8 THINGS YOU REALLY NEED TO KNOW ABOUT INVESTING IN REAL ESTATE!
1. Why real estate over other investment types?
It's simply the best, especially in the long run. On average it goes up at a similar rate to some stocks, but real estate NEVER becomes worthless. Yes, there are some risks, but a good real estate advisor, or property manager can help mitigate those risks. And yes the value can occasionally drop in any region of the world during times of financial crisis. But it ALWAYS cycles back. Its lows never drop below previous lows, and peaks ALWAYS exceed previous peaks. Has land ever plummeted to nothing overnight? No! Can you borrow up to 95% of the value of a stock in which you want to invest, and use that stock as collateral? No! Can you depreciate stock against income, not to mention claim a number of other taxation benefits? No! With real estate you can enjoy all these benefits, without the ultimate risk of a total loss!
Shelter is a basic need in our society and there is virtually always a global shortage of housing. Livable land is a finite resource as well. A limited supply of houses and an increasing demand, ensures there will always be a market for residential property. An increasing money supply will also ensure property values will always rise over the long term. Why is residential property investment so good? It's simple, demand for it keeps going up and up, and it's been a source of wealth for many, all over the world for generations. There's always a demand for residential property, because one of our most basic needs will always be a roof over our heads. People are always coming of age, and needing a home of their own. With an increasing population there will ALWAYS be an increasing demand for real estate.
What residential real estate also offers is security in brick and mortar. Typically other investment vehicles such as stocks, have been subject to great fluctuations. Property investment, however, has typically cycled up over the course of history without huge fluctuations. The financing options of property, as an investment vehicle are much more favorable for the average investor. How many banks would loan you $200k on some shares with 10% deposit? None! Typically, property has doubled roughly every decade or so for the past half century across most places on the globe. This has been the case for most countries and there is no reason for it to not continue so, into the indefinite future.
2. Build wealth through real estate!
This is something which can be done in most countries around the world. It's something we should all invest in! When you retire, do you want to live on a fixed income and live day to day, or will you want to live a lifestyle with a higher standard of living and not worry about money? Of course, you'd rather live on cruise ships and travel the world in comfort and style. Sound impossible? IT'S NOT!
If you were to lose your job today, how long would you be able to survive before going bankrupt? If the answer is that there's no way you'll ever face bankruptcy, then well done, you're one of the few wealthy people, who are financially independent. If this isn't the case, like most of the population, you really need to start thinking about creating some cash flow from different sources like real estate investments. Becoming wealthy through real estate is all about creating positive cash flow, along with equity, over time, and it's actually quite easy.
The tried and tested formula involves a few things: purchasing as many properties as you can, outlaying as little of your own cash as possible, and ensuring that the liabilities can be serviced easily; preferably with most of the rent, or even better when the rent is more than all your costs to service the liabilities on your property (frequently referred to as a "positive cash flow"). This is the golden key, but you really need to know a bit about all aspects of property, in order to find the best deals that can make this work. Return on investment should be monitored closely.
Property investors dominate most rich lists. One only has to look at the Forbes Rich lists and just count the number that have made it up there from real estate investment.
The taxation benefits, coupled with these other benefits, make property an excellent tool for investment. However there are also other things you can do with your property to add value to your investment, which might be worth considering, some of which are:
1. You can renovate your property to add value. Look for quick things that can be done to add value and equity to your property, so you can purchase more property.
2. If you have a large enough block of land, think about development. This is a proven way to substantially increase equity.
3. If you own your property free and clear of debt, or even have more equity than debt, then you can leverage that equity into more properties, Remember, as property values increase, your investment, or down payment, should represent only a fraction of the property value. This means that the less equity you have, the faster your investment dollar grows. The more properties you can buy with your net worth, the more you gain as real estate values increase. There will come a day when you'll want to consolidate and maximize your cash flow, or even cash out, but we'll talk about that someday further down the road.
3. Finding the right property is easy!
What you can do, to begin, is go through as many properties as you can and filter out the best ones on which to focus more attention. One of the best ways to do this is on the internet. The internet has made searching for real estate a more efficient process. You can click through properties, read details about them, view pictures of them, see prices, and estimate rental yields based on other rentals in that area. You can also check out the area on Google maps and see what the location is like, using the satellite and street view functions and you can also look at comparable properties in the area. All this can usually be done relatively quickly for each property. A superior property manager already knows most of these answers.
