Investing In Real Estate - 10 Secrets To Success: | ||
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Compare Comparable
Fast and loose rules of thumb to estimate value, such as 6 or 8 times annual gross rent or 10 times net operating income or 100 times monthly rent, may not reflect an area's value. Use comparable sales prices of nearby properties to get the truest sense of market value, Do the same for area rents. A low price can be supported by a reasonable rent; remember, renters who can afford a high rent can afford to buy instead.
Tax Laws Change
A good investment is a good investment before it is a good tax shelter. Tax laws change. The right property in the right place with the right financing and mangement will weather inevitable tax code changes.
Specialize
Start in a market you know. Whether you focus on fixer-uppers, foreclosures, starter homes, low-down payment properties, condominiums, or small apartment buildings, yuo will benefit from experience by specializing in one aspect of investment real estate properties.
Run The Numbers
Operating expenses from repairs and maintenance, loan payments, taxes, vacancy costs and more will determine the difference between smooth sailing and a sinking ship. Up-front number crunching is your best stratigy. Run before-and-after tax cash flow statements with confirmed numbers.
Determine Last Rent Increase
If the rents were recently increased, your future income may be limited and worse still tenants might move. Check the date of the last increase to know where you stand. Also, make sure current tenants do not have a short term lease, living there simply to tempt the unsuspecting buyer. Examine existing leases and be sure to get tenants' security deposits from seller at closing.
Check Tax Assessment
A current tax assessment that will increase after your purchase - because it is old or doesn't include unrecorded improvements - could change your property tax expenses.
Investigate Insurance
If the seller's coverage is based on lower than current replacement value, your insurance cost may increase when you pay a higher purchase price.
Confirm Utility Costs
Ask the local utilities to verify recent utility expenses, especially if any of the costs are not included in your tenant's rent.
Ask Your Accountant
Especially on the tax questions, as well as your basic investment analysis, be sure to get a second opinion from your tax advisor or CPA.
Inspect, Inspect, Inspect
Never buy a property sight unseen. Nothing replaces on-site inspection and nosing around the property like a blood hound. Hire professional inspectors for structural and mechanical opinions.
What To Look For
You will want to look for what's good - a good property in a good neighborhood with a good price and good financing. We have the hands on experience to help you find what's good.
As an investor, you may start looking in or near your own neighborhood so you can keep an eye on the property. That doesn't mean, however, investors should look for the best home in the best neighborhood. You will find rents often don't cover the higher mortgage payments. Look for a home in a neighborhood where renters want to rent, not where you want to live.
Look For:
- A well maintained neighborhood
- Ready access to public transportation, highways
- A style of home that appeals to the most renters in the price range
- A property that does noy require a lot of maintenance or repairs, unless you objective is to find a fixer-upper
- A property whose carrying costs you can afford during a temporary vacancy
- Preferably an undervalued home listed by motivated sellers
Consult A Professional
Your best asset in choosing investment property - whether a rental property or a vacation home - is your real estate professional. A knowledgeable real estate agent can locate prospective properties, provide information and perform a market analysis, investigate local ordinances and regulations, and present your offer to the seller. The agent can assist in finding the best available financing.
Remember, you will also need the professional assistance of a real estate attorney, a tax advisor and possibly a property manager. For all your investment property needs contact us.
