Real Estate Investment Frequently Asked Questions
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The first step to getting started in real estate investing is to determine your financing. How much can you afford to spend on your first property? You should have, at least, a minimum of $30,000 to make a responsible real estate investment, along with authentic sources of financing that ensure your closing capability for any properties put under contract.
Many people think that to get started in real estate investing they need to attend a bunch of seminars to gain some sort of expensive and secretive education. While, admittedly, there are some excellent real estate education providers available, it’s advisable for you to consider whether the money should be used as a down payment for your first investment property. The knowledge gained through personally conducting this transaction could prove more valuable than education received at seminars. Often, the lessons in these seminars revolve around hypothetical investment techniques that, while they may sound fantastic on stage, they are not proven in reality.
Many people go through education because they feel unprepared and afraid to take the first step. Overcoming that fear should be one of your first priorities, and jumping right into your first investment is the only way to do this. Keep in mind that if you’ve invested in an education of any kind, this investment should be considered a 100% loss if it is never applied.
Wholesale properties are the type of property purchased by investors often to rehab and add value. Wholesale properties are sold by real estate wholesalers that do not sell to retail homeowners. New Western Acquisitions operates specifically in a wholesale market and does not provide properties to retail buyers.
After acquiring an investment home from the wholesaler, the investor then rehabs the property with the intention to resell it to a homeowner in the retail market or to rent it out. Buying a property at wholesale can be thought of as the risk/reward middle ground between the purchase of a property directly on the MLS and buying a property at a foreclosure auction. In most instances, buying a wholesale property is a higher risk than purchasing from the retail MLS since there is no inspection period. However, the property takes much less effort to sell and earns a much better price through a more efficient process. ]
At the other end of the spectrum is the foreclosure auction. Which, although these may represent the largest returns, auctions are usually beneficial for only heavily experienced investors. Unlike wholesale properties, bidders do not have access to the interior of the property before the auction and must pay cash within minutes of the sale.
A distressed property is a home that is typically sold under fair market value. Most distressed properties are in need of some type of repair, but could also need to be sold fast due to the seller facing a situation such as a foreclosure or a divorce, and they are willing to accept a discount.
Traditional financing is typically a bad fit for distressed sales due to the speed at which the seller is interested in selling and the condition of the property.
When it comes to knowing how and where to get repairs done, it is most important to have a good network that involves general contractors, some backup general contractors, and a handful of subcontractors.
A trustworthy contractor is an excellent resource because they can accompany you to the property, inform you of the needed work to be done, and provide a general estimate of the cost. However, it is important that you also have a slew of backup general contractors in your network just in case one stops performing to your standard.
Properly managing contractors is critical for any investor. Otherwise, they could cause investors to risk a number of things, such as the work not being done properly or on time. Accidents are common, which is why it is necessary to document the insurance for all general contractors and subcontractors. Unfortunately, not all contractors are reliable. So, before you hire someone, make sure you have their current home address and ask them for multiple references. If a general contractor will not allow you to photograph their driver’s license, then it’s typically a red flag that you shouldn’t be dealing with them.
If you have trouble determining the cost, yourself, it’s a good practice to obtain multiple bids. A lot of investors risk overpaying when they do not take the extra time and effort to go through this process. It is said that the “devil is in the details” when dealing with contractors and tradesmen, so perhaps it’s wise to have an attorney draft a contract template that clearly defines repairs and completion dates. Use this contract template in your transactions, and never pay a contractor for until the job is complete. It’s common for a new investor to acquire a property that should yield a homerun, but they, unfortunately, fail to make a profit due to poor management of the rehab. This is why management, along with financing, is highly regarded as the two most important aspects of real estate investing.
New Western Acquisitions understands that the investment home market fluctuates often and we do our best to offer the best discount possible at the time.
Like any business in the wholesale trade, our goal is to provide a product at a price where the customer will be financially successful at their value-add business. We offer investors investment homes at a set price through a sales process that cannot be bid up past the point of profitability by less experienced investors. The discounts that we offer are dependent on the property, location, and the current market but can range anywhere from 10% to 50%.
New Western Acquisitions already offers fair prices to investors. By paying our price, investors will avoid overpaying. When you go to an auction, it’s fairly common for beginner investors to chalk up the price because they don’t know what they’re doing. These inexperienced investors make it difficult to get a good deal on a property and take away what could have been profitable investments for more experienced investors.
At New Western, you won’t have to worry about negotiating because we will always give you a fair price. Our set-price model allows you to avoid wasting countless hours visiting houses and writing contracts that will never get accepted at your asking price in a competitive market.
No. Banks can often take as long as 30 days or more to close, and transactions for wholesale properties require a closing time.
