Buy It If It's a Steal
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.
- 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.
* Next 37 17 investors only!
- 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.
-
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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