So you feel like you want to invest but you are not sure where to start. I work with quite a few investors and all of them are buying now. the market may not be at the bottom so having several methods of investing will serve you the best. For the most part purchasing higher cost properties for flips may be the type investment you may have to hold for a while (12- 18 months) in order to reap the highest return. Also any flip should be worked from middle of the road to upper end on finishes, when it comes to getting the most for your money in returns.
Some of the investment properties on the market now should be considered as hands off, especially if you check for liens on them from city and state. Coming into Spring the prices will fall fast on empty investments as the city will be more apt to put someone out to mow the grass or board up windows and then put a lien on the property,
I found that two of my properties that I had listed were on what is known as Administrative Demolition. This comes about after countless times of the city or county fining the owner and not having any contact with them. In that instance the government came approach a property and level it to the ground and you still owe the fines!! Those properties have been taken off the list, but if you are working with out of town owners you need to check to be sure there are no problems with the property they want to list.
From 2005 to 2008 the boom got quite a few people into the investment market most paying the highest prices for property ever, or buying a what was thought to be really great deal with much higher tax assessments. The problem with this theory is that the investors depended on the market continuing to increase and leveraged their purchase price by borrowing on the properties to the point that the lender would allow them to. Sometimes allowing the investor to purchase 1 property and leverage to buy 3 more. Some of these investors did this to the point that every time they bought one of these properties they leveraged it multiple times. Not only that but some of the investors who were renting as is were not investing any of this capital back into the properties to make them better places to live. So now in 2011 many of those properties have gone into deterioration and are at points of major refurbishing required. Imagine the 10′s of thousands of homes that this has happened to across the nation. Imagine those homes that were abandoned that were broken into for the copper to be stolen so someone could make a few dollars and the continued demise of the properties comes about due to water damage or fire from copper pipe fittings on gas etc. Tack on the fact that the government has put out new rules on handling lead based paint, Radon, disposal of asbestos materials and so on.
Now in comes the new investor of 2010 and 11, wanting to invest and make lots of money. I can honestly say to you, “Move slowly grasshopper, buy slowly and sell quickly.” Have multiple plans for moving your property. Rental, Rent to own, lease option, or flip. I have one client that is purchasing a very much less than perfect duplex for about 8500. His plan is to renovate with new roofs, central air, furnaces, hot water heaters, kitchens, bathrooms, paint, soffets, windows, about 20k in repairs. Seems like lots of money for a low end property, but think of it this way on cash flow, each unit is a 3 bedroom 1 or 2 bath unit. Each will rent for 700 per month. That is equal to 16800.00 per year and say that you put one fourth of that back each year for repairs. That would mean that within 27 months you have cash flowed the cost out of the unit. This makes this a wise decision and one you would definetly want to go ahead with. Where else can you have cashflow on that investment in less than that?
Be cautious on your investments, do not over-extend yourself, keep your investments to no more than you can afford to loose.
Next month I will talk about getting the best deals on contractors, appliances and much more.
For all of your needs whether investing, buying a new home, selling and moving up, The Hogue Group with Keller Williams Louisville East can aid you in your quest.
Rick Hogue REALTOR
The Hogue Group
A Place to Hang Your Hat and Call Home