LUSAN

I have learned that investing is all about research. So many people express how risky real estate investing can be, however there can be no risk when you know what you are doing. Risk comes from being unsure. Thorough research provides knowledge about your market or area of investment. In real estate investing knowing your market is the key. Know the population, employment, good locations, supply and demand for housing and other characteristics about your market. This is better than just assuming that property will go up in value or that you will get someone to rent your investment property.

There are a few ways that you can go about getting this type of information:

1) Speak to your city officials to find out the population projection for your desired investment market.
2) Use the Internet to do as much research as possible.
3) Put together a team of professionals. Realtors, lawyers, mortgage brokers, appraisers, property managers etc.
4) Read your local paper.
5) Tour the area and pretend as though you were a resident there.

There are other ways to find information. This may seem like too much work but would you rather put in less work and create more risk?
Anyway these are just some basics on eliminating the so called risk that may be involved in real estate investing.

HeraldNet
The Herald - Everett, Wash. - www.HeraldNet.com

Published: Sunday, August 28, 2005

Real estate investing is very hands-on

By Steve Tytler

Q I’ve been considering investing in real estate.

After reviewing different ways to invest money (rental units, discount mortgages, buying undervalued properties or fixer-uppers, business property, property auctions, etc.), I see that there are big possible returns, as well as big-time commitments needed to properly invest in these instruments.

As a family man who works 9 to 5 and likes to spend his weekends with the kids, would real estate fit my investment profile?

What type of person, in terms of risk tolerance, available time and capital, would be well suited to invest in real estate?

T.M., Everett

A I’m glad to see that you are taking the time to do some research before running out and buying an investment property.

Far too often, I have seen intelligent, successful people get into trouble because they decided to become real estate investors without first studying up on property management.

Investing in real estate is not a passive investment like buying stocks and bonds. You don’t just put your money into a brokerage account and watch the newspaper to count your profits. When you buy a rental house, you’re actually buying a small business and creating a part-time job for yourself.

When you invest in discounted mortgages, you are essentially becoming a bank, because you are buying private notes secured by real estate. But you have to think like a real estate investor, because you may have to foreclose on the borrower and sell the house if they fail to make payments on the note.

All of this takes time. If you like to spend time with your family on weekends, you may want to stay away from fixers and rental houses unless your kids like to paint and show vacant properties for fun. Landlords who can’t or won’t spend the time necessary to operate their rental properties in a businesslike manner are the ones who run into trouble.

Whenever I hear a horror story about a “tenant from hell,” it usually involves a landlord who rented to the first person who showed up, without bothering to run a credit check or verify references, because the busy landlord didn’t want to waste time showing the house to other prospective tenants. That’s a serious mistake.

In the past, I have spent as many as four Sundays in a row showing one of my rental properties. It wasn’t fun. I would have much rather been playing on the beach with my family, but I know that in order to protect my investment I must thoroughly screen every rental applicant. I don’t automatically rent to the first person who hands me a check.

But the good news is that if you do a thorough job of screening your rental applicants and find a long-term tenant, management can be very easy once the vacancy is filled.

My tenants typically stay in place for at least two to three years. That’s because I am specifically looking for long-term tenants when I take applications. The most expensive and time-consuming aspect of rental management is filling vacancies. You don’t want to go through that process every six months.

Once you have the house rented to a good tenant, you just sit back and deposit the rent checks that arrive in the mail each month - until you have a maintenance problem. Many landlords prefer to do all of the maintenance work themselves because it’s much cheaper than hiring a professional, they know the job will be done right, and some people just like to play with tools.

Personally, I prefer to hire a pro. It may cost me two to four times as much as a do-it-yourself repair job, but my time is very valuable, and I’m not very handy. Besides, the money you pay to a repairman is a tax-deductible rental expense, and you can’t claim a deduction for the value of your own time.

As for capital and risk tolerance, you should have ample amounts of both. There is risk involved in any real estate investment. Puget Sound property values have increased dramatically the past few years, but as I have stated in the past, you cannot count on appreciation to continue forever. The housing marketing will inevitably flatten out.

