Home Buying in 92109>Question Details

Charles Swank,  in Pleasant Hill, CA

What in your opinion is the most important skill an investor needs to invest in single family residences?

Asked by Charles Swank, Pleasant Hill, CA Sun Nov 28, 2010

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The ability to work the numbers (knowing going in what a good purchase price will be) and what the ongoing costs will be--all in order to achieve the desired goal.

However, the bigger question is: What is the investor's objective? Is it cash flow? Is it appreciation? Is it equity (which may be achieved upon purchase, and not necessarily through appreciation)? These are all good objectives, but they're quite different. And so "working the numbers" is really dependent on knowing your objective. I know some investors who don't care at all about appreciation or even equity. They're after the cash flow. So long as they're making $200 or $300 or $400 a month on a property, they don't care whether the value ever goes up, or whether the property's upside down when they acquire it.

On the other hand, I know some investors who look for instant equity. They're OK with minimal positive cash flow if they can pick up a property with $50,000 in immediate equity. Their objective is to sell it in a year or two and cash out. Their calculations are going to be quite different from an investor who's looking for ample positive cash flow.

So while the most important skill an investor needs is the ability to work the numbers, that is secondary to determining the objective the investor is aiming for,
3 votes Thank Flag Link Sun Nov 28, 2010
Don Tepper, Real Estate Pro in Burke, VA
The ability to properly analyze the deal, including independently verifying the after fix up market value, the fix up costs, carrying costs and setting a reasonable range for his profit margin. After that, he needs an iron will to stick with his price no matter what. But why invest in single family residences? Why not also consider multi family residences and commercial residential apartment buildings. A really good investor will look at all areas of the real estate market to do just those calculations and determine where he will get the best 'bang for his buck'.
2 votes Thank Flag Link Fri Dec 3, 2010
As an investor, I can tell you that Don, Chad, John S, and Bob nailed it. The numbers HAVE to work, and I like how John continued with team building. Both skills are the 2 most important skills for an investor to master. Although I prioritize them in the same order that John did, I know other investors (who aren't numbers people) who'd reverse the order. That's fine too: both approaches work.

Either way, if one isn't into the numbers, than s/he needs to partner with someone else who is. Similarly, if one isn't great with team building, then s/he needs to partner with someone else who is.

By the way, although the OP originally asked the question with respect to SFHs, I can tell you from experience that this also applies to 2-/3-/4-plexes and commercial.

Bob pointed out a need for business acumen. While that might sound a bit different than knowing the numbers, and team building it's basically synonymous. In other words, it's another way of presenting both notions.

We build teams to add value to each relationship. I'm a numbers person, but I don't want to be the contractor, so I hire one. Although I know how to do my own marketing, I prefer to work with a Realtor to handle the marketing. And the list goes on. The point is everyone on my team knows their roles (myself included), and we know how to play well together as a team.
2 votes Thank Flag Link Sun Nov 28, 2010
The most important skill is to be able to stay unemotional and be rational when it comes to investing in SFR. Understanding that this is a business, instead of being emotionally tied to the property just because it looks pretty from the outside. Secondly, it depends on if you are buying it to flip or to hold. Work with an agent to evaluate the ARV (after repaired value) and over estimate your repair cost by at least 20%. If you are going to hold it, please do not hold it when it doesn't give you positive cash flow. Many "investors" bought properties based on speculation that the property value will go up and therefore, they were willing to buy it even tho the rental income doesn't even cover the PITI and Operating Expenses on the property. That's a HUGE NO NO, you might as well throw your money in Vegas.
1 vote Thank Flag Link Fri Feb 4, 2011
I would like to share my skills based on 16 years of owning 13 rental house, and 35 years total in the Real Estate business.
1. I will, never, ever, in a million years, own any investment property without a professional property manager
2. I search the zip codes and neighborhhods for the best rent rates vs purchase price.
3. I will over-estimate the cost of repairs every time. My experience with repairs has forced me to only buy move-in condition homes with professional inspections approved by me.
4. I always use seasoned, experienced real estate agents to negotiate my offer. Everything is negotiable. If the seller needs a certain price point, I want concessions on closing costs, home warranty

David Cooper +1-702-499-7037
1 vote Thank Flag Link Thu Dec 16, 2010
Agree with Suzanne - the discipline to analyze without emotion. If you are buying as an investment, the analysis must be strong and credible and the numbers must work.

Jeanne Feenick
Unwavering Commitment to Service
Web Reference: http://www.feenick.com
1 vote Thank Flag Link Fri Dec 3, 2010
The most important skill an investor needs to invest in single family residences is he or she must be able to independently analyze and interpret economic data. There are several economic factors that have relatively high multiplying effects on the housing market - and it is highly beneficial for an investor to be able to recognize them.
Web Reference: http://www.AQHomeLoan.com
1 vote Thank Flag Link Fri Dec 3, 2010
The exit strategy is the most important skill an investor needs to develop in order to successfully invest in single family residences.

