When looking to invest in a good investment property you have to learn new rules. When buying your home, the average person is looking for an attractive home they would love to live in with their families. They want to do inspections to make sure that the house is sound. They want to be proud of their home.
Such an attitude will make you go broke in real estate investment. That is because investing in real estate is different than buying stock when you want to buy the best company with the shiniest prospects. Investment real estate you want to buy problems problems you can solve.
Great properties in good shape and reliable tenants are sold at top prices. No bargains here with the exception if it is a hot market. Then, if prices are surging, any purchase is a good one and mistakes are easily forgiven by increasing values. To get a good investment property, you need to look for a problem.
The Ugly Duckling
For the savvy real estate investor a tired, run down property that needs cleaning, maintenance and repair is a shining beacon for profits. You can buy it for a discount from other, prettier properties. Yet when you spend some money to clean and update her facilities you can raise the rents, drastically increasing the value of the property.
Time
Many properties are a shunned investment now, but smart investors know that at some point they’ll turn around and be hot again. Many investors are starting to realize the future potential in apartments. New apartment development has lagged in recent years as home sales surged due to easy mortgage money. Now that the bubble has burst, up to 2 million families will stop being homeowners and start being renters. In the coming years apartments might be the next crazy investment market.
Financing
Often an investor buys into a property but with financing that makes no sense. Coming in and replacing the financing with a better arrangement can turn a dog into a profitable investment.
Management
Often an apartment is for sale because the owner is tired of fighting tenants, maintenance issues and the grind of dealing with one emergency after another. Often, this is because of bad management. Taking over a property, establishing an intelligent maintenance and repair program along with thorough tenant screening and virtually eliminate major tenant problems.
You can learn to landlord yourself. However most smart investors know their time is best spent finding new opportunities. The best solution is to contract with a good CPM (Certified Property Manager). These are property managers who have spent extra time and money to educate themselves on the best way to manage investment properties from tenant screening to rent collection to eviction processing to ways to maximize a properties profitability.
Either you doing it yourself, or through a good CPM, again, you turn a dog into a good investment property. Profits quickly rush in.
Neglected Properties
Related to management problems some owners get tired of handling their property and just let them go. There can be a long list of problems maintenance, cleanliness, bad tenants and management. Rents may not have been raised in years. This is a situation screaming for an intelligent investor to work some magic.
Look For Price and Terms
It is a widely held given in real estate investor circles that the greatest mistake any new investor makes is to pay too much for a property. Often, they do this because they neglect to consider important expenses, like maintenance costs for the property. When you are considering a property, not only make sure that any existing problems are ones you can solve, but get out a sharp pencil. Check to make sure that you consider all income and expenses on a monthly and yearly basis.
Then sit down and consider your options for purchasing. Make sure you are getting a price and terms that make sense. Remember the real estate adage: “You need either a good price or good terms, but having both is better!”
Do Your Due Diligence
Make sure you do a thorough due diligence, to make sure you know everything you need to. Make sure you have good inspections of the property to make sure there are no hidden physical problems. Also go over all the rental agreements, maintenance, income and expense records for the previous 24 months with a fine toothed comb.
Unfortunately, many sellers will hype or overstate, or gloss over key facts, which can leave you going from a good investment to a bad one. For instance, what if you are planning to rehab a property in three months and find that a tenant has a solid 12-month lease? Know such issues before you close.
If you want a good investment in real estate you look for the stressed, the harassed, even the ugly. Stay away from the shining, top-of-the-market, and beautiful properties. Find a problem, buy them right and solve the problem, and you’ll be well paid for your investment.