Can you give me a realistic example of how I can profit on real estate?

Question

I don't know how can you exactly profit off real estate? I have seen a property that is 155K on MLS website. There is a calculator on the bottom of the page: It says if interest rate is 5%, and down is 20% then monthly morgage (for 30 years) would be $665. I can't understand how I can profit here? Does it mean that as long as I rent the place for higher 665, I am making profit? what about the interest? I am soooo confused. Can somebody please walk me through it from the very basic? (I mean explain what is the basic of making profit in real estate? how about interest rate? what is the actual interest rates available (I mean is 5% realistic? what would be the typical interest rates out there? I am the firs time buyer and still a student so I probably don't have a strong credit? should I wait?) which one is better: to pay more down (20%) or less down (10%) ) HOW Can I figure out these alphabets and baiscs to figure out where can profit come from?)
Pleasee.
I am very confused.
Thanks

Answer 1

easy, buy low, sell high. In the last 7 years in L.A., the average home has gone from $225,000 to 450,000. Not a bad return.

Answer 2

They're several ways to profit from real estate - one is the example you gave, where you make more money in rent then what you are paying. Another way is to 'flip' the real estate, which there are many shows on tv related to this, flipping is when you buy a beat up property, fix it up, and then sell it and make a profit off if.

Interest rates vary by state, there are also your credit rating that is also considered when an interest rate is given to an individual, a going rate for a 30 year fixed mortgage is 6.75 (approx. and I live in illinois) You could call a local mortgage lender and ask what the going rate is.

Your down payment will also affect your interest rate, also, if you do not put down more than 20% on the house, there is a thing called PMI insurance which you have to pay in addition to all of the other things you have to pay.

Another factor to consider is real estate taxes on the house, what will they be on a yearly basis? divide that by 12 months and add that to your monthly rent basis.

Also, when renting, you are responsible for fixing anything that breaks.

A good place to check all of this out at is listed below....

Answer 3

You profit from real estate in many ways. The very basic is having positive cash flow from every real estate investment. In other words, if you make your rents higher then all of your monthly expenses added together then you should be making a profit. Having a lower rate, or mortgage balance is key because it will allow you to have a higher return month to month. But this is sometimes not possible if you have to put a substancial amount down or ir you you're using the money to buy down the rate. Ultimately, know that you're not going to make millions of any one property. It takes several homes to make a substancial profit (month to month). So you have to think of it as monopoly. A little bit of profit spread over several homes wins the race. In addition, there are many tax advantages to owner investment property. Ultimately a Realtor locally would be a good council on this type of investment. I would also recommend Robert Kiyosaki's 'Rich Dad / Poor Dad.

Answer 4

I am not in that business but I am buying a house, and I have to tell you that the calculator only does mortage, doesn't calculate property taxes, HOA, homeowner association (if there is one) and insurance.
Probably 665 more the costs I have written would elevate your monthy payment to 1000 a month more or less, depending on the area.
I doubt with a low credit you can get a 5 per cent.

Answer 5

How to value a property during market downturn?

Housing market continues to slump. Now we can calculate true value of a property easily. As price decline, we don't need to guess and factor in the potential price appreciation while calculating home value. Without the guesswork, figures are more accurate.

Let's use following example:

Today, a typical 15 years old, two bedrooms condo/townhouse is priced around $500,000 and $550,000 in Sunnyvale, California. Rent for similar condo/townhouse is $2000/month.

If you are a home owner, $2,000/month in rent means $20,000 a year in profit ($24,000 per year in rent, minus $4,000 maintenance costs). A $20,000 income is equilevant of owning $400,000 bonds or CDs, because current yield of 30 Years U.S. treasuries are 5% (5% of $400,000 is $20,000). Bank CDs have similiar yields.

In our example, the two bedrooms condo/townhouse is 20% to 25% overpriced. They should be priced at $400,000.

It is interesting to note that if we redo the calculation from buyer's perspective instead of seller's perspective, the figures are even more shocking.

Mortgage payment consists of two parts: mortgage interests and mortgage principal. The interests portion is similar to rent. If you pay interest, it disappears and doesn't add equity to the property. To fully simulate characteristics of renting, we assume buyer will apply for a zero down, interest-only loan.

