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I am very interested in this topic and at the moment, I do own a duplex (for the sole purpose of it being an investment property). Within a year or so, I do want to buy another investment property. I have a few questions if anyone can help me out:
1. Is it best to buy single family homes/condos vs multi-family homes?
2. Should I look at buying properties near me or would it be a better idea for the next property to be several hours away (at the beach). The thing that concerns me about renting to vacationers is the chance of the property becoming trashed.
3. Are there any really good books on this subject? I tried to browse for some at the bookstore and couldn't find any.
There is no "best" for every one, there is a "best" only for you.
Nearer to you the better.
^^^^This. There are a variety of ways to invest in real estate.
Personally, I preferred to buy single family houses only because I was looking more towards appreciation and being able to sell them more easily when the time came. Of course, you can sell single family houses to people looking to buy a personal residence, which is usually the best type of customer for SFR. For most other types of real estate, e.g. multi family, commercial, etc., the primary customers will be investors--who are notorious for not paying top dollar, at least if they're savvy investors.
I also looked to buy fixer-uppers, which I fixed myself, so that I could build up "sweat equity", so to speak. Cash is also a good way to get better deals, however financing does provide leverage.
You just need to keep in mind that real estate has significant holding costs and may not be your best investment opportunity. Real estate is not a passive investment...and Warren Buffet hasn't done too badly without real estate. Whatever you decide, you should also make sure that your investments are diversified.
I am very interested in this topic and at the moment, I do own a duplex (for the sole purpose of it being an investment property). Within a year or so, I do want to buy another investment property. I have a few questions if anyone can help me out:
1. Is it best to buy single family homes/condos vs multi-family homes? No one can answer that for you.
2. Should I look at buying properties near me or would it be a better idea for the next property to be several hours away (at the beach). The thing that concerns me about renting to vacationers is the chance of the property becoming trashed. That's what security deposits are for. I would be more concerned about your rent roll dropping off in the off-peak season.
3. Are there any really good books on this subject? I tried to browse for some at the bookstore and couldn't find any. There are 1000s of real estate development books but if you don't have a solid understanding of basic finance, you're setting yourself up for failure.
I am very interested in this topic and at the moment, I do own a duplex (for the sole purpose of it being an investment property). Within a year or so, I do want to buy another investment property. I have a few questions if anyone can help me out:
1. Is it best to buy single family homes/condos vs multi-family homes? No one can answer that for you.
2. Should I look at buying properties near me or would it be a better idea for the next property to be several hours away (at the beach). The thing that concerns me about renting to vacationers is the chance of the property becoming trashed. That's what security deposits are for. I would be more concerned about your rent roll dropping off in the off-peak season.
3. Are there any really good books on this subject? I tried to browse for some at the bookstore and couldn't find any. There are 1000s of real estate development books but if you don't have a solid understanding of basic finance, you're setting yourself up for failure.
I have recommended the book Landlording by Leigh Robinson...
It is an easy read and discusses in plain language operating income property.
No question that multiple units do better on return on investment as far as rents.
Single family are easier to buy and sell starting out... very hard to cash flow in this climate.
Also, with a single family you are either rented 100% or not...
I've helped several friends get started buying owner occupied duplexes, triplexes and fourplexes... all have done real well and all eventually cashed out as family commitments and career took precedence.
That said... they would not be where they are today had they not invested...
PS... don't let anyone tell you it is not a job... unless your go the REIT route...
No one will manage your property as well as you would... and property management comes off the top.
Location: Sarasota/ Bradenton - University Pkwy area
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There are a number of important factors to take into consideration when buying a property to use as a rental/investment. Some of the following will seem obvious to those who are astute at investing in real estate, the information here is for beginning investors.
My first suggestion is to learn the local real estate market in the area and within the price range you are targeting. Knowing the local market, the neighborhoods, the school districts and the inventory will give you a much better perspective as to what constitutes a "bargain" purchase price.
Don't confuse cheap properties with good buying opportunities, cheap properties are generally cheap for a reason. Obviously the quality of the neighborhood is important in attracting and keeping good tenants. Tenants generally are looking for many of the same aspects for their rental homes that home buyers seek out. Location is also important when you consider that at some point in time down the road you may want to sell the property. If you select a location that appeals to buyers wanting to owner occupy as well as investors, you will have a much larger pool of potential buyers for your investment property. Plus, buyers planning to owner occupy are more likely to pay a higher price than investors if the home appeals to them.
Part of learning the local market is to learn the rental rates within your targeted price range/neighborhoods so that you have a good perspective as to market rental rates and demand for rental units within your targeted price/area. As a buyer you will be looking for a monthly rental rate that will cover not only your expenses (including mortgage, if applicable) but also give you a cushion for repairs and vacancies. Some experts say that cushion should be about 20%.
