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The Cooling U.S. Real Estate Market Gives Savvy Investors an Edge

Despite the 5 percent drop in new home sales and the slowing pace of home re-sales, which were down 2.8 percent in January, savvy private investors continue to reap hefty real estate profits. In fact, companies that utilize private lenders, like Premier Real Estate Solutions, LLC (www.RealEstateMadeEasy.net), aren't even breaking a sweat. Indeed, company founder Neb Essayas says that the market slowdown in major cities represents "the most exciting time for our business."

Premier Real Estate Solutions buys properties in northern Virginia, central Maryland, and the District of Columbia at 25 to 50 percent below market value. The company then renovates the homes and re-sells them at market value. "There's talk about the real estate bubble bursting," says Essayas, "but what's happening is that sellers aren't making windfall profits anymore. The housing market has been so hot over the past five years that so-called investors could afford to pay market value, watch the property appreciate, and sell at a profit."

In contrast, Premier Real Estate Solutions makes its profit going into the deal - through buying the right properties at the right prices. "As a rule of thumb, we do all of our numbers right and build in our profit margin before purchasing the property," says Essayas. "We only buy two types of properties: those where we can quickly create equity through renovations and those where we buy equity from motivated sellers who need a quick sale."

Now that the real estate market isn't so forgiving, Essayas says that buying the right properties at the right prices is key. "The numbers have to be right, not only to ensure that our company makes a profit, but to secure our private investors' loans."

Those numbers are providing hot returns on investments, regardless of the price range of the home. For example, Premier Real Estate Solutions purchased a home for $405,000, spent $1,000 in upgrades, and sold the home for $599,000. Similarly, Essayas put $32,000 of renovations into a home purchased for $229,000 and sold it for $390,000. "Recently, within a three and a half week period, we bought a home for $77,000, spent $12,000 fixing it up, and found a buyer willing to pay $170,000," he says.

Using private investments to purchase and renovate homes gives Premier Real Estate an advantage over developers using institutional lenders, in that the company can move nimbly when it finds a bargain. "The private capital we've been using has allowed us to close on these properties in as little as three days," says Essayas.

As for investors, they appreciate being able to earn a better return through Premier Real Estate than they can with traditional investments. According to Harry Roupas, who has made significant investments in Premier Real Estate Solutions properties over the past three years, "The excellent returns I have seen on my investments demonstrates to me that Premier's business model is sound. Buying properties below market value, renovating them, and selling them at a profit is the right approach for today's real estate market, but you need a Premier Real Estate to make it all work just right."

And Premier Real Estate is hard at work, planning to purchase between 50 and 60 properties in the Washington, D.C. Metro area this year, and looking to a future in larger development projects, such as condominiums and hotels.

While Essayas anticipates that the market's cooling trend will result in a longer turnaround time for sales, he emphasizes that "we factor higher carrying costs into our equation before making an offer to purchase a property."

He concludes, "Because we never pay market value for a property to begin with, we can continue to take advantage of the current real estate market to secure properties at prices well below market level, renovate them, and sell them at a profit."
 

Criteria, Terms, Network - The Foundation of Real Estate Investing

In 2005, a bestselling book called The Millionaire Real Estate Investor was written by Gary Keller with Dave Jenks and Jay Papasan. The question is, because of the recent market changes of a buyers market from a sellers market do the principles laid out in the book still apply?

First, lets understand how the book was originally written. It was based on extensive research and interviews with over 120 millionaire real estate investors. The basic model laid out were Criteria, Terms and Network.

Criteria: What you buy. Criteria is the name used for the checklist you use to identify the type of property that you are going to buy. This applies to a buyers market because there appears to be all type of opportunities available, but you still need to establish what you are looking for & how you are going to take advantage of the market conditions. Are you going to stick to one particular type of property? Only condos or single families? These apply no matter what the market. Will you be able to resale it or rent it? The buyers market presents some new opportunities to consider.Are you going to focus on pre foreclosures, foreclosures or short sales? With these situations presenting themselves more & more, including them in your criteria checklist would be worth considering to see if they provide the greatest opportunity and the least risk.

