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What are the top ten factors you consider when investing in real estate?
My objective here is to come up with a checklist that reduces all the external risk factors of a real estate investment such as economy, schools, investor share, vacancy rates etc. What I can do for you in return is to compile this checklist and send you back all the compiled results.
I know there are a lot of Linkedin users out there who have learned some nugget of knowlege regarding what makes a good Rental investment. Please share your secrets and I will gladly compile into a list for distribution to everyone that posts.
This could also be a jumping off point for future networking around real estate investment in a down economy for anyone interested in that. I am poised to add inventory soon so I would love to continue this brain storm "off-line" with anyone who is like-minded. Thanks.
Clarification added 2 months ago:
Wow!!! Great insights. Keep them coming. I will do my best to summarize these into a nice easy to read spreadsheet and send out to everyone who is interested. Thanks a lot!!
Clarification added 2 months ago:
Thanks to Doug Boedecker!!! Doug spent about an hour on Saturday explaining his detailed analysis methodology for investing in real estate in select neighborhoods in the Mid West and Southern states. I believe he has some very profitable ideas and I highly recommend him to everyone of my contacts that are interested in investing in real estate in the future. I know the current timing may be risky for some people but keep his name in your Rolodex!!!
Good Answers (32)
Why:
Without a doubt, the most important question to ask is “why am I investing.” Investing strategies may sometimes be diametrically opposed based on the desired outcome of the strategy. For instance, if an investor seeks to build a portfolio of monthly income producing properties, he may consider buying homes in impoverished areas where a greater number of people rent. If he wants to flip homes, this would not be the best strategy.
Where:
Again, location is a very important part of strategy. When one buys a personal residence, he may select a property in an older, established neighborhood. While this may be an excellent decision for a personal residence, investors tend to gravitate toward neighborhoods on the upswing of their lifecycles. Also, rental returns are often higher in areas the investor would not personally choose to live.
Typically investors should focus on one or two neighborhoods if possible. This way, the investor will be aware of the intimate details of the area, and he will know exactly what homes sell for, and, more importantly, what he should pay.
How:
Very few residential property investors would be successful if traditional bank financing were the only method by which an investor could acquire properties. Bank financing is certainly an important part, but unconventional methods such as lease purchasing, wrap around mortgages, sandwich leasing, and purchase options are all important strategies when acquiring investment properties. An investor should spend considerable time determining by which means he will acquire desirable properties, and what resources and capital he has available prior to locating properties.
Who:
Very few investors will spend their entire career flying solo. At some point, most investors partner on deals. Investors should always make a list of people who would invest with them if an offer was presented that both parties feel could be mutually lucrative. Nothing is more frustrating than finding that “home-run” property, and not having the resources to acquire it.
Also, many people are involved in your investment property. They all need to make money. If they make money they will be happy to help you make money. The most important of these people is your contractor. Many novice investors try to cut almost all the profit from the contractor to maximize their own profit on a single investment property. This strategy will eventually spell doom. Everyone needs to make money. I’m not saying that an investor should pay whatever the contractor asks, but be fair and share the wealth. The investor has most all the risk, so he should get the lion’s share, but he needs good contractors who also need to make a living.
What:
Some investors buy a wide variety of homes, but most investors pick a style, price range, or home type to specialize in. If someone specializes in period craftsman homes, he will become very familiar with his typical buyer, and he will quickly develop a repertoire of contractors who specialize in these types of homes. I cannot emphasis strongly enough how important it is to have good relationships with several contractors.
When:
Every neighborhood goes through a life cycle. At what point of the life cycle an investor buys is high dependent on the investment strategy. Unless the investor is a seasoned, it is best to consult a professional for information on neighborhood life cycles. This information will prove invaluable to the investor.
-Ray Garrett
Realtor/Investor, Zip Realty
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Laura S
Chess Coach - www.YourChessCoach.com
Best Answers in: Staffing and Recruiting (1), Lead Generation (1), Career Management (1), Professional Networking (1), Computers and Software (1), Using LinkedIn (1)
I think the most important thing is an exit strategy. With this whole real estate fiasco I have seen the finances of many friends crumble because they didn't have a contingency plan. They over extended and lost everything, including their homes. I was injured, but managed to hold on with my fingernails. I learned a few things!
