01 Sep 2011
- Written by Carlee McCullough
Still, Americans have witnessed bailouts to the auto industry, Troubled Asset Relief Program (TARP) funds to strengthen the financial industry, and the lowering of our AAA credit score to AA+. Meanwhile, both political parties are taking a public beating for the apparent chess games being played in Washington, D.C.
On the local level, we still have to live life and plan for the prosperity of families. With that in mind, this month we will look at real estate as an investment vehicle, along with those companies that have survived during crisis in the industry.
Although some assets increase your personal net worth, others depreciate over time. Wealth creating assets include, but are not limited to: stocks, bonds, mutual funds, savings accounts, 401(k), IRA accounts and, last but not least, real estate. Success in real estate requires patience, local market knowledge, financial expertise and the ability to perform due diligence on the property or deal.
Owning real estate has some great benefits, which may include: appreciation of the property, ability to borrow against the equity, potential gain from the sale and additional tax benefits. In a market that has a low cost of entry and reasonably priced real estate, finding a good solid investment should not be hard to achieve. Historically, Memphis real estate values have not been super inflated like other markets such as Los Angeles.
For individuals looking to invest in real estate, we have provided some starting points to jumpstart your activity:
Learn the industry
The Internet and bookstores have a tremendous amount of information on investing in real estate. Stay away from the books and articles promoting “get rich quick” schemes.
Create a plan
Expect the unexpected and don’t give up, which means work your plan but be flexible.
Create a team
You will need a broker/agent, mortgage lender (if needed), appraiser, lawyer, accountant and property inspector. Find an agent that understands your overall goal and can work with you to achieve it.
Consider partnering with someone to lower your risk of loss. Too often we fail to play with others in our pursuit of wealth. We can grow and win together as a team. Make sure that a good lawyer creates a partnering agreement that will lay out the terms and conditions of the venture so that both parties know what to expect.
Determine your budget
If you are using debt to buy property, get pre-approved by the bank or mortgage company. Knowing your budget will help narrow your search and bring your options into focus. Remember to also budget for the unexpected with money in reserve. Some tenants will not pay as agreed, vacancies will occur, and repairs will need to be made.
Determine the property to pursue
A single family home is typically an unattached, freestanding, unattached dwelling.
Multi-Family dwelling is usually defined as two to four attached residential units. Some may refer to them as a duplex, triplex, or four-plex. Also consider investing in apartment complexes. There may be some bargains out there.
Commercial property is commonly divided into three categories: retail, office and industrial. Retail includes hotels, restaurants, malls and shopping centers. Office space is self-explanatory. Industrial would be manufacturing, warehousing and distribution spaces.
Perform due diligence on the market
Evaluate the geographic area of interest. Find what comparable properties have sold in the past and for how much. Before you buy consider who will buy, rent, or occupy your property.
Know the exit strategy
When you go into business, clearly defining the exit strategy is paramount to a successful transition out of the business and will frequently determine whether a business was successful or not. Therefore real estate investing is no different. Identify what your exit strategy is with the property prior to buying it and move forward with that goal in mind. But remember to be flexible in your plans because circumstances may change over time and warrant revisiting or revising the exit strategy.
Stay the course
Ownership is the key. Although it may get difficult along the way, remember that generational wealth is frequently built upon real estate, even in times of market decline, which can often mean a bargain.