Real Estate Investing 101

So You have finally decided to invest in Real Estate, Congratulations! Your ticket to becoming a millionaire is on it's way. In today's issue, I will discuss the many ways to invest in Real Estate, even if you only have a thousand dollars. There are many ways to invest in Real Estate, you have to first figure out how much you can invest, if your looking to turn over your investment quickly or if your in it for the long run.

1. Pre-Construction: Pre-Construction is actually one of the areas I specialize in, it is also one of the more popular ways to invest in real estate, you are basically purchasing a unit, before the building is even complete, in some cases before they have even broken ground on construction. The key to buying pre-construction is being able to purchase a unit from the first releasing, which is also known as the first amendment. Once Albany gives the developer the O.K. then they start releasing units. However the developers don't release all the units at once, they might only release a handful, usually because they are trying to get a feel of how in demand there project is, try to get a buzz going. Being one of the lucky few to buy one of these units from the first amendment is hard, it can also be tricky. They usually don't announce the date that it will be released, even people in the industry get at most a few hours notice or hear word the night before, so when you do find a development that you want to invest your money in, you have to be ready at a minutes notice. To be able to get on the first amendment you have to find a good broker, now I am not hear to promote myself, this is meant to be a forum discussing the real estate market, I am trying to be as non partisan as i can, obviously I welcome any and all business, but again, there is no hidden agenda. SO back the what I was saying, finding a good broker who has the contacts and knowledge of the specific area is vital in obtaining a unit at first offering. So you got a unit, the first thing you will receive is an offering plan, the developer will require some sort of deposit to take the unit that you have chosen off the market and give you and/or your attorney to review everything, the deposit can be anything from $100 to $25,000, most of the time they don't even cash the checks, they just keep it until your done reviewing, time frame can be anywhere from 3-15 days, upon reviewing and finally taking your unit you will need a 10% down payment minus the amount you first gave. Word of advice, if you are lucky enough to get a unit, any unit at first amendment, even if your not sure about it, leave them the $25,000 check, at least give yourself time to review it and make up your mind, worst case scenario you will say no and get your deposit back, but at least you took that specific unit off the market and at whatever price it was offered at. Now if you have a great broker who knows his stuff, You could be lucky enough to be one of the VIP's who gets in before first offering, and at even a lower price. Now you were smart enough to buy a unit, what now? You wait till the development is complete usually anywhere from 12-24 months, in the meantime your unit has started to appreciate, you will start getting information from the development, your broker about the second amendment, then 3rd, 4th and so on, you will see the prices increase before your eyes. I personally bought a unit 3 weeks ago, I was lucky enough to get in on the VIP list and was able to obtain the 6th out of 9 units that were being offered that week. I bought my unit at $959 a sqft, which is unheard of now, by the second week units were being sold from anywhere from $1100-$1200 a sqft, in less then two weeks, my unit increased upwards of $100,000, not bad huh? For an investment I wouldn't suggest paying more then $1100 a sqft to make a decent profit, unless of course the development has a great address, Anything in Tribeca is fine spending more per sqft, maybe a Park Avenue address, it really depends. So hypothetically lets say you bought a 1000sqft 1 Bedroom unit at $1000 a sqft, that would equal $1 Million Dollars, lets say the development is complete in 12 months, you can expect to sell the unit anywhere from $1200-$1300 a sqft, after taxes and brokers fee, you should be able to walk away with on average $125-$150k at the very least. The average one bedroom condo in Manhattan now goes for $1,140,000. Remember some of the benefits of buying pre-construction, besides all it's amenities, knowing knowone has been there before you, is that you get the 421-A tax benefit, which is basically an abatement for approximately 10 years. This makes the unit when selling it, more attractive to the buyer. Now you can use your profits and purchase another unit, continuing to roll over your money. There are people who buy multiple units a year, and they make millions a year doing this.

2. Handy Man Special: A Handy Man Special is an apartment/house that is in disrepair, because of this you can buy one at a steal, invest additional money fixing it up, kicthen/bathroom etc. Making it more attractive, then you flip it, people can make anywhere from $100k and up in profits, it does take somewhat longer to sell and does require you to be hands on in the project. Updated a Kicthen and Bathroom alone can increase the unit anywhere from 25-30% and up. The initial investment varies, if it's a condo/co-op or house, you can buy it with as low as 10% down and has high as 30% percent, you have to figure out how much you can invest.

3. Income Generating Property: most of the time is a building or commercial property, this is for someone who has a lot of initial capital and is in it for the long run. When purchasing an income generating property, there are a lot of things you have to look for, is there a conversion opportunity, air rights, what's the Gross operating income, NET etc, rule of thumb is outside Manhattan you should be paying around 10 times the rent roll. Rent Roll is what the yearly gross income is. In Manhattan it can vary from 10 to as much as 30 times the rent roll, because of the lack of available properties, the value Manhattan brings in general and the potential in the future.

4. Now you read all of the above, and your saying, Damn I wish I had that can of money, but you don't. You still want to get into real estate though, here are some options for people who aren't in the financial position yet. 1. You can partner up with someone, a family member, a friend, a colleague. Form an LLC or Joint Venture, and get into pre construction or something, you can do this with more then 2 people as well. 2. If you know a lot of people who have money and would like to pool them together, you can form what is called a Syndicate, there are many ways for doing this and many books on doing so, you can check out the list of real estate investing books on the sidebar from Amazon.com 3. This is for anyone who only might have a thousand dollars or so but would like to invest in real estate, you should try investing in a REIT (Real Estate Investment Trust) which is sort of like a stock, but your buying shares with companies who own, operate and develop real estate property, You would have to talk to a stock person for that, but I feel they are a much safer investment then stocks in general, one you might want to research is SL Green, they recently bought the PANAM/METLIFE Building, but you should do your own research and figure out which company you think is best.

One other piece of advice, when buying and selling real estate, consider performing a 1031 exchange, it is a program provided by the government that says if you sell one form of real estate and purchase another with the money, you get a tax break. This is something that needs to be discussed with an attorney, usually you are given 45 days to identify a property and 6 months to close. But again I am not a lawyer and advise you to speak to a good real estate lawyer.

Keep coming back, as I am updating this blog frequently