I also purchased a property thinking that I could increase the value with certain improvements only to learn that I was mistaken. Wish I had known to ask the correct question to the correct person before I made the purchase. However now I know! I should have run the idea through my appraiser.
Hope that helps!
Laura
Mike B
Real Estate Consultant, Trainer and Realtor
Best Answers in: Personal Real Estate (2), Business Development (1), Using LinkedIn (1)
Location, location, location has always been the strength of a good piece of real estate. The flipping game from 2001 to 2005 has even put a huge dent in the great locations. As financing continues to be re-invented, we will start seeing inventory begin to move downward and prices will stabilize. Hopefully we will then be in what's called a normal market. I tell my buyer clients that there has never been a better time to buy, however, going back to the location, location, location, I caution them about the number of vacancies were seeing. The price has to be right to sit on it. Properties in good areas, always rent fast. Anyway, I'm rambling, so my bottom line is if you’re going to invest in real estate, pick a really good area and make sure it's a long term investment. Flipping is out in 2008. I like your idea of keeping the discussion going, count me in please. Thanks, Mike
Links:
H. Scott M
Business Development Specialist---ScottM@TheTrainingAssociates.com
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Here would be my checklist (in no particular order):
- What is the property's cash flow or NOI?
- What is the property's net operating expenses?
- What are my buy/hold/sell costs associated with the investment?
- What is the cap rate on my investment versus similar investments?
- What is the total cost of rehab (if applicable)?
- What improvements can I make (either in repairs, enhancements, increased vacancy, etc.) that will improve cash flow?
- What is the current value vs. ARV (after repair value) if it requires rehab?
- What are the current appraised values of similar properties?
- Is the investment located in a declining market?
- What type of financing (rate, term, max. LTV, etc.) can I secure---what is max. allowable leverage?
Hope this helps.
Scott
Clarification added 2 months ago:
Forget one---what is my exit strategy (buy and hold/buy and flip)?
The basic rule is location. Look at this current downturn and you will see that some areas remain strong and even have gone up. These are the same areas that were strong in 1990.
Second you want a property that is rundown and can have some value put in at a 5-10 to 1 ratio. You do not want a structural fixer or something with basic design flaws that cannot be fixed. If you do not want to add equity, chose something in prime condition and pay the associated prime price. Properties are very individual. The current mess is in some part a failure to recognize this. There is no way out of careful analysis when buying.
Links:
Clarification added 2 months ago:
It is extremely important to understand the zoning, structural and geological conditions of the property you buy.
There are several things to consider here, but some of the most basic considerations are often times overlooked. Before you can get into location, cash flow, ROI, etc....you need to consider these:
What is my risk tolerance? I.E. tax liens (low) or rehab (high)
What is my primary exit strategy (and secondary)?
What type of investment am I looking for: cash return, asset accumulation, tax shelter?
What are all the pros & cons to the strategy you are considering?
Do you have (cash) reserves in case of emergencies?
Are you looking for short, med or long term investment?
Then the usual questions should come up:
Location
Cash on Cash Return
ROI
Cap Rate
Etc, Etc?
Thats my 2cents! :)
Hey there. Ironically I have had a similar conversation with 2 people looking to invest in RE just today, and yes - basics - location, exit strategy, blah blah - book value information.
Here are the top points that I suggest to clients and myself regardless of the market.
1. Decide if you are flipping, holding, or other purpose of the purchase.
2. Dependant on this decision you would do the following:
a. Flip - start less expensive (condo/townhome) - go into the nicest area, and patiently cultivate the least expensive/most motivated property in the area. Aside from functional features, and basic necessities (bd count, on side street, not under power lines) you want to find the property no one had patience or vision for but loved the area and walked out saying - if it only did not look like crap. The surrounding properties will hold up value - and you add the eye candy.
aa. Your numbers with payoff, commissions, updates, month to month upkeep, assoc. payments, and closing costs, on the sale need to be added up - and then you determine profit.
aaa. Ideally in a slooooow market, you want to be able to buy it low, and be the nicest low to mid priced property back on the market - if you go top price for all the goodies you put in, you will lose. Buyers do their homework and will smell a flip - which may create animosity that you did the work too fast and sloppy. If you can price in the middle of comparable "closed" and "active" properties - you should be in decent shape.
aaaa. When doing the work your self = you save money. When doing the work yourself = you spend more time doing the work. Balance: Do some work your self, and hire help for tedious things, but the biggest trick - drive around places to find material, and avoid home depot like places. You can save an average of $1500 - $5000 by paying someone to make an installation in the kitchen cabinets and picking out a local merchant for the cabinets, while paying for labor to do install + misc.
b. Hold and rent.
