10 Proven Secrets To Success
There are nearly as many investment-hunting
strategies as there are investors. Yet experience provides some universal truths that pay
off.
- 1. Compare Comparables
Fast-and-loose rules-of-thumb to estimate value, such as 6 or 8-times annual gross rent or
10-times net operating income or 100-times monthly rent, may not reflect an area's value.
Do the same for area rents. A low price can be suppoorted by a reasonable rent; remember,
renters who can afford a high rent can afford to buy instead.
- 2. Tax Laws Change
A good investment is a good investment before it's a tax shelter. Tax laws change. The
right property in the right place with the right financing and management will weather
inevitable tax code changes.
- 3. Specialize
Start in a market segment you know. Whether you focus on fixer-uppers, forclosures,
starter homes, low-downpayment properties, condominiums, or small apartment buildings,
you'll benefit from experience by specializing in one aspect of investment real estate
properties.
- 4. 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.
- 5. Determine Last Rent Increase
If the rents were recently increased, your future income may be limited and, worse still,
tenants might move. Check the date of the last increase to know where you stand. Also,
make sure 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 seller at closing.
- 6. 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.
- 7. 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.
- 8. 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.
- 9. Ask Your Accountant
Especially on the tax questions, as well as your basic investment analysis, be sure to get
a second opinion from your tax advisor or CPA.
- 10. Inspect, Inspect, Inspect
Never buy a property sight unseen. Nothing replaces on-site inspection and nosing around
the property like a bloodhound. Hire professional inspectors for strucural and mechanical
sytem opinions.
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