By Rick Gibson
Anyone who has attempted to buy a foreclosure or short sale property under $200,000 has likely competed with investors, whether they were aware of it or not. Investors are having a great time right now purchasing properties when prices are at record lows, and rental rates are increasing. The impact of lower purchase prices and increasing rents at the same time has dramatic impact on return on investment (ROI) that far exceeds nearly any other investment return available today.
This good news for investors is good news for all of us. As investors buy and improve properties, they may be sneaking a few good deals away from buyers with their frequently all-cash offerings, but overall the impact of investor purchases is depleting inventory and improving our real estate values. It’s great news, and overall will contribute even more to our market recovery.
Anyone who has considered investing in real estate does vnot need to be wealthy or use only cash – there a lot of ways to improve your financial position by investing in real estate. Great financing from lenders or sellers is available.
Generally speaking, there are three key ways to make money in real estate investing. The most important right now, in my opinion, is cash flow. By this, I am referring to the amount of money that is paid each month and year by tenants in either residential or commercial properties that can be considered ROI. Second, tax benefits are incredible, and should be clarified by a tax professional, but I consider these to be second to the “income” aspect. Depreciat-ion, interest ex-pense, repairs and more are all things that your tax expert can use to increase and im-prove your financial position. Lastly, is the “exit strategy”. I personally believe the resale of investment properties in 5-10 years will be so dramatic that anyone buying now will become wealthy very quickly; but to be conservative I recommend my investors to buy for cash flow and look forward to resale returns as “bonuses”.
The first type of investor is perhaps the most familiar to most of you, and may actually be you. People who own property and decide to keep that property and buy another one will end up far ahead of their current position as the market continues to improve. Of course, the decisions have to be sound and facilitated by a Realtor® with experience with investing. I recommend consulting with a Certified Investment Agent (CIAS) and someone who sells a lot of income properties. Naturally, they will know more than the average Realtor® and help you create a strategy that fits your resources and objectives.
Second is the type of investor who buys perhaps 1 or 2 properties per year and is usually focused on cost per unit (duplexes being two units, triplexes being three units, etc.). Regardless of the number of units, I recommend investors determine a goal or standard for how much money per year they expect from their purchase and clarify that to their Realtor®. This may seem like a lot of properties to buy per year, but it is happening a lot more than most people realize. The returns from the stock market generally do not compare to the potential return from income properties and investors are moving money from the stock market into real estate right now.
Last are the savvy investors who are buying bulk and quickly. Some of these portfolio investors are buying several properties per month, making improvements to maximize rents, and then buying more. The details of this category – and perhaps in any category, of rent collection, repairs, tenant relations, and the occasional eviction – can become too overwhelming, so many investors favor property managers. I have sold investment properties for years and have gained so much experience in the area that it became clear in order to best serve investors I needed to provide a property management service, so I have opened a separate business entity so my investors do not have to be overwhelmed in the day-to-day details of tenant management. Instead, they can receive reports and deposits into their checking and savings accounts.
Anyone who is interested in real estate investing should consult with an expert as soon as possible. I do not recall there ever being a better opportunity to benefit from the short sales, foreclosures and rising rental rates than right now for investors.
Rick Gibson is a Realtor® with Re/Max Preferred, a Certified Investment Agent (CIAS), and Distressed Property Expert (CDPE).