A lot of people lost a lot of money buying investment properties in the mid 2000’s. Buying income property was the thing to do in Florida. Prices were soaring and all you needed to do was buy a townhouse today and flip it tomorrow for a $20,000 profit.
For a while it was easy money. My husband and I did it on a townhome off SR-54. We made good money, but only because we knew we had to sell it in 2006 and sell it fast. I was working in real estate and could see the market turning. We were the lucky ones.
Many more people were not so lucky. They bought their income properties in late 2005 or 2006, at peak pricing. When the market dried up, buyers were hard to find and prices started to drop. Investment property short sales and foreclosures clogged the market. The people who were once seduced by the possibility of fast money were now defeated and struggling.
The ink on this cautionary tale is barely dry and already the investors have made their way into our market again. I receive calls from people looking to buy homes to fix up and rent out almost as much as I talk to people looking for owner occupied properties. This time, they are being seduced by low interest rates and home prices that are significantly reduced. The rental market is hot and prices are low. Sounds easy, right?
My short answer is: Nothing is that easy.
The long answer is of course much longer, but I will try to give you some of the highlights here. Investment properties are a possibility as long as you are smart about it…really smart about it.
Five Things Every Investor Needs To Know
1) You are not the first one with this idea. You need to realize that there will be competition for the property you want if it is in good condition and in a desirable area. There are investors out there that buy properties for a living. It is not their hobby, it is their job. They offer on multiple properties at a time and they have cash. Seeing the property as soon as it goes on the market is very important. Have a Realtor put you on an MLS pop-up so you can keep track of the market.
2) With bank-owned properties, many banks will require investors to wait a set amount of days before they will entertain their offers, usually 7 days. This is to allow owner occupied buyers to have a chance to purchase the property first. Be patient and know that it is a good thing when banks sell to people who are going to stay there for a long time.
3) Do your research on area rent prices and do an accurate assessment of what your monthly cost is on the property. Enlist the help of a Realtor or Property Manager to help you understand the rental market in the area that the investment property is located. If rent prices are $1000/mn and your cost is $1000/mn then this is not necessarily a property you want to buy. Remember, for something to be a good investment you should be making money on it every month. You are not just looking for a profit when you sell.
4) Fixer-uppers can be a money pit! If buying one is your heart’s desire and you are not in construction, make sure you bring a contractor with you during the inspection period who can give you estimates. Have a good home inspector look at the property too and don’t be surprised when your fixing up costs go over budget.
5) Learn how to be a landlord or hire a good property manager. Property Managers will usually charge between 7-10% of the rent price per month but they can save you a lot of headaches in the long run. If you don’t want that extra cost then talk with an attorney who can advise you on your rights as a landlord and the rights of your tenant. Realtors can also serve as tenant finders and list your home on the MLS and provide you with a lease.
Bonus Tip: Do a credit report on any possible tenant. This is non-negotiable!!
Most importantly, learn from the mistakes of past investors. Go into it with reasonable expectations. For the part-time investor, look at property investment as another way to diversify your portfolio. Sometimes investments take time to see good returns. Be patient, be smart and get good advice.
Melanie Atkinson is a Realtor with The Wood Team at Coldwell Banker.
She can be reached at Melanie@woodteamrealty.com or 813-368-6084
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