Invest in real estate

After making the decision to invest or reinvest via 1031 in rental housing, there are some good basic rules that guide the process and make sense of the marketplace whether someone is new to investing or already own property. Below are some favorites.

First, evaluate the type of neighborhood surroundings. This review determines the type of tenant mix. In doing so, owners must not forget the fair housing guidelines. The considerations are many. Do you want it to be walking distance to shopping, schools or other amenities? Personally, I like investing in areas where there are additional draws, such as a community park, lake or golf course. Why? Well, they are easier to rent and to keep good tenants. And the tenants enjoy the additional amenities of having a daily run, walking the dog or enjoying the sunset close to home.

Next, consider the type of property. Does the owner want to rent multiple single-family homes, condominiums, duplexes or larger apartment complexes? Each has their benefits and drawbacks. First, decide what works for the management style: hands-on or property manager. A must is to learn the laws governing the type of investment housing. Without a doubt one of the most confusing aspects of residential management is what the requirements are for an on-site or resident manager. In California, if there are 16 units or more, a designated ‘responsible person’ is required to live on site. As the number of units increase, so do the staffing requirements. So laws and regulations definitely affect the type of residential unit.

Also, keep in mind the property taxes and homeowners association fees. For owners looking to buy in a planned community or development, know what the property taxes and homeowners association dues may be required. In some instances, there are multiple associations or the community may have rules governing rental properties. The property tax rate may not be the whole story either; there could be a mello-roos, which is an assessment district in addition to the regular taxes. These fees will affect the return on investment and the bottom line, in addition to possible appreciation and resale value.

Consider the local schools nearby. The more highly rated the school district or the access to private schools affects the investment not only as a rental, but when trying to resell. So getting the information on the schools and teachers and graduation rates are very important factors.

Think about crime in the area. It goes without saying that a rental owner wants to know the crime rate; not only in the city but in the neighborhood. If there are a number of public venues and mass transit, that influx of people can affect the rate as well. Take the time to drive the neighborhood at different times of the day and different days of the week to get a feel for the character of the area when people are commuting or on the weekends when most people are home and during the day when they may not be. This observation provides a better idea of who renters may be and if there are any potential problems.

Lastly, the job market affects rental properties. It goes without saying that proximity to jobs is desirable. The second part of that issue is when the economy gets bad, the further away from jobs the faster the vacancy rate goes up. Another part of the equation is the rate of appreciation can be less in outlying areas for the very reason of employment accessibility. Generally speaking, good places to invest are where there are government jobs and colleges or universities as these types of employment are very stable.

In today’s information age, it is far easier to obtain this information; however, representation by a good broker can be useful in providing the type of inside information not readily available because real estate is a highly local game.

Email Pam Moss with any questions on obtaining rental properties at [email protected].