Making Millions In Real Estate
Chris Palmeri (Senior Correspondent, BusinessWeek) gives expert video advice on: What types of real estate investments can make me a millionaire?; Should I invest my money in family homes, apartments or commercial real estate?; How risky is real estate as an investment? and more...
What types of real estate investments can make me a millionaire?
The most important thing is to start with your home. Everybody needs a home, and you're much better off paying that mortgage check than you are paying a landlord. At the end of the day, you're building equity in a piece of real estate. Start small, buy a condo, a small starter home, and watch your money grow that way.
Should I invest my money in family homes, apartments or commercial real estate?
When you're ready to begin that step of becoming a real estate investor as opposed to just owning a home, one thing you can look at is a duplex or a fourplex. This is a way that you can live in a property and get the experience of earning rental income. You'll manage the property. It's not easy being a landlord, toilets break in the middle of the night and somebody has to get called. But if your idea is that you want to be an investor in real estate, that's a great way to start, and it is a good long-term strategy.
How risky is real estate as an investment?
Real estate much like the stock market, goes up and down, that's something people forgot in the last few years; that it can go down. And the good news is that there's an opportunity now for people to go out and get a much better price then they would have when it was a sellers market, so you can go out now and negotiate. If your plan is to be a real estate investor chances are you don't want to be buying a house and trying to flip it. That is a strategy that worked for some people in a booming market. If you want to make money longer term, you really want to think about rental properties it could be a small office building. You might want to partner with somebody whose got some experience doing this, but that's what you really what you want is a property that's very easy to rent. There's always somebody who needs and apartment.
How can my home make me millions?
Your home shouldn't really be thought of as a way to get rich. It's primarily a place to live. You can make improvements that will improve the saleability of the home but at the end of the day you shouldn't be thinking of your house as a business. You should be enjoying your home. You shouldn't be mortgaging it to the hilt. You shouldn't even be doing things that you think are short term in nature. You should buy a house that you want to live in 5-6 years, that's a period of time that you're going to go through a cycle and not get caught having to sell at a bad time.
What is the very least I should know about investing in real estate?
The most important thing to know about investing in real estate is to not get carried away with what other people are doing. Thats happened so much during this booming real estate market that we saw. Everyone was just buying houses, they weren't even living in them, chances are they weren't even living in the same state. And it's very difficult to manage a property from afar. It is very difficult for example to rent a three-bedroom house. I mean there is a markets for that but if your idea is to invest in real estate, think about a long term strategy. One thing that people have done successfully if they have income is to think about a second home in the market they might retire in and so they buy a house, maybe they can rent it out in a resort area. And one day they sell their main home and retire to that. That is the way to long term real estate wealth.
Which is more profitable residential or commercial real estate?
No doubt. I used to work for Forbes magazine. We had this list of Forbes 400, and they're the richest people on the planet, and probably a third of them made their money in real estate. When they're making money in real estate, for the most part, they're doing it in commercial real estate. They're doing it in shopping malls. They're doing it in office space. They're doing it in industrial warehouse space, and they're doing it in apartments, but big apartment buildings. And so, it is a fantastic, long term source of wealth.
Should I have a partner help me invest in real estate?
Absolutely. You know having a partner help you is a great thing because number one all investors need money and then that's another source of capital. It's another person who can give you a hand making improvements. Showing the place to prospective tenants. If your partner is someone who has done this before it's a great source of information for you and it's a way to learn this business. The downside of course is that you are giving up some of your profit and the equity because you've got a partner. And you're going to have to deal with partner issues. You are going to have some disagreements about the business when to sell, what improvements to make. And so it's really important to pick somebody that you really feel comfortable with.
What's the best region in the US for real estate investments?
Well right now we've seen this phenomenon where the coasts in particular have this huge run up in price. I still think the best opportunities lie in places that didn't have those huge run ups. I think right now, California, Washington DC are in a declining markets. The opportunities probably lie in a place like Houston, where it's a lot less expensive to get in. You can buy an investment property for $300,000 and that's a way to start building things, if you're close to that market. You don't want to be hours and hours away and trying to be managing a real estate investment.
What are some secrets about making millions in real estate?
The one secret that the fantastic and wealthy will always tell you is this: other people's money. They are borrowing money to make more money. And that is an important thing you get for 90, 95% of the value of the property and as long as you can pay off that loan and the mortgage expense, that's a great thing. But the problem that people get into is that they take out more money than the property can afford. Right now it's very difficult to finance the investment property in Los Angeles based on just the cash flow that property generates. People have been willing to pay fantastic prices and get themselves in these mortgages that offer low rates now and are going to rise later. And so they are basing their investment decision on an artificial situation and so it's a great idea to borrow money. It's absolutely the right way to get rich in the long term but make sure that the underpending financially of the property are there. Make sure it supports itself.
How fast can I make millions in real estate?
I think the important thing is to not think about how you can make money very quickly. The important thing is to think about the long term, and we have seen this phenomenon of the flipper, the house flipper. People who are buying property, fix it up. And you will hear stories about people who have done it successfully. And it is possible to do it successfully. But you have to think about really what your skills are, and do you have the time to make that a profession? Do you want to spend the time looking for the best property that you can buy at the lowest price, and working with contractors who can fix it up for you, and getting the lowest price on them? It is expensive. And I think that people who try to do it on the side are going to find out that it is a very difficult way to make a lot of money. You are much better off buying a good property that is already fixed up, in a good neighborhood, and hold it for the long term.