Straight from the Top!

It appears that the “smart money” in back on real estate, and there several reasons for this.

First, you can actually earn a reasonable cash on cash return on your money again. It is not unreasonable to expect a return of 8-10% on your investment. Just compare that to what you get at the bank. The decline in property values over the last few years, along with the decline in assessment values and property taxes, and a reasonable mortgage interest rate, make real estate look really good again.

Second, the projections are that rents will increase, making residential investment property even more lucrative. My recommendation is never to buy based on projected future rent increase. Also, check the property carefully for deferred maintenance or milking. If that is an issue, make sure you include that in your projections to calculate your cash flow and rate of return.

My recommendation is NEVER buy an investment property without “running the numbers”. Be conservation as well. In your estimates, make sure you include an allowance for vacancy and collections, because your property will probably not be rented 100% of the time. Also, if you hire a professional property manager which I would highly recommend, make sure you include that in your projections as well. One bad tenant you may see that a professional property management company will pay for themselves over a period of time.

You should not rely on “shoot from the hip” estimates. If there are any concerns about insurance or repair costs, make the contract contingent upon you getting the work done for an acceptable price or obtaining insurance for an amount that fits into your projections.

The market is ripe for investors, but as always, buyers beware and do your homework before purchasing.