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INVESTING 101 OVERVIEW
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LOCATION, LOCATION,
LOCATION - Where is the best area of town to
buy a rental property? Again the answer is simple... anywhere
you can make money. It really doesn't matter if you are in a
statistically high crime area or not, as long as the price you
pay for the property allows you the opportunity to meet your
financial objectives. Everyone has to live somewhere.
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Keep in mind I'm speaking from a strictly "rental"
aspect. We are not talking about appreciation, maintenance,
age, future resale, etc. When you bring in those other factors,
along with your personal investing preferences, then where you
buy may be more difficult to pinpoint. You see it's hard to
foresee what anyone neighborhood or market will do over the
next 20 years or so. I can guarantee that all properties will
get older and as they do will require more and more maintenance.
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The two things that eat into rental profits are
vacancy and maintenance. So buying a new property in a newer
area of town that is near a school might be a good way to go...
if you want a single family home. The problem here is that you
pay a premium for this type of property and unless you either
get a terrific price or you put a load of money into your down
payment, you are likely to have a negative cash flow.
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PROPERTY TYPES
- Another question we get constantly is which property type
is better? Well if you haven't figured it out by now, I guess
I'll just have to say it again...any type where you can make
money. Every property has it's advantages and disadvantages.
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House - Your average house needs to have
the lawn and or landscaping cared for. Houses are normally larger
than most condos, which means there is physically more area
a tenant can potentially damage. If your house sits vacant you
are 100% vacant. Also, you normally continue to incur other
costs with a vacant house. There are electrical, water, and
landscaping requirements. However, you do have the advantage
that you are not directly competing with all the apartments,
condos, townhomes, and plexes on the market. Also, people who
rent houses, as compared to other housing types, stay longer
and move less.
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Condo/Townhouse - These properties especially
in a gated community can be difficult to rent. First of all
the only people that are going to see your sign in the window,
assuming your community even allows a for rent sign, are people
that already live there. If it's a gated community, it's even
more unlikely that a potential renter will see your sign. Why
is signage such a big deal. Because most people drive the areas
they want to live in, looking for available properties. Condos,
have to compete with every apartment complex or townhome as
well. On the plus side, an owner usually doesn't have to worry
about the exterior of the property, and has a smaller interior
to fix should it get damaged. Tenants in condo's however, as
a demographic group, as compared to people that live in houses,
have a tendency to move more often.
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Plexes/Apartments - Duplexes,
tri-plexes, fourplexes, multiple units and apartment buildings,
you say! There really isn't any new property in this category,
here in Clark County, for the most part, as compared to all
other forms of construction. Consequently, these properties
are normally older, and are found in the center of town. Your
price per unit is usually less than compared to a condo, but
your overall investment is much higher simply because of the
size of the project. Depending on the building size, having
one or a few vacancies may not kill you. Your overall cost per
unit to maintain the building is less, you just have more maintenance
to do. However, every major repair is initially much more cost
intensive. When you replace the roof it might run $15,000 -
$30,000. But on a per unit basis, it's a third of what it would
cost to do a house. You get the idea.
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| The bottom line is that every property has it's
advantages and disadvantages. If you buy an older property because
it's cheaper than a new one, then you will probably be paying
way more for maintenance. If you buy a new property, in order
to avoid potential maintenance problems, but don't put much
down when you purchase, you will probably be upside down in
your rental income and mortgage payments. There is no perfect
solution. It is what ever you are comfortable with. Just remember,
you make your money when you buy.... Click
here if you are interested in foreclosures, tax sales, etc |
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