10 proven success tips for investing in real estate
By Shawn Grover
Of all the real estate questions I am asked, most frequently I hear, "What is the secret to finding that perfect investment property?"
Investment properties in general vary substantially whether they are apartment buildings or office condominiums. The key is to know your short and long term investment objectives and goals before deciding on a particular investment. This does take some soul searching to find the right blend of real estate investment ideal for you goals.
It is essential that these 10 steps be used before acquisition of new property.
Compare comparables
Fast-and-hard rules for estimating value, such as six or eight times annual gross rent or 10 times net operating income or 100 times monthly rent, may not reflect an area’s value. Use comparable sale prices of nearby properties to get the truest sense of market value. Do the same for area rents. A low price can be supported by a reasonable rent; remember, renters who can afford a high rent can afford to buy instead.
Tax laws change
A good investment is a good investment before it’s a good tax shelter. Tax laws change. The right property in the right place with the right financing and management will weather inevitable tax code changes.
Specialize
Start in a market segment you know. Whether you focus on apartment buildings, industrial/office condominiums, probate sales, fixer-uppers, foreclosures, starter homes, low down payment properties or residential condominiums, you’ll benefit from your own experience by specializing in one domain of investment real estate properties.
Run the numbers
Operating expenses from repairs and maintenance, loan payments, taxes, vacancy costs and more will determine the difference between smooth sailing and a sinking ship. Up-front number crunching is your best strategy. Run before and after tax cash flow statements with confirmed figures.
Determine last rent increase
If rent was recently increased, your future income may be limited and, worse still, tenants might move. Check the date of last increase to know where you stand. Also, make sure the current tenant doesn’t have a short-term lease, living there simply to tempt the unsuspecting buyer. Examine existing leases and be sure to get tenants’ security deposits from the seller at closing.
Check tax assessment
A current assessment that will increase after your purchase because it is old or doesn’t include unrecorded improvements could change your property tax expenses.
Investigate insurance
If seller’s coverage is based on lower-than-current replacement value, your insurance cost may increase when you pay a higher purchase price.
Confirm utility costs
Ask the local utilities to verify recent utility expenses, especially if any of these costs are included in your tenant’s rent.
Ask your accountant
For tax questions, as well as your basic investment analysis; be sure to get a second opinion from your tax advisor or CPA.
Inspect, inspect, inspect
Never buy a property sight unseen. Nothing replaces on-site inspection, and nosing around the property like a bloodhound is crucial. Hire professional inspectors for structural and mechanical system opinions.
Consult professionals
It is imperative to partner with a seasoned professional who will represent your best interests.
Shawn Grover, MBA, Broker, was practically born in the field of real estate. He is an active Rotarian in the communities of Oceanside and Carlsbad and is proud to be a member of the Carlsbad Chamber of Commerce. Grover Realty Assists clients with sales and leasing of real estate in north county San Diego. Grover can be contacted at [email protected] or (760) 730-3558.
By Shawn Grover
Of all the real estate questions I am asked, most frequently I hear, "What is the secret to finding that perfect investment property?"
Investment properties in general vary substantially whether they are apartment buildings or office condominiums. The key is to know your short and long term investment objectives and goals before deciding on a particular investment. This does take some soul searching to find the right blend of real estate investment ideal for you goals.
It is essential that these 10 steps be used before acquisition of new property.
Compare comparables
Fast-and-hard rules for estimating value, such as six or eight times annual gross rent or 10 times net operating income or 100 times monthly rent, may not reflect an area’s value. Use comparable sale prices of nearby properties to get the truest sense of market value. Do the same for area rents. A low price can be supported by a reasonable rent; remember, renters who can afford a high rent can afford to buy instead.
Tax laws change
A good investment is a good investment before it’s a good tax shelter. Tax laws change. The right property in the right place with the right financing and management will weather inevitable tax code changes.
Specialize
Start in a market segment you know. Whether you focus on apartment buildings, industrial/office condominiums, probate sales, fixer-uppers, foreclosures, starter homes, low down payment properties or residential condominiums, you’ll benefit from your own experience by specializing in one domain of investment real estate properties.
Run the numbers
Operating expenses from repairs and maintenance, loan payments, taxes, vacancy costs and more will determine the difference between smooth sailing and a sinking ship. Up-front number crunching is your best strategy. Run before and after tax cash flow statements with confirmed figures.
Determine last rent increase
If rent was recently increased, your future income may be limited and, worse still, tenants might move. Check the date of last increase to know where you stand. Also, make sure the current tenant doesn’t have a short-term lease, living there simply to tempt the unsuspecting buyer. Examine existing leases and be sure to get tenants’ security deposits from the seller at closing.
Check tax assessment
A current assessment that will increase after your purchase because it is old or doesn’t include unrecorded improvements could change your property tax expenses.
Investigate insurance
If seller’s coverage is based on lower-than-current replacement value, your insurance cost may increase when you pay a higher purchase price.
Confirm utility costs
Ask the local utilities to verify recent utility expenses, especially if any of these costs are included in your tenant’s rent.
Ask your accountant
For tax questions, as well as your basic investment analysis; be sure to get a second opinion from your tax advisor or CPA.
Inspect, inspect, inspect
Never buy a property sight unseen. Nothing replaces on-site inspection, and nosing around the property like a bloodhound is crucial. Hire professional inspectors for structural and mechanical system opinions.
Consult professionals
It is imperative to partner with a seasoned professional who will represent your best interests.
Shawn Grover, MBA, Broker, was practically born in the field of real estate. He is an active Rotarian in the communities of Oceanside and Carlsbad and is proud to be a member of the Carlsbad Chamber of Commerce. Grover Realty Assists clients with sales and leasing of real estate in north county San Diego. Grover can be contacted at [email protected] or (760) 730-3558.