From this you might have a handful of properties that fit your criteria. Ring up your agent/property manager and go see if there are any issues with this property. Ask questions and look at the property closely, noting everything, e.g. How much rent will I get? What will need to be fixed on the house? Are there any hidden costs? Are there any problems with the area? Are there any easements and/or encumbrances which will prevent development? If your property manager is also your agent, then all these questions can also be answered by one person. An agent, who is also your property manager is an incalculable advantage to you!
There can be millions of parcels on the market at any given time, but finding just the right property, which will provide excellent returns can be difficult to determine, and takes discipline and patience. When you are purchasing a real estate investment, it's so easy to get caught up in emotion.This really must be avoided! You will be wise to chose your property rationally, based on solid reasons. At the end of the day, you want the property to pay for itself, rather than make you proud. Important issues are: 1) how high is the demand for this area, this neighborhood, this type of structure? 2) do most comparable properties in this area tend to have higher values and appreciation rates than other like areas? and 3) how easy will this property be to rent, and to liquidate, when that time comes?
4. Location! Location! Location!
If you are looking to optimize your capital growth, you need to consider the location carefully. About one-third of people invest in property in their own zip code. Whether it's for convenience, or so you can drive past it every day, this should not be your priority. When considering location, you must think about which properties are most likely to give you the best capital growth. This will enable you to accelerate and build a property portfolio much quicker. Make sure to have your property manager help you find these. Your emotional reaction is not likely to be as accurate as your property manager's knowledge and experience in his particular marketplace. This cannot be over emphasized, in order to optimize today's rental income and long term value appreciation.
A general location where there is a diverse range of jobs will give better capital growth, than a country town where there's just one industry, in which everyone works. However, this is just one key factor to great capital growth. There also needs to be public infrastructure, schools, population growth, shops, parks, public transportation, and all the other facilities that a family would want or need.
Does this house fit in with the rest of the street and surrounding neighborhoods? Are the neighbors' houses generally neat and attractive, with lawns mowed? Is this area popular and in higher demand? Is it in a popular school district? These questions and many more really must be considered. Your real estate agent and especially your property manager should know which general areas will be the best for your investment dollar.
Things that detract are numerous and not always obvious. Does the area have a bad reputation, or known for high incidents of crime? Is the property is near a railway, run down apartments, next door to schools or noisy industrial areas, near busy complexes, or near an airport/ under it's flight paths? Location is not the ONLY criterion when purchasing a property, but it usually makes a huge difference, and needs to be considered at least equally with all other factors.
5. Engineer Capital Growth!
In order to build serious wealth, you need to plan for capital growth, which will help you acquire more assets. Capital growth will help you accelerate your portfolio development. What you need to look for are ways to achieve above normal levels of capital growth. When you're purchasing a property, you should think about what sort of property and what location will give you the highest capital growth. Some of the things mentioned in the location section of this page apply when looking for a property for capital growth, because a good location is always crucial.
It's important to consider that somewhere where there are ample jobs, increasing commercial and industrial investment, population growth, and a general popularity is usually a good location for capital growth. This will underpin a demand and drive capital growth. Cities are preferred over rural areas for capital growth.
The key to capital growth is that land appreciates and buildings depreciate. This is why you can claim depreciation on building costs. This is why houses are usually a superior investment; they have the highest portion of land content. When looking at statistics across countries, it is also evident that houses with more land have appreciated significantly more than units over the longer term. A higher land content also opens up subdivision opportunities to create even more wealth. If you can achieve these few things in relation to location and land content you will be well on your way. Remember you may need to look beyond your own suburb to find the best opportunity available.
6. Rental income
Yield is another important factor you need to consider before purchasing a property. While you want to maximize your rental income, it should be looked at in conjunction with capital growth. More units per land parcel will traditionally provide greater cash flow, but don't leave as much opportunity for capital growth. Ideally you do want your rental income to be greater then all your costs, making your investment cash flow positive. This is hard but not impossible to achieve. Often, it just takes time.
The good news, however, is that although it's a dream for people to own their own home, statistics and figures suggest that the demand for rentals has increased substantially over the recent past. This is good news for investors, as we can obtain guaranteed and better yields. Rent has also marginally stayed ahead of inflation. This is good news, as your real estate investment yield is also growing, which will provide you a steady source of income into the future.
