Real Estate Investing ~ Wisdom in the counsel of many…
You already know from Solomon that there’s “Wisdom in the counsel of many…”, so don’t just take my word for it.
Yes, even read the articles about why many think property is a terrible investment, but make sure you read the feedback postings at the bottom of those posts.
So on to that excerpted wisdom:
- “…..One of the better ways to improve your wealth is to reduce your risk on the properties you purchase.This will allow you to buy lower-risk real estate, which hopefully will earn a fair amount of wealth for you over time.Go for these:
1. Properties in very good shape
Too many people buy fixer-uppers thinking they’ll add value by doing a renovation. Then they get mired in a much more expensive and time consuming property than they ever expected. More money into the property means lower ROI…Skip fixers and instead buy properties that are in as good shape as possible, which should get those rental checks coming into your bank account in as short a period as possible.
2. Properties in moderately priced areas with good cash flows
Real estate is all about location, location, location! The properties in the best locations (think beach areas, downtown, wealthy enclaves) generally have very negative cash flows, so those are the location, location, locations you want to avoid. The moderately priced properties in working-class areas are the real gems; they generally have the boring locations, but much better cash flows. Of course pencil out any deal with conservative rents and expenses, and go for beginning year cash on cash return of at least 4 to 6 percent, based on your conservative estimates. (Ask to see my managed portfolio spreadsheet – it think these numbers seem low)
3. Communities with HOAs in good financial, legal, operational shape
There are many, many landmines in buying properties in common interest developments.
4. Properties that come with decent credit quality tenants in place
There is nothing better than buying a property with a decent tenant already in place. You get the security deposit and pro-rated rent, and you don’t have to go in and clean, paint, update or fix too many things in the unit. If you buy properties in areas that have decent credit quality tenants, that’s hopefully the type of tenant you will inherit. Also take a look at the current tenant’s lease, credit application and credit report, if you can, before you make the decision to purchase the property.
5. Properties in low vacancy areas
Vacant units get robbed, incur vandalism and don’t have any rent coming in to cover the bills. If you buy in places with really high vacancy, it might be months or years before you get the property rented out at a fair rental rate. So really think through buying properties in areas with many unoccupied units. Drive around at dinner time: No lights in a lot of neighborhood houses means no one is residing there, and you shouldn’t, either. (I agree with this and talk many folks out of property that requires a firearm to collect rents.)
6. Properties you will own a long time (I’m more apt to evaluate every time a property is clean and comes vacant & take timing into play looking for what can be bought with the sale proceeds of existing investments. )