Tuesday, January 20, 2009

According to the Media

According to the media, the world has ended. Sorry folks, everything crashed. There’s no more real estate. Banks are no longer issuing loans and no one is buying anything anymore. It’s over. Back here on the planet Earth however, things aren’t as gloomy as TV land. Sure, the real estate market isn’t what it was a few years ago, but homes are being bought and sold every day. Banks are still issuing loans believe it or not, and great deals abound for those looking to buy. Buy now. Why? You are no doubt familiar with the most basic rule of investing “buy low, sell high”. Well, the “buy low” part requires a period of time when prices are low, and that would be right about now. Waiting for the market to improve before jumping in? That’s when the prices will already have increased, and buying then goes against the simple rule we just mentioned. There is no doubt that the market will go up again (because, historically, that’s what the real estate market always does). We just don’t know when that will happen. What we do know is that now is a pretty good time to get started investing in real estate. Have a clear plan. Real estate investing is a business and should be treated as such, not as a hobby. Make a plan. Will you be investing for the long term (renting) or short term (fixing and flipping)? How much time can you set aside for your business every week? What work can you do yourself and what work will you need help with? What are your overall goals? Getting rich “overnight” usually takes years, so having realistic expectations is very important too. Line up financing. Getting pre-approved for a loan before you find a property is a must. Talk to several lenders, talk to your realtor and ask for recommendations. When you complete this step you will know exactly how much money for the down payment you will need, what the rules for seller-financing are, and what you can expect the loan process will look like. If you plan on purchasing a property to rehab, ask about loan programs that provide money for that too. Line up your own cash. You need to have cash in the bank for costs like repairs, or unexpected expenses, or for mortgage payments when your tenant suddenly leaves and you are not able to find another one right away. Not having enough cash reserves is perhaps the biggest mistakes real estate investors make, and it can cost you dearly. So how much in cash reserve you should have? There is no definitive answer. You have to do your homework in figuring out your debt service, your taxes, insurance, HOA, cleaning expenses. Three to six months of mortgage payments and expenses is a good rule of thumb, but again, situations may vary. Assemble your team. Once you are ready to get started, you don’t have to, and shouldn’t go alone. There are professionals that can help you along the way. First, you will need a good Realtor, and fortunately you already know one. The Realtor’s job is not only to help you find the property, but also to answer questions and guide you through the process. You will also need a good accountant who can answer real estate tax -related questions. Knowing a good property inspector is also a plus, as well as knowing a few loan officers who are familiar with investment properties. Acquire knowledge. First let me say this: you should invest in what you are already familiar with. This means the area you know well, like a particular neighborhood; it can also mean a type of property like a single family home, or a condo, or retirement community, or a fixer-upper if you are the handy kind. Forget about out-of-state pie-in-the-sky “opportunities”- Putting your money in something you don’t know usually means getting fleeced. Now, once you’ve decided what you are going to invest in, your job is to learn everything you can about it. Talk to the realtor who knows the Diablo Valley very well, talk to other investors and join our investors group, read books about all the different strategies. Run your plan and numbers through your accountant and see what he or she thinks. The more information you have at your fingertips, the better. It is the right time to buy real estate in the Danville, Pleasant Hill, Lafayette area, because of the accessibility of low prices, to what it once was in the late 80s, early 90s.

Christian Rousset

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HcoRealEstate said...
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