What makes a smart real estate investment nowadays?

It all depends on if you want cash flow, write off, appreciation.  What is your objective and what is your financial condition?  The best of all investments will give you good cash on cash return (the function of your down payment as related to the annual income after expenses), good value retention and appreciation, low maintenance, and tax benefit.  But how do you get there?

Many of us don’t have a pile of cash laying around to get us started.  I personally am not a believer in the get rich quick antics that I hear about on TV.  I believe in simple hard work and smart investing, so here is how I got to where I am.

I started by making my first home a rental after I had owned it about a year.  I moved because I didn’t like the area, but for some reason liked the concept of real estate as a wealth building vehicle.  When I turned this house in to a rental I had to buy another one to live in.  Owner occupied financing is more affordable so this was a great option.

About 1.5 years later I bought another house.  This one was an impulse purchase!  It had good potential (a fixer, indeed), and the house I was living in had grown small.  This third house was in Woodstock, a still sleepy urban neighborhood that had promise.  I fixed it up, fell in love with living in that great walkable neighborhood, and decided I had enough of moving.  I settled in and stayed over 10 years, while I did more investing.

About a year later I tried my first tax deferred exchange (a 1031 exchange), and sold that first house to get a better house in a better neighborhood.  With each of these houses I tried to get the rent to pay the payment.  Within reason, as long as I was not tapping the equity, these houses came close to paying for themselves when comparing cash flow only.  When tax write off and appreciation were taken in to effect, they were all adding up to growth in value and potential for wealth.  With all of these houses I put relatively little down, which helped with the cash on cash return.

What should you take in to consideration when deciding to invest?

1.  Amount of down payment

2.  Loan terms

3.  Area

4.  Design of home or investment

5.  Realistic rent

6.  Expected vacancy rate

7.  Minimum return on investment desired

8.  Length of time you intend to hold the home or investment

9.  Capital improvements required

10.  Reserves for replacements

This list is just a start.  There are infinite considerations when purchasing real estate.  Feel free to meet up with me at my monthly forum, Landlord Study Hall.  We have been meeting monthly for over 6.5 years and welcome your attendance.  Read more at www.landlordstudyhall.com.  This month we will delve into notices, terminations, and evictions.

More on this story next blog post!