Beat the Crowd when Investing in Real Estate
- Author Peter Dobler
- Published September 18, 2005
- Word count 1,005
We all are thinking about it and some of us are actually
taking action and getting their hands on real estate
investment properties. The longer the NY Stock Exchanges
doesn’t produce desirable returns the more people are
starting with real estate investments.
For most of us the obvious choice of properties are single
family homes. Although you can invest in real estate
without owning a home, most people follow the experience
they made while purchasing their own home. This is familiar
ground and the learning curve for doing a real estate deal
of this type is pretty slim.
Of course there’s a drawback with this approach. The
competition is fierce and there are markets where investors
are artificially driving up the cost of the properties
while completely discouraging first time home buyers. If
this is the case, the burst of the real estate bubble is
just a matter of time.
How do you avoid these situations and still successfully
invest in real estate? How do you get ahead of the
competition and be prepared for bad times in real estate
investments as well? The only answer I have is commercial
real estate.
Why commercial real estate you might ask? Commercial real
estate is a solid investment in good and bad times of the
local real estate market. The commercial real estate I’m
referring to are multi unit apartment buildings.
Yes you will become a landlord and No you don’t have to do
the work by yourself. You are the owner and not the manager
of the apartment building. The cost of owning and managing
the building is part of your expenses and will be covered
by the rent income.
Apartment buildings are considered commercial real estate
if there are 5 or more units. To make the numbers work you
should consider to either own multiple small apartment
buildings or you should opt for bigger buildings. This will
keep the expense to income ratio at a positive cash flow.
Owning rental properties is all about positive cash flow.
With investing in single family homes it is easy to achieve
positive cash flow. Even if your rent income doesn’t cover
your expenses 100%, the appreciation of the house will
contribute to the positive cash flow. With commercial real
estate the rules are different.
While single family homes are appraised by the value of
recent sales of similar homes in your neighborhood,
commercial real estate doesn’t care about the value
appreciation of other buildings. The value of the property
is solely based on the rent income. To increase the value
of a commercial real estate you need to find a way to
increase the rent income. The formula on how this is
calculated would be too much for this short article. I
listed a few very helpful books where you can find all the
details.
What’s another advantage to invest in commercial real
estate? Commercial real estate financing is completely
different than financing a single family home. While
financing a single family home you are at the mercy of
lenders who want to make sure that you are in the position
to pay for the house with your personal income. Commercial
real estate financing is based in the properties ability to
produce positive cash flow and to cover the financing cost.
After reading all these information about commercial real
estate you want to go out there and dive into the deals.
Not so fast. First, you need to learn as much about real
estate as possible. In commercial real estate you’re
dealing with professionals. If you come across too much as
a newbie you will waste these guys’s time and your
commercial real estate career ended before it actually
started. Second, no commercial real estate lender will lend
you any money if you can’t show at least a little bit of
real estate investment experience.
What’s the solution to this? Go out there and do one or two
single family home deals yourself. It doesn’t matter if you
make huge profits to start off with. Most newbie investors
are loosing money on their first deal anyway. If you can
manage to show positive cash flow with your single family
home deals you are ahead of the pack.
My advice, buy a small single family home in a decent
neighborhood and rent it immediately. This will keep your
out of the pocket expenses at a minimum and you will have
rent income to cover for your monthly expenses. Bonus, you
gain experience as an investor and as a landlord.
Here’s another observation I made during my real estate
investment career. Most people like to analyze, learn,
discuss and analyze some more. They never actually got to
do a real estate deal. They love to talk about real estate
investments, but never did it themselves.
My approach to real estate investment was simple.
-
I bought some books about real estate investment.
-
I read every single one of them.
-
I put together a simple plan on how I want to get started.
-
I started looking for properties.
-
I bought my first investment property 30 days after I
started reading my first book.
- I made positive cash flow with all of my properties so
far.
What is my point? You have to go out there and practice
what you’ve learned. The only valid credential in the real
estate business is practical experience. Having a couple of
deals under your belt, you can go out there and start
looking at commercial real estate and even impress seasoned
investors with your knowledge. Because you made this
experience by yourself and you know what you’re talking
about.
Book reference for commercial real estate investments:
Gary W. Eldred, PhD: “Make Money with Small Income
Properties”
Jack Cummings: “Real Estate Financing and Investment Manual”
You will find these books and many more on my real estate
investment website at
http://www.suncoastrenttoown.com/author_directory.htm
Sincerely,
Peter Dobler
Peter Dobler is a 20+ year veteran in the IT business. He
is an active Real Estate Investor and a successful Internet
business owner.
Learn more about real estate investments at
http://www.suncoastrenttoown.com or send a blank email to
mailto:suncoastrenttoown@getresponse.com
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