Profile picture for mirzainv

what RESEARCH do I need to do before buying RENTAL properties ?

Here is the scenerio: I sold my house in Glendale Heights last year for $225...peaked at $300

I sold it b.c. it was paid off and I cleared 201k from it.  Sometimes I think about it and wish maybe I would have got a heloc on it and had the same amount of money to invest ....what do you think ???

Anyways now I have this 201k that I want to invest in real estate but this is all we have.. after this money our family has NOTHING!!! (we currently do not have a home to live in right now...living with the inlaws :( 

But the reason we sold that house is because we thought the price would fall further which it has from June of 2009...

& because we WANT TO INVEST THIS MONEY INTO RENTAL PROPERTIES...

WAS THIS A SMART DECISION ?

WHAT ADVICE WOULD YOU GIVE ME ON INVESTING THIS MONEY IN REAL ESTATE >?


P.S.- I THINK THE MARKET WILL FALL MUCH FURTHER WITHIN THE NEXT TWO YEARS...
  • September 18 2010 - Chicago
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Answers (22)

Because the full gament of a person's complete circumstances is impossible to detail in a post on a website, the best bet for you is to consult a trusted real estate expert about your options. An experienced agent can provide you with information about the pricing, (changing, falling, stabilizing - whatever is applicable) of investment properties and homes in your areas of interest and assist you in strategizing. Further, it is probably in your best interests to consult a financial consultant and/or an attorney about your options. The more you know, the more heads you have looking out for you, the more likely it is that you will have a clear perspective and be able to make a solid decision for you and for your family. Diversification is possibly something one of these advisors will bring up.. Good luck to you!
  • November 05 2010
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I would suggest looking into finding a new home and not rental property. Take some of your money and use it for a down payment on a primary residence. You can then take advantage of the current record low interest rates and not have to share a house with the family. Then save some of your money for future unknown expenses that always tend to pop up. Either way talk to a Realtor in your area and see what the current market is doing. I know our market has been slightly rebounding and the prices are holding. While I don't think the market is going to make huge gains in the near future I do think the prices have stabilized. And who knows when the interest rates will start going back up. They can't hang around at these lows forever.
  • September 29 2010
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You sold a free and clear house, in the worst market in history, so you could buy more houses?

To answer your questions. No and don't.
  • September 29 2010
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Although the market may continue to drop some, the first place to look is what area you are comfortable owning in, then you start with the basic research of the stability of that area. Do you want the best deal on a piece of property (foreclosed, needs some work or ready to occupy). there is financing available for all scenarios for both owner occupants and investors. Get a loan officer that understands what your ultimate goals are so they can put you in the best products. The realtor that you work with is also important to help you meet the goals that you have set. 
Good luck with your purchase(s).

Greg Migacz
Rehabman Mortgage
[contact info removed by moderator]
  • September 29 2010
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mirzainv,

When buying investment property there are many things to research.  Location and cash flow are two of your biggest concerns.  Longevity is also very much key in this market to obtain success. We can not predict the immediate real estate future, but history tells us that values will go up.  Although sales prices have went down, residential rental prices have stayed the same or increased due to the amount of renters in the market today. Hands on management skills are very much required along with good business judgement. There are currently great tax incentives to owning investment property. I would encourage you to research this matter with your CPA. 

  • September 26 2010
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Great Post Gregory. Lots of good info about purchasing a primary residence or a property where you can live in 1 unit and rent the others. I also agree about using professionals, especially a property mgr. We hear investors, AFTER they've purchased the property, asking for monthly rental income that's far more than the rental market can bear,  The best advise I can give you is: Talk to a couple of property managers that have similar properties in their inventory, so they can give you a realistic rental rate. This will further your ability to make a good decison for your family.
Good Luck. 
  • September 20 2010
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Remember that all real estate is LOCAL.  Select your market(s) based on sound economic and financial fundamentals.

A good place to start is with our free report "Building Wealth with Real Estate" found on our website.

Good luck!

Marco Santarelli

  • September 20 2010
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Profile picture for Matt Laricy

Investing in real estate is not a bad idea for a lot of people. Looking at what you posted though, I would suggest that you are not in a position to invest. Your primary focus should be trying to find a place for your family to live first, then when you have some extra liquid cash, you should consider buying up investment properties.

  • September 20 2010
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It sounds like you need a place to live first.  But consider the options of multi-unit homes (like duplexes/triplexes/quads) or an apartment building if you are interested in investing at the same time.  Otherwise, I would focus on obtaining a primary residence, then look into income property.  Don't forget to maintain some cash in a savings account as an emergency fund.

That being said, if you are ready for the investment aspect of real estate, it is not an easy path, but can be very rewarding (or extremely painful.)

The hunt for an income property depends on your goals and investment plans.  Do you want the property to provide monthly cash-flow or are you more focused on a property which will appreciate?  A cash-flowing property is sort of like a present-day annuity, where your initial investment generates monthly rental income.  A property that appreciates can also be beneficial in the long-term, but may cost you in the short term.  Some properties will cash-flow and appreciate, although the cash-flow is usually lower than for properties which do not appreciate as quickly (a sort of buyer's premium, if you will.)

Also, what size investment/number of rental units are you considering?  Typically, larger buildings with more units produce better cash flow, but clearly carry more risk and expense.  However, regardless of what size building you are interested in, mortgage costs, maintenance costs, taxes, common utilities, additional fees, and insurance must be factored into the overall number.  A property manager is also a good idea if you have more than one other unit to look after.  The manager provides a buffer between you and your tenants and can handle such things as the collection of rent, service of notices, arranging and monitoring repairs, even paying the bills if you give them permission. 

