Beginners guide to real estate investing the complete guide to investing in real estate and earning money easily PDF room

Beginners Guide to Real Estate
Investing: The Complete Guide to
Investing in Real Estate and to Earn
MoneyEasilyRichardForeman

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RichardForeman
Copyright©2015

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TableofContents
Introduction
Chapter1:WhatisRealEstate?
OfficeProperty
RetailProperty
Multi-familyResidentialProperty
Single-familyhomes
Mobilehomes
Smallapartments
Largeapartments
Commercialproperty
Chapter2:MakingMoneywithRealEstate
HowToSettleForAnOption
Cash
Propertytax
Insurance
Neighborhood
Futuredevelopment
Amenities

Schools
Crime
Involvement


RentalIncome
BusinessOperations
Cashflow
Supplementaryincome
Appreciation
Relatedincome
Chapter3:Importantthingstoknow
1.Youmustlearnthelayoftheland
2.Youmustmakesomeon-the-groundresearch
3.Youmustmakeasalescomparison
4.Youmusteducateyourselfwithmarketrents
5.Youmustcheckwiththelocalregistryofdeeds
6.Youmustmakealistofallpossiblecosts
7.Youmustmakeacomparisonofmultipleproperties
8.Youmustobtainlocalstatistics
9.Youmustdeterminethepotentialofeachproperty
10.Youmuststudythedataonpermitsneeded
Chapter4:First-TimeInvestorMistakes
1.Adaptingastockmarketmentality
2.Makingablindinvestment
3.Havingnocashreserves
4.Beingtoofocusedonthecash


5.Nottreatingitlikeabusiness

Chapter5:“Location,Location,Location…”
Chapter6:TheReturnonInvestment
CashFlowisEverything!
1.Cashinflowfromrent
2.Appreciation
3.Improvementsonproperty
4.Inflation
5.Settlingyourmortgage
Chapter7:RealEstateTermstoKnow
MortgageTerminology
100%Mortgage
125%Loan
2-1Buydown
2/28AdjustableRateMortgage
3-2-1-Buydown
3/27AdjustableRateMortgage
48-HourRule
5-1HybridAdjustableRateMortgage
5-6HybridAdjustableRateMortgage
80-10-10Mortgage
EnergyImprovementMortgage


ExoticMortgage
GraduatedPaymentMortgage
GrowthEquityMortgage
HomeEquityConversionMortgage
IncomePropertyMortgage
Interest-OnlyMortgage
AbilitytoRepay

AbsenteeLandlord
AbsenteeOwner
AbsoluteAuction
AbsoluteTitle
AbsorptionRate
AbstractTitle
ABXIndex
AcceleratedAmortization
AccelerationClause
AcquisitionFee
Acquittance
ActiveTranche
AdValoremTax
BalloonLoan
BlanketMortgage


CapitalGain
CapitalLoss
CashEquity
ChainofTitle
ClosedendCredit
Co-TenancyClause
DebtBuyer
DefeasanceClause
EarnestMoney
Chapter8:Thingsyoushouldknowbeforebecome
LandLord
InitialInvestment
ConstantRepairCosts

CollectRent
CopewithProblematicTenants
ManagingYourFinances
AlwaysKeepYourPropertySafe
ProvideSecurePremises
ResolveDisputes
PayTaxes
HireaLawyer
1.EvictingaTenant


2.BeingInvestigatedorSuedforIllegal
Discrimination
3.SuedforInjuryorIllness
4.SuedforMajorPropertyDamage
5.AuditedbytheIRSorTaxAgency
6.DefendingYourReputation
7.ChangingYourBusinessStructure
8.PurchaseorSellYourProperty
HireaPropertyManagementCompany
Chapter9:Importantthingstoknow:CapitalGains
Chapter10:HowHouseFlippingWorks
WheretoBuyProperty?
WhatKindofPropertyDoYouWanttoBuy?
Don'tOver-Renovate
Conclusion

