Some uninformed folks would describe someone who rehabs distressed property as a “speculator” or even a “property speculator.” Don’t be fooled! There is a VAST CHASM of difference between rehabbing and property speculation.

Let me explain. According to Dictionary.com, the definition of speculation where business is concerned is:

“Engagement in risky business transactions on the _chance_ of quick or considerable profit.”

“A commercial or financial transaction involving speculation.”

While all investing…in anything… has some element of risk to it, I want to highlight a key difference between speculation and investment. When you speculate, risk is higher and by the nature of the word speculation, more risk than usual is implied.

So, in that context speculation doesn’t fit what I advocate at all. I’ll explain further, but first let me illustrate the difference between investment and speculation in real estate rehabber terms from something that happened to me just this week.

I got a call; a “hot” lead from my wholesaler. The property was located on the fringes of a hot area of my town called Riverside. Riverside is an area where historic homes are being bought at inflated prices and fixed up very nicely! Put simply, properties in Riverside at in demand. Well, that’s in the heart of Riverside, but this house was on the distant edge of that part of town.

The house was 934 square feet. Great area, yadda yadda. My wholesaler needs $81,900 and he was the house’s “repaired value” will come in at around $120,000. He continually repeated something he heard from an appraiser about values “around” Riverside being a great investment over the coming years.

I agreed to go and take a look. Before I did, I do some of my own checking. From the tax records available online, I learned that the house was built in 1942, just changed hands last year for $72,000 and was of wood construction with asbestos shingling on the outside.

It didn’t look good when I looked at the numbers. IF…and in my mind a big if…the appraisal came back at $120,000, then the 70% I can get a hard-money mortgage for is $84,000. So, my mortgage would only cover a portion of my closing costs, but none of the rehab. In addition, a few months ago, I bought a property a few blocks away for $38,000. I’m just not seeing the value in this property BEFORE I look at it.

When I looked at the property, it had some things going for it. It looked to be in pretty good shape and was on a corner lot. In truth, it needed $10-12K rehab. One negative is that it was square and there is no porch under the roofline to easily add square footage for increased value. The neighborhood is fair but two things jumped out at me:

- There is a couple of very old apartment buildings on the street. Normally this would not bother me in the least, but these will prevent the yuppie crowd from rushing into the area in a buying frenzy.

- Every other house within sight was also very small and of simlar construction. This means the houses on this street are not the architectural gems in the historic and sought-after areas of Riverside.

If the money situation would have been better, that is to say, if this was a better investment, I would buy, Buy BUY! If the spread allowed me to buy and rehab it with little or none of my own money, I would have.

But, if I bought this house and rehabbed it with considerable out-of-pocket investment, I would be speculating on the area, and I had my doubts.

Of course I didn’t buy it, but if I had, that would be speculating!

So, how would I define speculating?

- Speculating involves taking on more than usual risk.

- Speculating involve banking on values that aren’t there today, and aren’t projected to be there based on NORMAL conservative appreciation rates.

- Speculating is banking on external or environmental factors to make you money.

***External and Environmental Factors (that pertain to property) are factors that are not part of the property itself such as neighborhood, infrastucture, city, the paper mill down the road, rental demand, etc. ***

What is investing, but not speculating?

- Buying property that you are “safe” in, meaning you could rehab it and sell it in the short term and make money.

- Buying property that will make you money based on what you bought it for, current environmental factors, and conservative appreciation rates.

- Buying property such that hope is not part of the strategy!

One of the key factors in STAYING a successful real estate investor is strict adherence to your investment strategy and criteria which are tied closely to your investment goals.

A good real estate investor does what works over and over again and does not take on more and more risk as they go. Smart investors only ventures into other, uncharted investment areas (e.g., single family homes to commercial property) after careful investigation.

I think I can safely speculate that the most successful real estate investors incrementally decrease their risk as they gain experience. Not the other way around.

Bruce W. Ford is the editor of Rehab-Real-Estate.com and an ACTIVE rehab real estate investor. Get Bruce’s important Special Report entitled “12 Things Real Estate Gurus Won’t Tell You” at http://www.rehab-real-estate.com.

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Oh, that’s an easy one. I can answer that in one word. FEAR.

Real estate investment is a great way to change just about everything in your life, but it’s one of those things where doing it for the FIRST time is the toughest. In fact, the second is exponentially easier!

It’s fear folks, plain and simple! And why doesn’t make much sense to me. Consider that:

- “Everyone knows that the surest path from low income to millionaire is through real estate.” This appears to be a well-documented truism. I’ve seen a similar statement in some of the most prestigious financial resources on the planet.

- I rarely hear of someone losing it all from real estate. I might be living in la-la land, but for the most part I only hear of folks prospering from real estate investing. Sure, occasionally I hear of deal going bad or growing complicated, but not to the point of ruining folks.

- There are a lot of properties available. Folks are still divorcing, dying, or just not paying the bills and getting foreclosed on. Much of the foreclosure activity is not SEEN by the public, but most of it is available to the public.

