Foreclosures and bank REOs are pulling a new wave of novice investors into the market, some of whom are just a little clueless.
They see the price and they say, wow! I can buy that house and turn it into a rental. But they don’t understand the local market, they don’t understand landlording, and don’t even necessarily visit the property.
What are some of the key rules for freshman class investors?
Number one: Due diligence is never optional. You’ve got to understand the local market – and that includes not just where prices are headed, but specific market demand for rental real estate in this price segment, and even the local government’s plans for the area where you’re thinking of buying.
Number two: Buy with a written plan – that’s right, just like the large professional investors use, with an entry strategy and an exit strategy. How long are you going to hold onto the property, how much will it earn you during your period of holding?
And what’s the endgame – a sale to another investor? Conversion to condos? Tear it down and build something that’s closer to the underlying real estate’s highest and best use?
Write it all down, that way you can analyze it better.
Number three: Calculate the actual costs of the property in advance – not just the bargain basement price, but how much you’ll need to fix it and feed it – the management costs, rental commissions, vacancy costs, taxes, to name just a few.
If you don’t know these things up front you are flying blind. And there are few good surprises in real estate.
Brian Ripp, CRS, GRI, Broker – your Bay Area Realtor
www.BrianRipp.com serving Fremont, Newark, Union City & surrounding communities. Real Estate & Property Management.
Real Estate Market Weekly Update Webcast: http://realtytimes.com/REUv/BrianRipp
{ 2 comments… read them below or add one }
I would also add a couple others…
1) Be patient – do not chase deals and be sure to never be pushed by false deadlines by a seller
2) Education – always be smarter about prices and cost of repairs than your seller and be the one getting the upper hand
3) By real estate and wait – do not wait to buy real estate
Mike
It is wise to plan carefully first before making a decision regards with real state business. Observing,asking and searching are the primary step to get a good offer with quality deals in properties you want to invest in.