This approach these days requires a good down payment or great deal with high rents. Neither one is easy. If you are thinking of a 2-4 flat, you probably have some type of down payment. Do your best to have the rent cover the mortgage - taxes- utilities. You might not get it all, but you need to get close. If you do not, you will spend liquid cash every month, and unless you are living in the home - its not worth it.
bb. More units = more security. If 1 tenant vacates a 2 flat and that apartment sits vacant for 4 months - you are spending a lot of $$. If you have a 4 unit or even a three - and 1 tenant moves out - 2-3 others will help you cover. (Single family homes can be hard to rent and if the tenants move out - its all on you) That may be a big difference in your monthly contribution.
bbb. Ideal buy and hold scenario. You buy a home or 3 unit where you bought in a good location, rented out, and maybe even long term leases, but you move in to the building and contribute toward the mortgage. After a year + assuming the value goes up, and mortgage goes down, you rent out your apartment, and buy another property and repeat all the steps. You have a place to stay, you grow in portfolio, you have people pay for your homes.
For more investing topics please feel free to email me at any time.
Mario B.
Four Daughters Real Estate
mbilotas@yahoo.com
Links:
Unless you are planning on using a rental agency to manage the property, I would suggest making sure the property is no more than an hour from your home. I know of an investor that did quite well with rental properties in the Vail Valley of Colorado. However, he was retired and didn't mind the 2+ hour drive to take care of the hundreds of little things that pop up. If you are working and can't get away to care for a distant property; plan on those little events costing you plenty.
Also, look at the job opportunities in the area you are considering. In Washington State, some communities are seeing a large influx of Federal employees working for Customs and Border Patrol. These employees have good jobs and would make excellent tenants. Also, Military bases offer a large pool of potential tenants with job stability.
Finally, I would agree with those that recommend having an exit strategy. Do your homework, crunch the numbers and then expect Murphy's Law to apply.
Good luck.
Yes location and exit strategy are very important. But also make sure it’s a good deal. The two things to look at when figuring out if a property is a good deal are value of the house after repair and how much will it cost me to repair it. So how do you figure out after repair value, do what appraisers do. They find at lest three houses that have sold in the past 6 moths, with in a half mile of the subject property. The square footage of the comparable properties can not be more then 15% larger. Comparable property also needs to be in a similar subdivision and have same number of bedrooms and bathrooms. Average out those three houses and you have your value. As for figuring out rehab amount, well if your new to the game call three handy men out to the subject property and have each of them give you a bid on how much they would charge you. Don’t always take the cheapest one, take the one you feel most confident and comfortable with. Now take 70% of that after repair value and subtract out your rehab amount. The number that you are looking at is the number that you need to buy that property at in order for it to be a good deal, If you cant get the property at that amount move on to the next house, lord knows there is enough inventory right now.
Depends on the type of property you are looking at. The factors would vary from Multifamily to Retail to Office, Hotels etc. But we can still come with a list of blanket factors which would be ofcourse of utmost imprtance before investing:
1. Location - Always important (e.g. A retail should be near to a healthy community and easily accessible, An extended stay hotel should be in CBD or Downtown)
2. Visbility
3. Occupancy
4. Property Cash flows
5. Management Company
6. Expected Return (CAP Rate)
7. Tenant Mix (except Multifamily and warehouses) for hotel it would be demand segment (leisure, business, weekend etc)
8. Owner's history (if resale) or developer's background (if a new property)
9. Prime Trade area i.e. market and submarket
10. Market and Submarket vacancy and rental trends
11. Lease structure (for retail and office)
12. Anchor tenants and their analysis (for retail)
13. Amenities (very important for MF)
14. Other facilities like telecommunications etc are very important for offices
To be very Specific on Real Estate Investement in either it is Residential,Commercial or Industrial. There are few Standard successful formula & basics market kownledge is required. Few Points to be noted for higher & longer returns on Investment (ROI) are:
1) LOCATION - Which part of the city the peice of Land or Property is situated.Where it is situated? what are its Neighbourhood?etc...
