Category Archives: Real Estate Investing

Not a day goes by that I do not receive a call from a would be real estate investor who would like to begin buying, fixing and selling houses. And I want to say, again, that I am not against this kind of real estate investing and in fact know it to be a very profitable activity.

But you have to make the numbers work in your favor and your numbers have to have the ability to be accomplished. For instance, there are those that will not want to touch a property unless and until they can get a 20%-25% profit from the project. And if you can find those projects, snap them up! But in today’s market with many, many people all looking for the same deals you will find more and more investor/speculators attempting to turn properties for as little as 5%-8%. (And those are dangerous numbers!)

Somewhere in the middle is where you will probably have to be. Unless you refine and get really serious about how you find out about properties. Again, I have friends and acquaintances who have their own networks and advertising and can find those 15%-25% properties. But they work hard to find them, to keep their contractors happy and to keep a steady source of leads and buyers to move the properties quickly.

Should you do 5 houses a year at $20,000 profit per house you will make a $100,000. That’s pretty good money. It’ s going to take more than just a call to your REALTOR, some paint and a quick sale to make that happen.

Just my thoughts. Not trying to discourage. Far from it. I want you to know and plan for a way to make it happen!

Every once in a while a perfect property will come along. How do you know it’s perfect? It fits your criteria. (I’ve spoken before of how important it is to know exactly what you are looking for, ie, house type, bedrooms, price range, area of town, needed repairs, etc.) You’ve run the numbers and they cash flow to your criteria or the play room is perfect for little Johnny. Everything works.

But for whatever reason you decide to wait a day, think it over and possibly discuss it with a relative. You then decide after talking to Dad and sleeping on it that you want to make an offer. But, alas, it’s too late. The property is under contract.

This is no big deal if you were “stretching” your criteria. If you can sleep fine without getting the property then it probably didn’t fit what you were looking for anyway. But if your criteria was clearly defined and you chose to procrastinate you will probably kick yourself!

I want to say this, again, as clearly as I can. Set your criteria before you start looking for an investment property. (Same goes for a personal home. Though more subjective criteria will probably be used.) If the property fits that criteria get it under contract…under your control. Then you can proceed to pick it apart and decide whether or not to move forward. If you have used a competent REALTOR there will be an inspection clause that will let you out if the property turns out not to be to your satisfaction. But get the property under your control as soon as possible.

Eh. What a day…sports wise. First my Jayhawks lose to Kansas State for the first time in a 113 years! Then both of my sons’ basketball teams fall short. Then the Redskins lose. And my Chiefs aren’t even playing. Let’s move on…

This morning I held an Investor’s Workshop. And I touched on an important subject that I want to go over with people, again. It’s the question of which is better for the long-term investor to own.

Single Family Homes

Advantages – The great thing about SFHs is that they tend to appreciate in line with their neighborhood, independent of what rental rates are. When you go to sell you might sell to another investor. But you will most likely sell to a buyer looking for a home of their own. The buyer looking for their own home will probably be a little less savvy when it comes to negotiation. And since they are looking at a home for personal reasons and expect to hold it for a while they are less likely to be looking for big discounts when they purchase. So your appreciation and buyer pool will most likely be better than that of the multi-family home (MFH). Some investors also believe you get a little better quality tenant who is looking a little more long term.

Disadvantages – This is a huge one for the newer investor. If you don’t have a PAYING tenant that month you don’t have any income that month. Also, SFHs can be spread out all over town causing you some maintenance and upkeep hassles.

Multi-Family Homes

Advantages – I believe duplexes are an excellent way for the newer investor to get started. Or, if you are looking at buying your first home and you are also looking towards investing a duplex will let you do both. Quite simply, live in one side and rent the other. A great way to get your feet wet. The major advantage is if you have one vacancy you still have 50% (or so) of your income that month. Or if you have a fourplex and one unit is empty you still have 75% of your income. And so on. A great safety net. Also, your maintenance tends to be concentrated in a smaller area helping you with upkeep and scheduling.

Disadvantages – Appreciation tends to be tied to the income a duplex or other MFH produces. As mentioned in an earlier blog, any investor worth his salt will not be doing comparables to determine the profitability of a MFH. Offers will be based on the income and expenses of that property. And that being the case your appreciation will be tied to the rise and fall of rents. When rents have been depressed for a while SFHs have probably raced by in appreciation. And lastly, when you go to sell you have a more limited pool of buyers and those buyers tend to be pretty savvy negotiators since they most likely own other investment properties.

So which do I recommend? Well, both, really. It depends on your criteria and your tolerance and ability to pay during vacancies. As you move along in your career I would recommend a mix of both. But that’s just my thoughts on the subject!