I guess the scariest thing about investing is not knowing for sure. Many have written here about the best ways to minimize risk and create a system whereby an investor has the best chance of succeeding and maximizing ROI. yet, there is still risk.

Even the best planned investment can go sour. We can almost predict the market by analyzing trends, looking at demographics, buying right, using information gathered from valuable sources, yet, still there is risk. But risk is what creates the reward.

I don’t know of any investment with a high return without risk. The higher the risk the higher the reward — but, conversely, and this is the scary part, the greater the possible loss. An investor has to be prepared to lose. Managing risk is an important part of investing. Perhaps having a back-up plan, if this plan for this property doesn’t pan out, perhaps I can use the property for this, or, if this tenant fails I have investigated this possibility, or, if the building trend doesn’t carry forward in this area, I can sell the property for this use — each scenario will be different, but there should be an exit plan.

And there should be an acceptance of risk as the nature of investing. I have seen too many investors pass up good deals because they could never accept the risk. There has to be a point after all the rational planning has been completed where you go out on a limb. This is tough, especially in this market.

Yet, in this market there are good investment choices, because of the risk. Those who pull the trigger and guesstimate correctly will be rewarded handsomely, but many might lose. If there was no loss, everyone would invest.

This seems obvious, but I’m considering new investors, and I know how the excitement of investing can turn into stark fear once the realities of the possibility of losing sink in. So, I’m advising to get all that out of the way before you pump yourself up, and get advice — this is very important — get advice from someone with experience. It helps to work through the fear, on one hand, and on the other hand, it prepares you to know fully what to fear. Go in with your eyes open, your mind clear and your heart (stomach) strong.

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Tags: managing risk in real estate investing, real estate investing, real estate investor, risk, risk management

I guess it’s a philosophical difference. I know several investors who have a bare-bones approach to getting rentals ready and maintaining them. I see their point because they are looking at it as a revenue generating object. Maintain just enough to protect the object and the investment.

On the other hand, I tend to go in the other direction and perhaps do too much to get a property ready and maintain it. But here’s the deal: my philosophy is to increase value and attract better tenants and keep them satisfied.

I don’t know if I’m right, but there is method to my fix-up madness. I want to attract a tenant who will be pleased with the house. I also have this idealistic notion that people will take better care of the property if they see I care about the property. Okay, you can quit snickering now.

Here is a list of reasons why I go a little overboard on fix-up and maintenance.

1. I want the tenant to know that I care about the property and that it means something to me.
2. I want the tenant to be proud of where they live.
3. I want the property to be much more valuable when I sell it than when I bought it.
4. I want to get a reputation of renting good homes in good condition and keeping them maintained.
5. I want to be respected as a landlord and attract tenants through word of mouth.
6. To minimize turnover and vacancy.

However, I do see that doing too much can negatively affect return on investment, so I have learned from other investors how to be frugal and not throw money away on vanity and a overdeveloped sense of aesthetics. Like everything else, I guess it’s about balance, but I tend to go more in the direction of doing more rather than less in hopes of getting a better return in the long run. Naive? What are you, and over-doer or an under-doer?

Tags: income property, landlord, real estate, real estate investing, real estate investor, rental, rental-property, tenant

There are many ways to invest in real estate and not every investor has to be a professional, full-time investor.

One way someone young can invest and build wealth in real estate is by purchasing a duplex as their starter home and building from there. In Savannah GA there are many opportunities to start this way. I would like to give an example of how it can be done. Granted, this is not for everyone, but it’s a good long term investment plan for those who are willing to sacrifice a little and work for future gain.

Let’s say a young couple is starting out, each around 25 years old, and they decide they want to build wealth in real estate. They get guidance from professionals regarding the market and projections on how the local economy and housing market may fare in the next 4 to 5 years, then they purchase a duplex on the periphery of an up and coming area. Before purchasing they check around with family and friends to find the best tenant possible for the other unit.

