Want to list all issues to investigate
How to make a decision if it's right for me
I've been investing in residential and commercial real estate for over 10yrs and have learned from a lot of decisions along the way.
Certainly depends on the type of property, type of investment, and structure of the transaction. For example the answer would be very different between a SFR and a 200 unit apartment complex.
I always start with the macro - what is driving people to rent property in that part of the city. Will the reasons people are renting there continue to support future rentals and future rental increases (jobs, development rules, pricing, etc.)
If I like what I see for that city and that part of the city from a macro perspective, I look at the economics of the property itself (price per unit in relation to deferred maintenance, does the NOI pencil out to what I need it to be, is there upside in rents or utility bill backs or appreciation, am I buying at a discount due to deferred maintenance or lease risks, etc.)
Then I look at the structure of the deal itself - if I am leading the investment and have LPs, what is the rate of return for everyone involved. What is the holding period, plan to sell vs. 1031 exchange, etc.
Some of the areas where there can be difficulty is on deferred maintenance that a seller is unwilling to compensate you for (negotiation techniques are your friend here). Issues with the leases (some might be easy to overcome and others may not be). Financing (will a bank want to own that type of property in that city).
As a long time investor in real estate for myself and someone who finds properties for other investors I will try to help you out.
First decide what your long and short term goals are. Your priorities are more important than the property or area.
Are you looking to for a solid medium to long term investment that yields a good return over time in a stable asset or looking to make quicker cash by fixing and flipping.
If you're looking to get a good return on your money, without worrying about being an active landlord, fixing toilets or having management responsibility, there are companies who will do all of this for you.
Find the property, rehab it (if necessary), rent it out and manage it. You'll pay them to do this, but it's a lot less work than getting involved and doing a lot of this yourself.
In fact, most of the properties I purchase for myself and my clients are from frustrated landlords who bought property, wanted to manage it themselves and after a few years of headaches, they sell it to me at a very big discount just to get rid of it.
So make sure you know what you want for yourself, both in terms of return on investment and time or risk involved.
There are opportunities for you no matter what you want to do, but those are key.
AFTER you know that, the biggest decisions are WHERE to invest and how you're going to find the properties.
If you live in Southern California, as I do, you may not want to buy and hold because you can get much more for your money in places like Dallas and Memphis (where I buy houses to "hold"). Working with a company who does everything for you is a called a Turn-Key operator.
Hope these help, if you'd like more insight, feel free to schedule a call.
First of all, in order to consider any type of residential investment, one must consider the following:
(1) Are there other rentals in close proximity ( ie -on the same street)?
(2) Is the property single-family or multi-family use?
(3) Type of neighborhood (stable, unstable)?
(4) What are the surroundings (ie., schools, grocery store, parks, retail)
(5) What are the demographics? (average age, population, family-oriented, and the like)
(6) What are the crime stats?
(7) Make sure you obtain preliminary appraisal.
(8) Have an engineer check out the foundation
(9) Have a home inspector to thoroughly check out the house ( especially the roof and electrical).
(10) Find out the average time a house sells in the area, because home that are selling at $250k or less sell the fastest ( 3 months or less).
(11) Obtain a preliminary O&E from a title company. (Ownership and Encumbrances to make sure the title is not clouded or have a lot of liens)
The above is just a few items that need to be checked out before investing in a residential property.
But, please request a call from me and we can go into a more detailed conversation!
This is simple, but most make it harder than it looks.
Residential real estate is always going to have a use. You will never find a time where people don't need housing... at least not in this lifetime. You pick up residential property for rock bottom prices (especially if you short sales them http://shortsaleology.com ) and sell them for a significant profit quickly or hold them for long term cashflow purposes.
Commercial property has incredible opportunity too, but it's a completely different animal than residential and has a lot more zeros to "get in the game" or play in that "sand box".
I know you didn't specifically ask about that, but just saying.
1. Know your market. You can do this by simply contacting a Realtor that works with investors or gaining access to the MLS and looking at top 5-10 best selling zip codes. You want to know what type of houses; e.g. "3 beds or 2 beds selling better... 1 or 2 baths? You want to do this for whatever area that interests you.
2. You need to lookup "REIA" (real estate investor associations) in your state and go to a meeting. There you will meet other investors and connect with people that can help you.
3. You need to educate yourself by finding a mentor to teach you "the ropes". If that isn't an option with your budget, I recommend you investigate which real estate guru/teacher you like the most and follow their study materials. At the end of the day, 99% of the people don't take action and watch everyone else's dream come true. They make excuses on why "the market sucks" or "no one is buying in their area" ... all that crap. They find an excuse for everything, while successful people take action and find a reason to get motivated and stay that way.
The decision is up to you, but it ultimately it comes down to your energy investment. You only have so much energy to devote to any endeavor. If you half-ass something you won't get many results for it. If you get focused and stay consistent at learning and getting results, you'll start reaching your real estate goals the fastest; that and get a mentor.
I hope this was helpful.
Remember... be a servant,
I am a 15 year real estate investor. I would recommend looking into the taxes to ensure they are up to date in assessment. Reason being if the taxes were not assessed for a period of years prior and you are purchasing the property at a higher price since you will likely see higher taxes coming post purchase. You should also get an appraisal extending out on a 2mile radius and assure yourself at least twenty percent equity in the property. I would also do a complete home inspection to prevent any repairs not factored in during price negotiations to be learned of after the purchase. Please feel free to contact me with any follow up questions you may have.
After over a decade of experience in real estate investing, I'd have to say the neighborhood is key. It all boils down to finding a neighborhood you feel comfortable working in that has an adequate supply and demand to meet the needs of the community. Apart from the neighborhood, it's important to research the market and find out what people are looking for whether you plan to buy and sell or buy and hold. Hope that helps!