Also, traditional banks don’t lend on distressed properties and usually require contingencies that the property is repaired before they will provide a loan. Most wholesale investment properties are distressed or in disrepair and will need rehab.
A hard money lender can be a good alternative to traditional bank financing. Hard money loans, also known as private loans, rehab loans, bridge loans or construction loans, are a form of real estate investment financing available to purchase and repair a property. Hard money loans do not follow conventional standards that are required by banks or mortgage brokers, which allows you to obtain maximum leverage for a distressed property as well as to obtain funding for repairs. They also require less borrower documentation because the loan amount is determined by the value of the property, so hard money lenders can close and fund far more quickly than traditional banks. When working with a hard money lender, you will be able to finance your residential investment property as if you were paying cash.
Most hard money lenders also offer landlord or rental property loans for investors looking to buy and hold the property as a rental investment.
No. New Western simply requires that you have an in-office meeting with one of our agents before we add you to a live property distribution list.
In this meeting, our agent will inform you of the full sale process, what to expect from our company, and you’ll receive take-home information about how the transaction works. You will even receive a copy of our standard purchase contract, so you have plenty of time to get comfortable with the terms before you ever visit a property.
Our properties are discounted and sell very fast, so the in-office meeting is an opportunity for you to ask any questions you may have and learn everything about our process before you start looking at deals. By meeting with one of our agents first, it will give them a better understanding of your investment goals and what types of properties to send you. After the meeting, we will begin sending you properties for you to evaluate.
The agents at New Western Acquisitions do their utmost to find the best deals for clients based on the knowledge we’ve gained through years of experience.
We start off by doing a basic estimate of repairs and determine the price point that we believe the property will sell for. We base this estimate mostly on what we see, but also on a variety of additional factors.
All real estate investment deals come with a varying degree of risk. Investors should understand that there are a lot of different issues that can come up that you do not initially expect. Our estimate is just a general guideline and should be verified in greater detail by a professional that will be managing the repairs. Even with the best estimates available, this number can pose a challenge to predict. Some factors may change and affect the investment process: the labor market can change, the cost of materials can fluctuate, and the investor’s level of construction management experience plays a big part in the cost of repairs.
The sale price of the home is also hard to predict accurately: neighborhoods seemingly change overnight, the estimated after repair value is directly proportionate to the level and quality of the repairs performed, poor design choices can add months onto marketing time and reduce the value of a home by tens of thousands. Although all of these uncertainties can seem quite intimidating, it is important to understand that real estate is high-risk/high-reward proposition and the occasional failure should be expected even for the most experienced investor.
Being able to tell whether or not buying a particular wholesale property is a good “deal” or not is something that you have to be able to judge for yourself. In this instance, good judgment comes with experience.
The agents at NWA will supply you with a packet containing all recently sold properties similar to the subject property. The information we provide you with is based on repairs, and while reviewing the information, the investor must understand that there are a variety of different factors that can change.
Before buying a property, it’s critical that you do your own, independent research in addition to the information we provide you in the packet. It is recommended that you base your decision on the information you gather from multiple sources and do not limit yourself only to the information provided by New Western. Access to your own comparable sales information from the local MLS provider is critical and can be obtained either directly or from a real estate agent contact. We believe that all investors should follow their own good judgment based on their knowledge and experience with the real estate market.
Although this idea might sound appealing at first, cutting out the middleman limits your available sources to find discount properties. New Western is a great source for finding discount properties because we have developed proprietary technology and tools that are unavailable to the general public. Our experienced agents are constantly in-tune with the real estate market and can provide investors with a significant degree of knowledge that can only be obtained through experiencing a frantic volume of investment real estate transactions. Due to proprietary technologies and a high degree of negotiation experience, the agents at New Western will likely be able to sell the discount property to you for a better price than if you found the property, yourself. As an investor, you need to have a variety of different sources for discount properties and maintain good relationships with all of them; it’s this multitude of options that are key to a steady supply of investment properties.
The first step in the buying process begins with coming into our offices for a meeting with one of our experienced agents. The in-office meeting is a great place to start because, not only will you learn about the process of buying a house and what to expect from us, but you will also be given the opportunity to ask questions and tell us your preferences as well as build a relationship with us.
Once the in-office meeting has taken place, and we feel we have a strong idea of the type of house you are looking for, we will begin distributing the properties to you. All of the properties that we have are sold on a first come, first serve basis, which will save you time and effort. Unlike buying a house on the retail market, closings here at New Western typically only take a matter of days or weeks and are straightforward, simple transactions.
