As a real estate broker for the past 18 years I get asked all kinds of investing questions. One of the most common comes from people considering buying rental property and want investing tips. In this article, I’ll be answering:
- How we as real estate investors determine the best time to buy.
- Why real estate is still the best choice when it comes to investing.
- How to minimize risk with tips and advice.
For those of you considering buying a house as a primary home or place to live, take a look at my other articles good time to buy a house.
Lets say you are real estate investor, or considering becoming one, the best time to buy a house may be completely different than it is for someone who just had their 4th child in 5 years and desperately needs that extra bedroom.
In this article, I’ll discuss not only how to determine a good time to buy an investment house, but I’ll also throw in some of my personal investment do’s and don’ts.
The media advice: Wow, crazy mixed signals! The advice can be 180 degree different this week from last week…buy now, no wait, buy a house later, or wait for the bottom to buy a home. I agree with many of you out there, it’s confusing and frustrating! Wait for the bottom? Like anyone really knows where the bottom is. Maybe you have even asked a professional, like a realtor or mortgage broker when you should get serious about buying a rental or other property investment. Most likely you’ve gotten answers that go something like; “You should buy at the bottom of the market.”
Now, that sounds great! That sounds perfect! That sounds reasonable… but how do we know when we’ve hit the bottom of the market?
The fact is NOBODY CAN! Not the best realtor, guru, mortgage guy, or economist can pinpoint when we’re at the bottom of any market. There’s no magic crystal ball holding all the answers to the housing market, or any other market for that matter. If there were, a lot more people probably would have sold their stocks (and homes) before the major “crash’ hit.
Investing Tips #1
This is important! The only way that any one of us actually knows when we’ve reached the bottom (or top) of a market is when we have already passed that point and start coming up (or down) the other side. By then, it’s too late to take advantage of the “buying at the bottom” or the “selling at the top” mentality. As they say, hindsight is 20/20. I say this to warn you because there are those in these industries who would like you to believe they hold the keys to all the secrets of investing, and can teach you how to determine when it’s a good time to buy…for a fee, of course. Just be careful of what advice you take and who you pay for it.
So what do the best of the best of the best do when considering buying an investment?
We look at the market we’re currently in and ask ourselves if we’re comfortable buying an investment house based on certain factors. We do the same thing when selling and investment, by the way. Since nobody knows the top or bottom, successful investors determine their buying
By the way…Did you know that the most successful investors make more money in a down market than an up market?
What we do know is:
There are deals to be had on all types of properties and it is a very strong buyer’s market.
- Low Prices. Did you know that the prices on homes, investment property, and land is back to about 2002 prices?
- Super Low Interest rates on a home loans, 2nd dwelling financing, and investment house loans.
- High rental property demand(in my area anyway)
These factors show that it’s a very attractive time to start your exciting career in buying rental property.
As you consider buying rental property it becomes more of a numbers thing. It’s not so much about the touchy feelies of buying a home to live in. It’s more of a business decision. You’re looking for agood buy on a home with predictable cash flow.
I love this industry and I love investing! When done correctly, it can truly be one of the best investments you ever make! Unfortunately, many do it incorrectly. Over my past 18 years as a realtor, I have seen many investors make subtle, yet huge mistakes that often times costs them all they have. It can be a risky, yet equally as rewarding as you make it, however, I do not feel that it’s near as risky as other types of investing.
Investing Tips #2
Why Real Estate?
Any good investment adviser will tell you (among other things) a good start is to look for:
- Buying stocks with low P/E (price to earnings ratio)
- What rate your chosen stock expected to grow.
- What type of assets the company posses. (Asset Backing)
- An easily traded stock.
I believe that buying rental property and investing in real estate is better than any other form of investing for practical reasons. (Not to mention the roller coaster ride that many stock owners have experienced over the past few years).
Troy’s reasons that real estate is a better choice:
- I can use money that belongs to someone else, with stocks: You need cash to be a player. With the exception of a down payment, you use bank funds to fund most (if not all) of the investment.
- With stocks: You watch the earnings go up and down. With a rental, you know how much you will receive each month in rent. Yes the value may adjust with the market, but in the end, you own it!
- As an investor, your tenants provide the future funding of your investment house creating something we like…CASH FLOW!
- And the added benefits of the tax write-off’s, interest deductions, wealth building, etc.
Example:
Lets say you’re considering buying a rental property for $120,000. You are paying 10% down so your total out of pocket investment is now about $12,000. Once you close, you own an investment (like a stock) worth $120,000! The difference is:
- To buy stocks or other investments, in order to buy an investment worth $120,000, you would need $120,000 cash!
- With a real estate investment you only need a portion (down payment) in order to enjoy the rewards of a full $120,000 investment.
But it gets better! Now you own a property with a monthly payment of about $650 per month, but you rent the property for $900 per month. That’s a $250 per month cash flow! I recommend putting some away to pay for unexpected repairs, vacancies etc. Even more, your tenants make your monthly payment for you which slowly but surely pays off your mortgage.
Where else can you do that?
I believe that we, as investors, are right in the middle of a window of opportunity with the condition of the housing market. I believe that for the next 1 or 2 years, we could be facing not only a very attractive time to buy, but possibly the best time in history to buy a property investments.
Investing Tips #3
Be careful! It’s easy to get caught up in the excitement of investing in real estate. As I mentioned before, I’ve watched over zealous real estate investors leverage themselves to an unacceptably risky position. I’ve warned over and over about mixing personal and business funds. I’ve also warned about mixing one investment fund with another. My rule is to NEVER rob Peter to pay Paul. Eventually Peter runs out of money! This broken business model leads to the investor going broke, bankrupt, and back to being a renter again with absolutely nothing.
Troy’s No No’s to house investing:
- Don’t ever leverage your personal house in order to buy an investment property! You don’t ever want to come home and tell your wife that you’re moving because you’ve lost the house.
- Don’t over mortgage your investment property.
- My rule when buying rental property is to keep the maximum loan to no more than 75% of what the property is worth.
- Do not pull equity out of your rental properties to buy more properties. This is a common mistake that many newbies to real estate investing make and it can be very costly indeed.
- Let your rental income pay off your rentals. Don’t mix your rental income with your personal income. Keep them separate and let your rentals pay off themselves.
- Set aside money each month for unexpected repairs and future investing.
My investing tips and advice? If you feel secure with your job situation, desire to start investing in real property, and you have a little cash in the bank, now may be the best time we’ll see in our lifetime to start buying rental property.
The fact is, right now is a very good time to buy, whether it’s an investment or primary home. Visit me online at troyschuyler.com
I am partnered with many qualified brokers around the country who are able to assist you in the area you live.
Considering the benefits of a short sale vs. foreclosure in Roseburg Oregon? Even if you are not behind on payments…but you’re having trouble making the monthly payments, or you just have a legitimate need to sell but your home isn’t worth what you owe, this post will give you some information you need to help in planning out a strategy.