Their buyer agent has helped them identify a good buy at $185,000 that needs some improvements but is in livable condition, and the rent they collect from the second unit offsets the mortgage by 50%. They have paid 10% down, $18,500 with their parents’ help. They can afford the whole mortgage which, let’s say, is about $1100.00 a month. Since the rental pays half the mortgage, they put $550.00 in a savings account They hold the property for five years and by this time they have a child and need to move up. They have added value during the five years by keeping it painted, adding a new roof, replacing windows and keeping it well maintained, plus the renovation in the area has spread to where they are living.

After five years, let’s say the duplex is worth $250,000. They are now able to get rent for both units that will cover the mortgage on a refinance of $225,000. After paying off the first mortgage and creating the second they are left with approximately $65,000. They have $33,000 plus interest from their rent savings. They are now thirty years old and buy an older home with more space that also has a garage apartment which rents out for $500.00 a month.

The numbers are not exact and the couple should get financial advice from pros, but you can see where I am going with this. The couple is building wealth in real estate and there are several options they can choose from as they build. When they get in their late thirties, they might decide to quit hassling with the rentals and just buy their dream home, but by this time they can buy quite a home. It’s a relatively low risk strategy with a little head ache, and some expenses that have to be factored in — but if they are in a growing area that maintains steady appreciation over the long run, they should do well with their investments.

It takes discipline and long term vision, but I have seen young people do this and profit. It’s not that difficult and if the young couple shows responsibility and foresight and maturity, they can get help and advice along the way. By the time they are forty, which is young by modern standards, they will be glad they invested early. Some might say this is dangerous and that many young people have gotten into financial messes by reaching too high. I say — poppycock! If the couple does it smartly and listens to advice from people who understand investments, it will be a much better strategy than blowing their money and waiting on social security.

Tags: duplex, investing in duplexes, novice real estate investor, real estate, real estate investing, real estate investor, wealth, young investors

Basic Real Estate Project Planning and Management

This will be elementary to seasoned investors, but I’m assuming many investors using BiggerPockets are beginning and collecting information, so I thought it might be useful to go over basic project planning and management. I have learned these things from experience, but mainly through knowing smart investors.

When considering a project, get information on the maximum income the property will bring.
Factor all the costs and time involved in getting the property to it’s max according to what you are paying for the property and the costs involved in maintaining it. Don’t give up on the property if your figures show that it seems to already be at the max and no improvements will bring significantly more income– look for ways where costs can be lowered — is it managed correctly? Is there any way to lower expenses? Can you get better financing? But know the numbers. Make sure you have projected the lowest possible operating expenses. keep cutting until you get to the bone.

Determine where your break even point is.
If it is a single occupancy investment property make sure you choose your tenants wisely because you only have one tenant and if the tenant doesn’t pay then you have zero. There’s less risk in multiple tenant properties, and you can figure what percentage of occupancy is your break even, so you know anything below that will cost money. Getting a very good history of occupancy rates is critical before buying to make sure the property has a history of at least breaking even, then there may be improvements you can make to increase the occupancy rate.

When renting to a tenant who will be running a business make sure you know as much as the tenant about the likelihood of the location being amenable to the type of business going in — don’t expect the tenant to be making a wise decision. Learn to analyze demographics so that you can make informed choices as to tenant’s prospects of being profitable and paying the rent. Sometimes you can even be helpful to a tenant by making suggestions that could help their business — be involved and proactive, because it will help you in the long run.

But the main thing is sticking to your goals and making sure the investment is what you want it to be, and also making sure the property is not at the end of its usefulness — this doesn’t mean you pass on it, but if the property has no other good use, then yes, pass on it and don’t jump because of price or some stubborn dream to own a certain type of property that’s just no longer producing and will soon be useless. Always be ready to change and never get emotionally attached to an idea.