1 vote Thank Flag Link Sun Nov 28, 2010
I agree with Bob and Don - if only one skill must be picked, it's about making the financials work for each property and for the investor's portfolio of properties as a whole. A good support team - broker, inspectors, manager, maintenance crew, tax advisor, legal advisor, etc. - bring additional skills to the task, but the investor should be able to make the final buy/hold/sell decision based upon a firm understanding of the financials involved.
1 vote Thank Flag Link Sun Nov 28, 2010
An investor in single-family residences doesn't need skill, s/he needs product knowledge. Know what you're buying, what the life-cycle of the systems and finishes are, know what the rental market and zoning trends are - in aggregate, sure, you can look at SFRs as a commodity, but you're only buying one of them at a time. Know the product. The rest will take care of itself.
1 vote Thank Flag Link Sun Nov 28, 2010

The investor MUST have some business saavy because owning real estate for investment is the same as taking on an additional job. The mindset is the same and the reality is that in order to own property the "right way" several units must be owned. It all stems from the old real estate addage "Don't go broke on a duplex". Happens all the time.
Web Reference: http://bob2sell.com
1 vote Thank Flag Link Sun Nov 28, 2010
The bottom line is generally the most important thing when it comes to any investment. It is imperative that one runs a thorough cash flow analysis to see exactly what type of returns one can expect. Of course, it is critical to use accurate (lean towards conservative projections) inputs, as that obviously affects the output. Granted, numbers alone do not tell the whole story as you will need to consider whether you will be a landlord and will have to consider the time and stress involved with that. Make sure you are fully aware of your rights and responsibilities as the owner/landlord. There are a myriad of factors that go into being a successful investor, but since you were only seeking one, it's MAKE SURE THE NUMBERS ALL MAKE SENSE.

Chad Basinger, REALTOR®, CPA, CFP®
1 vote Thank Flag Link Sun Nov 28, 2010
Comp rents, and school information greatschools.com
0 votes Thank Flag Link Thu Jul 4, 2013

I think there are two:

1. Do your homework. Really understand all costs involved--beyond your initial purchase. This should include insurance, property taxes, maintenance and property management fees.

1. Treat your investment as a business. Having owned investment property, I learned first had that no matter how nice the clients, no matter what crisis arises, you need to be a manager and not a friend. We had "perfect" tenants breach the lease and trash the house, so my advice is to get a property manager.


Rachel LaMar, J.D.
LaMar Real Estate, Inc.
0 votes Thank Flag Link Wed Feb 9, 2011
Do not become a handy man hacker running around buying all the materials yourself and pay worker's by the hour. Hire mature grown-up adults as Independent Contractor's for a fixed amount.
0 votes Thank Flag Link Tue Feb 8, 2011
All good advice here. Include in here to find a niche with a system that will work. One investor I know bought homes with 2 bedrooms, older homes, then rented them to section 8 couples.
0 votes Thank Flag Link Mon Feb 7, 2011
"over estimate your repair cost by at least 20%" Thank YOU, Helen
...My Las Vegas investors get repairs at dealer cost, meaning the fix up and repair people that maintain our 1300 rental units give us better pricing because we keep them busy. But so many investors and fixer upper types think then can get a Home Depot laborer to work on their project because their real estate agent underestimated the repairs based on unskilled labor, and think they can compete with our skilled work force. 20% seems low considering the time delay in also getting the house in shape. So not all foreclosure experts can produce the desired results.

Serious Investors? Let's Talk +1-702-499-7037
0 votes Thank Flag Link Fri Feb 4, 2011
The greatest skill might not be a skill at all. I think the greatest skill is Patience! You need patience to not jump at the first home that "looks great." You need patience to deal with the all so loving tenants you have..ha, you need patience to review each property as it if is your only avenue of income. Patience patience, patience....The second skill would be understanding the numbers. Here is a blog I wrote on that, let me know if you agree?
0 votes Thank Flag Link Fri Feb 4, 2011
My opinion is many investors have more expereince than most real estate agents on CMA and negotiation.
0 votes Thank Flag Link Fri Feb 4, 2011
Know your market and work with an agent that can really break down the value of the home. The other part of that is have a realistic outlook on what it will cost you to fix that home up. If the numbers don't work then move on to the next property. It's a business decision not an emotional one.

Good luck,
0 votes Thank Flag Link Tue Dec 14, 2010

If it were that easy then everyone would be a real estate investor. There are way too many elements that go into real estate investing to say that one is more important than the next. Think about it this way, finding a deal is an important skill but it does you no good to find a deal if you don't have the skill of finding the money. There are several skills that go hand in hand when it comes to real estate investing and no matter how many skills you may have I still think it is impossible to invest successfully in real estate without having a good team.
0 votes Thank Flag Link Thu Dec 9, 2010
Hey There Charles, thanks for the question.

