When will be a good time to begin investing in real estate again? Part 2 of 2

    Last week I discussed the possibility of purchasing investment properties with the intent of "flipping" them, or improving them and selling them in a short period of time. This week I want to discuss the goal of purchasing a property for the purpose of holding it for an extended period of time and renting it. This option can be a very lucrative adventure. If done properly, your rental income can raise your net worth and cash flow substantially. This article on Time Magazine's website suggested that all indications point to the beginning of a housing recovery. Interest rates are at "once-in-a-lifetime" lows. For investors, there are plenty of distressed(foreclosure and short sale) properties available at prices well below their improved values.

   Not only are home prices down and interest rates low, but the guidelines used to qualify buyers are still rather strict. Higher credit scores and higher down payments are required, making it difficult to impossible for some people to get a mortgage and buy. What do people in this place do? They RENT! This makes holding onto a property to rent it much more attractive. In my market, Baltimore/Harford County, MD, rental properties are moving quicker than resale properties and rent prices are rising. This creates the perfect environment to purchase a property inexpensively, fix it up and rent it.


   There are things to consider when taking this approach to real estate investment. The approach to rehabbing or fixing up the property has to be looked at differently. You cannot put the finest of all materials into a home that is going to rented out. What if you get tenants that don't call you when they notice a leak under the kitchen sink and now 2 months later you have a ruined kitchen floor? What happens when the AC unit stops blowing cold air and the tenant thinks it's a good idea to put in a window unit and screws/duct tapes it into your beautiful trim work around the window? How about the tenant with the "very well behaved" St. Bernard? All of these things are very realistic possibilities when renting. When pursuing real estate investing for rental purposes, you have to look at all aspects. The type of materials you use and the amount of capital you put into a rental property has to be equivalent to the amount of the monthly rental amount. Don't install granite counters and Brazilian cherry floors into a property bringing in $500/month in rent. Sometimes, those rental a very inexpensive property don't take the best care of them. There are exceptions, but you have to consider all scenarios.
www.facebook.com/timmontoyarealtor

   I found this calculator which allows you to plug in all of your info to see what your return on your rental could be. One thing not available to calculate is the toll being a landlord can take. It can be a very rewarding job, but it can also be very frustrating.


   As with all investments, contact a tax professional to check on how an increase in your income will effect your tax liability. For more info on rentals or a list of available properties, visit my website at www.allhomes4me.com

   Also, for up to date real estate news and properties, like my facebook page.

When will be a good time to begin investing in real estate again? Part 1 of 2

   I've talked to several agents, friends and clients and they have either asked this questions or have discussed it with others. So, when will be a safe/good time to begin investing in real estate again? The answer to this depends on your idea of investing and how much capital you have. Do you plan to rent the property and hold onto it? Do you plan to rehab the property and sell it for a quick profit?  I will first discuss the goal of buying with a quick sale, or "flip" in mind.

                                              "Flipping"

   When investing to "flip" a home, or sell it quickly after repairs/improvements are made, the first thing to do is to look at the sales statistics in the neighborhood or area you are interested in. The stats to the left are the April sales statistics for the Baltimore Metro area. The most important stats are obviously "Avg Sold Price", but also the "Avg Days on Market" and "Avg Sold to Orig List Ratio". The sales price for the homes in the area, comparable(comps), will tell you what the upper and lower prices homes are selling for. You must determine what budget you have for purchasing the home, improving it, carrying it while you attempt to sell it and closing costs(Realtor fees, transfer and recordation taxes and any seller concessions). Once you figure your budget You are now ready to determine a good purchase price. THIS IS WHERE YOUR PROFIT IS MADE! If you pay too much for a property, your profit will be where you lose. Purchasing a home at the right price is the most important part of real estate investing. If you buy a home at an appropriate price, you will have two things on your side:

1. You will have flex room built into the transaction to address surprises in the construction/rehab process.
2. You will have $$$ available to accommodate a buyer's request for cash contributions towards their closing costs or $$$ available for a price adjustment, if needed. 

   So, you made a smart purchase and now you're ready to rip out some walls and slap down some granite counters. Hold on there, cowboy. Let's make sure you are choosing the right improvements and upgrades. Consult your Realtor to find out how many baths the surrounding homes have, what types of kitchens are int he houses around you, how many bedrooms the other homes have and do they have a finished basement. You'll want to choose things that will set your property apart from the others in the area. If everyone else has 1 1/2 baths, then turn the 1/2 bath you have into a full bath with a shower. If the other kitchens are small "galley" type kitchens, then open up a wall and combine the kitchen and dining room to make an open feeling and better flow. If you indeed did buy the property at a good price, then these slight improvements should be within budget and will net you more dollars and possibly a quicker sale when the property is listed.


   Another area that lots of investors forget to take into account are the taxes due from any profit. Make sure to consult a tax professional to see how you will report your earnings and what will be the ramifications of your flip. Take the info you gain from your research into account when calculating your return on the transaction.

   Here is a newly released article by CNN Money. It actually gives some credit to my conclusion.

   Well, to answer the question as to "When will be a good time to invest in real estate again?" , actually, for a flip project, now is a very good time. On a scale of 1-10, I would give the current market an 8 for flipping. Labor costs are down, property prices are down and there is a lack of good, well priced homes ready for occupancy. A lot of the homes available are in need of work due to the fact that they are foreclosures, short sales or the owners have not had the means to keep up with them.


   Here is a USA Today article from a few years ago, but it is still very relevant.

   INVESTORS!!! Here are links to custom search results for properties under $100,000. If anything interests you, give me a call.

• Baltimore City

• Baltimore County

• Harford County

   Next week I will discuss the mentality of investing with the goal of having rental income.