Are you a true real estate investor?

Investing by definition is a conservative game. If you are taking uncalculated risks with your money you are not investing you are speculating. Solid investment strategies allow you to survive and take advantage of changes in the real estate market. Even when the market is changing your business and financial goals should not change dramatically. If you don't have a plan, now is the time to consider what type of properties you want to buy, how you want to buy them and where you want to buy them.

Several rules of the trade; Buy the best properties that you can afford. Better-located properties will always appreciate more and attract better tenants regardless of whether it's an apartment, a duplex or a single-family home.

Reselling for short-term cash flow requires a higher level of skill than buying property for a long-term hold. When you buy to resell, you have to buy at a deeper discount, and you have to buy something that will sell quickly; if both of these factors are not present, you will not realize the profit for the trouble it took to get through the transaction. Plan to hold a property for a minimum of 3 years. You won't see the appreciation or produce much income before then. In a stable market rents rise between 4-6% per year.

When rates are low, always borrow for the longest-term loan you can negotiate. On apartment communities, the type of loans offered may include interest only payments for the first 2 or 3 years. Lower than normal payments are an excellent way to hold on to your cash especially if the property will need some cash investment at the onset, however, make sure the property can support the higher payment that will be coming. Pre-payment penalties are also often part of larger real estate loans. Understand exactly what that means before you get to closing! On Single-family homes or smaller properties, typically there is no downside to long-term loans and no pre-payment penalties.

Taxes are part of life. Investors in real estate have significant tax advantages. Know your personal tax situation, rely on your CPA; however, you must be informed of tax consequences if you're going to a successful investor.

Buy the best you can, hold onto your investment for at least 3 years, borrow for the longest and lowest rate and know the tax consequences of every real estate decision you make.

Post by Joanne Vanderhoef
Marketing and Media Specialist

The Management Group
Property and HOA Management in Vancouver WA and Portland OR
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