Foreclosure investing remains a highly profitable market as long as you know what you’re doing. When you do it correctly, online investing in foreclosures opens an enormous market where you will find the best deals. Many of the online sellers are big investors that bought foreclosures in bulk. They are wholesale flipping their inventory. It’s not uncommon for many of these to sell for as little as $10,000 to $20,000.

Being successful at investing in online foreclosure property means knowing and managing the risks. You’re bidding sight unseen on these properties other than the hand chosen pictures the seller serves up to you. You need to factor potential and real problems into your bidding strategy.

• The property is sold “As Is”. If the roof leaks, you can’t go back to the seller demanding repairs.
• Many states have a redemption period anywhere from 10 to 700 days. Hardly anyone ever redeems their foreclosed property but you might not be able to take possession until the redemption period expires. The most commonly redeemed property is farmland when the farmer is able to buy the property out of foreclosure when the crop comes in. Don’t bid on farmland and know the redemption laws in the state you are investing in.
• Another strategy around redemption periods is buying the redemption rights from the previous owner for a few hundred dollars.
• Know what you are bidding on. Some online auctions are selling the mortgage or liens rather than the property itself. It doesn’t make much sense to buy a mortgage that is in default unless you plan to foreclose on it.
• Previous owners become bitter when they are foreclosed on. It’s common for them to strip the house of everything including the kitchen sink.
• These aren’t courthouse step sales that require full payment in as little as 24 hours. However, you aren’t going to have much time to find financing after you make the purchase. You need to have it lined up before hand or risk losing both your deposit and the property.

If you are investing in short sales or helping homeowners with short sales, you need to be fully aware of a Federal Trade Commission rule intended to protect consumers. As a real estate professional, it’s assumed you are a more sophisticated investor than the typical consumer. Unfortunately, there have been con artists taking advantage of homeowners attempting a short sale. That’s the reason the FTC came out with a ruling to protect consumers.

The ruling primarily covers three areas. First you or a short sale negotiator you hire cannot collect an up-front fee to negotiate a short sale on behalf of the homeowner. You or your vendor can collect a fee but only after an offer from the lender is presented to the homeowner and the homeowner accepts the short sale offer.

The second area covered by the rule requires certain disclosures to the homeowner. A short sale negotiator must disclose:

• The negotiator is not associated with the government and their services have not been approved by the government or the consumer’s lender.
• The lender may not agree to change the consumer’s loan.
• If the negotiator tells the homeowner to stop paying their mortgage, they must also tell them that they could lose their home and damage their credit rating.
• That the homeowner can stop doing business with the short sale negotiator at any time.
• That the homeowner can accept or reject any offer made by the lender.
• The amount of the fee the homeowner will be charged.

If you’ve been a real estate investor very long at all, you should know how important having an exit strategy is. Frequently, the first question I ask new real estate investors is – “How do you plan to profit from the investment you are about to make?” Way too often the answer I get is – “Hmmm… I like the price I’m paying but I haven’t thought about how I’ll profit.”

When you invest in real estate without first having an exit strategy, you don’t have a plan to make a profit. When you don’t have a plan for a profit, you can’t determine what the property is worth to you. The asking price compared to the value to you can be very different depending on your exit strategy.

Make sense?

Long Term versus Short Term Investing

You’re first consideration should be whether you plan to hold the property long or short term. When you can invest in a property for little or nothing down, you probably want to go with a long term investment strategy allowing you to build equity over time.

There are many strategies to getting into a property with little or nothing down. Seller financing is one way. A seller offering seller financing has a much larger pool of buyers. They do this to obtain the maximum price for the property. As an investor, you can get in for very little cost but you have no equity. Your exist strategy should holding long term while profiting from rental cash flow.

If you want a short term investment to turn a fast profit, you’re going to want to buy the property as cheaply as possible. Probably wholesale. In today’s market, getting the best price on a property means paying all cash when others are making financing contingency purchase offers. When a seller is willing to sell at a deep discount, they usually wanted the money yesterday. You’ll get the best price when you offer all cash and can close in a matter of days – not weeks. Now you have plenty of equity in the property and can flip it to a rehabber or sell on the retail market for a nice fast profit.

Most people start their real estate career investing in residential properties. Eventually, they look to commercial investing because it can be much more profitable. Before you jump into commercial real estate there is different information you need and a different approach compared to residential investing.

Six Tips to Get You Started in Commercial Real Estate

1. Commercial real estate is valued differently than residential. Residential properties derive their value based on recent comparable sales of similar properties in the neighborhood. The value of commercial property is primarily determined based on cash flow. Two buildings, each with 6,000 square feet and located on the same downtown block will have different asking prices. A single tenant small grocery store is likely to have less cash flow than a multiple tenant office building for attorneys and CPAs.

2. Market and sector knowledge is critical to your success. If you have personal knowledge about a particular commercial sector, stay with that sector. If you have no knowledge about a sector, gain the knowledge you need before investing. Even if you’re only the landlord, you don’t want to invest in a hotel if you don’t know anything about the hospitality industry. Same thing with the manufacturing sector. You don’t want to own an industrial strip if you don’t know the best use of the property to maximize cash flow.

