“Real Estate investing is alive and well,” a recent report states. We aren’t near boom-time numbers, but real estate investors and home buyers are responding to positive trends.
I often see the following scenario when novice investors get into the market. “I found a house for a great price online in small town USA; I’m so excited. I’m going to buy it and turn it into a rental and wait for the checks to starting rolling in.” Good idea Mr./Ms. Novice Investor, but do you understand the market in small town USA? Do you know how to be a landlord? Have you visited Small TownUSA?
Here are a few things you need to know if you are going to become a real estate investor or expand your real estate investing. ALWAYS do your due diligence. As a practice in my life I don’t use the words ALWAYS and NEVER very often, so when I use one of them I mean it. Doing your due diligence would consist of things like:
- Understanding the local market, where prices are and what the demand is in that market. If you’re planning on using the unit as a rental, what are rents in the area and what are the local vacancy factors? We teach you in the Professional Real Estate Investor Class how to find this data.
- What’s your plan for the property? We call that exit strategy. Sell the property on the retail market, rent it out or tear it down and build. What is the properties best and highest use? Is that within your plan?
- Have a written plan – this is so important that is it part of our Professional Real Estate Investor class. Your plan would consist of things like your entry and exit strategy, knowing the holding period, total cost and, also something a lot of people miss, a PLAN B.
- Knowing all the costs involved in purchasing the property, acquisition cost, fix up cost, holding cost, management cost, taxes and so on. We provide our students spreadsheets that help you know what to look for and how to calculate these costs.
If buying out of your local market, some of the quick easy things you can do BEFORE you visit that market (because you should NEVER buy sight unseen) are:
- Check out the demographics for the area. There are several great websites including the US Census site that can tell you things like crime rates, homeownership rates, and education and income levels.
- Find out what the local government plans are for the area. Most cities have their city council meeting either online or the minutes of the meeting available.
- Hire “feet on the street.” You’ll need to have a broker and or property manager to deal with.
Here are some quick things you can look for when you do visit:
- When looking at the neighborhood you’re considering buying in, look at the cars. The more late-model vehicles you see in a neighborhood, the more likely it’s an upwardly mobile neighborhood, which indicates a local healthy job market which helps protect property values.
- Does the area have an appealing town center with nice places to eat and good shopping?
- I personally like neighborhoods that have older well-cared-for homes with character. They also have stability. We’ve seen the vast majority of foreclosures in new developments.
- If you see a lot of “For Sale” signs it could be a sign that the neighborhood is in a downward momentum.
If you’re investing in real estate, make sure you’re well educated and do your due diligence. Often new investors think it’s easy. They buy on emotion and low pricing, rather than buying with a disciplined plan.
Join me on Hour With The Pros
Thursday, January 30, 2014
3:00PM (PST) / 6:00PM (EST) / 11:00PM (GMT) /+1 day 7:00AM (SGT)