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No. of Recommendations: 1
First off, thanks to maszke for creating this new board. This board is ideal for me - a budding FIRE wannabe, who is in the process of LBMM and learning and absorbing all I can about how to FIRE.

There was a couple of interesting threads about FIRE thru Real Estate Investing. I was one of those who had drunk the "Hi-Tech/Dot Com KoolAid" and pretty much lost everything in the stock market crash - I barely have my shirt on :)

Diversification, e-fund, cash buffer has become my mantra now. I am beginning to realize that Real Estate investing - if done well and right - could significantly aid in FIRE.

I have a couple of questions for the real estate investing experts on this board:

1). Can you provide a roadmap for a newbie real estate investor - how to go about doing this ? what books to read ?
How to go about appraising and deciding on property to buy ? Lessons learnt .. tips and traps ..

2). I am looking at leveraging some of these skills, in buying real estate in a different country. ( My FIRE goal is to live live 6 months in the US and 6 months in India - where I am originally from. )
Do any of you have experience in buying and managing real estate in different countries. I know Location, Location, Location is the main criteria of real estate investing, but what other things should one keep in mind when planning to buy real estate in a different country. What rules or skills still hold true and what just doesn't hold water ?

3). Do you have any kind of checklist or rate of return models that you follow and works well for you ?

4). What is the best and low risk way to start ?

Thanks
blorefool
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No. of Recommendations: 0
I use REIT's, which have workled well for me for the past few years. I think there are even REIT mutual funds. I mention this because I am one who does not want the hassle of dealing with renters.

A girl I know was also able to invest in a townhome development. According to her she got quite the return, which may be true the way real estate was going up around here a couple of years ago. Now may be a different story.

Volucris
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No. of Recommendations: 7
This is the path that I took: (excerpted fom an old post)

First let me say that I have always had an interest in real estate, first for my own use and later as an investor. It wasn't necessary for me to fork over thousands of dollars to a guru to acquire sufficient motivation. However, once I decided to get serious about real estate investing, I embarked on a program of formal and self-study to prepare myself to succeed.

I took classes at the local community college. I took the basic realtor licensing course. I then took additional courses in real estate finance, brokerage, law, and appraisal. The classes were inexpensive and provided a basic grounding in the field of real estate. I sold real estate for a period. Many investors work with realtors at least some of the time. There is no better way to understand how realtors work and think than actually working as one for a while. I have never purchased a tape or attended a boot camp. I will admit to reading a great many books on the topic. Some of these were written by individuals that many would consider to be gurus. Many of these books are available for free at your local library. The rest were available for a fraction of the cost of a tape set, seminar or boot camp. From time to time I have made special efforts to gain understanding of specialized real estate topics such as real estate negotiating, property management and discounting mortgage paper.

In addition, each individual brings certain knowledge, skills and abilities to whatsoever endeavor they might wish to undertake. You Catherine, have a special expertise in real estate finance that will serve you well as an investor. How did you acquire it? Not from a guru I am willing to bet. I am a licensed civil engineer. This gives me a leg up in the areas of site planning, land development and construction. No guru will teach these things. Many individuals have skills and abilities that have application to the field of real estate investing, such as negotiating, sales, finance and accounting, remodeling, construction, estimating, planning, etc. Many successful real estate investors succeed by occupying a market niche that capitalizes on their own unique skills and abilities.

Finally to really be comfortable with your decisions, you must do what it takes to acquire local market knowledge. You must stay on top of your local real estate market. This mostly means looking at houses and knowing what they sell for. It means being familiar with local regulations and ordinances. No guru knows my local market like I do and yet this is of paramount importance. A basic grounding in real estate topics combined with a desire to succeed, your own unique set of personal and knowledge attributes and local market knowledge is all that is necessary for anyone.



On Real Estate Gurus:

There are no “secrets” to success that need be purchased. For aspiring investors there is no substitute for learning the basics of the business. The gurus are not stupid. They market their over-priced offerings by appealing to the human greed and the desire for instant gratification. The reason so may people that buy tapes and attend boot camps do not become successful investors is not that they didn't pay enough (gotta love that pitch). It is because they were convinced that motivation, education, market knowledge and the secret to success can be purchased in the same way as you or I would buy a loaf of bread. It simply isn't so. It is like a country trying to establish democracy by purchasing a copy of the U.S. Constitution. No matter how much they pay, it won't be enough.

