Are you ready to be a business owner?

Posted by Rob Minton
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I found a great Money Magazine/CNN.com article yesterday about investing in distressed real estate. It's probably the most thorough article I've read as far as explaining distressed real estate to an inexperienced investor. The headline is: "Is this $6,900 home a bargain?"

The article focuses on the city of Detroit, which has become as much a symbol of the real estate bubble burst as any city in the country. And to answer the article's headline question, yes, the $6,900 house turned out to be a bargain.

But the investor was not a flipper. He is a retired police officer looking to supplement his pension. He purchased the house for cash and spent about $15,000 including repairs, which turned out to be minor. He is renting the house out for $800 per month and after taxes and maintenance fees should have his money back in three years.

This is the difference in real estate investing now vs. three years ago. Speculators and flippers dominated the market back then, with appreciation rising so fast in some areas that new construction homes were being sold more than once before the building was even finished. This is what fueled the bubble.

Now, after the burst, the low-priced bargains are out there. But sensible investors, instead of trying to capitalize on insane appreciation, are looking at acquiring properties that they can own free and clear in a short period of time, and they plan on holding them for long-term income. It's kind of back to the way that real estate investing has always been.

This is a much safer strategy for a beginning investor. Although, like the article warns, not every low-priced home is a "bargain." There was an example in the article of a $14,000 home that, because of all the damage, would have been a rip-off. Unfortunately, not every beginning investor is going to know that. Someone will get stuck with a nightmare on his or her hands.

One sentence from the article really hit me: "Unlike stocks, an investment in real estate turns you into a businessman." How true. I have a feeling that with the rock-bottom home prices in many areas, beginning investors are launching their "careers," finally dabbling in real estate investing. Which is great.

However, I hope they heed the warnings in this article. I know that Income for Life member investors have always been instructed on the two main points in this article:

1. That you have to know the difference between the right house and the wrong house

2. That becoming an investment property owner makes you a business owner.

My advice to beginning investors who are looking to use the current real estate market as a way to build wealth is -- Go for it, but be smart and get guidance from someone who has experience.

Because, no, not EVERY $6,900 house is a bargain. Don't find out the hard way.

Comments

[Jack]

House bargains are now everywhere, it is therefore still the best time to make real estate investing. Knowing the basics here is a must because if not you will lose instead of earning. Thanks and good luck.