- Houses, lots, acreage, apartment buildings and commercial buildings all offer potential financial rewards for a savvy investor. Look for potential investments, foreclosures, tax sales, legal notices in the newspaper and tips from bankers and law enforcement officers to find a potential investment property that may soon be available. You could also contact the current owners and make an offer before the property sells at public auction.
- If you buy a property at a tax sale in a public auction, you may end up with the property for only the amount of back taxes owed. However, this is risky if you live in a state that does not offer a clear title for foreclosure properties. In many states, the original owner may have a period of time, between 1 and 5 years, to reclaim the property just by paying the taxes. Know the rules in your state and contact a title insurance agent before making a bid on a property to determine if you can get a clear title. (See resources.)
- Examine the property in person, if possible. If you become experienced in the real estate investment business, you may receive offers to purchase investment properties far from your home. You can hire inspectors, but unless you view the neighborhood yourself, you won't get an accurate feel for the property's investment value. Accompany an inspector as he examines the property.
- Determine your intent for the property. Some investors make profits by fixing up properties and quickly reselling them at higher prices, "flipping" the property. Any property you sell before one year will be assessed at a higher "short-term" capital gains tax rate. Add together the cost of repairs, a real estate brokerage fee (if needed), taxes and any other holding costs from the estimated sales value of the home after you repair it. Renting out a property, allowing the tenants to pay the mortgage, may raise your net worth.
- There is a high potential for profit in real estate investment if you research the property before buying and carefully calculate your estimated profit. Don't rent to tenants who may damage your property or purchase a property you cannot resell because it does not have a clear title. Before you purchase any property, consult a title insurance agent who can tell you what the pitfalls are and how to avoid them.