It helps to put together a spreadsheet for comparing properties, one in which you can factor in things such as potential annual income (minus vacancy rate), expenses such as insurance, HOA/condo fees, property taxes, maintenance/repairs, mortgage (if applicable), appreciation/depreciation, etc so that you can calculate your net operating income and return on your investment. There are sample spreadsheets (sometimes called a property investment calculator) out on the Internet that you can use as guidelines in setting up your own. Doing a spreadsheet on each property you are considering will help you determine if that property will give you enough of a spread between income and expenses to meet your goals. Many investors in rental real estate target a return on investment of 5% - 7%, but I have come across investors that target a higher yield such as 10%.
Bigger is not always better. You may find out through your research that there's more demand for 2 bedroom rental condos than 3 bedroom units. Or you may find a more modest 3 bedroom/ 2 bath home will bring you a better return than a larger and more expensive 4 or 5 bedroom property.
It generally makes more sense to buy properties in good condition that need only minor repairs or cosmetics to make them rent ready. Always include a home inspection contingency in your purchase agreement and hire a good home inspector with a proven track record. Remember, you are not buying just the house, you are buying it's roof, AC/heat system, electrical and plumbing. Know what you are buying BEFORE you close on the purchase.
Decide if you plan to self manage your rental properties or hire a professional property manager. Finding a property manager that will handle all aspects well (finding & screening tenants, maintenance/repairs, accounting, tenant issues, etc) is difficult. Sometimes it is a matter of deciding where you are willing to compromise. If you plan to hire a property manager, now is not too soon to start your search process. If you intend to self manage your properties it is better to live locally. It is difficult to keep appropriate track of tenants and rental properties if you spend 6 months of the year (or the entire year) several states away. Be sure to factor in the cost of a property manager in your spreadsheet under expenses.
Find a good tax advisor/accountant and attorney to work with. Before you write an offer, know how you wish to take title. Many investors set up an LLC (limited liability corporation) to take and hold title for investment properties rather than putting them in their personal names. There are advantages and disadvantages to both, which your tax advisor and attorney can go over with you.
Being a landlord is a business and you should treat it as such. As a landlord you will from time to time have to deal with difficult tenants, tenants that do damage to your property and those who fail to pay the rent to the point. You should therefore also learn the local eviction laws and be prepared to use them if necessary.
If you plan to obtain some sort of financing, sit down with your loan office/mortgage broker and go over the numbers before you start your actual property search in order to have a better perspective as to type of loan, down payment, interest rates you qualify for.
On the topic of finances, keep in mind you will need a cash reserve up front. Failing to have a cash reserve may force you to accept a less qualified tenant to avoid a vacancy, do substandard repairs to get by, or beg friends or family for a temporary cash loan to get by.
The most important suggestion I can make to people thinking of investing in rental property is to do the homework. Learn as much as possible, talk to successful investors/landlords, read books on the topic, perhaps join a local investment group. You will be less likely to fail at real estate investing if you go into it with realistic expectations.
I've found the numbers work out much better in lower price areas... with up and coming the best of all.
Most of the rentals I now own are in Oakland CA where I have lived most of my life...
I started buying when they were cheap... move into a fixer, make repairs while looking for the next project and then move while keeping the just renovated fixer as a rental.
San Francisco is just minutes away via public transportation and unbelievably expensive which is what led me to believe investing in Oakland to be sound... so far it's been going according to plan... no complaints.
I have friends that started buying rentals in 2006-07 in better areas and lost their collective shirts... there was not a ghost's chance income would come anywhere close to expenses and then prices fell... double disaster.
Everything I buy has to cash flow even if it breaks even starting out and I throw in my labor for free... the bills still need to be paid and a reserve held for vacancy and repairs...
You can't be in the rental business very long when expenses exceed revenue...
Join your local Apartment House Owner's Group and go to some of the meetings... often they will have guest speakers with a question and answer forum from local professionals... tax, law, building codes, housing authority... etc...
1. Is it best to buy single family homes/condos vs multi-family homes?
>> It depends on your purpose. If you want a rental business, condos and a small house is practical. If you want a vacation house, choosing a big house in a good location out of town would be best.
2. Should I look at buying properties near me or would it be a better idea for the next property to be several hours away (at the beach). The thing that concerns me about renting to vacationers is the chance of the property becoming trashed.
>> Again, this depends on your purpose. If you want an investment near the beach, it is up to you on how it will be maintained. Also, do not expect that you can enjoy the property during peak seasons, unless you are willing to sacrifice the rental fee for a family vacation.
3. Are there any really good books on this subject? I tried to browse for some at the bookstore and couldn't find any.
>> I'm sure there are good books about real estate but I think your question can now be answered by browsing the Internet.
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