2) Accessbiltiy & Approach - Best accessbiltiy & approached to and by road.i.e via Road,Rail,Metro,Waterways & Parking etc.
3) Vissibilty :- Proper Vissibiltiy of the Property gives you higher chance of return and sale.
4) Development Plan :- Excellent Zoning Plan /Geographically & Geologically. Very helpful for Higher returns & better pay-back.
5) Legal & Due-Dilegence - Should be cleaned and clear title. Property Should be used as per govt. approved usage.
There are endless other things which can't be summarized here.If you need any further information,please get in touch.
Regards..............Rajeev Jha
Should you need any futher
Well, as some seasoned RE specialist once said, there are three main factors, Location, Location and … Location. This may sounds trivial but there is a good reason for such statement. Experiencing number of market slow downs both in US and EU, one can clearly see that only properties that hold the value are those in prime locations. This is applicable both to high standard and low standard ones as those not in shape can be rehab and the PP + rehab will be still less than market value.
All of these answers are great, and some sound like the early training I went through when I first started investing in 95-96.
I understand that you're interested in a 'rental' business model. However there is another way that might provide more security and consistent cash flow. I'm speaking of course, of Trust Deeds.
One of the great things about Deeds of Trust, (1st or 2nd) is the security associated with them - this is why banks lend money! So why not 'BE the Bank' - earn anywhere from 8-20% per year, maybe more.
As with any investment, there is risk. But if you do your homework, and the proper due diligence, you can mitigate much of the risk associated with these types of investments. Many times, you can utilize qualified funds through the use of a Self Directed IRA.
I'm very interested in brain-storming - this market is creating some other fantastic buying opportunities - and would love to chat with anyone about them! Best to you!
What I do is attend local planning and zoning board meetings to find out what ares in my state are undergoing changes in economic growth and development and look to invest in those areas. In Maryland there is a major military base re-alignment going on which will bring over 40,000 new jobs. You may want to check with any military bases near you to find out if they are expanding, this could mean lots of new buyers/renters.
1. Investment dollars to work with
2. Type of property you want to invest in
3. Type of financing
4. Your goal(s) in investing (15yr., 5 yr.,1 yr., 6 mo.)
5. Create your personal investment criteria
a. helps you to know if a potential investment fits or not the criteria
b. sharpens your focus and chances of finding a good deal
c. allows you to compare your criteria with other investors (networking)
d. shows how you are doing over time as an investor
6. Know property values
7. Build a network of investors
8. Don't be single minded (i.e. investing in residential real estate only
while passing up good solid commercial deals.
9. Don't let your heart rule your investment strategies....keep it business
10. Realize that wealth in investing takes time, sometimes years.
Links:
Looks like you are well on your way with answers but I wanted to share my favorite site for real estate investors...for when you really want to get down in to the details! You will find an excellent blog as well as an active forum/community of experienced & newbie investors, etc.
Links:
Gene & Kim Q
Owner, Northwest Equity Home Sales. No Gimmicks, Just Results!TM
Best Answers in: Personal Real Estate (2), Wealth Management (1)
Looks like an abundance of great advice from a variety of sources.
One thing to keep in mind is that our area as a whole has not experienced the downturn the rest of the country has. Inventory is high, homes are taking longer to sell but prices have only fallen marginally around the greater Puget Sound Region and in most areas of Seattle, they remain stable and strong. Seattle has never been a market prone to price drops.
All the factors mentioned above should be considered, however, there are some specific issues to think about for the King County Area. New legislation is forcing "flippers" to become licensed and bonded contractors and regulations regarding condo conversions are being hammered by the King County Council which virtually make it impossible and economically unrealistic to even consider doing one at this point.
Single family homes/rentals, duplexes and 4-plexes etc are good considerations but in light of new research by Theo Eicher, founding director of the UW's Economic Policy Research Center which found that land use regulations in Seattle constitute $200,000 of home prices, you may consider outlying areas or investments further south to avoid unnecessarily inflated prices. This of course depends on your overall goal, yet should be something you think about as you create your strategy.