Yes! Buying a wholesale property from New Western Acquisitions means that you will have the opportunity to do as many inspections as you please. Please note that since these are distressed properties all of the utilities will typically not be turned on for inspections. Also once you have contracted the property you will not be entitled to an option period and the contract will not be contingent on the results of inspections, so all inspections will need to be performed before contracting. Luckily buying from New Western is not like buying at an auction where you are not even allowed inside. In fact, we encourage you to inspect the property as many times as it takes to make you comfortable. Although the property will not be held for you and you may run the risk of another investor purchasing the property on a first come basis. By providing you with the opportunity to do your own inspections it will give you the opportunity to assess the condition, repair requirements and potential issues of the distressed property. Investors that purchase from New Western must become comfortable with quickly inspecting the property on their own or with a general contractor. If your risk tolerance and level of experience requires that a professional home inspector must visit the property and generate an in-depth photo-illustrated inspection report on the property defects then you should not purchase properties in the wholesale market. All investors must understand that buying a wholesale property always carries the risk that all parties involved could miss a substantial defect in the property that could greatly affect the repair cost, after repair value and overall marketability of the property.
The buy/fix/sell strategy is when you buy a property on the wholesale market, perform repairs on it to improve the value, and then quickly resell the property on the retail market.
Generally, the average time to buy/fix/sell a property takes about 90 days to resell from the time of purchase. However, if there is a project that is going to yield a higher return, then it can take anywhere from six months to a year to complete the process and still be considered a good potential investment. As any good investor knows, when repairing and reselling a property, it is important to allow extra time for delays in case the process goes on a little longer.
When repairing and reselling a property, just like every other matter in real estate, there are always risks involved. These risks are just like those found in any other investment, and, of course, cannot be fully encompassed here.
One of the biggest risks involved in a buy/fix/sell is a potential loss on the investment. Some risks, such as neighborhood changes, are out of your control. With proper planning, you can help to protect yourself against the risk of improperly estimating repairs. Other risks include not being able to resell the property, or the contractor running off with your money. The latter is an example why it is always a good idea to qualify your contractors, never pay for a job until it is complete, and have multiple backup contractors in your network. All types of real estate investing are risky, but the buy/fix/sell is one investment that is a higher risk but comes with higher rewards.
What is determines a good return on investment differs between investors. Experienced investors are better able to assess the risk, and have learned how to manage their business exceptionally well. These investors are sometimes willing to accept smaller returns to tackle a higher volume of transactions, while other sophisticated real estate funds are ready to accept return margins as low as 5%. Such a thin margin may seem petty to an investor who has the goal to buy one home per quarter, but if a fund may purchase one-thousand homes per year and turn them every ninety days, then it represents a hugely successful business that can out-compete a huge segment of the smaller market.
The buy/fix/rent strategy is where an investor buys a property on the wholesale market, performs repairs to improve the value and then quickly rents it out to tenants. The exit strategy here is to retain the property as an asset and rent it out to a tenant for cash flow. It is a common opinion among investors that the buy/fix/rent strategy is the key to true long-term wealth and represents a lower risk proposition. One of the benefits of the buy/fix/rent strategy is that you can capture all 5 forms of real estate profit:
- Unrealized capital gain if you buy the property at a discount
- Positive cash flow
- Long-term appreciation of the property
- Debt reduction that occurs if the property is financed
- Possible tax benefits such as depreciation
Every investor has a different opinion regarding the ideal length of time to hold a rental property. There are several factors to consider when determining your strategy: your ability to buy properties at a steep discount, your future capital needs, your future expectations of the real estate market, and the cost and terms of your financing.
After considering these factors, you must determine if it makes more sense for you to rent out a property for one or two years and resell it for profit, or if you’d be better off holding it for a longer term, possibly indefinitely. Many other factors could affect the determination of your strategy. However, many experts agree upon the most influential factors, those of which we’ve listed here.
After a property is move-in ready, it should take approximately 30 days to find a tenant. This amount of time can vary, however, and could be a longer, or shorter, time-frame. The length of the process all depends on the demand for rental properties in your area.
The time that it takes to get a property leased can also be dependent on the desirability and marketability of the property. If you are able to access MLS data or a good Realtor, you’ll gain valuable insight to similar rental properties, their past rental prices, or the amount of time it took to find tenants.
Many of the risks involved in a buy/fix/rent strategy are the same as the risks associated with repairs and contractors. These could include, improper estimates of repairs, the property’s inability to be resold, neighborhood changes, instances where the contractor runs off with your money or potentially taking a loss on the property.
With the buy/fix/rent strategy, you also run the risk of liability such as tenants who may be injured on your property because it’s not safe. For example, experienced landlords often avoid properties with swimming pools for liability purposes. Local safety requirements for landlords may vary based on location, but landlords should be aware of safety precautions such as smoke detectors, door-lock security, staircase safety, etc.