When renting your property, you want to keep it full as much of the year as you can. So you need to get an idea of how your property manager is going to go about finding your next tenants and how he chooses them. If you're finding it hard to rent your investment house at the desired level of rent, just drop it a bit below market value. In my experience, it is better to rent it cheaper than to have it vacant. On the other hand, it's better left vacant than rented to high risk, destructive, non-paying tenants. A location with a lower vacancy rate is always better for income.
So what can be done to improve the income on a rental property?
1) Charge a fair market level of rent to ensure minimum vacancy time.
2) Be aware of and claim all tax deductions available.
3) Before renting the property, see that EVERYTHING is up to the standard that you want maintained!
4) Advertise the key selling points that will bring people in to look.
5) Keep your options open at all times. Avoid common useless issues, such as smokers, or pets, etc. Advertising "pets negotiable" will bring in more people. While some, of course won't be suitable, you also may just find those perfect tenants, with the perfect dog.
6) Choose properties that will attract the most and best qualified tenants, without as much regard for the amount of the rent, time vacant, or other less useful issues.
7. Cash flow management
To get the most out of real estate investing, ideally you want to invest in a property with a positive cash flow; putting money into your pocket. This is not always possible, and sometimes a minimal negative cash flow is the next best thing, since it can often be recovered in tax benefits. Either way, you want to avoid as much negative cash flow as possible.
A positive cash flow puts money in your pocket. Money in before tax would be rental income. After tax money includes expense deductions, depreciation and any other costs you can claim on your taxes, such as interest payments. Money out, would be any expense which is related to your property, such as, but not limited to interest, repairs, improvements, various fees, and property taxes. Maximize the money in for each property, so you can continue to service your properties and build your portfolio. Make sure you consider cash flow upfront.
8. Don't try to manage your own properties!
Look for a skilled professional manager. Someone credible, with experience and a good reputation. A good property manager can free you up, allowing you to focus on other important details and opportunities. A good agent, who is also a good property manager, can better help you select the most profitable properties in which to invest. A good property manager will offer at least the following services, if not more:
1) The ability to find and recognize RELIABLE tenants through the internet, signage, newspapers and specialized advertising.
2) The ability to select reliable tenants through experience, refined instincts, knowledge, and with a comprehensive screening process.
3) The ability to keep the property from deteriorating by organizing repairs and maintenance. The property manager you choose, should have all these contacts for quick, quality repairs, at the most reasonable costs.
4) Provide regular rental statements, which will assist you at tax time.
5) Able to take appropriate and swift action, when tenants breach the rental agreement, including, if required, expedient court proceedings.
6) Maximize rent as a part of maximizing profit.
7) Maintain the property to a high standard.
8) Act in the owner's best interest at all times.
There's so much more to be considered, but this is enough to get you started thinking about how important a consultation with a superior Property Manager / Real Estate Agent (J.R PROPERTIES) can be to using real estate investing as the best tool to reach your financial goals and independence.
J.R. PROPERTIES specializes in PROPERTY MANAGEMENT, as well as offering help in ALL REAL ESTATE SERVICES. For over 20 years we've been helping buyers, sellers, and investors make wise housing and business decisions by providing the most complete information and options, pros and cons. We're not just good property managers, we're better than you're likely to find anywhere! Only experience and integrity can complement your ability to discover the best choices. We manage real estate for investors from all around the globe and manage those investments for optimal income and maximum equity growth. Call today for a consultation. We want to help YOU build your fortune!
We can help!
We want to help!
INVESTING IN REAL ESTATE?
HOME INVESTING IN REAL ESTATE SINGLE FAMILY HOMES MULTI-FAMILY HOMES COMMERCIAL REAL ESTATE VACANT LOTS & LAND DEVELOPMENT LAND NEED A PROPERTY MANAGER SELLING YOUR HOME BUYING A HOME: PRE-OWNED NEW CONSTRUCTION CUSTOM BUILT VACANT LOT & LAND MORTGAGE LENDERS LOOKING FOR A RENTAL HOME: AVAILABLE RENTALS RENTAL CURRENT LISTINGS CONTACT LINKS
Jim Randolph 360-721-1000
BUYING SELLING INVESTING PROPERTY MANAGEMENT RENTALS BUILDING DEVELOPING COMMERCIAL