Foreclosures and short sales in our area accounts for less than one quarter of one percent of our overall market but provide opportunities nonetheless...Good Luck with your real estate endeavors.
Gene,
Links:
There seem to be three types of real estate investment - Development, Flips and Cash Flow. There are also active and passive participants in each. Developers buy low, improve and sell, generally dealing with land or improved land. It is. Flippers look for good deals, limiting their improvements to those that will add value to the home in the form of a higher sales price compared to the cost and then sell. Cash flow investors look for opportunities to generate cash. Their mentality is to hold the property as long as it is generating greater cash inflows than outflows. Before investing, you need to determine what type of investment you want to make and what effort you are willing to put in.
Once you have decided, then you know what to look for. I know developers who do very well even in this current market. I know flippers that are doing well. I know rental real estate owners that are doing well. There is a caveat - they all measure "doing well" differently as each has different goals in mind.
That said, here are some points to consider:
1- Location, Location, Location
2- Determine your Comfortable Risk Level
3- Surround yourself with experts
4- Work smarter not harder
5- Plan and budget
6- Do your research
7- Listen to your experts
8- Never partner with someone who stands to lose less than you.
9- Know the laws and the tax rules and take advantage of them.
10- Always have a plan B.
Wilton A
Principal Research Scientist at Battelle (Rochester Office) and Scientific Research Consultant
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Joel, you've already gotten a ton of good advice, but I find myself leaning strongly toward Ray Garrett's point of view. In general, one tends to look at properties as if they vary, when one might be better served to examine oneself. In other words, property at a variety of locations can be successfully (and profitably) rented, managed, acquired via a variety of financing strategies for a variety of timeframes. What changes is the investor. For example, while I might be comfortable with inner city property and DSS tenants, you might not. The location of the property in question is unchanged! Similarly, some investors love suburban property, while I shy away from it. Same location; but different results.
Long story short, what the investor wants, can do, has to work with, etc., fully determines which properties and what property-acquisition strategies will best work for him. So the top factor is: THE INVESTOR. (Ray called this factor, "Why" and I tend to agree. It's first in his list for a reason.) Good luck!
Most real estate investors should focus on two things: sustainable cash flows and steady appreciation. Unfortunately, over the last few years many amateur investors listened to the Get-Rich-Quick gurus and made very poor decisions that departed from these two fundementals.
Everything I say will address these two issues. Let's start with sustainable cash flows:
1. Understanding capitalization rates (or "cap rates") is critical. A cap rate tells you what percentage of the value of the property you get back each year in net operating income. In other words, what kind of returns will you receive each year compared to the purchase price? 5% of the purchase price? 7% of the purchase price? Is this kind of return acceptable? Regardless of whether you are buying residential or commercial properties, this is an essential calculation. Keep in mind that this only applies to the property itself and does not factor in your debt (which we'll hit on later).
2. Do not trust anyone else's calculation of the cap rate. Many investment property listings tell you the cap rate. But keep in mind that you don't know what assumptions they used. Did they use pro-forma numbers (i.e. guestimates)? Do you agree with their assumptions (occupancy, lease rates, repairs & maintenance, replacement reserves, leasing commissions, etc.)?
3. What makes the property desirable at this price? A strong location may justify a lower cap rate. But remember, this ultimately boils down to sustainability of cash flows and steady appreciation. If you are paying a premium for a property that doesn't decrease your risk, you may want to rethink the price you are willing to pay.
4. Are there additional costs that you will incur to keep the cash flows sustainable? Answering this question requires a great deal of due diligence. You need to know the condition of the property, recent capital expenditures, deferred maintenance, etc.
5. Is the income sustainable? Do you have a sustainable competitive advantage? What are the threats to your cash flow? (This will vary depending on property type...) Is everything in place to ensure long-term increases in lease rates? (more on this below...)
6. How is the property managed? Poor management can be costly. And managing the managers can be a headache. If you use a property manager, do they understand your expectations on how to manage the property? Before making subjective decisions, have they calculated the return on the capital invested?
7. What are the terms of your debt financing? Most commercial real estate loans require a certain Debt Service Coverage Ratio (DSCR), ensuring your property is not only cash flow positive, but you also have some buffer room. But even on residential loans where they don't calculate DSCR, you should know if the property is cash flow positive. Be sure to keep sufficient reserves in the event of a rainy day. Additionally, what prepayment terms apply to your loan (yield maintenance, defeaseance, step-down prepayment penalty, lock out, etc.) As this may have a huge impact on your exit strategy, I recommend you become familiar with any such terms that may apply to your loan.
