Housing inventory is increasing rapidly all across the country. That signals an excellent opportunity to invest for the savvy Buyer. Real estatehas always been considered a conservative, long term strategy to building wealth. Over the long term real estateappreciates in value. Notice I said “long term” twice. Do not confuse this with anything you see on TV. Quick ‘fixing and flipping’ can gain you short term advances but it can also earn you major losses. Losses include both money andrelationships. That being said, beginning investors should still be careful before committing to being a landlord. Consider some basic principles involved before starting in:
1. Learn all you can about real estate. Before putting your hard earned cash and credit on the line you need to have a fundamental understanding of how real estate works. This is the business of real estate not the emotional high of buying your own home.
2. Real estate is not a “liquid” investment. You cannot expect real estate to sell at a moment’s notice because you have other needs. Markets have cycles and usually you cannot turn over a property in 30 days unless you are willing to sell at a very low price or with flexible terms. Depending on the market it is most often the case that you need to hold on to your investments even during difficult times.
3. How is your cash flow? You need to have enough capital on hand and incoming to cover any short term losses caused by vacancies, increased taxes or unexpected maintenance costs. Create a separate budget for each property that includes expectations of the unexpected.
4. Target properties that will be in demand for the area. On the Seacoast that might be a two bedroom condo unit within walking distance to the beach or downtown. Always ask about the parking situation and can the condo be rented. For a single family home you will want to look into the school district and find a moderately priced home that is at least three bedrooms with preferably 2 baths and a garage located in a quiet neighborhood. When looking at units that cater to college students, ask yourself – is it located near public transportation, groceries and restaurants. You also need to find out how many un-related persons that town allows to live in one unit.
5. Research the location of the property. Find out what is around it not just in it. Investigate the schools, crime rate, Meghan’s Law sites, town/state plans for highway expansions, any vacant land being developed. Drive around the neighborhood and look at the other properties in the area. Are they well maintained? Do they need major repairs to roofs, windows or siding? Are they lawns kept up and neat? Is their pride in ownership showing?
6. Inspect everything. Get professional home inspectors to go over the building from top to bottom. General building, roof, electrical, HVAC, well, septic, radon, mold and pest inspections are crucial. Major repairs can destroy any re-sale profits. Put a portion of your budget aside to maintain your investment.
7. Be ready for renters needs. You need to be available and responsive to any minor repairs. If being a landlord is keeping you from investing, consider hiring a professional property manager to relieve of those problems while still reaping the benefit of property investment.
8. Work with a professional licensed real estate agent that has many years experience in the local area. They can help by knowing the history of the town or neighborhood. Good agents know the trends and where the deal are. You need someone who has completed real estate deals under a variety of circumstances. Savvy and smart are key elements of a good agent.
The biggest thing to keep in mind is that investing in a property is a whole different thing than living in one. Let go of emotion and realize that it is just business and the only thing that matters is your ultimate return on investment. Don’t let any of this scare you from taking your wealth to the next level. Now is the time to get off fence and get going.