1. Find foreclosures
If you have enough cash you can buy homes at the foreclosure auction. Most areas require you to pay cash the day of the auction. The problem with this strategy is that you might run into title problems and many times you cannot see the inside of the home prior to the auction.
My personal favorite is to find people in foreclosure and work a deal with them prior to the auction. This does not require you to pay cash and many times you can buy the home with seller financing.
This situation can be beneficial to both parties. You are helping someone keep a foreclosure off their record and also buying a home at a discount.
2. Pay retail and hold for the long haul.
Paying retail for real estate has worked very well lately. The Sarasota, Florida real estate market, like many areas of the country, has been booming. You could have purchased pretty much anything within the last few years and made money.
There has been alot of talk lately about a real estate bubble. It wil be interesting to see if recent home buyers will keep their price gains. I believe prices to stabilize in areas that are forecasted to have large population growth, like Sarasota, Florida.
In my area almost every property has a negative cash flow if you purchase using a mortgage. I cannot find one property in my area that produces a positive cash flow with any kind of financing.
You have to focus on the time value of money when looking at the long term benefits of real estate. Let's say you buy a $200,000 house today and the home appreciates at a modest 5% a year. After 20 years that home will be worth more than $530,000! At a 10% appreciation rate for 20 years the home will be worth over $1,345,000! Let's be negative and say that real estate will only appreciate at 3% a year for the next 20 years. At this slow appreciation rate the home you paid $200,000 for would still be worth $361,222 at the end of 20 years. Keep in mind that at the same time you or your tenants are also paying down the mortgage. Can you imagine if you had 10-20 good long term rentals? After 20 years there is a good chance you would be a multi-millionaire.
3. Buy in depressed areas
Find areas that are depressed but have some redeeming quality such as proximity to the beach or waterfront, a thriving downtown or some other desireable place. Many depressed neighborhoods need a pioneer. Someone to come into the neighborhood, pay retail, either tear down and build or rehab the old homes. This kind of activity will eventually attract other investors or home owners with money. Once the money starts rolling into the neighborhood it changes and starts to become a more desireable place, which ultimately attracts more money.
I purchased a home in a depressed neighborhood on the water in Bradenton, Florida. A developer is buying my house and other depressed homes in the neighborhood to build high rise condos. The redeeming quality of the house I purchased is that it was on a river, with a gorgeous view and was convenient to a changing downtown.
4. Fix up houses
As a Realtor I have worked with hundreds of buyers over the years. There are people who just won't buy homes that need work. They either don't have the time, patience, knowledge or desire to buy an outdated home and fix it up. This is where the handyman or contractor can make some good money.
I have made money in the past by fixing up and flipping tired homes. However, I have always purchased them at a discount from normal market values. Make sure you either get the house at a good price or have a way of adding some value to the house. Usually, the investors who get their hands dirty make money doing this. I see many wanna-be investors get into this game by purchasing homes at retail or slightly below, contracting out all of the fix up work and then trying to sell above what the market will bare. These are the investors who tend to make little or no money in relation to the time and risk associated with the project. Would you want to lay out $30,000 for a downpayment and $40,000 in fix up costs over the course of 6 months to rehab a house only to make $10,000?
Marc Rasmussen a Realtor/investor selling Longboat Key real estate .