Now for issues that impact steady appreciation:
8. Are population and job growth on your side? This should be looked at in conjunction with the next point...
9. What are the supply constraints? Land, water, zoning, etc all play a major role in keeping supply / demand on your side, ensuring your property continues to grow in value over time.
10. When you have analyzed your cash flows and appreciation potential, what does your Internal Rate of Return (IRR) look like? What is the Net Present Value of the cash flows?
Your exit strategy is made easier when you make sound decisions with regard to cash flows and appreciation. Or if you want to keep the property, you should constantly monitor your Return on Equity, pulling out equity to maximize your returns.
Links:
Hi Joel;
I put together a business plan a while back for a business called Zertify.com. You can tell immediatly that this is a play on term "Zillow" and "Certify".
Vetting is precisely the thing that sites like Zillow lack when valuing real estate. If fact, the success and failure of any market is dependent on the strength of the vetting mechanism. For example, Ebay market cap is 44B and they do nothing more than defend a vetting mechanism. Likewise, the corruption of a few accounting professionals collapsed great financial markets. As such, "vetting" seems to be what you are trying to get at when you ask for risk factors.
Anyway, zertify.com is in the simplest form a local chat room for neighbors to discuss everything related to the value of their homes. Ultimately the neighborhood would Zertify the value of Zillow estimates - it is in their best interest to Zertify accurately (according to factors mentioned in your question above). If they zertify too high, everyone suffers in appearing over valued. If they zertify too low, they leave money on the table. It is also in the best interest of the neighborhood to share information on what impacts home prices the most and to share ideas related to selling, buying, and helping each other be successful, etc (much as you propose above). At the end of the day, however, the most valuable real estate valuation factor emerges - a great community.
Let me know if anyone wants to want to see a copy of this business proposal - 2 pages, I think - burried somewhere on my hard drive.
The two main factors to consider in any transaction are Price and Quality. The buyer's perception of quality will ultimately drive the purchase price offered. Quality can be percieved in many ways - location, age, size, etc. I would tend to agree with one of the previous answers in that Location is certainly a key factor.
There is really only one factor to consider for real estate investments and that is cash flow. Everything else is dependent on exactly what you are looking for. I've had property in "bad" area that throw off incredible returns - to the tune of 50% cash on cash. Of course, the appreciation on these doesn't go up unless the market is peaking and the "A" property is throwing off negative returns (but when that happens you are a very happy person). So your question is dependent in what you want.
A starting point would be to analyze expenses and vacancy. These are the two things that can bankrupt you. If you're just starting out, buy small and work your way up. I'm not talking about 1031 as much as experience in dealing with problems, tenants, surprises, legal issues, etc.. Some general guidelines I'd use (in no particular order) are:
1.) Current vacancy rates in the immediate area.
2.) Current labor costs in the immediate area.
3.) Anticipated costs to have the property realize it's highest return
4.) Anticipated costs to have the property realize it's best use
5.) Governmental costs and impositions (inspection, taxes, capital gains, etc.)
6.) Financing costs and time (3 year, 5 year, etc.)
7.) Insurance history, stability and cost.
8.) Hazardous/Environmental issues.
9.) Tenancy (vacancy, concessions, payment history, evictions)
10.) Building condition.
Beware of buying based on location because these are usually priced accordingly. Overbuying puts you in a position that you might not have the funds to keep the property maintained at a level to generate historical income levels causing you to fall into a downward spiral where you don't have enough capital to make needed repairs or improvements, causing an ever diminishing amount of income and reduced property value. There is a fine balance between acquisition cost and maintenance/improvement costs that must be respected (too high acquisition cost reduces your return as does too high maintenance or improvements). Make sure to set up a reserve!
Finally, the most "out of touch" group of sellers right now (at least in my market) are the owners of investment property. If they purchased a property based on anything but cash flow, they have a very hard time understanding that their INVESTMENT property value is based on it's return. A lot of them bought an investment thinking that returns are based on appreciation - and that's a risk they should pay for (not you).