Introduction
With the concept of real estate, the first thing that comes to people’s minds is
sellingandbuyinghouses.
Somethinkthatyouneedtohaveexcellentcommunicationandmarketingskills
inordertosucceedinyourcareerifyou’reintorealestate.Theysaythatit’sall
about the talk, the eye contact, and the perfect sales pitches to say. But then
again,there’smoretorealestatethansellinghousesandgoodsalestalk.
Realestateisveryastablebusinesstobepartof.Oneofthebasicneedsinlifeis
shelter; a habitat that can keep you safe and protected from whatever dangers
andweatheroutthere.Ahouseismorethanastructure.It’saplacetocallhome;
asanctuary.
Onthebusinessofrealestate,itisactuallylandandanythingthatisattachedto
it-withvalue.Itdealswithanythingandeverythingthathastodowithproperty
andlandownership.Andalwaysremember:locationiseverything.Itreallyisall
aboutthelocation.
In terms of money, real estate can be very lucrative. Learn all the terminology
andthebasicfundamentals,andnotonlywillyoubeabletosurvivelongenough
toknowtheropes-you’llthrive.Alongtheway,familiarizeyourselfwithalist
ofcommonrealestatetermsandtheirmeanings.Bythen,youarereadyforthe
actualbusinessofrealestate.




Chapter1:WhatisRealEstate?
Real estate consists of the land and anything that is attached to it. It includes
immovable attachments to it: buildings, fixtures, appurtenances, fences,
roadways, renovations, improvements, plants, structures, sewers and utility
systems.Simplyput,itisthelandandeverythingonit.Itmayalsobecalledreal
property.

There are different types of real estate out there but it can be divided into two
kinds: income generating and non-income generating. The types of real estate
that are income generating are Office property, Retail property, Industrial
propertyandMulti-familyresidentialproperty.Thetypesofrealestatethatare
non-income generating are personal homes, vacation properties and vacant
commercialbuildings.


OfficeProperty

For certain real property, owner’s office properties are termed as a “flagship
investment”. This is the case because office properties are often very high
profile and are often the physically largest properties. Image from Flicker by
Hamson.

The typical location of this type of property is almost always at the core of
downtownareas.Thereturnoninvestmentonofficepropertiescanhighlyvary,
dependingontheoveralleconomicperformancewheresuchpropertyislocated.
A downside of this type of property is that it has very high costs for its
operations.Forinstance,let’ssayyouownanofficeproperty.Ifyouloseyour
tenants,itcandrasticallyaffectthereturn-on-investmentforyourproperty.
Otherwise,intimeswhenyourproperty-aswellasitslocation-isindemand
andyouhavemultipletenants,thesepropertiestendtoperformextremelywell.
This is due to the fact that rental rates skyrocket once demand for a certain
property increases. The demand for such property is directly affected by the
whateachprospectiveorcurrenttenantcompanyrequires-withregardstothe
officespacetheycanprovidetheirworkers.
Usually, office workers are engaged in activities and tasks like accounting,
insurance, management, and administration. It has been observed that as the
number of these “white collar jobs” increase, the demand for office space also

increases.
Another factor that can greatly affect investing in an office property would be
the time it takes for you to build the office space that possible tenants would
wanttorent.Thismayincludebuildingthewallsandroomsneededforspace,to
buildingthecomplexitself.


