There are mostly positive indicators that both the residential and commercial markets are on the move to the upside, although slow. I see that mom and pop investors are starting to make their way back into the market, and many are interested in investing out of their local area. I’d like to share a few tips that I’ve learned over the years (some of them the hard way).
I often hear this scenario from a novice investor, “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 to CASH 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 Town USA?
The number one thing you can do to safeguard your investment: ALWAYS do your due diligence. 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 consists 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. I 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 property’s best and highest use that is within your plan.
- Have a written plan – this is so important we do it in class. Your plan would consist of things like your entry and exit strategy, your holding period, your total cost, and, something I think 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. I have wonderful spreadsheets that help you know what to look for and how to calculate these costs.
If you’re 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):
- 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. This is a whole section in class.
- 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.
Here are some quick things you can look for when you 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. Where are we seeing the vast majority of foreclosures – 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.
New investors think it’s easy. They buy on emotion and low pricing, rather than buying with a disciplined plan.
Just added our fall class; make sure you get registered to join me.