As far as learning about CAP rates, ROI, estimated vacancy rates, and other technical aspects of investing in real estate, it can never hurt to learn as much as possible.  These figures help to evaluate your investment.  But, as with anything else, letting the professionals help you is in your best interest.  Utilizing a Realtor or a commercial Realtor as a buyer's agent to work with you and help you narrow your search is a good starting point.  I would also strongly recommend speaking to your accountant (which I assume you have, since you are considering real estate investment.) 

Don't underestimate the value of a several hundred dollar investment in the services of a professional.  If you do find a place, never buy without an inspection!  I know of a $700 inspection of a commercial building that ended up saving the buyers $30,000 at closing!

Good luck with your hunt.
  • September 19 2010
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In Los Angeles, the rental price is $700 per $100K home value.
  • September 19 2010
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No way on earth I would EVER buy a home wtih such a low ROI as the poster before me suggests. 4% are you kidding me? you can get that on a 10 year AAA bond even today, just 2 years ago I was getting 5% in online checking accounts... Locking in such a weak return on real estate would be terrible, as that is a serious long term commitment, and much higher headache factor than any other investment.

In Mesa AZ today you can buy homes for under 100K that rent handily for $1000. taxes are say 1200 a year, 800 for insurance, maybe 1000 for avg maintenance, THAT is an invesment that starts making sense.
  • September 19 2010
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Make sure you are positive cash flows with reasonable and conservatively estimated rents, vacancy and expenses. So if you buy a $300,000 investment property and put down 25% or $75,000, plus $5,000 in closing costs and $5,000 in rehab costs - that is $85,000 in equity. Your net cash flows after all expenses and PITI should net you at least a 4% return, so that would be $3,400 on your $85,000 equity investment. Try for a higher return but at least 4% gives you some cash flows and hopefully you'll get some appreciation over the long term too. 
  • September 19 2010
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Profile picture for broker_GRI
Mirzainv,
The financial planners should ask you many questions.
Then you should pick one to help guide you.

I am an absolute fan of real estate as an investment and in your case perhaps a duplex would be a good place to start.
Live in one rent the other and see if you are cut out for the "land-lording" business.

the types of books you read can vary from Millionaire homeowner to text books  Dearborne. How much reading do you usually do?
Would you rather a pamphlet style or all out text book?

There may also be classes at the local college.
  • September 18 2010
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Profile picture for mirzainv
I hear there is no money to be made in short sales...what type of properties can you make some decent properties on ?


Foreclosures ? Fannie Mae owned ? 
  • September 18 2010
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Profile picture for mirzainv
What should I ask these financial planners & what books do you suggest ??
  • September 18 2010
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Call me crazy, you should go house shopping.  Sure, you might be right and the market may dip more, or you could be wrong.  Either way you need a place to live.  Even 30% down on a great bank owned home or short sale (since you have a current roof over your head and short sales take months) at $200k would only be $60k down, relatively easy payments, will leave you with money in the bank to live, and you can attend that investment club mentioned below.
  • September 18 2010
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Profile picture for broker_GRI
Mirzainv,
You see it as having lost something instead of being grateful for the gain.

You may not be in the correct frame of mind for any type of "investing"
Risk comes with the potential for gain and a high degree of stress can accompany that.
You are basing some important decisions on very generalized answers from people who could not possibly understand you enough to properly advise.

My advice is to consult with several financial planners and stay out of "investing" in real estate for awhile, read many books and take the next 6-12mos to do some investigating.
  • September 18 2010
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Profile picture for the_country_hick
Safe choices? I am not sure. Gold could skyrocket or drop. REal estate is likely to drop much more. Stocks could easily crash. Bonds will lose value once interest rates rise. Oil could rise or fall. 

I am not sure what a safe investment is now. I am not alone. Some billionaires are not sure how to preserve the money they already have. 
  • September 18 2010
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Profile picture for mirzainv
Yes I did post that...but remember the agent pointed out that it was not the bottom and the property feel further...

I have all this money and nowhere to live...its not about the money it about the loss on closing cost (since most sellers pay all closing costs in this market) 


It is also about maintaining the same lifestyle and standard of living...when you lose 25-40k selling a house that changes a bit...
  • September 18 2010
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Profile picture for mirzainv
Diversification what are some other safe choices ??
  • September 18 2010
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Profile picture for broker_GRI
Didn't you just post yesterday that you thought your agent steered you wrong by talking you into selling at the bottom of the market?

WORST MISTAKE EVER

No apology for him?


You have all this money and no place to live?
Are you kidding us?
  • September 18 2010
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Profile picture for the_country_hick
First, you are not ready to buy and rent property yet. You have a lot to learn. Not knowing could cost you plenty.

You need to learn about ROI, CAP rates and a lot more. 

Second, you expect house prices to drop more. Why waste money now that could buy more tomorrow? You have to include repairs in the equation. If I was to buy a rental I would not count on appreciation at all. I would count on having one month a year without a tenant and that tenant paying the mortgage off along with needed repairs. If you can not do that forget buying a rental.

Try finding an investment club in your area. There maybe you can learn the basics so you do not waste your money.

p.s. placing all of your eggs in one basket is not a good idea. Diversification os always a good idea.
  • September 18 2010
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