As a general rule our investing business focuses on buying distressed real estate properties, rehabing them and renting them to good long term tenants. Over the past year we've been able to generate on average a 20% annual return for each single family house we've purchased using this model.

From time to time we need to generate capital to finance new acquisitions. Flipping retail homes is one way to raise relatively quick capital albeit it can take up to 6 months to get cashed out. Flipping is generally frowned upon by sophisticated investors and I for one generally agree. But there are times when waiting 5 to 10 years before cashing out of a rental property is just too long to wait to unlock your equity in an investment.

We found a good deal on a 4 bedroom 2.5 bath 2800 sq ft home in a strategic area of Michigan for about $57,000. We intend on investing another $35,000 into repairs and improvements. Comparable homes in the area are selling between $130,000 to $150,000 in under 6 months. This would give a net profit of between $38,000 to $58,000 before closing costs are factored in.

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In an up and down market there are those investors that will dig up opportunities regardless of the state of the economy. In the current climate banks are holding on to their cash with a wait and see attitude. Savvy investors are finding that buying with "All-cash" works as a viable strategy for acquiring residential and commercial bank owned properties. Investors with a wait and see attitude for institutional lending and financing are missing a great opportunity to buy while everything is on sale. Rock bottom prices in the residential and commercial markets in part have been driven down by the scarce availability of credit.

A Hostile Lending Environment

Currently, savings and loan banks, an alternative to commercial lending institutions and private lenders, will typically finance up to 65-70% percent of property values. Buyers in some cases are required to bring 30-35% to the closing table to even be considered. The Commercial Mortgage-Backed Securities (CMBS) market which has traditionally produced many lenders eager to compete for loans has been stalled since the 4'th quarter of 2007. For example: In the first 3 quarters of 2008 only $12 to $13 billion worth of commercial loans were securitized. Already, 2009 is on its way to having the lowest production of securitized commercial loans in 10 years as stated by Commercial Real Estate Direct. Some banks, in order to finace a new project, are requiring developers to pre-lease roughly 70 percent of office/retail units and housing. Shorter amortization periods and higher interest rates added to the mix creates the perfect storm for an even more hostile lending environment.

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First thing is that the notion of ‘Buy, fix, sell' is not a sure-fire formula for massive profits. Don't be seduced by the promise of fast money. If it was easy everyone would do it! Adding value to property can rapidly increase your wealth. But no, it is not a miracle cure or a 'get rich quick' scheme. Your results will ultimately depend on the amount of time, dedication and effort you're willing to commit.

If the real estate mantra is ‘location, location, location', then it should be ‘research, research, research' for buying investment property. 90 percent of the battle (and 90 percent of your time) is locating and purchasing the right property. So do your research, view properties, negotiate, then research some more.

There will be times when, despite your meticulous research and planning, the property doesn't sell. Prepare for external influences beyond your control with an exit strategy. For example, be willing to rent the property for twelve months if the market isn't favorable when you're ready to sell. There is no shame in holding a good property. But more importantly, never enter into a project if you don't have an exit strategy and be flexible to take on viable alternatives to your strategy.

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