Roy Kroc, the man who turned a small hamburger stand into a multi-billion dollar enterprise known worldwide as multi-billion dollar enterprise known worldwide as McDonald’s, once told a reporter that his business was not hamburgers but real estate. Kroc didn’t invent the hamburger restaurant that made him wealthy. He’d obtained the founders’ agreements to let him sell franchises Kroc only earned a small percentage of each franchise sold, not enough to meet expenses, so he devised a way to purchase land upon which franchises would be placed and require franchise owners to lease the land back. Then, as now, real estate can provide extremely profitable returns with estate can provide extremely profitable returns with relatively low risk for both novice and experienced investors if they understand certain principles.
Expectations
Even beginning investors can profit from real estate. After realizing a $40,000 profit on the sale of his home when he realizing a $40,000 profit on the sale of his home when he relocated to another state, Ken B. put a down payment on a new home for himself and bought a fixer-upper for $25,000 cash. He spent another $10,000 fixing it up, then rented it for $450 per month.
A couple years later, he sold the home he’d purchased for himself, this time getting a check for $36,000. He put $20,000 down on a bigger home for himself and bought a duplex for $127,000, using $14,000 down. His payments on the duplex are just under $950 per month, and he consistently receives $1,200 per month from tenants For his $49,000 investment, he receives $8,400 profit each year after deducting the duplex mortgage payment. For stocks or mutual funds to provide a similar return, they’d have to achieve a 17% annual return.
Granted, he sometimes has to pay a portion of the mortgage payment while the property is vacant, and he must spend time and money to maintain the property, factors he considers very worthwhile for the return he earns. Since he plans to hold onto the properties for many years, he plans to hold onto the properties for many years, he expects that when he does sell, he’s likely to make a tidy profit from the equity that was paid by tenants for the years he holds onto them.
The Housing Bubble
During the housing bubble, many Investors purchased houses with the Idea of renovating and reselling or “flipping” them. They made obscene amounts of money on their flipped properties That Is, until the housing bubble burst. The seller market that permitted property owners to command high prices on their houses vanished, seemingly overnight. The only “flipping” that took place was the sudden *lift to a buyers’ market. Sellers were obligated to pay the mortgages on properties they found difficult to sell as prices dropped.
The housing market collapse didn’t hurt all investors, though it probably presented challenges for most of them. Savvy investors who calculated the risks ahead of time and had a sound contingency plan continued to profit. In a sellers’ market, many investors simply want to move property because it’s easy to do and highly profitable.
Buyers’ markets indicate that fewer people can obtain mortgage loans. Successful real estate investors capitalize on turning their properties into rentals while awaiting a on turning their properties into rentals while awaiting a fortuitous marketplace. They may offer traditional leases or lease options. Lease options require some additional deposits from a buyer at the start of a lease and allow the buyer to purchase the property for a predetermined price buyer to purchase the property for a predetermined price during the term of the contract. When the tenant does not purchase it, the additional deposit money is kept by the owner.