Real Estate Investing For Dummies

Real Estate Investing

FOR

DUMmIES

2ND EDITION

by Eric Tyson and Robert S. Griswold

Real Estate Investing For Dummies?, 2nd Edition Published by Wiley Publishing, Inc. 111 River St. Hoboken, NJ 07030-5774



Copyright ? 2009 Eric Tyson and Robert S. Griswold

Published by Wiley Publishing, Inc., Indianapolis, Indiana

Published simultaneously in Canada

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Library of Congress Control Number: 2009920906

ISBN: 978-0-470-28966-2

Manufactured in the United States of America

10 9 8 7 6 5 4 3 2 1

Contents at a Glance

Introduction ................................................................ 1

Part I: Stacking Real Estate Up Against Other Investments........................................................ 7

Chapter 1: Evaluating Real Estate as an Investment ..................................................... 9 Chapter 2: Covering Common Real Estate Investments ............................................. 25 Chapter 3: Considering Foreclosures, REOs, Probate Sales, and More.................... 43 Chapter 4: Taking the Passive Approach...................................................................... 61 Chapter 5: Fast Money: Small Down Payments and Property Flips .......................... 75 Chapter 6: Building Your Team...................................................................................... 83

Part II: How to Get the Money: Raising Capital and Financing................................................ 99

Chapter 7: Sources of Capital....................................................................................... 101 Chapter 8: Financing Your Property Purchases ........................................................ 113 Chapter 9: Securing the Best Mortgage Terms .......................................................... 129

Part III: Finding and Evaluating Properties ............... 137

Chapter 10: Location, Location, Value ........................................................................ 139 Chapter 11: Understanding Leases and Property Valuation.................................... 169 Chapter 12: Valuing Property through Number Crunching ..................................... 181 Chapter 13: Preparing and Making an Offer ............................................................... 205 Chapter 14: Due Diligence, Property Inspections, and Closing ............................... 223

Part IV: Operating the Property ................................ 259

Chapter 15: Landlording 101 ........................................................................................ 261 Chapter 16: Protecting Your Investment: Insurance and Risk Management.......... 293 Chapter 17: Recordkeeping and Accounting.............................................................. 303 Chapter 18: Tax Considerations and Exit Strategies ................................................. 315

Part V: The Part of Tens ........................................... 339

Chapter 19: Ten (Plus) Ways to Increase a Property's Return................................ 341 Chapter 20: Ten Steps to Real Estate Investing Success .......................................... 349

Appendix: Sample Purchase Agreement ..................... 359

Index ...................................................................... 367

Table of Contents

Introduction ................................................................. 1

How This Book Is Different............................................................................. 1 Foolish Assumptions....................................................................................... 3 How This Book Is Organized .......................................................................... 3

Part I: Stacking Real Estate Up Against Other Investments.............. 3 Part II: How to Get the Money: Raising Capital and Financing......... 4 Part III: Finding and Evaluating Properties ......................................... 4 Part IV: Operating the Property ........................................................... 4 Part V: The Part of Tens........................................................................ 5 Appendix................................................................................................. 5 Icons Used in This Book ................................................................................. 5 Where to Go from Here................................................................................... 6

Part I: Stacking Real Estate Up Against Other Investments ........................................................ 7

Chapter 1: Evaluating Real Estate as an Investment . . . . . . . . . . . . . . . .9

Understanding Real Estate's Income- and Wealth-Producing Potential...................................................................... 10

Recognizing the Caveats of Real-Estate Investing ..................................... 12 Comparing Real Estate to Other Investments............................................ 13

Returns.................................................................................................. 14 Risk ........................................................................................................ 15 Liquidity ................................................................................................ 15 Capital requirements........................................................................... 16 Diversification value............................................................................ 16 Opportunities to add value................................................................. 16 Tax advantages .................................................................................... 17 Determining Whether You Should Invest in Real Estate .......................... 18 Do you have sufficient time? .............................................................. 18 Can you deal with problems? ............................................................. 19 Does real estate interest you?............................................................ 19 Can you handle market downturns?.................................................. 19 Fitting Real Estate into Your Financial Plans ............................................. 20 Ensure your best personal financial health...................................... 20 Protect yourself with insurance......................................................... 20 Consider retirement account funding ............................................... 21 Think about asset allocation .............................................................. 21

xiv Real Estate Investing For Dummies, 2nd Edition

Chapter 2: Covering Common Real Estate Investments. . . . . . . . . . . . .25

The Various Ways to Invest in Residential Income Property .................. 25 Buying a place of your own ................................................................ 26 Converting your home to a rental ..................................................... 26 Investing and living in well-situated fixer-uppers ............................ 28 Purchasing a vacation home .............................................................. 29 Paying for condo hotels and timeshares .......................................... 30

Surveying the Types of Residential Properties You Can Buy .................. 33 Single-family homes............................................................................. 34 Attached housing................................................................................. 35 Apartments ........................................................................................... 37

Considering Commercial Real Estate.......................................................... 38 Buying Undeveloped Land ........................................................................... 39

Chapter 3: Considering Foreclosures, REOs, Probate Sales, and More . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43

Finding Foreclosures and REOs................................................................... 43 Foreclosures ......................................................................................... 45 Lender REO (Real Estate Owned) ...................................................... 51

Getting a Jump On Foreclosure and REO Competition with Short Sales................................................................... 52 Recognizing seller benefits ................................................................. 53 Comparing short sales to other properties...................................... 53 Finding short-sale opportunities........................................................ 54 Convincing a lender to agree to a short sale.................................... 55

Looking Into Lease Options.......................................................................... 57 Probing Probate Sales and Auctions........................................................... 58

Probate sales ........................................................................................ 58 Real estate auctions............................................................................. 59

Chapter 4: Taking the Passive Approach. . . . . . . . . . . . . . . . . . . . . . . . .61

Using Real Estate Investment Trusts .......................................................... 61 Distinguishing between public and private REITs........................... 62 Taking a look at performance............................................................. 63 Investing in REIT funds ....................................................................... 63

Tenants in Common ...................................................................................... 65 Paying for 1031 availability and "hassle free" management........... 66 Asking the right questions: Are TICs for you?.................................. 67

Triple Net Properties .................................................................................... 69 Thinking ahead about landlord/tenant division of duties.............. 69 Minimizing the risks of triple net investments................................. 71

Notes and Trust Deeds ................................................................................. 71 Tax Lien Certificate Sales ............................................................................. 72 Limited Partnerships..................................................................................... 73

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