RetailProperty

Therearemanydifferenttypesofthiskindofproperty,sinceitmayrangefrom
singletenantbuildingstolargeenclosedshoppingmalls.Whenitcomestothis
property, an anchor is pretty much a staple. Image from Flicker by Juris An
anchor is a very large and a well-known retailer that draws people to the
property. An illustration would be Wal-Mart; it is an anchor of a lot of retail
properties. If the property has a food store as its anchor, it is said to be food
anchored.Ontheotherhand,ifthepropertyhasagrocerystoreasananchoritis
saidtobegrocery-anchored.Theseanchorsareimportantsincethesemakethe
propertymoredesirableforinvestingin.Retailpropertiesalsohavecommercial
retail units. These units are called ancillary multi-bay buildings, which have
smallertenantsinthem.
Thedemandforthistypeofpropertycanbeaffectedbyalotofdifferentfactors.
Thefactorsthatmayaffectthedemandforthispropertyare:location,population
density,visibility,relativeincomelevelsandpopulationgrowth.Thispropertyis
saidtoperformwellwhentheeconomyisgrowingandthegrowthinretailsales
ishigh.
In terms of investing for real estate, this type of property is more preferred
comparedtoOfficeproperty.Thisisbecausethereturnoninvestmentforretail
propertyismorestablethanthereturnoninvestingforofficeproperty.Itissaid
to be more stable since retail leases are longer and retailers do not usually
relocateoftenascomparedtoofficetenants.

Thistypeofpropertyisoftenintheportfolioofanaveragerealestateinvestor
since it requires a smaller investment and has lower operating costs than the
officepropertyandretailproperty.Industrialpropertieshavedifferenttypesand
these types depend on what they are used for. Image from Flicker by Judith


Hanlock For instance, this property can be used for warehousing, research and
development, manufacturing, or even for distribution purposes. W when it
comestothistypeofproperty,therelevantfactorswouldbe:itslocationrelative
to major routes, the functionality of the space, and building configuration.
Certainsituationsrequireacoveredyard,althoughsomeinstancesdonot.




MultifamilyResidentialProperty

Thistypeofpropertyhasthemoststablereturn.Why?Becausenomatterhow
bad or how good the economy is, people always need a place to live. When it
comestothistypeofproperty,thelossofatenanthasanegligibleeffectonthe
investor’s return or the bottom line. Almost always, another tenant will just
come along. Image from Flicker by Gerry For real estate to be considered
multifamilyresidentialproperty,ithastobeabuildingwithatleasttwohousing
units - residential dwellings with bedrooms, bathrooms, kitchen, and all other
housing necessities. On the small scale, it can be a two-flat building with a
basementsuiteandupperfloors;onthelargescale,itcanbeanentireapartment
building.
Purchasingasingle-familyunitisgreatbutthereturnsyougetwilllikelynotbe
enough to sustain you. However, you can choose to invest in multifamily

properties.Thesepropertiescontaintwo,three,orfourunits.Theadvantageof
choosing this option is that you can secure one loan and you can comfortably
liveoffthereturnswithouttheneedforanothersourceofincome.



Single-familyhomes

Manyinvestorsfinditeasiertoinvestinsingle-familyhomes.Thisisbecausethe
processisrelativelysimpleandyouonlyhavetodealwithonetenantatatime.
Thus,itiseasiertomanagetheproperty.Itisalsoeasiertocomeupwiththe
moneytopurchaseasingle-familyunit.ImagefromFlickerbyDennis


Mobilehomes

Purchasingandrentingoutmobilehomesmaybethewaytogoifyouhavesome
little cash as they cost relatively less than other housing units do. You may
decidetoputamobilehomeonitsownlandoruseamobilepark.Imagefrom
FlickerBerth


Smallapartments

Investing in a small apartment building can lead to significant cash flow. The
buildingcanhavefivetofiftyunits.Youcanalsousealive-inmanagertomake
yourworkeasier.Themanagercanberesponsibleforthingslikedealingwith
tenantsandperformingmaintenanceandrepairs.Youcanpaythemanagerby
allowinghimorhertoliveinaunitforfreeorbygreatlyreducingtheamountof
rentyourmanagerpays.ImagefromFlickerbyJenny

Largeapartments

Anotheroptionyoucaninvestinislargeapartments.Theseareapartmentswith
morethanfiftyunits.Afulltimestaffoftenrunssuchapartments.Theyalsohave
amenities such as swimming pools, garages, and workout areas. Often,
individuals come together to purchase large apartment units. Image from
FlickerbyOliver


Commercialproperty

Commercial real estate investing is big business. Unfortunately, it is usually a
preserveofthosewhohavealotofmoneytospend.Thisisbecausecommercial
property may often experience periods of vacancies especially during tough
economictimes.Thisisbecausereturnsdependonbusinessesflourishingandif
theydon’t,thebusinessesendupvacatingthepremisesanditmaytakeawhile
to find a new tenant. Image from Flicker by Marissa It is important that you
think carefully about the niche or option you want to invest in. Later, as you
becomeanexpert,youcandelveintootheroptions.