And be careful of following the crowd when there is news of new city planning and development — sometimes it might be best to get in on the second wave after anxious investors have bought land expecting big development to take place, only to run into delays and set-backs that cause the first investors to sell at a discount to get from under it. A few years back, there was news of a Mercedes plant coming and investors scrambled to get in on the action — Mercedes backed out and never built here, but there is a lot of cleared land that can be bought reasonably where the plant would have been. Always be smart, wait and see, but don’t wait past the time to make the best deal — timing is everything and almost impossible to judge correctly all the time. But, if you use sound economic judgment and common sense you will time it close enough most of the time.

After all your analysis regarding use of property, choice of tenants, maximum income, and operating costs, everything is in line and you can get an acceptable rate of return, then run it all by someone with experience for a second look — it always pays to get advice.

Tags: cash-flow, cashflow, Investment suggestions, landlord, real estate investing, tenant

The importance of financing is so great it pays to leave nothing to chance and assumption. Knowing the local lenders and what they like to invest in is critical to finding the right lender for your investment project. Also, presenting a compelling case to the lender is important. These two aspects lay the foundation for creating a successful project.

This goes back to preparation and research. You might also want to research private financing, which entails knowing wealthy people, or knowing someone who knows wealthy people.

Having a good idea of what’s the favored investment in a local area will no doubt play a part in the choice of the investment project. But if you have followed advice and have become knowledgeable of your area, you should have a good idea about trends and the financing possibilities.

You have also, no doubt, become knowledgeable enough to exude confidence when you present a project to be financed. It also pays to have gathered support from influential people you know in the area who can vouch for you. Having references will allay doubt, unless you know the lender personally. It may be a process getting to the right decision maker, so you should be persistent and not give up at a first brush-off. Getting to know the assistant might be the first step, and it might take more than a few visits to get in the right door. Everything you learn from the first few failures will be important in devising a better plan.

Establishing rapport with those along the way will help clear the path — if what you present is compelling, you can advance, but the lower players will not likely stick their heads out if you seem unsure are don’t have a good presentation.

This is where having a good team already assembled helps . If you have chosen a well-known attorney and accountant, and have chosen property management (if it will be needed) and solid, quality contractors, then this shows that work has been done and others have looked at the project — it shows you are prepared and that you are a serious investor.

Having a good resume will be impressive, one that shows your skills and experience and why you would be good at this type of investment. Most lenders want to say Yes, but they want everything in place to be able to say Yes.

Make it as easy as possible for the lender by being co-operative and having others vouch for you — you might be good at selling yourself, but to a lender it will only be self-serving — a lender will be impressed if others who are influential and respected are selling you.

The bottom line is that the more you know about the right decision-making lender, the better you can plan a presentation that will be accepted favorably. Having all the numbers clearly crunched by an accountant, having all the legal ramifications covered by an attorney, all the construction aspects assessed bya contractor, all the management lined up and factored in, will present a strong case for acceptance — much stronger than if you go in alone and brag on yourself and idea and basically ask a lender to go on faith .

When an idea is reasonable, researched and the numbers make financial sense, AND you have a team behind you, the chances of getting financing are greatly enhanced — who knows, you may have lenders competing for the project, which would be even better.

Tags: Commercial Real Estate, financing, lender, presentation of the investment project, rea estate investment financing, real estate, Real Estate Investing

I have approximately ten serious buyers who have a home to sell in another state before they can buy. I talked to the relocation person at Gulfstream here in Savannah and she said many of her new hires have homes to sell before they can buy. If you take my situation and consider all the agents in Savannah who are working with buyers who have homes to sell, the numbers add up.

To me this presents an investment opportunity — a risky investment opportunity — one that would require building a trusted network of agents and property managers. It would also require understanding other markets and being able to trust that information.

We all know by now that certain areas are being hit by the national slowdown in home sales. A willing investor could mine this situation for good investments and help break off a little piece of the log jam.

I’ve talked with a local investor and we’ve identified several good investments that will help him, the buyer/seller, me and the listing agent on the other, and perhaps a listing agent on this end. What the investor will need to do is contact local real estate agents with productive businesses and ask them how many out of town buyers they are working with who have homes to sell in other areas before they are able to buy. If the agents are willing to work with the investor, the investor then begins to gather information and perform research on each market where the ready and willing, but not yet able, buyers have homes sitting on the market.

