Buy investment property when the real estate market is depressed.To buy investment property is a challenge, because you should do differently from what home buyers do and doing that is out of the comfort zone for many. Buying investment property only because you are ready is often a mistake. The reason simply put is that just because you are ready to buy does not mean that there is a good deal out there waiting for you. Sometimes you are ready and the market is not. The real estate agent is showing you the market, what the houses are selling for at the current time. The truth of the matter is you probably will not find a good investment property to buy by simply going out with your
buyer agent
and pursuing what is available through the Multiple Listing Service.
The real estate agents around you will push you to buy investment properties at retail price. Then you pay the shelter cost of the house, not the investment price. You will not get rewarded until you step out of your comfort zone and start making investment deals. The good news is sometimes you find a seller who must get out, has a lot of equity, and is willing or forced by personal circumstances to give away the house. Your offer to buy the investment property is substantially lower than the seller is asking, but you have good credit, and can offer a quick sale. For every eleven offers made this way one gets accepted. This is very good news. The key is to be persistent and stick with your investing guns. Take a look and see what might be the mortgage payment today using this
"Current Interest Rates and a Free Mortgage Calculator"
, "My Sample Letter Examples"
What is a good price to pay for an investment property?I use the income approach and the Capitalization Rate method of appraisal when I buy investment property. Seven years ago the capitalization rate was about 11% in my area. With all the bubble in the real estate market, one year ago the capitalization rate was 8.5%. That means the price of an apartment building generating $20,000 in Net Operating Income (NOI) before taxes and mortgage interest increased from: $20,000 / 0.11 = $181,818 in year 2000 to $20,000 / 0.085 = $235,294 in year 2006; an increase in price or appreciation of 77%.
NOI / Property Price = Capitalization rate Use this link to get more info about the
Capitalization Rate
and more about
Accounting for Real Estate.
Make the offer, using after your name the words “or Buyer’s Nominee”, and at closing make the purchase in the name of your Limited Liability Company for future protection. Make the purchase contingent to inspections and satisfactory financing. Make your homework before investing and calculate your
Rate of Return on Investment.
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