5 reasons to invest in real estate

According to the National Association of Realtors (NAR) second-home sales (for vacation homes and investment homes) accounted for four out of 10 homes sold in 2005. While vacation-home buyers purchase primarily for enjoyment, investment-home buyers are looking to generate income in the following five ways.

#1: Appreciation

Returns of 10 percent and more are not uncommon if you select good real estate properties. It’s a return rate you won’t find on bank products or with most stocks.

#2: Cash Flow

More than half of all investment-home buyers rent out their properties. Month in and month out these properties create income from renters AND gain long-term appreciation.

#3: Less Volatility

While real estate cycles through periods of highs and lows, it doesn’t change dramatically day-to-day like stocks. Investing in real estate is viewed as being less speculative than stocks.

#4 Tax Advantages

Your real estate investments offer you two tax advantages: you can deduct property expenses and depreciation. Plus doing a 1031 exchange lets you avoid paying tax on profits from the sale of rental property if you roll it into another real estate investment property (talk to your tax advisor).

#5 Value-Added Improvements

The saying “buy it low and sell it high” applies to stocks and real estate. The advantage with real estate is you can buy inexpensive property, fix it up, then raise the rent or sell it for more money.

If real estate investing is a path you are interested in pursuing, please feel free to call or email with any questions you have.

Market indicators tell you when to invest in real estate

Real estate prices cycle through highs and lows. Tracking the following market indicators will help you decide if it’s a good time to invest in real estate in your area.

Job Growth

People go where the jobs are, and home prices follow jobs. A strong local job market is a sure sign of a healthy real estate market. While the Wall Street Journal gives you insight into the nation’s overall economy, check your local newspapers for statistics in your area.

Housing Inventory

The housing inventory is the number of houses for sale at one time in the area. If there are more houses than buyers, prices tend to fall and if there are more buyers than houses, the opposite happens. Also look at the number of months or days it is taking to sell a home. If it’s less than 60 days the market is considered hot.

Number of Repos on the Market

A repo is a house that has been taken over by the bank because the owner failed to meet the loan payment—in other words, it’s a foreclosure. The more foreclosures in your area, the weaker the real estate market.

Number of Multiple Offers on Homes

Multiple offers are when two or more buyers “bid” at the same time for the same house. It’s a sure sign of a hot market, usually resulting from a limited inventory creating the need for buyers to compete on price for the same property.

To learn about the local conditions in our market, I will be happy to get you the information you need.

6 ways to make a profit in real estate investment

Many homeowners get into real estate investing by buying a home and using this home as a rental when they upgrade to a larger home. Called “serial purchasers”, they continue to buy (and hold onto) additional properties.

Other investors prefer to find a quicker path to real estate riches through one of the following ways.

Buy and Flip

Flipping means selling the property you just bought for a higher price as soon (or in some cases before) you take title on the property. While flipping allows you to make money fast in a hot market (or on a property you purchased well below market value), you may need to pay capital gains (talk to your tax advisor).

Buy and Scrape

Scraping is tearing down an existing home and building a new home. To capitalize on this idea look for areas where home prices are rising, vacant lots are few, and there’s an inventory of older homes. While there are many permits you need to obtain, scraping can be a very lucrative process.

Buy and Split

Just as you can buy one lot and split into two, you can also buy one house and subdivide into two homes right down the middle, or buy a larger house and develop each floor into several condominiums. Another variation is to buy a house with a large lot, subdivide the lot, rent out the house, and sell off the land.

Smart real estate investors look at existing properties with new uses in mind (and they check into all building and zoning regulations). I can help you by identifying potential rental properties in our area.

Profiting from the Fixer-Upper

Many real estate investors earn a living out of renovating run-down properties and reselling them, or holding onto them for rentals. Commonly known as the fixer-upper, it offers you two paths to real estate investment.

Buy a Fixer-Upper and Sell Again

In addition to offering a handsome profit, fixer-uppers can offer a true sense of satisfaction as you transform a dilapidated property into one with true appeal. But before you take the plunge, ask yourself three questions:

1.       Can I buy it far below market value?

2.       Can I do much of the work myself (or contract it out at reasonable rates)?

3.       Can I get the job done quickly?

Remember, every month you add to the project is costing you in lost rental income, taxes, insurance, utilities and more.

Buy, Raise the Rents, and Sell Again

Quite often the tenants in a rental property are paying below market rates simply because the landlord hasn’t raised the rent in years, or perhaps the property is not maintained well.

Both scenarios present you a great opportunity to buy the building, raise the rents (making upgrades if necessary) and resell the apartment building at a higher price. This raises the GPI—the gross potential income—which is the maximum gross income generated from the rent if all the units were occupied.

How to build a real estate investment team

While serial investors (who buy additional rental properties without selling their current ones) are likely to invest with only the help of a real estate agent, other investors benefit from having a team of experts.

In addition to a real estate agent (and your tax advisor), some team members for you to consider are:

1.       A builder or general contractor who can evaluate the structural integrity of a unit

2.       A specialist in leases who is experienced in writing contracts

3.       An attorney who practices in real estate law

4.       A mortgage professional who can offer you different financing options

Having a team of investors gives you more knowledge as well as more financial resources as well. One word of caution: while friends or family may be interested in joining your real estate investment team, it is best to pick individuals based on the experience they offer.

Checklist for real estate investment property

Homeowners look for one set of criteria when buying – school district, curb appeal, low crime rate, proximity to job, number of bedrooms, right layout, perfect-sized yard. While location is still a primary factor when you invest in real estate, most investors also add these to their checklist:

1.       New single-family construction

2.       A neighborhood that is mostly a primary-home community (rather than renters)

3.       Square footage between 1400 and 1600

4.       3 bedrooms, 2.5 baths with 2-car garage

5.       Nice yard but no pool (too much of a liability)

6.       Safe neighborhood with little or no graffiti on public structures, fences, etc.

Another factor to consider is close proximity to your own home. Especially when starting out, you may need to visit your rental properties frequently—to pick up a check, make minor repairs, etc. For these reasons, any property more than 45 minutes away becomes less desirable.

It is important to remember you are not purchasing for your own use but to attract a high-quality renter. Savvy investors choose properties based on the criteria above rather than their personal preferences. Doing so lets them pick from a wider base of homes and find the better bargain.