regions Financial Corporation

-CitiMortgage

-Chase

-BB&T

As pointed out on the O.C. Register’s “Mortgage Insider” blog, the process of buying an REO property is not all roses and cheesecake. The prices that different lenders charge for similar properties in the same neighborhood can vary greatly. There is also a disproportionate amount of not-so-nice homes in not-so-great neighborhoods, but nice REOs are certainly out there to be found — especially now! The not-so-nice homes could be viewed as a great rental property investment. As the O.C. Register blog commenters pointed out, lenders currently have such a glut of foreclosures that the closing process on REOs can be disorganized, confusing and complicated. But for those with the patience and persistence to persevere, these can still offer a great value that is light on your wallet.