You've got people going out armed with this “secret formula” or that “cookbook” or some other thing that they purchased, but with only a very shallow understanding of the basics of the business and their local markets. They want instant success and they don't want to have to work (or think) too much. No wonder they fail.

Regards,
FMO
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No. of Recommendations: 9
FMO said: "This is the path that I took:" and proceeded to give some excellent insights and good ideas for gaining knowledge about real estate.

But that's not how I did it.

I bought one of those silly kits off TV with the book and the 20 tapes and the planning sheets and the software. I felt like a gullible idiot as I gave my credit card number and charged my $234.60.

But you know what? It worked.

My problem was that I didn't know where to start. I didn't know what to look for or where to look for it or what I might find.

It was 1999, we had sold our first house (by owner) about a year previously and purchased the house we're in now (which we want to stay in forever). We had a good chunk of money in the stock market, which seemed capable of going up, up, up forever... but I was nervous. I wasn't comfortable having all my eggs in one basket.

Then I saw one of those infomercials and it sounded interesting. Not only that, but it had a money-back guarantee. I knew a little about real estate, having purchased two houses and sold one myself, but I didn't feel I knew enough to become an investor. It wasn't so much than I lacked knowledge, it was that I lacked confidence. I didn't want to make a really huge mistake.

So, I listened to the tapes while driving to and from client sites. I listened to them over and over and over again. I read the book. I read other books. I got books from my DH's uncle (who had been a real estate investor), I got books from the library, and I listened to the tapes some more.

Basically, the tapes said that any idiot can do this, if they make the effort to learn the basics and make the necessary phone calls and do the necessary legwork. I figured I'm smarter than the average idiot, so this should be doable.

And it was.

But it took months to find that first property. Months of looking at houses that wouldn't cashflow. Months of looking at houses that had "bad" tenants in them. Months of looking at houses that were ready to be condemned. Months of trying to negotiate with sellers to get them to hold a note (hahaha!!).

But I kept at it. And I got better at it. I figured out what would and would not cashflow for me. I learned how to read an ad to determine if it was worth a phone call. I learned to tell from a phone call whether a property was worth taking the time to look at. I learned the signs for motivated sellers vs. ones that won't budge even if it means never selling the house. I learned how much houses sold for in the various neighborhoods around my home. I learned which neighborhoods made sense, cashflow-wise, and which would never cashflow, even on a "bargain" house. I learned not to expect to buy a house that was "perfect" and expect it to make money.

Once I knew my neighborhood, I limited my searching to only that neighborhood. It's relatively close to my home - about 15 minutes on the highway. It's a decent neighborhood, on the edge of Cleveland. The further you go in toward the center of Cleveland, the more likely you are to find a house that will cashflow for you... but the less likely you are to find good tenants to rent it. The farther away from Cleveland that you go, the less likely you are to find houses that will cashflow, but you find a better class of tenants (more credit worthy, more stable). So my compromise neighborhood is on the edge of Cleveland, but still within the city.

Not every house in this neighborhood will cashflow, by any means. But a few will, if you seek them out. I learned this neighborhood inside and out. I learned the good areas and the not-so-good. I learned the style of house I favor (large doubles/duplexes). I learned the average price ranges for the various house styles. I learned what the typical rent was in the area, and what explained the differences. I learned how to inspect a house for structural soundness, how to estimate repair costs, and what things I absolutely couldn't stand (rotten wood, cockroaches, and really bad smells).

My home inspector, many knowledgeable realtors (and some not-so-knowledgeable), and experience are what taught me all this. And the books.

My lawyer taught me what extras to write into a standard purchase agreement and what to put in my lease. I wound up swapping computer services with her in exchange for my lease.

