|
Turn on any financial news program and at some point
you’ll hear the
experts extolling the virtues of diversification. Real estate has long
been considered a conservative, long-term strategy to growing wealth.
While some seasoned real estate investors make it look easy, to be
successful, beginners should follow some basic principles.
-
Learn all you can. Consider attending a seminar
or talking with individuals who are experienced in real estate
investing. If you
don’t know anyone in your area, check out the National Real Estate
Investors Association’s website: www.nationalreia.com or www.mrlandlord.com.
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.
-
What are your financial goals? It is possible to
make a lot of money. However, you need to determine how hard
you are going to
work to do it, and how long you intend to keep each property. With
each investment unit, you’ll need to take into account cash flow,
appreciation, equity, and depreciation. Talk with your accountant
about tax liabilities and benefits.
-
Consider cash flow. You’ll need to have enough
capital on hand to cover any short-term losses due to vacancies
between tenants,
repairs, property management, taxes, mortgage, etc.
-
Start small. Look into buying a 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 when you are ready to
resell. Look for a moderately priced home on a quiet street with
three or four bedrooms, two bathrooms, and a garage.
-
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 slowly) properties are moving. Find
out the tenant demand in that market.
-
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 resale profit. 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 community 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.
-
Find a real estate professional who has experience in investment
properties in your market. They can pass on valuable information
about rental prices in your market and the sale prices of other
rental properties in the community.
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.
|
is
a service mark of The Prudential Insurance Company of America. 
Equal
Housing Opportunity. Equal Opportunity Employer
