People investing in the real estate market are a unique breed. There are those who are risk averse and prefer to leave their money in term deposits and GICs, and others who are prepared to take a little more risk and invest in mutual funds, stocks and bonds. But people investing in the real estate market are of a special mindset. They fervently believe in the “no risk, no gain” idea, are keen on piling up on the equity and want to realize quick returns and anchor their future in real estate investing.
There’s no such thing as investing in the real estate market in general. People who choose this investment route usually dabble in one or two specialized areas of real estate that they are comfortable with and also find exciting.
For instance, real estate investors like to be foreclosure experts, or invest in fixer-uppers, or simply put their money in real estate investment trusts (REITs), a popular option among savvy investors who don’t really want to get their hands dirty by getting directly involved with property management and renovating dog houses.
It’s a vast and open field, real estate is. The more you know about different aspects of the game, the better you become in negotiating and closing each deal. Your progress is measured by the profits you make, leads that land on your desk, your skills in finding people who have available cash to spare, and the size of your networking circle.
Investing in the real estate market does not bring about success overnight; the fact is it is a long and winding road, fraught with obstacles and barriers to success. Much of it depends on how hard you’re willing to pound the pavement, understand the nature of contractual documents and hone your negotiation skills. The risks are real, not imagined, but when you know how to circumvent these risks and turn them into opportunities, you’ll be far ahead of the game.
As Donald Trump once said, “since you’re thinking, you might as well think big.”
Let’s look at a few channels that people keen in investing in the real estate market can explore:
Have the Appetite for Foreclosures?
When people investing in the real estate market experience success with foreclosures, they decide it is what they want because they mastered the rules of the game. Like addicted gamblers, they spend their time looking at court records and watching out for default notices so they could add these to their list of people to call. Some of them even sit on the steps of the courthouse so they don’t miss out on any possible foreclosure deals.
The general idea behind foreclosures is to make contact with homeowners to offer them a price for their house before their homes are foreclosed. In the United States, a foreclosure goes through a process which can take anywhere between two to three months. It might be the same thing in Canada. This is how it works.
A homeowner fails to make a payment on his mortgage loan. The lending institution notifies the homeowner and tries to get the homeowner to pay the missed mortgage payment. If after a certain period of time the homeowner still fails to pay, the lending institution refers the matter to its attorneys.
The attorneys then contact the homeowner and explain that if they don’t make payment, they will receive a Notice of Default. Many homeowners are under the impression that when they receive a Notice of Default, they have already lost their house.
Not quite.
Only when homeowners receive a Notice of Trustee sale that lawyers and the lending institution are getting ready to auction off the property, and hence the homeowner being dispossessed of his home is imminent.
Some things to bear in mind when investing in the real estate market and specifically in foreclosures:
- Banks don’t really like to have foreclosed properties on their books and would rather sell them to interested parties;
- Real estate gurus say that the better profits can be made before and after a foreclosure, not during; that is, not during the auction or bidding process;
- When contacting homeowners who have received a Notice of Default, a great deal of diplomacy is required. Remember that you are dealing with a very nervous homeowner who’s half-crazed and worried to death about losing his most important asset. You’ll score brownie points if your negotiating skills are tempered by diplomacy and compassion.
We have not given you everything you need to know about foreclosures. If you’re looking to invest in the real estate market, you should make the effort to join a real estate club or attend a seminar. Reading as much as you can about foreclosures is a plus, because in this business, you’ll need more – not less – knowledge. As some people like to say, “a little knowledge is a dangerous thing.”
Intrigued by Notes?
Notes are another way of investing in the real estate market. Not many people go into notes because they are not 100% understood by everyone.
A definition of a real estate note: it is a document – others prefer the word “contract” entered into by two parties – that stipulates a promise to pay after a specified and agreed period of time. These parties are usually the seller and buyer of a property.
When you hear these words, chances are they refer to real estate notes: trust deed, debt instrument, discounted mortgages, cash flow. So notes are financial instruments that cover the gamut of mortgages, deeds, tax lien certificates, leases, credit card charge-offs. This is not a complete list. Suffice it to say that notes are negotiated in all kinds of industries. The two things that you should remember are the “promise to pay” after “a specified agreed upon time”.
Anyone – you or I – can buy notes either to add to our personal portfolio or to peddle in the market. To maximize on your investment, Robert Allen, a real estate adviser and consultant, encourages investors to hold “healthy” notes. By healthy he means notes that don’t require collateral, carry an attractive rate of interest, have terms acceptable to both parties and require little or no monthly payments.
Investing in the Real Estate Market: A Few Rules
Those who have dabbled in real estate investing and had a foretaste of success tend to be over-confident investors who don’t think of the perils involved. It is especially difficult to warn people of these perils when there’s a real estate boom and investing is at a feverish pitch.
Like any industry, however, real estate is subject to the whims of the market and the basic principles of supply and demand. The state of the economy and the job market also directly affect real estate (when people lose their jobs, they cannot afford mortgage payments).
- Know the cardinal rules, and learn the nitty-gritty by educating yourself through literature, networking, seminars, and understanding the vocabulary of real estate. Some of these cardinal rules include:
- Patience. Real estate is an art and science and must not be taken lightly. You may have heard of quick returns achieved by investors, but these are usually achieved by people who have spent many years studying about real estate and who keep their ear to the ground, regardless of the cycle;
- Negotiating skills. Ask the gurus about the negotiating rules – there are plenty of them. Mastering each rule and applying it in your daily contacts is imperative. You want to gain the upper hand in any transaction;
- A genuine liking of people. You need to build a solid networking circle;
- Hard work. Real estate is not a 9 to 5 job. It’s 24/7, and you’ll have to learn to say no to happy hour with your friends in favor of pounding the pavement;
- Master the lingo. Know everything there is to learn not only in real estate but also in banking, taxation and the law.
- Know when to walk away from a bad deal.
