Real Estate Investing 101
by Duane Boucher

Why should I consider purchasing investment property?

You’ve seen how wealth can build through home ownership; now parlay that success by owning investment property. As a savvy investor, your real estate investments can easily outperform other investments such as stocks, bonds and mutual funds because your profits grow in a multitude of ways.

1. Leverage – The benefits of a greater value are realized with a much smaller personal investment. In other words, make money with other people’s money by controlling a large asset with only a small down payment.
2. Cash Flow – Rental income is generally dependable and can be increased over time.
3. Appreciation – You will build equity as property values rise over time.
4. Amortization – You will build equity as your mortgage loan balance is paid down with rental income.
5. Value Creation – You can take an active role in improving your property and increasing its value.
6. Bargaining – You can negotiate an attractive purchase price to create instant value.
7. Government incentives – You can take advantage of tax deductions, tax credits, subsidized rents, government insured loans, etc.
8. Mobility – You can sell your property at any time and can even defer capital gains taxes by exchanging your property for another.
9. Stability – A real estate investment will not “go out of business” and is not subject to the same competition that businesses usually face when providing a product or service.
10. Management – You can hire a property manager to simplify your involvement or save the expense by managing your own “portfolio”.

How should I begin?

First, determine your level of comfort and experience and what amount of an investment you are seeking to make. You may consider leveraging a larger investment into two or more properties rather than placing a larger down payment on only one property. Keep in mind, however that you will need to properly budget for acquisition costs and will want to maintain an account with reserve funds for unexpected costs or repairs.

Have a conversation with an experienced Realtor member of our team. We can help you plan. Establish a buyer agency agreement. Factors such as available financing, fire code laws and condition may affect the type of property that you determine to seek out. Brush up on the local landlord/tenant laws, and have a conversation with your CPA and attorney to determine if you should be taking any additional steps such as setting up an LLC.

I want to look around at my options?

Focus on the one or two geographical areas or towns that you are most familiar with. Get to know the average rents, and what tenants are seeking most such as location, bedroom count or parking. Determine exactly what property types are of interest and if you prefer a fixer-er-upper or a turn key building. One of the best ways to do this is to speak with a Realtor that owns rental property. We can send you listings of all properties located in your chosen area. Drive by as many as possible. The goal is to get a general feel for the market.

How will I know if a property is a good deal?

An experienced member of our team can help you to analyze the merits of your potential purchase before making any commitments. Keep in mind that this is not a property you are buying to live in. Sometimes the least attractive properties have the most upside potential. A thorough analysis will include gathering the last two years operating income and expenses, occupancy history, and investigating the condition for deferred maintenance. Often the operating income and expenses can be over or understated. An experienced agent can spot red flags. Boucher Real Estate agents are capable of laying out a thorough investment property purchase analysis helping you identify such factors as the cap rate, net operating income, debt service coverage ratio and return on investment.

Remember, this is business.

Emotions can easily interfere with the best of business plans. Don’t be surprised if you feel that a property does not appear to be up to your living standards. In fact, you may get cold feet for a number of reasons. Remember, this is business. You can make money buying investment properties in any market by maintaining a business-like approach and making sound decisions based on good information.

Inspiration

“Just based on tax rates alone, it makes sense to move from earned income to portfolio or passive income. Real estate investing can help you do that.”
Diane Kennedy, CPA, Co-Author, real Estate Loop-Holes

“Buy land, they ain’t making any more of the stuff.”
Will Rogers

“income property provides true investment opportunities. You can speculate in stocks, you can buy lottery tickets, you can shoot craps in Las Vegas, but the odds are stacked against you. In contrast, selectively acquire just four or five rental properties and you will build an income for life.”
Andrew McLean, Co-Author, Investing in Real Estate

“Happiness is positive cash flow.”
Fred Adler, Fulbright & Jaworski, LLP

“Today, I make my money in several different businesses. I also play the stock market and make some of my money in that market. But the bulk of my wealth is held in real estate. Yet more than store my wealth in real estate, I am able to magnify my wealth using loopholes real estate offers the sophisticated investor.”
Robert Kiyosaki, Author, Rich Dad, Poor Dad

“I like thinking big. I always have. To me, it’s very simple: if you’re going to be thinking anyway, you might as well think big.”
Donald Trump

“You don’t wait to buy real estate. You buy real estate and then wait.”
Author unknown