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Investment Real Estate

Key to Retirement--the Second Home

Buying a second home as rental property makes a great centerpiece to your retirement plan. It forces you to make regular savings in the form of mortgage payments that become your equity.

You only need cash for the down payment, and you should make sure that your monthly rental payments will cover the mortgage and any additional expenses. This is a real possibility if you buy the right house at the right price because a good single-family house should always stay rented. Your investment money is subject to less income tax, and the interest and property taxes may be deductible.

Housing has appreciated in value all over the country in recent years, making a second home an important hedge against inflation. Most experts predict that interest rates for fixed-rate and adjustable mortgages should remain in single digits for the foreseeable future, so it should be easy to acquire financing with a small down payment.

Call me with your real estate questions. I have helped hundreds of people to sell their homes and properties--and to purchase the home of their dreams.

Get Rich Quick with Real Estate

You see them on cable TV, sitting around a swimming pool, sharing stories about how they got rich quick by buying valuable real estate for give-away prices. They took a course on how to invest in real estate and become millionaires overnight--with nothing down and no credit hassles from mortgage lenders. The course worked for them, and they say it will work for you, too.
If all this sounds too good to be true--it is! These "get-rich-quick" courses and schemes are being investigated by consumer fraud agencies around the country. This does not mean that you can't become a millionaire by investing in real estate. But investing in real estate requires one important thing from you--an investment of cash. You can't build an empire overnight, but you can do very well over the long term by selecting property in a good location that is priced well, and which can provide a reasonable cash flow.

Investing in Your Neighborhood

Some neighborhoods have the reputation of being terrific places to live, and the difference is often the investment that people make in their community. These neighborhoods embody a community spirit that reflects the pride of the people who live there. In addition to the financial investment the residents have in their property, they also invest their time by participating in local affairs.
How can you become active in your community? You can participate in your neighborhood association by volunteering to serve on committees, and you can keep abreast of issues that could impact your area by testifying at hearings or writing letters to local government officials. There may be ways that you can help your neighbors if they are having a hard time with a serious illness or job loss. If your children are grown, you can make a tremendous difference by doing volunteer work in after-school tutoring programs. When some people begin to get involved in making a difference in their neighborhood, others soon follow.

Investment Property

Individuals who invest in real estate are doing very well these days. The potential for income, appreciation and possible tax savings makes investment property especially attractive.

It is important for you to get professional advice before you decide to buy investment property. You may want to start with a personal financial advisor who can help you set your investment goals. Your Realtor can help you select a competitively-priced property that meets these goals and can answer questions about why a particular property would be a solid investment. What features would make it easy to rent? What kind of maintenance expenses are you likely to incur? What will your cash flow be, and how will the tax savings affect your bottom line? While we cannot predict how much a particular property will appreciate, we can give you the history of price trends in our market area.

Investment Property Exchanges

When you buy an investment property, there are two important financial goals to consider. You will want a property capable of producing rental income, and when you sell, you hope that it will have appreciated enough that you will earn a good profit on your investment. If your property has enjoyed a healthy appreciation, you may need to do some careful planning to avoid paying out most of your profits in the form of capital gains taxes.

When selling your primary residence, you may be able to defer your capital gains taxes when you buy your next home. This does not apply, however, to investment property--if you sell one property then purchase another, the taxes will be due for the year the sale occurred. On the other hand, if you arrange to trade one property for another, you may be able to defer the capital gains tax. It is not as complicated as it sounds, and many Realtors and attorneys specialize in helping their clients put these kind of transactions together. You don't have to trade buildings with the people buying your property. The property you trade may belong to a third party, and your buyers need only cooperate with the closing attorney to make the transaction work.

Investment Real Estate

While it is impossible to predict what a particular house will be worth at any point in the future, single family homes have a track record of being excellent investments. If you want to take the plunge, what should you look for in an investment property? Location is the prime factor. A great location will make a property easier to rent or sell later on for top dollar. You also want to consider the cash flow situation. It is often difficult to break even or show a profit from your rental income for the first few years of owning a property. Assuming the property will appreciate as you own it, you will want to consider the potential amount of equity you will build up each year. If you are planning to become a landlord in the Overland Park area, it is a good idea to consult a Realtor and an accountant to help make sure that your decision to purchase investment real estate is an informed one.

