Investing in American Real Estate today
Let’s face it…the U.S. economy is in shambles. Companies are going out of business, people are being laid off, homes are being foreclosed. But with each economic depression there have been a very few that not only survived but actually thrived during such events. I read somewhere that there are three kinds of people. A few…who make things happen; many…who watch things happen; and the majority…who have no idea what happened. And here is what I personally have noticed. Investors today are way more active in buying than the owner occupants (you know, those that buy a home to live in it). That goes to prove the investor’s way of thinking: He is willing to risk when no one else is.
OK. Next…I know there are some great opportunities available in the U.S. properties. But investor beware, not everything you’ll come across will necessarily be the right investment for you. Read my page on Economics and your Investment Strategy to learn more.
I have done my homework and already have discovered areas where Booms are being created. But you won’t hear about them until years later when the bubble will burst again. So, if you’re investing in real estate for long term you certainly don’t want to go in those areas of the country. Do your own due diligence on the local economic forecasts and don’t follow the crowd. A bubble in the making does not necessarily have to come with inflated real estate values. After all… 1. The supply of housing is still higher than the demand because banks are still foreclosing on many properties. 2. The banks are still in a freezing mode so it eliminates those buyers that need financing. But both factors are only of a temporary nature and the bubble that is now being created in certain areas will burst again. Historically, a few win and the masses lose during a collapse.
What you want to look for when investing in real estate is…
1. Areas with good economic indicators. It doesn’t sound that complicated but it takes research and common sense. Think about this for a moment. An area with high unemployment means an area where the local government cannot collect enough taxes to pay for their expenses. When you own property in that area you may end up paying the share of taxes for those that do not pay. That’s why you have to ask yourself how something like this will affect you and your investment.
2. Properties with good cash flow. Low prices are great but that’s not everything. What good does it do to have huge property taxes and insurance? Here is a tip for you. An economically depressed area represents a high risk to insurance companies. As a result few insurers will want to offer insurance coverage in those areas. And guess what? The fewer the insurance companies the higher the price of coverage. High risk to the insurer means high premium for you.
3. A strong professional team. That will consist of an outstanding property manager, a great attorney, and an experienced accountant.
- Great Property Managers. Not all managers are the same. You may find that there are property managers and then there are a few great property managers. The ideal manager is the one that will properly screen potential tenants so that you don’t end up with tenants that won’t pay their rent or destroy the property. He/she will be knowledgeable with the current rental values so that your rental won’t be priced out of the rental market. The ideal manager will use the right avenues to keep your property rented out and without long vacancies.
- A good attorney will provide you with excellent legal advise. When buying real estate you may not want the liability to follow you personally. An attorney can help you set up the right structure in which to get the vesting of your properties, whether it’s a LLC, corporation, or any other form of entity.
- Your accountant should be your buddy. I really mean that because excellent tax advise is not easy to get and the difference between a marginal tax advise and a great one is like the difference between day and night. In the end, you will have a mediocre investment or an outstanding investment.
I also found that in today’s world individual competence is hard to come by. I like to work with only the best and those that are willing to “go the extra mile”. That’s why I do my homework and I encourage you to do yours diligently. Find the competent and efficient professionals and associate yourself with them. You’ll have peace of mind. And my advise for you is to never follow the herd if you don’t want your investment down the cliff.