Real Estate Market

Real estate investing for beginners

(09/01/2010) The real estate investment band wagon is rolling again, but try to hop aboard before you know how to hang on and you could end up under the wheels.

Savvy, experienced investors looking to buy low and sell high are always the first to hitch a ride when the housing market skids along the bottom but right now, others, maybe less experienced, are jumping aboard.

The number of buyers who plan to buy a home as an investment is more than double what it was a year ago, according to a recent Homeownership Survey.

"This latest Homeownership Survey validates what many had hoped to see in the housing markets -- affordable prices and ample inventories are restoring the appeal of real estate to investors," said Move, Inc.'s chief revenue officer, Errol Samuelson.

Relatively low list prices, an inventory of bargain-priced distressed properties and interest rates hovering at and below 4.5 percent, are all combining to bring existing and first-time investors to market.

"If you anticipate inflationary conditions in the future, investment property could be a good bet to hedge against it," said Nancy Osborne, chief operating officer of, a Santa Clara, CA-based financial information publisher and interest rate tracker.

Real estate investments can pay off, but not without a lot of ground work.

Buy your own home first. The general rule of thumb is that buying your own home will not only put a roof over your head, but also add to your insight beyond acquisition information. You'll learn not only how to buy, but you'll also get schooled in the true cost -- in time and money -- of property ownership.

With homeownership comes lessons in market conditions, financing, and property maintenance. You'll also get introduced to a host of professionals who could prove invaluable as your investment portfolio grows.

What's more, your first home could later become your first investmentproperty, a property in a market with which you are familiar.

There is one exception to the buy-your-own-home-first rule. If you live with Mom or Pop or the cost of your rental housing is low, stay put and purchase investment properties.

Just watch your cash flow -- the amount you hope to net each month after all your costs.

"No one knows better than a property manger true maintenance, repair and replacement costs, market rental values, tenant turnover, hidden liability costs, and the best areas to invest," said Andrea G. Caldwell a property manager with Century 21 Alpha in San Jose.

Get professional help. In addition to a property manger for those buying investment properties, you'll also want additional professional help, an investment mentor and partner would could be a real estate agent, attorney or other investor who's been around the block a few times.

Seek referrals from friends, family, professionals you've previously hired and others you trust. Someone who already knows the ropes will come in handy when you are on the ropes. "Just be sure to hire a Realtor who is an aggressive negotiator, who will get your offer accepted," says short sale expert Julie Larsen Wyss, a broker associate with Intero Real Estate Services in San Jose.

Wyss says the professional should be particularly endowed with the ability to go toe-to-toe with investors who are often flush with cash.

"You need a fully underwritten loan approval, proof of additional funds in the bank for a down payment and the difference between the appraised value and the actual selling price. Be prepared to offer and pay over the asking price and appraised value, Wyss says.

Go back to school. Turn to the Internet, libraries of books by reputable authors, successful, credible investment groups, college and university level courses, even your state's real estate license program. You don't have to actually get a license, but you can become just as educated as a licensed agent with their curriculum.

Learn your investment market. A home in one market could give you rental income to offset all your costs, but still not appreciate. Another home could fail to bring home the bacon but appreciate over the long haul to offset long term carrying costs.

Just because the investors are back in town, doesn't guarantee you a real estate investment windfall, especially it, say, rents are down.

Lower rents can mean poor cash flow and that could force you to count on appreciation, an illusive ingredient in today's housing market.

"If you find a well-priced property, located in a healthy rental market and are able to manage and monitor the property and maintain a positive cash flow from the onset for a unit used strictly for income purposes, rather than being held with the expectation of price appreciation, this could be a good time to become a landlord," Osborne said.

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