Painful Real Estate Investing Mistakes - NuWire Investor

Posted: 05 Nov 2015 07:51 AM PST

Real estate has always been considered a good investment. However, smart investing is not simply finding a vacant property and waiting for the income. Many mistakes in judgment can ruin your plan for investing. Experienced investors realize that the type of property, its location, and the general real estate market can have a significant influence on whether it will be a good investment or not. Here are some tips to keep in mind when you begin investing in real estate:

Paying Too Much

Real estate prices can vary widely with market conditions and the expectations of sellers. When you are investing in real estate, you must always ensure that you are getting the lowest entry price for your investment. This strategy can require a great deal of time and leg work, exploring neighbourhoods, sale prices in the neighbourhood and rental rates, but the background work will provide the most accurate information on the value of the property. You can then confidently make your case to the seller for the best deal.

Not Doing Due Diligence

When considering a property for purchase, an investor must be prepared to investigate its current condition, past maintenance, past ownership turnover and other relevant data to determine how likely it will be to produce income on a regular basis. Properties that have had problems in the past may have been patched up for resale, without having the proper repairs done. This situation would pass the problem on to you and could mean a significant expense. Taking the time, at the outset of your search, can help to prevent problems later.

Getting A Poor Financing Deal

Careful attention to your financing of real estate investments can help to ensure a positive cash flow as the years pass. Many investors succumb to the lure of adjustable rates that are very low in the initial years, but balloon to high rates in later years. This increase can undermine your attempts to establish a positive cash flow for the property.

Not Having Sufficient Cash Flow

Ensure that you have sufficient cash flow to tide you over the periods when the rental property is empty. This measure can be critical during slow business periods or during times when purchases are up, while rentals are down.

Underestimating the Expenses

Real estate is not an investment that can be ignored. Regular repair or remodeling projects that are neglected can impact the ability to keep the property rented and can lead to more expensive problems down the road. Evaluating the amount of repairs and maintenance a property will require, in advance of the purchase, can help you to avoid this miscalculation. Surveying companies, such as Harvey Donaldson & Gibson Surveyors, can provide thorough information on the condition of properties.

Not Putting Together A Support Team

You may have done a great deal of study on your own, regarding real estate transactions and management. However, trying to do everything on your own may not provide sufficient expertise to handle the larger issues involved in real estate investment. Having a knowledgeable team that includes a maintenance contractor, accountant, attorney, insurance professional and property management firm can help you with day-to-day problems and specific financial matters regarding this area of investment. Get some names of professionals in these fields, so that you have them on hand whenever a question or problem arises.

Making Real Estate Your Only Investment

For individuals with the time and leisure to do the necessary research and work, real estate can be a lucrative investment. However, thinking that real estate is the fast track to wealth is not a good plan. Real estate markets rise and fall, neighbourhoods go in and out of fashion, populations shift radically depending on economic conditions. Holding real estate in your portfolio is not always a straight upward tick in your financial gains. Investors should always have other financial vehicles in their portfolios to offset any decreases in real estate values, at any given time. In this way, investors can always be winning in some area of the economy.

Not Having An Exit Strategy

In real estate, as in war, you must always know how and when you are going to cash out and take your profit. Many beginning investors put a great deal of thought into how to get into the real estate investment field, but do not even consider the conditions under which they may want, or need, to sell the property. This mistake can be a serious miscalculation that leaves the individual holding the property for too long or having to sell in a seriously depressed market. Always consider how you will take your gains before you purchase a property. Have more than one strategy for making the investment pay off. This method can keep you from scrambling when the time comes to cash out your investment.

Careful research and thought are required to make the most of any real estate investment opportunity. If you keep these tips in mind, you will increase the odds of making a smart decision on your property purchase.

Adam Taylor has worked in property for a number of years and likes to share his ideas and thoughts on how to invest in property wisely. He is a regular contributor for several property and investment websites.

Benton County among top U.S. counties for real estate investment ...

Posted: 02 Jul 2014 09:02 PM PDT

story by Kim Souza
ksouza@thecitywire.com

Rising home prices, lower unemployment rates and growing renter population in Benton County makes the area one of the top 16 markets for real estate investment over the past year, according to new report from Irvine, Calif.,-based RealtyTrac.

RealtyTrac analyzed median sales prices for residential property and average fair market rents for three bedroom properties in 370 U.S. counties with a combined population of 186 million people — 60% of the total U.S. population. Rental returns were calculated using annual gross rental yields: the average fair market rent of three-bedroom homes in the county, annualized, and divided by the median sales price of residential properties in the county.

The 370-county analysis found that investors buying U.S. residential rental property in the second quarter of 2014 are getting an average annual return of 9.97%, down from an average annual return of 10.60% a year ago. Benton County investors had an average gross rental yield of 9.69% over the past year. This calculation was based on average median home price of $125,000, up nearly 1% year-over-year and average rents of $1,009 for a three bedroom home.

GENERATIONAL SHIFT
Daren Blomquist, vice president at RealtyTrac, said the low median price, relative to average rent and steady renter demand is the reason Benton County made the top 25 list for returns. He told The City Wire in a phone interview that Millennials and Baby Boomers were the major catalysts in the robust renter demand.

"We know home ownership numbers are declining but the number of home sales are increasing. This tells us that more new household formation units are choosing to rent. We see a strong rental market for the next five years to 10 years as Millennials are delaying their home purchases and more Baby Boomers downsize to rentals, capitalizing on rising home values," Blomquist said.

He estimates that Millennials and Baby Boomers together total some 147 million consumers, more than 60% of the U.S. adult population.

Blomquist said much of the housing recovery has been attributed to active investors. Roughly 33% of sales in the U.S. this year have been to investors. He said institutional investors and hedge funds came into the market in mid 2012 gobbling up single family homes by the thousands, which they are now renting.

KNOW YOUR MARKET
Mike Maxwell, an agent and broker with Crye-Leike Real Estate, is helping individual investors that are based in California sell their properties in Northwest Arkansas. Most of them are a taking a loss.

"I have sold seven properties this year for clients in California that purchased at the market high in 2005. One just went under contract for $175,000 and the investor paid $220,000 nearly seven years ago. They are taking a loss, but it's time for them to sell because of the 7-year interest-only loans they financed the deal with in 2005," Maxwell said.

He said it's crucial that individual investors know the market before they strike a deal.

"These California investors based their deals on how their own markets work, steep price increases nearly every year. That's not the case here, not since 2005 anyway," Maxwell said.

As a contractor, Maxwell dabbles in local real estate flips and said single family rental homes in the Bentonville school district are in big demand. He said now that prices are starting to rise again, the time is much better for investment than it was in 2005.

"There are several local folks that I am working with who want to jump in the investment market now. Single family homes will rent within 10 days of listing, if they are well maintained and in the Bentonville school district. I am seeing rents as high as $1,400 and $1,500 per month for three bedrooms in stable neighborhoods," Maxwell said.

He said there is more risk and more reward potential with multifamily units such as duplexes and quadplexes. Duplexes and other multifamily units are tougher to move when the investor wants to sell, although they do provide more cash flow if rented.

He said a $189,000 duplex in Bentonville rents at $800 for each side, which is a little under the 1% rule of thumb used when calculating return on investment. For better cash flow, he said the more units the better. He cited an older quadplex in Rogers that recently sold for $328,000, the positive cash flow is $500 per month.

Multifamily renters tend to turn over each year, so there is more churn which can impact cash flow. Unlike a single family home, if one side of the duplex is empty there is still the other unit making the payment. If the single family unit is vacant, Maxwell said there is no cushion for the investor.

Real Estate Investing

Thursday, 5 November 2015