If you are leveraged to the hilt, a drop in your property value can leave you in the frightening position of owing more than the house is worth. That’s why I’m not a believer in the no-money-down school of real estate investing.

I believe in investing in real estate to make money. That means you should have a positive cash flow, or at least break even, before taxes. Don’t count on tax write-offs to bail you out, and remember that tax laws can change.

If you have the money, your next step is to find a deal that makes sense. That’s often the toughest challenge. Don’t walk into your local real estate office and pay the retail price for a nice clean home, because you will not be able to achieve a positive cash flow unless you make an enormous down payment.

Ideally, you want to search out a house that is in poor condition but is in a good location. However, this is extremely difficult in today’s hot housing market.

You may have to travel much farther from home than you originally planned in order to find a house you can buy at a reasonable price as a rental property.

Have Real Estate Risks Increased or Decreased?

Every day investors ask me to look at potential real estate investments to help them evaluate the quality of the investment decision.

In this time of low interest rates and low capitalization (cap) rates, my answer is usually a negative one. Most investment decisions are not making sense or money.

Let’s explore this a little.

Consider this first:

There are many different investors at many different levels of investment. What works for one investor will not work for another. The match-up of goals between investor and real estate investment is critical.

In other words, if you have $50,000 in the bank you will look at an investment differently that if you have $10,000,000 to invest.

Consider also that the investor’s age and experience will have a significant impact on how they are going to invest. An experienced investor will understand how a property is going to operate in comparison to other like properties on the market. An inexperienced investor may take the word of a motivated real estate broker or mortgage broker and push forward into a property that might be very risky and not return the kind of cash they expect in either appreciation or cash-on-cash return.

Every market place is different, and is driven by the law of supply and demand, the availability of cash to invest, as well as land use laws and tax regulations. Right now long term capital tax rates are low — 15 percent for Federal and up to 10 percent in some states and as low as zero. These rates change annually and should be reviewed with your CPA.

There is one more variation on this theme in play at this time — a demographic twist. The baby boom has created a large group of investors that want to sell their investments at a premium now and invest the proceeds into real estate where the risk levels are not too great and where they do not have to pay much attention to the property. This has created a run on these investments and increased the pricing in response to the demand. Such momentum also has affected the national housing market and those that invest in single family houses.

This brings us back full circle to the issue of evaluating an investment.

As investors look to new investments such as office buildings, industrial buildings and retail buildings, they tend to look at them in the standard manner accepted by the last generation of investors. This view does not take into consideration tenant improvement costs and leasing commissions in the building’s expenses.

As long as cash returns and CAP rates were in the 10 to 12 percent range, buyers could make small mistakes and still have some room for error. The continued competition for real estate with CAP rates at 5 percent and cash returns at 3 percent, alleviates this margin for error and creates greater risk for the real estate investor. This means that investors in commercial buildings in particular, need to change their investment model to account for such shrinkage or suffer the consequence of significant cash flow losses.

A similar buffer that existed in residential properties has also evaporated. This has increased the risks investors face in making real estate investments, a risk many are ignoring as they rush into more real estate investments.

On August 27, 2005 Alan Greenspan, the Federal Reserve Chairman, was quoted at a Jackson Hole, Wyoming conference as saying:

“The housing boom will inevitably simmer down. As part of that process, house turnover will decline from currently historic levels, while home-price increases will slow and prices could even decrease,” Earlier that day, he warned investors not to assume that higher prices for assets such as stocks or houses were permanent, cautioning that gains could disappear if the economy or investor sentiment turned.

“I urge caution and thoughtfulness as investors look at potential opportunities. If on the hand you have lots of money and can handle a market downturn, it does make sense to pick up well-located properties and bet on the appreciation upside.”

The key to real estate investing at this time is taking risks you can afford, and not overstepping your financial means.

Written by Clifford A. Hockley

Originally created Sunday, September 18, 2005

Landlord material?

Rental property can be lucrative investment

By PATRICE B. KING, The Times-Union

If you are like most people in life, trying to figure out a way to get ahead financially, look into the business of real estate.

“Rental property is a good way for middle-class people to accumulate wealth,” said Steve Calta, a Watson Realty Corporation Realtor, who also owns rental property.

