With the opportunities that exist today to purchase a home at a price that is significantly under market, many people are starting to consider investing in real estate. Whether an experienced investor or first timer, adhering to certain guidelines will increase the likelihood that your investment objectives are achieved. Here are several guidelines which, if utilized, will help you in making the right decisions.
Determine Your Purpose for Buying
This seems so simple, but with the number of good values out there it is possible to allow the value of a purchase to outweigh the purpose associated with buying it. For example suppose that you have funds available in your 401K or IRA and want to increase the return you are currently getting, but are not overly concerned about appreciation (a good idea). You may want to filter your decision based on which type of property would provide the best monthly cash flow. Also make sure that the broker you use is equipped to assist you in evaluating your criteria.
Determine The Role You Want to Play in the Investment
In the case above where rental property is being purchased you would want to consider who would be responsible for getting the property ready for rent, how will you go about attracting a tenant, what role will you play in evaluating the credit worthiness of a tenant, and what role will you play in the month to month management of the property. If you decide to play a limited role in the fix up, rental and management of your investment property, make sure you select a broker that will represent your best interest.
Understand What the Rental Market Demands for Your Area
Contained within each area of the city are numerous rental properties. They may range in size from one to more than ten bedrooms, and from one bath to ten or more. Some may have garages or carports and others may not. Additionally some may come furnished and others may not. Understanding the role that these as well as other features play in the rental property selection by a tenant will have a direct affect on the quality of tenant you may get as well as the length of time a tenant may remain in the property. This is a $20,000 per month rental. WOW!
Put the Right Financing in Place
Although many of the no or low down payment loans for investors have evaporated, we still have the lowest interest rates we have seen in years. This combined with low prices will usually result in returns which can not otherwise be matched. For example, suppose an investor purchased a home for $75,000 in Lawrenceville and secured an 80% loan at 5%. The down payment would be $15,000, add to this $10,000 for the cost of painting, carpet and miscellaneous repairs and you would have $25,000 cash in the transaction. The resulting cash flow would look like this; monthly PITI payment of approximately $525 and rental income of approximately $900 with a total monthly cash flow of $373 per month. The resulting annualized return, prior to depreciation and income taxes would be 18%. NOT BAD.
Put the Right Tenants in the House
This should go without saying, but it is often overlooked. To insure that you get the right tenant make sure that they provide you a copy of their credit report as well as bank statements for the last six months, and the last 4-6 months of pay check stubs. Additionally check their references and verify their employment. A call to their last landlord will also reveal a lot about them.
Good luck and let us know if we can be of assistance. Finally please check with your CPA or tax advisor before making any investment decision.
Van Purser is a licensed real estate broker in Georgia. Since1981 he has successfully purchased and renovated over 400 homes. His expertise is in the area of foreclosures, rehabs and fixer uppers. Additionally, he has represented hundreds of clients over the years as a broker with Metro Brokers, RE/Max and now with his own firm. He and his wife, Jeanne, who is also a broker, have been married since 1977. Van can be reached at 770-623-3313 or by email VanPurser@VanPurser.com