- There are a lot of properties available at below market prices. That’s been my experience anyway. Of course, I have folks right here in my area that tell me they can’t find properties. I just smile and nod my head.

- Rental demand is strong and rents never go down!

So with all this common knowledge and raw opportunity out there, why isn’t everyone investing in real estate?

Here’s my theory.

* Real estate transactions are more involved than going to Wal-mart for a pair of undies, so that scares people. You have to learn a little bit. Mind you, this isn’t a lot of learning, but it is apparently enough to keep some on the sidelines.

* The numbers are big. I’ve seen folks nearly CEASE UP mentally talking about large amounts of money. Merely talking about a $100,000 mortgage causes some people break out in a sweat.

* Horror stories. Everyone’s heard about some scam, sink hole, meteor or something else on the fringes of believability that has happened somewhere at sometime. I mean, there is SOME risk involved.

* Fear of taking action! It’s hard to do something you’ve never done, and harder to do something you’ve never done before in a subject matter on which you aren’t an expert! People fear something, which makes facing that fear hard. What I’m referring to is what I call, “IT’S EASIER NOT TO.”

So what does one do to face fear and make a change in their life,

Ah, that’s just as easy as the last question. I can also answer that in one wordKNOWLEDGE.

Once properly armed with the knowledge they need, most folks can overcome their fears to the point of taking action.

So if you are contemplating taking your financial future into your own hands by investing in real estate, FOCUS on one thing for the next 3-6 months. Buy books or courses, got to real estate investing club meetings, visit websites and get on discussion groups. Let those things be your action steps for awhile. I suspect you’ll be ready to dive into the market with the knowledge you’ll gain.

I have a motto.

“Knowledge Always Precedes the Money.”

Bruce W. Ford is the editor of Rehab-Real-Estate.com. Get his important Special Report entitled “12 Things Real Estate Investment Gurus Won’t Tell You” at Rehab-Real-Estate.com.

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1.Know your Buyer - who are you trying to sell this home to? Owner occupant who has a mortgage pre approval “A” type buyer? Don’t limit yourself; you may want to consider the extra income you can make with “B” or “C” type buyers by holding the 1st or 2nd mortgage. How about other investors who want more properties in their portfolio.

2.Pricing to Sell - you’ve held the property for a long time or short, your business is to know the market. If it was a recent rehab purchase you did a CMA to determine the value at completion. A home you’ve held for in your portfolio you will need to do a CMA (Comparable Market Analysis) to determine its sales price.

3.Advertising/Marketing - newspapers short and to the point 4 to 5 lines with 800# with pre recorded message advertise everyday as For Sale By Owner, flyers to all neighbors place on cars in major parking lots and to everyone at your local REIA group where you are a member include the 800#, signs 24″ x 24″ minimum size professionally made FOR SALE BY OWNER call pre recorded message 800#.

4.Real Estate Agents - co-operate with real estate agents you may pay 2% to 3% if the deal is there take it. Some of the costs will be saved in a quicker sale. If you are not going to follow through with selling yourself, list with a professional real estate agent who has multiple marketing strategies and internet savvy do it fast don’t waste time playing as a fsbo.

5.Buyer Access to House - lockbox on front door with key. With 800# buyer leaves information name, number, address (confirm on internet), you return call with minimal qualifying don’t blow off the buyer with too many questions give them the combination to the lockbox. Ask them to return the key to the box and call the 800# to confirm they left the house.

6.Qualifying and Mortgage Programs - in the home have a descriptive flyer with all the pertinent information of the property also have a mortgage application short form for them to fill out and return to you or your mortgage company by fax, and a form listing various mortgage programs available for this property at the asking price prepared by your mortgage representative. This paperwork goes along way to closing the deal without chasing the buyer around to complete the forms. Remember to include information on owner financing 1st and 2nd mortgages these could help you save the deal or just make the deal.

7.Follow up and Close the Deal - you have a buyer now close the deal. Act as a disinterested third party don’t get caught up in the entire minutia. You are trying to sell this property forget about all the work you actually did forget the midnight calls for repairs just close the deal. Have all paperwork signed may be best to have the papers signed in your attorney’s office for a more professional face to the buyer.

You can sell the investment property yourself you are just like the normal FSBO (For Sale by Owner) you will work hard to make this close. It could be worth thousands of extra dollars to you when it’s all said and done.

Bill Carey with over 30 years in real estate sales, investments, and home building offers a unique perspective to the buying and selling process of residential real estate for F*R*E*E consumer information and reports log on to http://www.CharlotteNCExecutiveHomes.com and see
“Insider Real Estate Secrets Revealed”
…a must-read for Home-Owners and Renters!
It’s a F*R*E*E 12-lesson e-course covering more than 20 topics exposing the realities behind buying and selling a home.
It Could Make(or Save) You Thousands of Dollars

See http://www.BillCareyRealtor.com and sign up for our monthly e-newsletter with tips for buyers, home owners and soon to be home owners.

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