The overall Jacksonville market is one that tends to appreciate according to several Realtors. What makes Jacksonville such a unique market is that there are so many areas that are good for purchasing homes for long term rentals and reselling.

High appreciation and low interest rates have made it both easy and lucrative to invest in real estate according to Tina Fader, a Vanguard GMAC Realtor and rental property owner.

“If the house is not good enough for me to live in, I would not put anyone in it,” said Sherri Glisson, also a Watson Realty Corporation Realtor.

There are very few poor areas in Jacksonville and its surrounding areas according to Calta.

Using the money that you have to work for you is one of the major points that Marjorie Smith, a RE/MAX Specialists Realtor and rental property owner, makes clear to both potential and established investors.

Smith speaks of being open to investing in many areas. She said the best area to purchase in is the area that works best for the investor.

Things a person should look for when looking for property is the cost of the property, what it can be rented or sold for and how much you need to put into the property.

Southside, the Beaches, the Intracoastal Waterway, East Arlington, Northside, OakLeaf Plantation and St. Johns County all are quite popular areas for home building, rentals and reselling. The north and west sides of town are popular in rentals, reselling and flipping, where you purchase a home, fix it up and sell it.

Calta wants his property to be within a 30-minute drive of his home. This allows him, if needed, to get in his car and go look at the property.

“Be careful of flipping homes,” Smith warned. “Make sure you understand how much work the house needs.”

Flipping homes is an added expense and it takes away from the profit margin that is made on the property.

“You make your money when you buy the property,” Smith said. “The money is not made when you sell.”

Smith said this is the one thing she warns all new potential and established investors.

An often overlooked aspect is being a landlord. Some investors only see rental property as an opportunity to make money. There is a major responsibility in being a landlord. The work often is rewarding.

A thorough screening of potential tenants will assist in the preparation of being a landlord. This allows you to see what their past rental experience is like, how their credit looks and what, if anything, is on their criminal background. How you approach your potential tenants is a reflection of what type of landlord you want to be.

Fader, whose first investment property purchase was 28 years ago while she was in college, said that with high appreciation and low-interest rates many homeowners are able to put their original home into rental service.

“Many homeowners are able to refinance or take a home-equity loan to facilitate the purchase of a new home without selling their current home,” Fader said.

Another aspect to rental-property ownership is the opportunity to save money. Fader’s most recent purchase was a townhouse. This townhouse has two of her college-age children living in it and paying rent. According to her, they are paying less than they would for an apartment. The money-making opportunity is that in three years she will sell the unit, splitting the profits with her children. On top of saving money on rent, she will be able to assist her children in purchasing their first rental property.

“In many situations, parents can make out a lot better financially than paying the costs of college dorms,” Fader said.

One of the resounding factors of advice given is that potential investors should work with a reputable and knowledgeable Realtor. This Realtor should understand and know the market beyond the knowledge that a new investor would. A Realtor often has the inside scoop on what is going on in the market and when. A Realtor also can match the investor’s needs and wants to what is available. The Realtor also can help you find property that might not stay on the market long because of being a great deal.

It also is recommended that potential investors own their own home first. This allows the future landlord to have an understanding of how the real estate market truly works.

The last token of advice given is to be careful of new subdivisions, condos and townhouses. Many builders have clauses in their contracts that place stipulations on resale. They may only allow so many investors or place a time limit on how long you must own before you can sell. Take the time to read the contract thoroughly and ask questions.

If you have the desire to invest in land and other property please feel free to contact me by email or click here.

Recently we have added another parcel of land to our portfolio. However we are looking to sell because it has already gained the equity we were looking for to make it a good enough investment while alowing our buyer to benefit in the future as well. Click here to see it.

I have always wanted to be successful as many have dreamed. Some have acheived this dream while others have given up before completeing this long and tiresome journey. My blog is about my journey, experiences and lessons learned. I have been involved in many different projects. Business, real estate, capital equipment, health care, and ministry. I guess I have done a few things in these 30 years of life. Have I done everything well? Not really. But I am learning how to improve what I do. Join me, help me, teach me and learn from me. May God bless.