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Health & Fitness

Where you can STILL make money in real estate

The competition is fierce for distressed properties and any working real estate investor know distressed property market is drying up. Meaning all those “great” deals available over the past few years will dry up in all but the most depressed areas. Unfortunately there may be more foreclosures than short-sales as the banks become less and less willing to wait to get their money.

Everyone seems to know about buying properties on the courthouse steps these days so that is also out.

Those looking to make money doing 1031 exchanges have to already own properties to take advantage of the tax deferred opportunities for that type of commercial property exchange.

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So where do the savvy real estate investors look in order to continue making money? The working real estate investors and those just getting out of the, “Make $50,000 this month flipping properties with my foolproof plan” classes, and those looking to diversify into real estate--where do these investors make money?

Buy and Hold

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Real estate agents know the market and there are always significantly underpriced areas in any market. My advice is to buy and hold single family properties in the underpriced areas. A general rule of thumb for this strategy is the property must give back at least 10% active return. Meaning the property pays you 10% above the total cost per month.

If the total mortgage payment is $1500 per month the property must bring back at least $1500 plus an additional 10% per month for maintenance and upkeep. If the property rents for 10+% over the total cost of the $1650 per month it is a smart move.

Additionally, in the long term, the passive income needs to be factored into the equation. Ask your agent to provide a year over year price matrix for the past five years to begin to get an idea of what the projected future passive earnings will end up.

In my area, my investors that I recommended this strategy to a few years ago have seen price increases upwards of 45% in the last year.

Just be aware that buy and holds should be done in areas convenient to the investor. If not factor in an additional 8% for a property management company.

Building Spec Homes

For the more active investor, those that made money flipping homes, building spec is going to be the easiest most organic transition.

Building spec homes fell out of favor during the most recent market crash. Banks would not lend construction money and with the plummet in home prices the spec housing market died an unremarked death.

Just recently we have seen huge new housing starts and the new home market is going great guns throughout the country.

This is a perfect opportunity for the flipper to transition into the home builder. They already have the basic knowledge of how to build and what sells it is time to translate that experience into building homes in the areas they are knowledgeable about.

General rule of thumb for the flippers looking to make some money building spec these days is factor in the cost of the land and then roughly $150 to $200 per square foot to build a new house. There are usually lots available. Ask your agent to find you one and then provide the list price per square foot of the comparable sales in the neighborhood over the past five years. You should be able to get a quick idea of how much money to expect after the sale.

I would love to hear your thoughts. Please email me at americafoy@gmail.com, check out my website, or facebook page, or follow me on Twitter @americafoy

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