- The Washington Times - Wednesday, December 24, 2003

Q: We are considering refinancing our home and have decided to use that money to begin buying and selling real estate. I would like to purchase a lower-priced home to fix up and sell. I hear about all of these real estate success stories, and I am just wondering if this is a good course of action.

An alternative to refinancing would be to sell our current house and purchase another house that would be a step up for us.

My wife and I are not sure if we would be making the wrong move by staying in a house we really want to sell on a chance that buying real estate (to fix up) would be a better alternative and a good moneymaking opportunity.

Is this something that takes several years to accomplish? Are we taking a huge risk?

A: The first step for you and your wife is to determine whether you are ready to launch a new business.

What many potential real estate investors don’t realize, it seems, is that real estate investing is not like investing in stocks and bonds, where you simply place your money with a broker and hope for the best.

Real estate investing is an active investment — unless, of course, you’re looking at real estate investment trusts (REITs), but that’s a different story.

You say you want to “begin buying and selling real estate.” Sounds simple enough, but before you launch into the real estate investment world, first consider how the transaction went with your primary residence.

The agent probably took care of many of the minute details, such as lining up contractors for inspection items — even getting the inspector. If you’re going to start investing on a regular basis, then you’ll want to develop relationships with these professionals yourself.

These are the steps you’re gong to have to take to get started in buying and selling real estate:

• Set up a limited-liability corporation.

• Find a real estate agent who knows the marketplace you’re interested in to find the properties.

• Locate financing.

• Line up your contractors.

Unless you’re going to do it yourself, then you have to ask the following questions:

• Do I have the expertise to handle tasks that require trade status, such as plumbing, electrical, HVAC?

• Can I lay carpet?

• Can I hang and repair drywall?

• Can I fix dry rot and carry out other carpentry work?

• Can I replace subflooring and deck work?

• Can I repair the roof?

• If you’re repairing electrical work and plumbing, you may need to get proper permits and inspections.

• Find a title company to check out titles of properties.

• Find a settlement or escrow company for closings.

And these are just for starters.

If you’re holding onto the property short term, you’ll need a short-term insurance policy to cover the property until you sell it again. And then, here’s the kicker — you have to do this every time you want to buy another house, fix it up and sell it.

As you can see, this is another job, when you’re considering the refurbishing of property and selling. You can make a lot of money, and you’re going to work hard to do it.

The good part about it is that the returns are usually higher than what you’ll find in any other business.

Whether to move up into a better home now or to invest in real estate is a personal decision, it seems to me. Either you want to invest in real estate or you want to keep rolling your equity into a bigger, better home base.

Most people can’t do both. Write down your financial goals together. Find a real estate agent who can walk you through real estate investing as it pertains to your area, and then talk with your accountant about tax liabilities and benefits.

Then make your decision.

M. Anthony Carr has written about real estate for more than 15 years. Contact him by e-mail ([email protected]).


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