Investment Strategy

Realtors can provide you with information about how the local market has performed historically, but they can't predict what the market will do next month or next year.

Historically real estate has been a superb long-term investment, and many people have created fortunes on short-term investments in hot markets. If you are considering an investment in real property, ask a Realtor whom you trust to help you work out your strategy. Remember that the local market will be influenced by things beyond your control, such as interest rates, economic trends, local employment opportunities, and the demand for and availability of rental housing. All of these factors are subject to change, so timing is crucial. A slow market can mean real values for buyers, but a fast market could heat up for several years, pricing timid buyers out of the market. Your Realtor can't predict the future, but he or she can help you interpret the present.

Location And Value

One of the most important elements in the value of property obviously is location. Wise investment philosophy takes you a step further. A better buy would be an investment in a sound property in a more modest area that will increase in value in the future. Buying into an area that is being gentrified, or that is otherwise coming back, is one way to do this.

Timing is everything, however! Most investors don't want to risk too much by being a pioneer, but want to get involved early enough so that there is still considerable room for value in appreciation. Being a pioneer is fine if you are a gambler possessed with lots of patience and cash is not the primary issue; otherwise, it is safer to buy into an area after the restoration trend is unmistakably established.

Neighborhoods that are ripe for restoration have some common characteristics. They are next to a prestigious area or in a good walk-to-work location and have houses that are basically in good condition or "fixer-uppers" with realistic price tags.

Price Is Not Everything

Property Appreciation

Most people who rent a home are probably paying less each month for housing than they would pay for a mortgage on a similar home. Why are people willing to pay more each month to own their own home?

A home grows in value over the years. The rate of appreciation depends on many factors--the location, interest rates, and the general economic climate in the community. If you purchase a property for $100,000 which grows in value at the rate of 5 percent each year, it will be worth approximately $121,000 at the end of five years. At a 10 percent annual rate of growth, the value of your investment will go up to $146,000. As rent increases for those who lease a home, your payments (with a fixed-rate mortgage) will remain constant for the life of your mortgage, and the value of your home increases as you build up equity.

Real Estate Booms!

Some economists link the buying habits of "baby boomers" to the demand for homes in this country. Since most of the "boomers" have already bought their home, they conclude, the demand for housing is declining, along with the rapid appreciation in real estate during the last decade.

This argument presumes that the population will stabilize or decline as these potential buyers age and their children are grown. What is left out of such a picture is that the emerging real estate market is made up of people who are immigrating to this country. When these newcomers have achieved a stable income, they look for the best living situation they can find, often preferring buying to renting.

Real estate continues to be an attractive investment opportunity. If you are sitting out the current market because you are afraid that the appreciation won't continue, you may want to re-think your decision. Today's market is providing opportunities for homeowners and smart investors from all over the globe.

Rental Property

When you own an investment property, your goal is to get the highest monthly rental with the lowest vacancy rate. How can you pull it all together?

It pays to keep your property in good condition while you are trying to rent it, as well as after the new tenants move in. You obviously want the property to look its best when it is being shown. If you work to keep it that way, your tenants are likely to stay around. When something needs to be repaired, be sure the tenants know whom to call to get the job done. Arrange for periodic inspections of the property to check for leaking roofs or pipes, defective wiring or malfunctioning appliances. If you are an absentee landlord, it makes sense to hire professionals to keep a close eye on your investment for you.

Renting Your Home

Homeowners who don't need the equity from their home to purchase a new home may consider renting it instead of selling. Rental property is almost always a good investment, but you should understand the consequences of becoming a landlord.
Tenants may not share your pride of ownership and, therefore, may not maintain the property like you would. If you plan to rent your property, acquaint yourself with state or local landlord/tenant laws, including those dealing with rent control and eviction procedures. If the home you rent has been your primary residence, you could lose the benefits of a capital gains deferral when you sell it later. Get professional advice from a tax expert and a professional Realtor before you decide to turn your home into rental property.

