It’s a Buyers’ Market for Real Estate Investors, too
The Premier Team
Prudential
Premier Homes
Turn on any financial news program
and at some point you’ll hear the experts extolling the virtues of
diversification. Real estate, even through the market downturn, has long been
considered a conservative, long-term strategy to growing wealth.
In fact, that very downturn has created a historic buying opportunity
for potential homebuyers and investors alike. The combination of lower home
prices across American and historically low mortgage rates, two essential
factors that usually don’t trend in the same direction, have triggered a
buyer’s market in many areas of the country. For real estate investors who want
to rent their properties, this can make the difference in achieving positive
cash flow sooner or right off the bat.
While some seasoned real estate investors make it look easy, to be
successful, beginners should follow some basic principles.
·
Learn all you can. Before committing
your cash, you should have a fundamental understanding of real estate. For
example, be aware that, in general, investment properties are not liquid
investments. Barring exceptional circumstances, real estate does not sell at a
moment’s notice. It could take days or months to sell a property, depending on
the strength of the market in a particular region.
·
Consider cash flow. You’ll need to
have enough capital on hand to cover any short-term losses due to vacancies
between tenants.
·
Start small. Look into buying a condominium,
single-family home or a duplex. Leave large apartment buildings and commercial
properties to the pros.
·
Inquire at the local Chamber of
Commerce about companies relocating into or out of the area. Company movement
is one indicator of demand for rental and/or office space.
·
Find a property that will be in
demand. Look for a moderately priced home with three or four bedrooms, two
bathrooms, and a garage that sits on a quiet street.
·
Research the property. The most
common way first-time investors lose is by failing to investigate a property
thoroughly. Look beyond the front door. Investigate the reputation of the
school district, the crime rate, and plans for expanding a nearby highway or
developing vacant land. Ask a local real estate professional about the area,
its history, and how fast (or slow) properties are moving.
·
Inspect the home you’re considering
for signs of water damage, such as stains on the ceiling and crinkling or
gathering wallpaper; open and close every door and window; and check all
electrical sockets by plugging in an appliance. Get an independent home
inspection, roof inspection and termite inspection. Unexpected repair costs can
eat away your cash flow. Because even the best inspection can’t always predict
problems, try to set aside some of the rental income for unexpected repairs.
·
Spend time driving the streets of
the neighborhood noting the condition of other properties. Are lawns
maintained? Are roofs in good shape? Are homes kept up?
·
Be ready to make fixes quickly and
respond to the renter’s needs. If you’re not prepared to be a hands-on
landlord, consider hiring a property management firm.
·
See your tax advisor for related
planning and laws that can affect your investment decisions.
Remember, investing in a property is much different than living in one,
and while emotion and attachment can be prime motivators when it comes to
homes, it is return on investment that counts when investing in real estate.