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"A businessman is a hybrid between a dancer and a calculator." Paul Valery Property Selection The property selection is critical because the wrong property attracts the wrong kind of tenant. Considerations:
Type of Property I have chosen single family prosperities over apartments. Seventy percent of the population live in single family homes, and two thirds of them live in three bedroom homes. Given the freedom to choose most tenants want to live and raise their families in a clean home in good repair. Why invest against the trend, fill the demand instead. Single family homes are easier to purchase, manage, sell, and carry a smaller risk than larger investment prosperities, i.e. liquidity, diversification, quality of tenants
Location You should lease small, clean, three bedroom, two bathroom (less plumbing emergencies), in predominantly residential areas, growth areas, close in suburbs, young neighborhoods (three to five years old). In general, buy as cheap as a home as you can stand the tenants. There are more middle class people than there are poor and rich, so that is the place to put your money. Only buy in neighbor hoods that you your self would consider living in (not necessarily that you want to live there, but neighborhoods where you are not afraid to get out of the car and walk around). This helps to insure that you will have affinity and understanding of the neighborhood and the tenants.
Future Value Look for good schools, improving or declining areas, gentrification, new construction, conveyance of shopping, chance for sweat equity improvements in the home itself ( increase in value through identifying and remedying problems that are holding the value of a property down. Intensity of Management Avoid unusual traffic patterns or noise levels. Avoid liability, maintenance headaches and repairs. Try to purchase prosperities that have smaller maintenance requirements. Avoid swimming pools, or other attractive nuisances. Other than the basic landscape, the less the better. Share maintenance responsibilities for small repairs and landscaping with your tenants, spell these out in the lease and indicate in writing that these responsibilities are reflected in the rent amount. The Purchase Decision and Offer Pick a close by area of your city or town in which you are interested in investing in, and become an expert. Learn and invest. Know what you want to buy and why. Write this down and carry it with you . Do not let yourself be sold anything. You chose and purchase what and when and under what terms you decide. Develop your credit, and your team i.e. brokers, lenders, escrow officers etc. Determine if you are going to invest by yourself or with partners. Partners can be useful if you have weaknesses in credit, available cash, available time or experience. Select partners carefully. Select partners you can trust. Use written agreements. Agree in what you want to accomplish, how and when this will be done, and who does and gets what in the partnership. You first offer should be so low you are embarrassed by it. People are free to accept or reject it. Do not become emotionally involved with the sellers or the property. Know that you can always walk away. You can always revalue your offer (you will be surprised how much easier it is to raise your first offer than to lower it). There will be more opportunities than you can handle after you become involved. Always attempt to find out why someone is motivated to sell. You only want to deal with highly motivated sellers. If you know why they are selling you can try structure your offer to solve their problem. Problems are not always monetary, do not assume that they are. Many years ago we bought a home where the sellers were one day from foreclosure and the sheriffs sale. They did not want or expect to profit from the sale, only to escape from the home with whatever credit and dignity they could. They were more than willing to leave a decade of appreciation on the table if we could pay off or assume and agree to pay their existing loan. Our problem was to find an escrow officer who could arrange a loan payoff and close and record in twenty-four hours. We did. This is an example of where a good team support pays off. It needs to be in place before you need it.\ |
