After buying a second investment property, I thought I better put a plan in place. The reason being the real estate agents that I was dealing with saw dollar signs, and were making me go all around town, looking at the ‘what if’ properties.
This wasted my time, and time is money.
So I devised a set out rules that I now follow whenever I decide to look for an investment property.
With the average tenancy duration being just over 16 months in Melbourne, the longer the tenant stays in the property the less cost I have in finding a new one. This statistic is pretty common in both Australia and New Zealand metropolitan areas.
My first rule: the property must be near a school. Also, the longer the children can go to this school the more chance the tenant will stay in the property. Generally speaking youngish school age children do not create as much property damage for you to fix. Mums like to keep the nest tidy while the child grows up. Another general statistic is that families more often than not have at least two children, which means while one has finished at the school, another one has just started … this equates to a longer term tenancy.
My second rule: a supermarket must be within walking distance. It is a hassle for parents to load up the car, put the child in a car seat, and any additional bits, just to get a loaf of bread from the shops. It is easier to put the child in pram and walk to the mall or supermarket.
My third rule: public transport should be outside front door or within a 3-5 minute walk. Some families do not have a car, or only have one car which stays at home with the children. This means public transport is important, is a cheaper way to travel and much better on the environment.
These days, every time I see a real estate agent I make sure that before I see a property it has all of my rules covered – no exceptions!
It may surprise you to learn that I always found, and continue to find, a number of properties that meet my rules. These properties are often a little further away from the city centre, which means a cheaper purchase price. Plus, many families prefer to be in suburbia – a better place to raise their children.
Letting the real estate agent know my rules before I looked at any property also meant I didn’t waste my time or money in travelling from place to place as they knew my specific needs and so did not show me properties that had no potential for me.
If you don’t tell your real estate agent what you want and you say “show me places” they will often only show you what they are having trouble selling in the hope that you’ll buy it.
Put your real estate agent on notice – you are in the market to buy, but only if you are shown properties that fit your requirements. If they try to show you properties that don’t fit the criteria you’ve laid down, do the Donald Trump thing and fire them. Remember, they are there to service you and your requirements, not their desire to sell!
You are the president of your company, time is money and if an employee wastes your time you need to deal with it immediately.
When you become a practised real estate investor you will look to your ‘team’ to help with every purchase. Your team should include your real estate agent, accountant, mortgage broker and lawyer – you need to trust these people implicitly.
In my next article I will discuss who is on your team and how you can manage them effectively. If you plan to be a major player in the real estate investment market you cannot expect to do everything yourself.
Other articles on the way include researching a potential property, making an offer, getting your finance approved.
Remember, property investment is only one strategy to creating wealth. It is a long term strategy meaning you will not have a cash flow, but over time you will gain good increases in the value of the property and needless to say this will show how wealthy you become.
For other fantastic strategies on creating wealth through real estate (and more) go my website www.dynamitewealthcreation.com and order your FREE wealth creation DVD.
Watch the video related to property investment
www.property-system.com Welcome to the preview series for the Multiple Income Streams SUPER Conference in London from June 5th – 7th 2009. This is the second video in a series of 11. Enjoy!
Help answer the question about property investment
I own an investment property that is now inhabitable. What are my options to stop losing money?Due to the neigboring unit's overflooding, my unit flooded causing major mildew damage. The property is inhabitable and the area has rundown. I do not want to pay mortgage every month for a property I can not sell and can not rent.
I need to find the best option to cut this problem without losing anymore money or taking a big credit hit. I don't know whether to let it foreclose or pursue a deed in lieu of foreclosure because I can't keep paying for a dead investment.
Since Investor #1 paid rent and primarily maintained the home, it would be split like this
$250,000 purchase price; profit is 75,000 (I assume you have already taken the maintenance out of this)
Investor #1 paid $150,000 / $250,000 = 60% of $75,000 profit = $45000
Investor #2 – paid $75,000 / $250,000 = 30% of $75,000 = $22500
Investor #3 – paid $25,000 / $250,000 = 10% of $75,000 = $7500
If you haven't taken out the maintenance, then you need to deduct the cost of maintenance out of the profit and pay each of the parties back for the maintenance they paid. Keep in mind that investor #1, as a renter, would normally have had to maintain the property but I'm assuming that he did more than just "maintain" the property.
It does not pencil out well, you will be in the red every month. The house payments, insurance and CC will be double the rent, and you have to pay income tax on the rent.
This is a bad investment.
buy it is the best time to buy!
why?
because the population is increasing by 100 thousand per year.
and less than 500,000 units are being built and would be ready between 2009 and 2012.
(with 100% ocupancy in all properties nowadays, it show a shortege in 2006 to 2010 and meet supply in 2011 and 2012.)*. current population is 1.4 million
any way owning a property in any place is the best for long term investment.
Residence loans are normally a longer term, up to 30 years, and a lower rate.
So if you have a investment property that you have now decided to make you primary residence I would check with the bank and see if you could refi it. It will probably save you money. However you are not required to.
As for doing it the other way primary residence to investment property? I know several people that will buy a home fit it up while living in it for the required 2 or 3 years and then turn it in to a rental home and buy another home.
The 1031 (refers to Internal Revenue Code Section 1031 which explains the exchange) "like-kind" exchange has specific criteria to qualify as a nontaxable event. You must exchange for similiar BUSINESS USE property and you must use a qualified intermediary if you are buying/selling real estate that is not a "direct" exchange. The delayed, non-direct exchange is referred to as a "Starker" exchange. The qualified intermediary will handle all money – if any actually comes to you (or an account where you have access, etc) the exchange will not qualify. After selling the property you must identify replacement property within 45 days (EXACT property with legal description) and take posession of replacement property within 180 days.
Hopefully this helps. The IRS website has a publication on like-kind exchanges which may help you. You can download here: http://www.irs.gov/publications/p544/ch01.html#d0e2447
80/20 loan – interest only on the investment property.
Wheeler Commercial Property Services, LLC, Brian Mannlein, Fort Collins, CO, (970) 225-9709. Wheeler Management Group, Inc. Ron Randel, Greeley
Hope you get in contact with them.
Without going into a lot of the theory, basically you can reduce your specific risk and increase your expected return by carrying a portfolio of properties with different levels of risk that have low corrolations.
For example you might own one property, a 20 unit apartment building in Anderson, In. The Delphi plant closes, 10,000 employess are laid off, and all of a sudden you apartments have an 80% vacancy rate. Very high risk.
But if you own 10 properties, only one of which is a 20 unit apartment building in Aderson, In., and the others are include say a 640 acres soy bean farm in Illinois, a shopping mall in Miami, Fl., a building of doctors offices in Columbus, Oh., and 30 lake front lots in North Carolina, your specific risk is reduced and your overall portfolio return will increase.
I do not know of any disadvantages other than it is all based on probabilities and the price that you pay for a property should be based on the return you expect and the risk associated with receiving that return. If you do not know the risk and expected return, you do not know the appropriate value of the property and the theory is not going to do you much good.
Tenerife or the Caribbean will always be around.