Chapter2:MakingMoneywithReal
Estate
Therearealotofwaystomakemoneywithrealestate,althoughalltheseways
canbesummeduptothreeconcepts.Theseconceptsare:1.Whenthevalueof
the property has significantly increased compared to its purchase price or its

previousvalue2.Rentalsthatcouldbecollectedbyleasingoutthepropertyto
prospective tenants 3. Business activities which depend on the real estate that
generatesprofit
These are the three ways in which almost all of the real estate investors make
money.


HowToSettleForAnOption
Once you decide to engage in real estate investing, you need to select a niche
(option) to concentrate on. As a beginner, whatever knowledge you have is
second hand knowledge. This means that although you may have read a lot or
spokentoexpertsinthefield,youareyettofacereallifesituations.Focusingon
oneoptionwillenableyoutolearnalotandgaintheneededexperience.Settling
foranoptiondependsonseveralthings.Theseare:

Cash
Yourrealestateinvestingoptionwilllargelydependontheamountofcashyou
can raise or you can borrow. For example, if you want to concentrate on
commercialproperty,youmayneedtoraisemillionsofdollars.


Propertytax

Propertytaxtendstodifferacrosstheboard.Thismeansyouhavetocarefully
calculatehowmuchyouwillbepayingintaxesandaddthatamounttotherest
of your expenses to determine your cash flow. If you notice the amount
remainingistoolittle,youmaywanttolookintoanotherniche.ImagefromKali


Insurance

You cannot forego insurance when you invest in real estate: the bigger your
investment the larger your insurance payments. Keep this in mind when
choosinganinvestmentoption.ImagefromFlickerbyFaye


Neighborhood
The neighborhood also plays a role in which option you choose. For example,
you may want to develop high-end apartments in a poor neighborhood or a
crime-filledneighborhood.Ifyoudothis,chancesare,youwillhaveaproblem
gettingtenants,asyourtargetmarketwillnotbeinthearea.So,takeyourtime
to choose carefully the kind of neighborhood you want to purchase your
property.

Futuredevelopment
Youalsoneedtodiscoverwhatfuturedevelopmentsareplannedforinthearea
you want to purchase real estate. These developments may work to your
advantageordisadvantage.Forexample,ifthereisaplantobuildapark,you
canattractmanyfamiliesasrenters.However,ifanotherinvestorwhohasmore
cashthanyouplanstobuildaseriesofapartmentsandoffersthematacheaper
rentthanyou,thenyoumightbeintrouble.


Amenities


Amenities are important especially if you want to invest in family units. Check
promotionalliteraturetoseewhattypeofamenitiesareavailableinaparticular
city.Thiswillcomeinhandywhenyouaremarketingyourproperty.Imagefrom

FlickerbyGerry


Schools

Familiesoryoungercoupleswhomayeventuallystarttheirownfamilieswillbe
interested in the type of schools near your property. You may have a great
property targeting families but you may lose out on tenants because the area
lacksgoodschoolsortheareaisnearacollegehencefilledwithcollegegoing
students. Check out the area before deciding on what to invest in. Image from
FlickerbyMaey


Crime
Crimeisbadforeveryoneespeciallyforthosewhoarerunningbusinesses.No
business owner would want to get an office space in a place known for crime
evenifthesaidspaceisbigandcheap.Youcanfindoutthecrimerateofanarea
by visiting the police or a public library before you can decide to purchase
propertyinaparticularniche.