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Acquiring the Right Property

Next Page - Warning Signs

Few things are more important in real estate investing than acquiring the right property. If you don't have a property that supports your investment objectives, you will always be fighting a losing battle. Below I offer some recommendations to help you decide what types of properties you want and how to find them.

Find an area that you know something about.

Don't EVER buy a property in an area where you don't know the types of residents and the types of renters. Don't buy where you don't know how the local government treats landlords and renters. If you can't get a permit that you need, you can be in serious trouble. If the local authorities favor a deadbeat renter over a taxpaying landlord, you can be in even more trouble. How hard is it to evict someone? How long does it take? Is the area trending down in quality? Are taxes too high?

We bought a house only to find out that the neighbors were adamant that it NOT be rented to certain minorities. That would clearly be illegal for us to honor (and we DID NOT), but offending a neighborhood is not a good way to keep a house safe and secure.

Find an area that you can easily get to.

I prefer to buy properties that I can readily drive to. This means I can see things with my own eyes and assess things. I am never dependent on information provided by third parties with their own agendas. Renters have agendas, rental managers have agendas, handymen have agendas. Each will color their assessments to their advantage. You don't want a serious issue that needs your attention at 3am during a work week when the property is five hours drive from where you live and work. (I'm NOT saying that you need to personally address problems at 3am! I'm saying that when ALL else fails, you want to be able to rely on your own personal experience and knowledge without buying a plane ticket!)

Find a class of property that you know.

Do you want to rent to low-income people, high-income people, businesses, multi-family? Do you know the types of people you'll be dealing with? Is all of your life experience in the suburbs? Will you relate to inner-city renters? Will you even want to? If you have never lived in a single family home, will you know what kinds of maintenance issues you will have to address? Are you ready to maintain a giant suburban lot when the property is vacant in the summer if you have always lived in an apartment or condo? Are you familiar with the legal requirements for maintaining and leasing commercial property?

Know what your long-term plans are for the property.

When you buy a property, you need to consider the long term value and options for the property. When I buy a residential property, I always consider the possibility that it could turn commercial in 10 - 20 years or so. I tend to buy properties on main highways near areas that are growing. You may want to consider if the area is growing, gentrifying or becoming more commercial. You can also make good money in an area that is trending downward, but you need to get your money out sooner and not rely on any residual equity value.

Have a buying strategy and stick to it!

Have a reason to purchase each property. Don't just buy because you find a good deal. Evaluate how the property fits your plans, skills and long-term vision! What seems like a great deal today may not be so great when it fails to support your plans, or when it requires a completely separate maintenance plan, different advertising and a different management strategy.

Do not overdiversify!

Diversification can be a good thing. Different types of properties in different areas can help you weather downturns in particular markets, but it can also mean that you never become very good at being a landlord. You will also lose some of the benefits of economy of scale that can drive your costs down. These economies of scale can include discounts on maintenance, discounts by bulk-buying materials or advertising discounts for volume.

Be willing to miss out on a property.

Never be so obsessed with a property that you overpay! I read in Carleton Sheets a decade ago that if you are not embarrassed by your offer, you are offering too much. I have taken this to heart. I will offer WAY under what a seller wants. I once bought a two house set for $112,000 when the asking price had just been lowered from $185,000 to $170,000. The seller's agent was floored that her client accepted our offer. She said she would have paid him more if she'd have known. There are plenty of properties. Buying cheap makes EVERYTHING that follows easier.

Talk to the neighbors BEFORE you buy.

They neighbors will often provide you great information about a house, its history and problems it's had in the past. Also, talking to them will give you a good feel for how difficult they will be in the future. Will they be difficult to deal with when renters let the grass get too high? Will they let you know what's happening when you aren't around, or will they be participating in the shenanigans? Good neighbors makes investment property management MUCH easier!

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