I am a real estate broker in Pleasant Hill, and I also share your first name so I assume that you must be a great Realtor :-)

I would like to say that I am also a tax accountant and an Agent Enrolled with the IRS. For the past 8 years I have tried to explain cash flow and the consequences of depreciation to my tax clients. So basically I have been talking to myself for the past 8 years.

Because of the mania that was created by the housing and credit bubbles there were no investors buying into the market. Only credit drunken speculators with no investment skills.

So I would say that the most important skill for the last 5 years has been to stay out of the rental investment market! I told my clients to hone their saving skills and wait for the last of the credit drunken fools exit the market.

And now that the credit drunken speculators are leaving the market it is time to test the waters. If one decides to actually invest in real estate(not speculate), one must have cash flow from the property before any depreciation on the property is taken. And the cash flow must be commencerate with the risk involved in the area.

Currently investors are getting reasonable cash flows in the lower end real estate markets of the Bay Area. Investors in Antioch, Pittsburg and Oakley are getting a resonable cash flow of 8% on their investment. But you must remember that this is the low end of the market and tenants create more problems. The 8% possitive cash flow can be sporatic as you spend 3 months evicting them. Or cash flow can even turn negative if they decide to raise goats in the spare bedroom. I wouldn't kid about this, I have heard of this and even crazier things happening.

But I am telling my clients that the less riskier middle end of the real estate market like Pleasant Hill and Walnut Creek won't have possitive cash flow before depreciation for a year or two. The best metric to determine value today in the real estate market is to compare a home's asking price to 2001 price. There are many homes in Pleasant Hill and Walnut Creek where real estate agents are listing them at 2007 pricing.

So thing are progressing as expected. The upper end real estate markets are always sticky. Remember it took Tokyo 20 years for the high end to bottom. And our mini bubble in 1990 took 6 years to bottom in the high end.

So long story short, anyone that has the ability to save cash and wait for good cash flow at a reasonable risk rate has the tools to do well in the real estate market in the next 10 years.

Or to put it differently, anyone that is rushing in to buy real estate now because they believe that prices will never be lower is absolutely destined to fail.

I see many homes that are still selling in the East Bay for 2007 prices. These people are adding to the shadow inventory that we will have to deal with in the future. If interest spike in the future these speculators are toast.

Thanks again for the question and send me an email with your contact info and I will add you to my list of local Realtors on my website.

Charlie Husen
Tax Home Realty
Pleasant Hill CA 94523
0 votes Thank Flag Link Thu Dec 9, 2010
You need to know:

WHAT a good deal is
WHERE to look
WHY you are buying (will it be a rental, flipper, market opportunity, etc.)
WHEN to buy (which goes along with why you are buying)
HOW you plan on funding for the purchase

After breaking it down like that, sometimes you get a better understanding of what you need to do.
0 votes Thank Flag Link Mon Dec 6, 2010
It's a numbers game.. but the ability to take a risk.
0 votes Thank Flag Link Fri Dec 3, 2010
People tend to think that the thing they're good at is the most important attribute in solving a problem.

I would like all investors, who are usually people who are pretty good with arithmetic, to consider that real estate is not an abstraction, it is the most "real" of property. With that in mind, if you don't know and understand the parcel and its improvements, then you are a speculator, not an investor.
0 votes Thank Flag Link Wed Dec 1, 2010
Buying real estate intelligently for investment purposes requires an eye for good property and the ability to nail the price. But it all starts with understanding the investors requirements.
0 votes Thank Flag Link Wed Dec 1, 2010
Research - start with the answers below to get started!
Financials - expenses, exit strategy, the market you're buying in (rents, values, vacancies, etc.)
Discipline - not spending where it's not needed (ex: granite in a laminate neighborhood, cherry because you like it)

Then it's easy - money in vs. money out
0 votes Thank Flag Link Mon Nov 29, 2010
Doing your financials. Return on Investment, Net Income, Income after debt service and taxes. Property should be purchased as a business. It should make a profit.
0 votes Thank Flag Link Mon Nov 29, 2010
All these are good suggestions. But, I believe the question was what skill. In my opinion education is where an investor needs to start and to continually keep investing in. Seminars, books, clubs, REI meetings, mastermind groups, coaching, mentors, boot camps, networking, etc. Focus on education and learn through experience. Best of luck!
0 votes Thank Flag Link Sun Nov 28, 2010
The ability to estimate expenses and to realistically judge their ability to deal with the property.

Joan Wilson (Realtor, SRES, Ecobroker, Certified REO, HAFA, and Short Sale Specialist)

Prudential California Realty
Direct Phone: 760-757-3468
800-975-7481 x 111
Fax: 760-946-7894
License # 01341483

Blog: http://JoanWilsonRealtor.com

Find Your Dream Home:
0 votes Thank Flag Link Sun Nov 28, 2010
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