By Lisa A. Maini

"But, what's a steal?" I asked. I had been thinking about investing in another property for some time and wondered, "What's the best way to do it?" Instead of poring over books and surfing the internet, I asked experienced friends and colleagues who had bought and sold multiple homes as either private investors or professional realtors. This is what I learned.

 

 

 

1. Use your own money. "Self-financing allows you to buy cheaper," says Dan Kelley of Kelley & Ryan Associates, Inc., a municipal tax collection firm. In addition to avoiding interest payments, you save money on closing costs. Filing fees, bank attorney fees, appraisal fees, title insurance and points, as well as prepaid taxes, can amount to 2% of your total loan. Self-financing allows you to avoid these costs and puts you in an equity position from the get go.
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2. Look into the future. As an investor, you will end up selling your property at some point and need to be concerned about its future value. When that time comes, it is important to keep these considerations in mind.

   • Look for broad market appeal. "If your new home's appeal is shared by many, its resale value will be higher than what you might get if your home appeals to a smaller audience," says Steve McKenna of Bowes/Pennell & Thompson - GMAC Real Estate. Strict zoning laws, for example, might prevent significant renovations or additions to an old Victorian. "It's riskier to by something that has a limited market appeal than it is to buy something that has a broad market appeal," notes Steve.

   • Consider purchasing an abutting property. If your home is in a highly desirable area, purchasing the property next to it will increase its future potential. Dan Kelley, for example, bought a large lake front property, as well as a smaller lot next door. The second lot bordered conservation land, and in addition to increasing the total size of the estate, it increased the overall net worth of the property by providing opportunities to add a garage, tennis court, pool and increased privacy.

   • Familiarize yourself with local zoning regulations. Local zoning regulations play a big role in determining how much flexibility you have to develop your property. Purchasing a one family house for example, in a community that permits you to renovate one floor into an office and another floor into a residence will increase the potential of your investment.

3. Know when to hold, lease or sell. "Sometimes you farm and sometimes you hunt," says Braden Plant, a private investor with 8 properties he has bought, renovated and sold for a profit in the past three years. For example, people who "buy to flip" (i.e. hunt) in relatively short order should have enough cash flow to carry their property through a market adjustment. On the other hand, if you can withstand the headaches of being a landlord (i.e. farm), buying property, holding on to it and renting it out is the preferred option in the long run. This is particularly true if you own in an area that is relatively insulated from market fluctuations.

So back to my initial question, "What's a steal?" As with most big decisions, it seems the answer always is, 'it depends'. As these experts have pointed out, the key to wise real estate investing is to be as informed as possible about the factors that impact a property's value both today and in the foreseeable future.

Lisa A. Maini is Principal of myMarketingManager, a full service marketing outsourcing firm that specializes in developing both strategic and tactical marketing programs for small to mid-sized companies and start-ups in New England. Contact Lisa at www.myMarketingManager.com

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April 2006

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