Specifically, you should at least hit a 10% cash on cash return over the first 24 months of ownership. That's a minimum - some of these foreclosures are throwing off 25% or more.
Finally, some seller's have a tendency to say "you could increase the income if..." Usually when I hear something like this, I turn around and RUN!
Joseph T
Head Geek, Unique Minds Consulting Group, LLC
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A few answers (probably not good ones):
cash flow?
Taxes?
Demographic pressures?
Joe
Vicky C
Master Salesperson at Keller Williams Realty and Owner, CRIS, Inc.
Best Answers in: Personal Real Estate (3), Staffing and Recruiting (1), Small Business (1)
Wow. Lots of great suggestions here... and I think they are right on! Location! Exit Strategy! Cash Management! Check out the resources on the web sites below.
Links:
everyone would mention location. Real estate is all about location, and without good location there would be no success whatever are other factor.
But the question is - what is good location? How you may know this location would be good in X years - because this is the question, as today's location is already in price. There might be lots of changes in local law and planning which may influence chosen location. And how to compare 2 locations - it's not enough to compare their current locations, as what we earn is change in value of those locations (minus costs); so to be good at this all we would need to have botj good prediction of future valuation and correct today's valuation.
As at best first are unknown, I would concentrate on risks, ie how much we could loose there, and is this risk just a liquidity or for volatile market prices. This issue becomes more interesting for rapidly growing emerging markets, where land price may change few percent within a month, both sides and where there is no reliable long term statistical data as eg there was substancial change in macroeconomic system
Best regards,
Tomek
Some good data in these answers - there might be a book here if you distilled it all. The numbers have to work from the beginning - that means cash flow, as several have pointed out. Don't buy a losing property because you have fallen in love with it and believe you can turn it around. An important consideration for me is - what is the area going to be like in five or ten years? Will it be the same type of development, will it be going downhill, or will developers be calling me wanting to buy the land? The third option is the one I want in a property - because someday you will want to sell that property at a nice bump over what you paid for it. Don't assume that will automatically happen with the passage of time (ask your neighbors if you think that's not true!).
I always try to find versatility in my real estate investments. Because of the current unpredictability of the market, I look for properties that have rental potential as well as renovation and re-sale potential. Then, I let the market decide which direction I take. I think anytime you buy an investment property with limited options, you increase your risk. I think it is important to quantify the inherent risk in each investment and evaluate if you are in a position to deal with the investment in a worse-case scenario.
A lot of other good thoughts out there.
Links:
Doug B
Real Estate Investment Advisor at NorthPoint Real Estate Investment Services
Hi Joel, I work for NorthPoint Real Estate Investment Services. We are a complete resource for residential real estate investors. We consider ourselves a "helmet law" for investors in that our entire approach is centered around reducing or mitigating the risk involved in residential real estate investing. We spend a ton of time and resources on market research. Big picture we look for population growth, job growth, diversification of industry's and intangibles. Intangibles are defined as the things that make an area a nice place to live. Essentially, can you see yourself and your family living there? These can be things like schools, recreational opportunities, culture, political nature toward growth, and more. After we have that nailed then we look for the path of growth in a market. Sometimes that is defined by geographical features like Albuquerque or man made restrictions like Urban Growth Boundries in Oregon or following the outer beltway 540 in Raleigh. The larger the MSA the more difficult it is to define a path of growth. Next you should look at the % of investors in an area, we don't go into communities that have more than 10% investors. Another factor is amenities close to the investment. Renters do not like to drive to get to food, entertainment or transportation.
There many factors that should be considered. We are going to be rolling out a proprietary software system in the next year that will rate any residential real estate property as an investment vehicle on a scale of 1-100 pulling from over 250 data points including the areas mentioned above.
Would love to talk to anyone interested about our model and approach. It is unique to the industry.
Links:
Walter C
Principal at Pathfinder Mortgage Corp., CEO of Figueroa Capital Group; LION (wconn@pathfinderla.com )
Best Answers in: Commercial Real Estate (2), Venture Capital and Private Equity (1), Hedge Funds (1), Option Markets (1), Personal Real Estate (1), Using LinkedIn (1)
Location, location, location
Value add opportunity
Good market
Conforming property type with no major environmental problems
Good tenant mix or opportunity to create it