Terms: With interest rates remaining fairly low, and with the wave of the sub prime backlash, terms are even more important in the buyers market then they have ever been. Add to that the true evaluation of proper offer prices when overall prices are stagnant or declining. Simply taking the time to establish your own parameters to determine when a deal is a good deal & when a deal should be walked away from is critical in an emotion filled buyers market.

Lets look at the principle of Network: Who helps you. to todays marketplace. Having a network of select relationships that know your criteria & that are able to feed you opportunities is essential. Imagine a well placed attorney that knows of pre-foreclosure proceedings or a Northern Virginia Real Estate Team (http://www.theearlofrealestate.net/team.aspx) that is intimately aware of a particular area or that is working in conjunction with a bank to dispose of Bank Owned / Foreclosure Northern Virginia Homes (http://www.theearlofrealestate.net/77_bank_owned_SF.aspx).

All of these areas still applies & answers a lot of the questions of what you'll buy, how you'll buy it & who will help you.

"Mastering these areas will give you the greatest chance for long term success & place you solidly on the path to becoming a Millionaire Real Estate Investor". This was sound advise when the book was written and remains sound advice today.
 

Use Your IRA or 401K to Purchase Investment Real Estate

Did you know that you can use your IRA or 401K to purchase real estate and have those assets grow in your retirement plan? Most people don’t. This is a great way to increase the value of your retirement plan. Adding real estate to your IRA means these assets will increase in value tax-deferred until you begin pulling money out of your IRA or 401K. That’s right, you can buy real estate, let it appreciate, and not have to pay the IRS any income taxes on your income or gains from it until you retire!

Now, there are some rules, but they are, for the most part fairly simple and straightforward. There are several types of real estate investments that are eligible for including in your IRA. Rental homes or condos, raw land, timberland, commercial real estate or office buildings rented or leased to a business are all eligible. You could also add discounted real estate paper (where you purchase mortgages from someone at a discount) and even tax certificates. You can even purchase your future retirement home with your IRA. You just have to rent it out to someone else until you are ready to retire. This is not a comprehensive list, but it should give you some good ideas.

One rule concerning IRAs & real estate is that you cannot use it buy your own home or any property you live in, like a second vacation home for example. And I have also read it is not a good idea to rent out property you have purchased with your IRA to close relatives.

In order to use your IRA to purchase real estate, you must set up what is called a self directed IRA. This means you can direct your own investments. To do this, you will need the services of an approved IRA trustee or custodian or independent administrator. In order to fulfill their legal obligations, the trustee will most likely require that you hire a property manager to manage any rental property. This is to ensure that the property taxes are paid on time, to collect rents and maintain the property to local building codes. This can be an advantage for you, to let someone else deal with the day to day headaches of managing property.

There are many companies and individuals that offer IRA trustee services.

You can use a Roth IRA or a SEP IRA, for small companies and self-employed people. According to David Gass, president of Business Credit Services, the Roth IRA is his best choice for using an IRA to buy real estate for long term investments.

When you purchase real estate using your IRA, the trustee will most likely require that you purchase the property outright and not use any debt financing (a mortgage or trust deed). This is to protect your IRA from defaults on loans and other problems with long term contracts. If you are thinking, well, I can’t afford to buy a $150,000 or a$200,000 property for my IRA, don’t be put off. I have seen many properties in several parts of the country that can be purchased for under $50,000. You can even buy a mobile home and rent it out.

You need to think of your real estate investments like a business. All the income must be deposited into the IRA. And all expenses related to your property must be paid from the IRA. This will keep you out of hot water with the IRS. And when you sell the property, all of the gains will be added to your IRA, tax deferred.

This short article is just meant to introduce you to the idea that you can increase your wealth by adding real estate to your IRA. You will need to find and work with experts and professionals in this area. Your real estate agent can probably introduce you to several qualified people and companies that deal with this.