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,
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.
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
Unwavering Commitment to Service
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.
Chad Basinger, REALTORÂ®, CPA, CFPÂ®
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.
...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
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.
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.
Tax Home Realty
Pleasant Hill CA 94523
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.
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.
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
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
License # 01341483
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