It turns out that rent of $2000/month is equivelant to mortgage payment of a $340,000 loan at 7.0% APR. And comparing $340,000 loan to $500,000 or $550,000 price tag, from buyer's view, the two bedrooms condo/townhouse is 30% to 35% overpriced.

One may ask, why is there a discrepancy between two perspectives of the buyer and owner?

The discrepancy is a result of 2% differences in interest rate that buyer borrow comparing to yields of bonds and CDs that owners would get. We understand that buyer would always pay more. That is the premium of buying to own. However, looking from home owner's perspective, current housing market is probably 20% to 25% overpriced. We recommand investors to wait for a better entry point.

Answer 6

First of all welcome to the world of real estate investing.

My advise to you is to check these books out of the library to read or better yet purchase them for your reference library.

#1 Start Small Profits in Real Estate

#2 The Insider's Guide To Making Money In Real Estate

#3 The Weekend Millionaire Guide to Real Estate Investing

Those are a few of the books that will assist you in beginning a real estate investment career. There are more and as you progress in this business you should read them. Always continue your education as new techniques are always coming out.

You might want to check out some of the real estate gurus that are on TV. Don't be overly impressed with what they are telling you, but there are some techniques you might want to learn from them. If you feel the need purchase one and only one.

Now the best way to invest in real estate is by buying distressed properties. Foreclosures, Divorced sales, Probates are just a few of them. Buy them as cheap as you can, keeping in mind that you might have to fix them up by doing some painting, carpet,landscapping, tile work, remodeling a bath or kitchen. Then there are times when you will have to pay the present owner some cash to get out of the place. You will also be required to pay closing cost through escrow. Make sure the taxes are current, insure that you have the right balance on the loan. When purchasing this type of property for investment purchase it subject to the existing mortagage.

All that being considered add the loan balance, what you have to give the owner, cost to bring the loan current, cost of all repairs on the property. Fudge about 5-8% Now figure out how much you can sell the property for. Subtract all the cost from the sales price this will give you your profit on this transaction

You have to know the area in which you plan to work this real estate career. This will make you an expert in one area. So with you being energitic and stuff, I would suggest you work an area of approximately 5,000-10,000 houses. You should make a flyer and put it out once each month stating that you purchase distressed properties, especially those that are in foreclosure and probate. Walk the neighboorhood or hire kids in the neighborhood to put out your flyers.

I would suggest that for the sake of fed and state taxes that you keep every third house for a rental. Since you are starting out and new in the business try buying one a month for the first couple of months. Make sure the rent exceeds the mortgage payments. When purchasing this type of rental, take the property subject to the existing mortgage.

Banks and lenders are not your source of funds, they have this thing called qualifying for loans, prepayment penalties, taking an application, running credit checks, checking credit scores, proving income. This procedure could take up to 45-60 days or more. By that time your deal is in another real estate investors inventory. I would stay as far as I can from these guys.

Now I say this with tongue in cheek because as you place your earngings into your bank account, you will be able to get personal lines of credit from your bank for investment purposes.

Place a small ad in the local paper stating that "real estate finder is seeking partners to buy real estate below market for immediate re-sell. I do the work you do the investment, let's make a deal on the split."

Be truthful to this individual, he is the source of many funds from his friends and relatives. If something go wrong on the investment and for some reason you make a mistake, you eat the loss. If the return is not going to be as much as you told your investor call him immediately and tell him so immediately.

Now you will need to form a professional team to assist you in your quest to be the best real estate investor around. You will need a home insurance person, Title Rep from a title company, Notary Public, an educated real estate agent that understand real estate investment. (You might have to shop around for this person-be careful about wasting your time with these agents), a mortgage broker/lender, as well as handyman team to repair your property as you find it.

Once a property is under contract to you, immediately get your team out there to repair any damage, place a for sale sign on it immediately (Stay away from real estate agents-really a waste of time.)

They have a contract and if you venture from that contract they are in never never land.

There are a few terms you will learn as you go along, don't be afraid to make mistakes, just don't make the same one twice it could mean your reputation in the area and loss of any referrals in the area. If you don't know an answer to a question, write it down, find out the answer and get back to the person that asked it.

I hope this has been of some use to you, good luck.

"FIGHT ON"