If any safety requirements are violated, landlords are put at a huge risk and could be held liable in the instance of an injury. When renting out a property, landlords must also face the risk of tenants damaging the property, or their failure to pay the rent and leaving the landlord with an asset which has diminished in value. If there’s a violation of the leasing agreement and the tenants must be evicted, litigation may be needed, so it’s highly recommended to thoroughly screen tenants before they occupy a rental property. Landlords should be willing to accept that their rental property represents a management proposition that can be time-consuming and stressful at times. However, when done correctly, it could provide a substantially higher return than other investments.
This is the investor’s choice. Some investors choose to review and qualify each tenant themselves, while other investors might select experienced, licensed real estate agents to filter the applications and only present qualified potential tenants for the investor’s approval. The third option is to have a professional management company review and approve the applications.
When purchasing a buy/fix/rent investors should typically avoid the low end and the high end of the price spectrum. Although properties that are too low in value may look to return a high margin of cash flow on financial review, there are some risks that come along with this such as elevated maintenance costs and properties in high crime areas can be subject to a higher degree of vandalism. Theft of copper plumbing pipes are quite expensive to replace and common in some areas every time a tenant leaves or is evicted and the property is left vacant. On the other hand, in most markets there is generally a lower demand for rentals in higher valued properties. The rents on higher valued properties are usually not proportionate to the ongoing expenses related to the property, which could result in negative cash flow. Negative cash flow can result in a non-performing asset that could produce a negative return on investment if it outpaces appreciation. A good range for buy/fix/rent property is commonly thought of to be between $80,000 and $250,000 after repair value.
Although local real estate agents can be a good source, most agents may not be accustomed to working with investors and may not yield results that benefit the investor. This is which is why specialists like New Western exist, to work primarily with investors for their benefit.
Professional acquisition companies and wholesale real estate brokerages, those that specialize in distressed investment real estate, are among the best resources for qualified investment properties for an immediate discount. Often, new investors will look into marketing techniques such as mass mailing letters to homes, door hangers, and other online marketing techniques commonly taught at real estate investment seminars. However, these methods are rarely proven and can be exceptionally expensive with no guarantee of success. The results can vary widely, and they often take many years to perfect, even for professional companies that have large budgets dedicated to the task. Some investors with a significant amount of experience can find distressed properties at foreclosure auctions. It’s important to note that this method involves a high degree of risk, and is not recommended for novice investors.
Knowing whether a product is worth purchasing is a critical step in the investment process, and is often the most overthought. With all of the right tools and resources, you should be able to make this decision within ten minutes.
Before you make this decision, experts advise having access to MLS comps to see what other similar surrounding properties have sold for recently. These comps will help you determine the after repair value of your property, and what repairs will be required to achieve that value. It’s also advised to determine the length of time the other properties had remained on the market before they were sold, this way you can consider your approximate holding time and its related cost. The next step is to calculate the cost of required repairs, which is why it’s necessary to possess an excellent personal knowledge of home repair or have a reliable general contractor help determine this cost for you.
After obtaining these important figures, you’ll need access to a tool that may calculate your expected return on investment. The majority of professional real estate investors develop their own Excel spreadsheets to determine the return on investment and quickly underwrite properties. This way, they can ensure they aren’t missing any associated costs while quickly and efficiently evaluating the property. If the projected return on investment meets their desired requirements, they can act fast before their competition gets the chance to purchase the property.
There are five simple steps to evaluating a property. Make sure you know what investment strategy you are going to use before you start.
Step 1) Determine the rehab cost.
Step 2) Determine the ARV based on comps.
Step 3) Determine if this property will meet your investing goals (buy/fix/sell, buy/fix/rent, or your own, unique investment strategy).
Step 4) Determine expected days on the market based on comps and market conditions.
Step 5) Evaluate the potential risk. Are there any unusual circumstances that may prevent the sale of this house for its estimated worth, or renting it quickly at the appropriate price? Once you have all this information, you can make an informed decision regarding whether or not to purchase the property.
New Western agents are licensed and thoroughly trained to assist investors in many of the aspects of their real estate transactions. Our agents witness a multitude of transactions and can be a valuable resource at times in sharing the experiences they have had with other successful real estate investors in an effort to provide support. Although keep in mind that real estate investing can be a high risk, high reward proposition that must be properly managed to prove successful.
There is no guarantee that purchasing a discounted investment property will provide positive results even if you follow the guidance of agents, mentors, other successful real estate investors, or New Western. We provide properties that you can purchase on-the-spot at a reasonably discounted price without having to spend countless hours viewing, making offers, and negotiating in the general real estate market to buy houses. The information above should be used as a guide on what we simply think are best practices. We do not claim to offer education, training, or additional resources that will guarantee your success.