With all that knowledge under my belt, I finally found a couple of good prospects. One was a "standard" double that was absolutely dreary. Nothing had been updated in forever. It had up and down porches, but the upstairs one needed refurbishing - new wood and railings. It wasn't safe in it's current condition. They wanted $85,000 for it. The other was a non-standard double (it had been converted into a double shortly after it was built 100 years ago). The house was filthy, full of discarded junk, and many of the walls were cracked and all of them needed to be painted. It had updated wiring, and updated kitchens. It only had a porch downstairs, but it had an unusual brick and flagstone patio in the back yard. And the back yard backed up to an empty back lot full of trees. They were asking $75,000.

I think the unsafe porch turned me off and the shaded patio sold me. So I made my offer and submitted it along with all the documentation I had from the bank saying I was good for the money. They accepted, and we closed within about a month.

It took me two months to get the first unit in what I considered to be livable condition, and another month to finish the other. I did the plaster work but I hired a painter to do the painting, because I'm too slow. I was also assisted by a plumber, an electrician, and a roofer.

The thing that took the longest was the cleaning. There was a lot of junk to be disposed of and I couldn't dispose of it there because of restrictions on garbage. So I had to haul it all back to my house to throw it away.

I found my first tenant through one of the real estate agents I'd worked with. He knew a guy that needed a place for 6 months, until he was ready to buy a house. I didn't want to write a 6 month lease, but the guy was also an ex-professional painter and would paint the unit for me. It's been over 3 years, and he's still there. I found the second set of tenants through an open house I had. The girlfriend is still there, too.

So, I guess that was a long, drawn out way of saying that what works for one person may not work for another. Also, you can't expect to decide to invest in real estate one day and actually buy a property the next. There's a lot to learn before you put your money up.

And the tapes you buy off the infomercials, while far from perfect, can serve as your starting point and motivator. They won't teach you everything, and some of the stuff they teach you will be wrong, but they'll at least get you pointed in the right direction so you know what you still need to learn. They'll also give you some ideas that you'd never come up with on your own.

If I have anything else to say on this subject, I'll try to post it over on the Real Estate Investing board (http://boards.fool.com/messages.asp?mid=19352652&bid=113590).

Good luck!

SS
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No. of Recommendations: 3
SoftSimp writes:

but I was nervous. I wasn't comfortable having all my eggs in one basket.

I listened to them over and over and over again. I read the book. I read other books. I got books from my DH's uncle (who had been a real estate investor), I got books from the library, and I listened to the

But I kept at it. And I got better at it.


Great story! You decided that you needed to be diversified more and you selected a great vehicle to accomplish it. You got smart on the subject and then you went out there and hit the ball. You give credit to the tapes, etc. for getting you motivated. For where I sit it looks like your success has come more from within. The credit should go to you.


So, I guess that was a long, drawn out way of saying that what works for one person may not work for another. Also, you can't expect to decide to invest in real estate one day and actually buy a property the next. There's a lot to learn before you put your money up.

You are so right. I have a personal aversion to real estate promoters. I think many of them are con artists. You made a small investment in some materials with a money back guarantee. But more importantly, you acted on the information. In the process, you have learned skills which will serve you for a lifetime. Here's wishing you nothing but more success.

Regards,
FMO

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I have a personal aversion to real estate promoters. I think many of them are con artists.

I agree, on general principal. Their primary goal is to make money off of what they're selling. Educating their customers is a secondary goal.

But there was a whole lot of information packed into that package. Like I said, not all of it was good (the legal forms were especially bad), but there were also some real gems in there that I didn't find anywhere else. And the little program that helps you determine whether or not a house will cashflow has been invaluable - it (and my home inspector) saved me from making a huge mistake on a double that was in fairly bad shape.

But more importantly, you acted on the information. In the process, you have learned skills which will serve you for a lifetime.

I agree. I didn't let myself give up. It takes a loooong time to find a good property that will cashflow, and it can become discouraging. As someone else said, why would a seller price their property so low as to attract an investor? Well, most of them won't. It takes perseverance and commitment to find the few who will.

The tapes really did help with motivation. When I found myself getting discouraged, I'd put them in and listen to them again. They made it sound so simple, I found it impossible NOT to keep trying.

