Does An Investment Property
Fit Your Financial Plan?
Investing in real estate can be a powerful
wealth-building tool. It can also be a burden that drains away assets and
monopolizes your time and effort. It’s critical to be in control of your
finances, have an overall plan, and believe that an investment property is the
right strategy for you. Talk to a real estate attorney and accountant about your
particular situation and goals. Cultivate your relationships with these
advisors. They’ll serve you well throughout your investing career. Here are some
questions to ask yourself to help you start clarifying your goals:
• What
other investments do I currently have or hope to acquire in the future?
• What’s
the status of my retirement savings?
• Will
liquidity be an issue for me?
• Will I be
able to handle long-term ownership even with an unpredictable cash flow?
• Do I
expect my investment property to provide me with income when I retire?
• Do I
expect the property to provide immediate income or long-term appreciation?
Do You Want To Be A
Landlord?
Once you’ve determined that an investment home fits
your financial goals, it’s time to decide whether or not you’re willing to deal
with the responsibilities of being a landlord. There may be 3 a.m. phone calls
to answer, late rents to collect, unsatisfactory tenants to evict, repairs and maintenance
to attend to, paperwork to be updated, income and/or deductions to be claimed, taxes
to be paid, and various new laws to obey. It’s a major commitment, but keep in
mind that you can always hire professionals to take care of
many day-to-day responsibilities. There’ll be more about property managers
later in this guide. Whether you decide to be a hands-on or a hands-off
landlord, be sure you understand that this is a business venture and that you
need to be well informed at every stage. A good way to gain an insider’s
perspective is by joining local real estate associations, which have regular
meetings featuring advice from attorneys, accountants, repair specialists and
other related experts. You should also consider joining a local apartment or landlord
association. In addition to keeping updated on landlord/tenant matters, you can
speak to other investment property owners and get copies of your state’s
lease/rental agreements and other papers. Real estate trade journals and
management magazines can also be a great resource for you.
Location, Location,
Location
An investment property offers a unique option: you
can buy one virtually anywhere. If you’re comfortable being an absentee
landlord, you can actually own a home thousands of miles away and have a team
of specialists manage your property. But most investors opt to be more involved
than that, buying properties closer to home. An NAR study of investment home
purchases shows the median distance to be 99 miles from the owner’s primary
residence, with 37% located less than 25 miles away. Another advantage to
buying close to home: it may be easier to make sound investments, because
you’re familiar with neighborhoods, comparable values, and advantageous purchasing
opportunities.
The “Typical”Rental
Property
There’s no such thing! Investors have profited with
everything from seaside cottages to high-rise buildings. Single-family homes,
multiple-unit dwellings, co-ops, condos, and apartment buildings may all be
investment properties. So may time-shares and fractional living scenarios.
According to a 2002 NAR study, most investment homes (54%) are detached single
family houses and 23% are multifamily homes. Most are smaller than the owner’s
primary property and are usually easier to maintain. The median estimated value
of an investment property was $127,000, in contrast to an estimated value of
$200,000 for the principal residence. In addition, 42% of investment homes were
in suburban or urban areas, with 30% located in resort areas.
Setting Parameters
Should you invest in a penthouse or in a studio? A
three-story colonial or a two-bedroom ranch? The first time out, it’s probably
best to invest in something on the small side. Unless you’re buying a move-in
condition property and have a reliable tenant waiting in the wings, there’ll
probably be a period of time before your investment starts generating income.
During that period, you’ll have to make loan payments on the investment
property from your regular income. Since smaller payments are easier to manage
in such situations, most new investors prefer to start with a small property. Next
decision: locale. City or country? Nearby or away from it all? Residential or
resort? Real estate investors suggest, if you’re considering buying a property
in an area far from home, that you may want to take advantage of promotional
two or three day mini-vacation packages offered by timeshare developers.
There’s usually minimal or no cost and, after you take the required timeshare
tour, there’s still plenty of time to look around the community and check out
home prices.
Source: www.locationshawaii.compdfInvestmentPropertyGuide.pdf
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