Selling Rental Properties

Marketing a rental property presents some special challenges. Most owners want to offer the house for sale while tenants are still living there so that the property continues to bring in income. Most Realtors prefer that their listings either be occupied by the owner or empty. Tenant-occupied homes are often the most difficult to sell since the tenants may not share the same pride of ownership. They may be very messy and, as a result, the house is not shown to its best advantage.

When you put a tenant-occupied house on the market, it is important that you enlist the tenants in the effort to get your house sold. Talk to the tenants first to see if they have a desire and ability to buy the house. If they are not interested in buying, work out with them the ground rules for access to the house. In most cases, the new owners will want the tenants to move, and it will be important to work out alternate living arrangements with them, if necessary. In each situation, work hard to create a spirit of cooperation with the tenants.

Tenant Tips

When you buy an investment property, finding and keeping a tenant is very important. I have found that a little caution during the screening process can save a lot of headaches later on.

I rely on an intuitive sense of how a prospect feels to me. While this is an important aspect of a landlord's decision-making process, following up on your intuition with by checking on the facts is definitely worthwhile. Have prospective tenants fill out an application giving employment references and the names and addresses of previous landlords. The application should also include written permission for you to run a credit check. In most areas, it is difficult and expensive to evict someone who turns out to be less than a model tenant. Only after you check their references and credit history should you allow them to move in.

The Elements of Location

When you are in the market for a home, how should you evaluate the properties that appeal to you? There is an old cliché about the three most important factors of a piece of property--location, location and location.

Some neighborhoods have a certain distinction that attracts buyers, but there are other factors to take into account. A house in the best part of town may have a few points subtracted if it is located on a busy street. There are buyers who would like to be close to schools, shopping, and churches, but don't want to live across the street from these facilities. You may want an easy commute to your job, but would not consider a location close to the "on" ramp for the major route into town. A location close to a airport could be convenient if you are a commercial pilot, but could make it difficult to sell even the most wonderful house.
As you balance all of the factors, remember that a location liability which gets you a great house at a reasonable price, will probably require you to pass a similar savings on to future buyers.

The Key to Good Tenant Relations

It is important to attract and keep great tenants when you own investment property. A good way to begin a positive tenant/landlord relationship is with clear communication about what you expect from your tenants and what they can expect from you.

The written lease agreement spells out the legal obligations of each party--the landlord must ensure that the property is habitable and complies with local codes, and the tenant must pay the rent in a timely manner and not damage the property. Make sure that the terms of the agreement are stated clearly in straightforward language.

Let the tenants know of your commitment to keep the property in good repair and of your desire to know about little problems before they become serious. When it's time for the tenants to move, offer to provide a reference letter if they need one. This is a nice way to say "thank you" to them for having maintained the property during the terms of their lease. Good communication can help you to maintain the quality of your investment.

Your Investment

Shelter is a very basic human need which most people fill by renting or buying a house or apartment. Rental property is often less-than-perfect. Tenants usually experience a rent increase every year or so and feel quite at the mercy of the owner. They don't necessarily feel a strong commitment to the property or the community.

Making a decision to buy a house is a major commitment, and the decision is both an economic and an emotional one. Instead of paying the landlord's mortgage every month, homeowners pay their own mortgage and build up equity in their investment. When they paint, plant flowers or make improvements, their family reaps the benefits. Homeowners are much more selective than renters about finding the perfect home, and their sense of satisfaction creates a feeling of pride.

Your Own Dormitory!

Your child has just been accepted into college. When you look at the room and board fees, you nearly go into shock! If the school is located in a large metropolitan area, there is an alternative to the college dormitory.

Many parents are investing in condominiums or single family homes near the college campus. They rent the house to their children and one or more roommates. When their son or daughter graduates, they sell the property. The anticipated property's appreciation may go a long way toward helping to finance their college costs. Many prospective students and parents sit down with a local Realtor after being accepted into college. I can provide information about neighborhoods near the school, properties that are for sale, and the amount of rent you can expect to receive from the property.