3. Different formulas are used in commercial real estate investing. Along with sector knowledge, you need to learn new profit and loss formulas before investing in commercial properties. In residential you may have only bought properties for 75% of after repair market value or rentals that cash flowed 20% above expenses. In commercial real estate, you need to understand cap rates, net operating income, and loan to value ratios. They’re not difficult but you’ll run into them often in commercial investing.

4. Patience is a virtue when investing in commercial real estate. You don’t always want to invest in whatever is currently on the market just because you have the money. First, you want to determine what you want to invest in based on tip 2 above. Next, build a network of professionals involved in the type of investment you want to make. Finally, wait for the right property to come along at the right price based on the formulas in tip 3.

5. Consider the long term impacts before investing. Beside the immediate cash flow, you need to understand what is likely to happen to commercial real estate in the surrounding area in the coming years. Is it located in a city where the core infrastructure has been neglected for years? If so, businesses will slowly begin locating elsewhere in the years ahead. Look at things such as a major employer in the area struggling financially and it’s becoming questionable if they will survive. Look at the tax base of the community. Has it consistently been declining along with associated services?

6. Don’t put all of your eggs in one basket. If you’ve had success as a residential investor, keep some on your holdings in residential. The commercial and residential sectors don’t always run in the same business cycle. Whether investing in stocks and bonds or real estate, smart investors always strive for a diversified portfolio.

Whether you are new to real estate investing or an experienced professional, the internet is essential to your on-going success. Researching real estate, neighborhoods, cities, and towns can be done on the internet. What used to take days and weeks on foot is now accomplished in mere hours.

It’s not just about researching the marketplace. You should be using the internet to find review sites for your handyman, contractors, and any other trades people you need. By using review sites, you avoid the risk of blindly picking an unknown trades person based on a Yellow Page advertisement.

Build Your Real Estate Investing Team Online

With the internet, you can build both local and distant investing teams. Often the markets in different parts of the country have very different opportunities. For instance, if you’re id Detroit, you might have good reason to invest in a healthier marketplace. By joining local but virtual investing clubs you can find birddogs, real estate agents, wholesale brokers, etc., living and working at the location you want to invest in.

Of course, most real estate investing professionals have websites. Before even contacting them, you narrow your search by researching what they specialize in. You can use local forums and websites to network with real estate professionals to find the best available.

Other Real Estate Investing Uses for the Internet

Most investors know about online mortgage calculators making it simple to perform a variety of cash flow or financing scenarios before investing in a property. Another handy tool is the ability to track interest rates at the national level when you need financing. Whether you are looking for a bank loan, a hard moneylender, a bridge loan, or something else, the internet increases your financing options to a much higher level.

If you aren’t familiar with a squeeze page, you probably aren’t using the internet any where near the potential it has for your business. Finding leads and investment opportunities is about having a network of contacts. A squeeze page is a way of building just such a list of leads and contacts. Once the list is built, you send out regular emails letting people in your network know what you are doing and what you are looking for. Using the internet for these types of purposes exponentially increases your reach to far-flung locations.

Use Social Network Sites

Facebook and MySpace are two social networks you need to engage. Both have real estate investing groups at locations across the country. This can be a good way of learning the market conditions at distant locations.

LinkedIn is a business networking site with huge possibilities for real estate investors. It’s different than Facebook and MySpace because it’s all about business networking. One successful use of Linked in is to use it for introductions to others in the industry that you want to know. As you grow your network, you look to see who others are LinkedIn with. When you find someone you want to do business with, you contact him or her through LinkedIn by starting a conversation about being LinkedIn to a mutual businessperson. Having something in common works much better than cold calling.

When it comes to selling properties that are near or far, posting a quality YouTube virtual tour is an effective and proven internet tool.

In this high technology world, there is powerful spreadsheet software that dramatically increases the speed at which real estate investors are able to analyze investment opportunities. Of course, investors able to perform faster and more in-depth analysis are able to find the best investment opportunities.

I’m not going to make a recommendation for particular software. My goal here is providing you with information so that you know what to look for to make an educated decision on your own. Good real estate analysis software performs a wide gamut of calculations instantly. These range from simple calculations like cap rate, cash flow, and mortgage costs to the more advanced calculations for concepts including tax sheltering, financial sheet analysis, time value of money, and internal rate of return.

For rehabbers the software must have a section to estimate material and labor costs. It should highlight missing and inaccurate data entry. Good software will highlight data that doesn’t appear to be consistent with the rest of the data. For instance, a 100-unit apartment building with only $4,000 in monthly rent collections.

The software should make quality presentations possible to lenders, potential partners, and others involved with your real estate projects. You should be able to enter multiple variables at the same time to receive instant up dates to the analysis.

The software needs to come up with strong buy or don’t buy recommendations. Many use a sliding scale from 1 – 10 or 1 – 100. Good software makes recommendations strongly indicating one end of the scale or the other. Software that consistently indicates a value towards the middle isn’t performing an analysis that helps you.

Real estate analysis software is complex. In addition to performing analysis of potential investments, it should monitor your existing portfolio. Each time you enter cash flow and expense data the software must indicate how well the property if performing financially. You should be able to identify poor performers easily so that you can sell them out of your portfolio. An analysis of the best performers should reveal common characteristics and features among them. You use this information to find other big cash producing properties.