If the home can be bought at a reduced price and rented out until the market changes in that particular location, then the investor identifies a trusted property manager for that area and determines the viability of the rental market. Then it’s a matter of crunching numbers, tax considerations and getting the best financing. This strategy would require a lot of research but it can be done long distance once the right local players are identified.

In a way it would be an exciting, interesting investment strategy because it would entail working with professionals and markets in different locations across the country. In a way, also, it’s risky and contrary to the advice to stick with markets you know — being an out-of-town landlord can have its drawbacks, trust and lack of hands-on management being two. The key would be developing a trusted network without having to physically go to each location.

Many agents now have created internet networks and can be helpful in connecting the investor with this network to get good information and recommendations of local professionals who can be trusted. With technology being what it is, boundaries are quickly being eradicated and long-distance investing is becoming more of a practical reality.

This strategy is not for an investor with a weak stomach and a distrust of long-distance relationships, but I can see it working for an investor who creates and trusts a network of professionals who have been vetted and proven competent and trustworthy.

I now know real estate professionals across the country whom I trust as much as anyone local. There are deals all over the country — with the right system, and with good solid information that can be trusted, this strategy might uncover more good deals that an investor can handle.

It’s just an idea. I will keep you all informed how it works with the investor I’m working with — and maybe someone is already doing this who can advise us on how it’s working.

Tags: investing in down market, investor, landlord, long distance landlords, real estate, real estate investing

Not too long ago I went to a neighboring town to check out an investment possibility for an investor I work with - rental subdivisions. The owner had built these homes in a college town 15 years ago and they were all basically the same style, cottages — some 2/2, some 3/2, 1400 sq ft and 1600 sq ft, respectively. This particular deal didn’t work out because the owner wasn’t budging on price and the numbers didn’t quite work out — I think he was basically satisfied to sell them one by one unless he could get his price for all of them, but it got me to thinking.

If it’s true that rentals will increase for awhile because of buyer caution and lender tightening, these, what I call rental villages, might be a good investment. Two reasons I think they might be a good investment are lower construction costs in this market and lower land cost. I looked online and found a cottage design that to me would be perfect — attractive and not too difficult or costly to build — and with the same basic design throughout the village it would be more efficient. My one concern was when you go to sell would all the cottages being basically the same style hamper sales.

The owner of the ones I looked at had already sold half of what he had, about 64 units, so it didn’t seem to hamper his sales. They were all painted in different colors (or not the same side by side) with minor differences among them, so they didn’t all appear to be the same house. It was actually an attractive “village” with nice trees and shrubbery about.

My thoughts were that a rental village of single-family homes would be more attractive to renters — I mean, if you are going to rent, why not rent in the best living environment possible. Most people don’t like apartments and the available rentals of single family homes is sort of hit and miss, at least here. I know that the vertical building of apartments is more cost effective because of land and construction costs of single family homes, but I looked at the prices of land slightly outside high priced land in town and they were attractive. I also think that when an investor goes to sell after holding them for awhile and letting the market improve, he/she might do better selling individual homes rather than one apartment building.

I think the key would be to make the village attractive with a common social area. I also think it would be wise to keep the properties in good condition and allow them to appreciate by putting the necessary money back in from cash flow to keep them updated and maintained. The owner I previously mentioned was getting top rent in his area and had such a demand he could pick and choose the most qualified renters who met his strict requirements. He had worked out sweet deals with businesses in town when carpet needed replacement or a paint job was due or appliances needed changing. He also had worked lease/purchases with some of the renters who needed time before purchasing.

I have put together a proposal for the investors I work with and wanted to pass this along. The numbers look good. The key is to be in an area where appreciation is likely to return in a few years. That’s the risk.

Tags: landlord, Learn Real Estate, real estate, real estate investing, rental village, rental-property, single family homes