But I wound up developing a strategy similar to yours, rather than the ones the tapes promoted. I'm most comfortable with 20% down and bank financing.

I forgot to mention in that last post that a friend of my DH's is a real estate investor. At the time that I was getting started, he already had 6-7 houses. So I picked his brains. I discovered that he had actually been successful at the holy grail of real estate investing - "0 down seller financing" - but his houses didn't cashflow. Every month, he had to come out-of-pocket to support his growing enterprise. It sounded like a very precarious way to do it - if he were to lose his primary income, he could easily lose the houses, too. That's one of the reasons I gave up on the seller financing idea and decided to go with 20% down bank financing, which was something I was already familiar with due to purchasing my own houses.

Here's wishing you nothing but more success.

Thank you! And I wish the same for you. It sounds like you enjoy it as much as I do. I really think that I stumbled onto my "dream job" when I discovered real estate investing.

Now, I'm going to head on over to the real estate board and post some of the gems I mentioned above (or find them already posted and give the folks here a link).

SS
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No. of Recommendations: 2
SoftSimp writes:

But there was a whole lot of information packed into that package. Like I said, not all of it was good (the legal forms were especially bad), but there were also some real gems in there that I didn't find anywhere else. And the little program that helps you determine whether or not a house will cashflow has been invaluable - it (and my home inspector) saved me from making a huge mistake on a double that was in fairly bad shape.

Different people learn in different ways. For me it was books, lots and lots of books. Some of the better ones I have practically destoyed through constant use. They are among my most prized possessions. Books have to be one of the best bargains available. For a relative pittance, you get to pick the brains of experts in any field imaginable. Just a single idea in a used paperback can make (or save) you thousands of dollars.

Regards,
FMO
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Once I knew my neighborhood, I limited my searching to only that neighborhood. It's relatively close to my home - about 15 minutes on the highway.

*************************

This is the single biggest thing that spooks me about real estate investing: concentration risk. The area you are most likely to be the most knowledgable about is near your home. However, if something happens to the area (as real estate markets are local) you are very heavily exposed to whatever it is. In contrast, if you buy a diversified portfolio, its not a major issue.

Just something to think about...
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This is the single biggest thing that spooks me about real estate investing: concentration risk. The area you are most likely to be the most knowledgable about is near your home. However, if something happens to the area (as real estate markets are local) you are very heavily exposed to whatever it is. In contrast, if you buy a diversified portfolio, its not a major issue.

You make a very good point. Just like I wasn't comfortable having all my money in the stock market, I likewise wouldn't be comfortable having all my money in real estate. For me, I think a 50-50 balance would be ideal.

As for concentrating on a specific neighborhood, I think that if you're planning on buying more than one or two properties, it makes a lot of sense (aside from the diversification issue). Having all the properties close to each other means you can check on them all in a single trip; you become very knowledgeable about the rents; sub-neighborhoods; quality of housing; types of tenants; and regulations, programs, and city services that you'll encounter in the area (these last three items can vary widely from one city to the next in the same general area).

There is another city somewhat near my home, about 30 miles away, where there are investment properties to be had that will cash flow, and I looked there when I was getting my feet wet. But the city regulations are stricter (with point-of-sale inspections), the home improvement programs sponsored by the city aren't as favorable as those in Cleveland proper (although they do exist), and since it's 30 miles away I ruled it out. I've never had to deal with an emergency at the property, but if I do I want to be able to get there as quickly as possible. So comfort zone has something to do with the decision of where to invest, too.

I also don't think that it makes sense to invest far from where you live, especially when you're first starting out. There's simply too much legwork to be done up front while you're learning to make it worthwhile to spend the commuting time. Once you're established and have built equity in your properties, it might make sense to hand the day-to-day management over to someone else so you can relocate, but in the beginning I think it's important to be "hands-on."

Yes, if there were a sudden blight on Cleveland where the population was moving away in droves, my real estate investments would suffer. I think that's a risk no matter where you choose to live and invest - but a small risk. I also think the benefits of concentrating in a single neighborhood outweigh those risks significantly - but that's just my opinion. I think the key is to design an overall investing strategy that fits your comfort zone.

SS
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