Remember, if the numbers work from day one, do the deal. This will give you the staying power to hold the property until the value goes up. Then people will think you are a savy investor.
It turns out, some real estate investors think that because they love a house, that it is a great investment property. However, the correct way to think about an investment property is to ask yourself, "What value am I providing?"
If you purchase a beautiful 3 bedroom, 2 bath home in a nice neighborhood within a great school district, is this a good rental property? Well, let me ask you this. If someone has a good enough income to rent in such a nice neighborhood, why wouldn't they just purchase the property themselves? What value would you be providing to the family renting.
It turns out that million dollar home which is extremely gorgeous is a terrible rental property. The nice neighborhood, single family home is a little better but probably won't cash flow, unless you use some tricks to increase the amount of rent you can pump from it. The okay neighborhood, single family home is even better and might cash flow from day one depending on where you purchase. That is because you are providing a very valuable service to society. Affordable housing.
Now, continuing, you have your duplex, four plex and finally apartment complexes. So from most profitable to least profitable, we have:
- Apartment Building
- Four Plex
- Duplex
- Small Single Family Home
- Large Single Family Home
- Million Dollar Home
Despite knowing million dollar homes are selling like crazy as mentioned at www.bloomberg.com, don't be tempted to try to time the market.
Did this advice help you? Did this help you to think about real estate investments differently?
This post was reposted from http://finlit.biz/retirement-2/6-real-estate-property-categories-you-need-to-know-about/, originally written on February 3rd, 2013.
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