As real estate investors, we look at the numbers before we buy any property (at least I hope we do). We want our properties to cashflow. We want to make good, solid investments that will provide solid returns while we own them. But what about when you are ready to sell, what are you going to do with that property in five or ten years? Many times investors may not think about that. But they should. What should they be thinking about?
How to Invest in Real Estate While Working a Full-Time Job
Many investors think that they need to quit their job to get started in real estate. Not true! Many investors successfully build large portfolios over the years while enjoying the stability of their full-time job. If that’s something you are interested in, then this investor’s story of how he built a real estate business while keeping his 9-5 might be helpful.
What Type Of Property Is It?
Apartment buildings, commercial strip centers ,even farmland, to some extent, are considered investment properties. That is, they are purchased because of an expected income. These properties are very different from single family dwellings, as they at least have the potential to be sold on the retail market. There is no retail market for investment properties.
Retail and Investor Buyers Buy For Different Reasons
Leading in from the above, different types of properties will have different types of buyers. Investment properties will likely be sold to other investors. They, like you, will be looking at income. They, like you, will be looking for a deal. Therefore, unless you are in a very hot market, do not bet on appreciation with investment properties because unless you can get the property’s income up or the expenses down, the value will likely not increase.
A single family home is generally the only property that you can buy that you will be able to sell on a retail market. Retail buyers are different from investment buyers. They buy properties because of a particular school or because it is near to work, family or some other amenity. They will pay a premium for that. Investors generally will not.
Niche Properties Have Fewer Buyers
Investors are a picky bunch. We know what we know and like what we like. Apartment owners are not going to buy industrial property and vice versa. Single family investors are not going to like apartments. B class property owners may not like D class properties. The list can go on and on. The point is that there are fewer and fewer buyers for your properties the more specialized you become. Just look at all those empty big box stores in older parts of town that were built for a specialized tenant. The more specialized you become, the more difficulty you will have finding a buyer when you are ready to sell.
Where Is The Property? Remember Location, Location, Location.
Location, location, location are still the three most important words in real estate. All investors should learn about the area they are investing in. Are they in the path of progress? Are they in a stable or declining neighborhood? Is it in a good school district? Is it near jobs? All of these things can weigh in on the price you will get when you go to sell. What are the future plans of your city or community? Investors should keep up to date.
Who Is Buying In Your Area?
Look around at who is buying in your target area. Is it homeowners, investors or a mix? Who is buying can affect your exit strategy down the road. For example, you may be investing in single family properties in a predominately single family neighborhood, but all the properties around you are also owned by other investors. When you are ready to sell your only buyer is likely to be another investor who is looking at the numbers and for a deal just like you were. Retail buyers will shy away from these areas. I see this happening all over Memphis and I am sure it is happening elsewhere as well.
To Sum It Up
One of the old adages in real estate says that you make your money when you buy, not when you sell. I hope the above will get you thinking about your future investments as we all will likely want to sell at some point. When you put some thought to it, the above factors and more may just influence where and what you buy.