Investing in real estate in the Salem Oregon area
So you think you want to start investing in real estate. You’ve read the books and are ready to get started. What you need is either
- remodeling skills OR
- willingness to learn remodeling skills
- willingness to take risk
- a good agent who knows investments
When you are buying trashed-out properties there is an opportunity for high reward, but there is a high risk with it. The picture below is the “wall” of an investment property bought at auction. In starting to peel back the layers of the house to start the repairs, this non-wall was discovered. A structural engineer later and a new wall rebuilt are part of the process. If you think you would struggle to take these kinds of surprises, take a different investment approach.
Investing in real estate: flipping
First of all, in Oregon, you need to be a licensed contractor or developer if you intend to purchase properties where you “fix and flip” several homes a year. Click here for a link to the OARS. The first thing you need to do is get your contractor’s license. Second, find a mortgage broker or a hard money lender that you want to work with long-term.
If you want to do a long-term rehab/flip while you live in the home, then there are financial advantages to doing that. You can live in a home as your primary residence for two years and keep all of your capital gains when you sell at the end of those two years. Some people have built good wealth this way, but it is a disruptive way to live for a while. Your home will be in a constant state of remodeling for that time and you would be moving in a couple of years. If you have flexibility, this can be a good option to build sweat equity. You would take your equity and purchase your next property, which you can use as your primary residence. This can be a lucrative way to build a rental portfolio as you go along.
Hire an agent? Yeah or Nay?
When investing in real estate in Salem Oregon you need to pursue all prospects. If you choose to work with an agent, pick ONE. Many investors figure they will have several real estate agents looking for them. Unfortunately, what tends to happen is the agents stop looking since they are putting in a lot of work and risking the chance of not being compensated. Looking for properties for investors is very time-consuming and difficult due to the intense competition. Many people go into real estate in order to invest, so choose an agent whose primary investing goal is a different strategy than you. I do think that agents that are investors are best for starting investors as they will know rents and maintenance prices as well as having an extensive contractor list since they are doing it themselves.
Investing in real estate: auctions
In order to buy a home at a foreclosure auction, you must have cash (cashier’s check). You cannot buy a home at auction with a loan. There is a lot of competition for homes at auction so be prepared. Have a maximum price that you are willing to pay and don’t exceed it. Sometimes people get caught up in the auction and winning part, they forget that this is a business transaction. Overpaying for a property does nothing for your bottom line.
Our agents have personally bought at auctions and can explain the trustee sale or judicial sale process as they are a bit different.
I’m having a hard time finding a lender and agent to work with. Why?
Investors contact real estate agents and lenders all the time saying they want to invest, but they don’t have a plan. They tell agents “look for whatever looks good.” There are many types of properties from flips to partitioning land to rentals. Not having a solid idea of what you want to do is a sure-fire way to have nothing happen. Be focused and pick an investing strategy.
Learn about taxes for investors
There are many tax issues for investors in real estate and people who rehab homes are treated differently from those who develop properties. Meet with an accountant prior to investing in real estate to know how your plans will affect your taxes. Your plans may change due to the tax implications. You also need to realize that capital improvements will not be written off in one tax year, but depreciated over time on your tax returns.
Investing in real estate: the numbers
If you are looking at rental property ask for a copy of the APOD (Annual Property Operating Data). This will give you the actual expenses and vacancy rates and not the projected ones. It is easy to overpay for a rental based on projected rates. Investing is always, always about the numbers. They either work or they don’t. Investing isn’t an emotional purchase so make sure you run numbers on your investments. We do this for our clients investing in real estate through us.
The capitalization rate (cap rate) is a ratio used to compare properties with different asking prices and to also place a value on a property based on the income it generates. The Cap Rate is computed by taking the rental net operating income (NOI) and dividing it by the property’s fair market value (FMV).
You will also want to look at your return on investment (ROI) to make sure that the project makes monetary sense for you. Ready to get started?