The mantra for investment property advice today is to stick to the fundamentals that will yield positive cash flow. Long gone are the speculators that have fueled the real estate bubble. In the boom years real estate investors ( or better called speculators ) would buy a property and try and flip it for a quick cash out the strategy was a hope of quick equity gains. Today real estate investors are returning to the fundamentals, and the key is cash flow, they are holding and renting for solid, steady incomes.
Low prices, stable rental markets and rock bottom interest rates have created huge buying opportunities. In the wake of the credit crisis and great recession this is actually a unique point in time for savvy real estate investors to take advantage of. In previous years you saw real estate investors analyze their decisions based on real estate price appreciation which is very speculative. Now as values continue to tumble in many markets, net rental income is the key real estate investment decision driver.
What we are seeing in certain markets like Miami, Phoenix and Las Vegas are investors focused on acquiring distressed properties. In some of these once booming markets it is not uncommon for prices to have dropped over 50% in value. The fundamental shift is that in previous years the real estate investors/speculators where focused on flipping which substantially contributed to bidding up home prices. Today’s investors are less part of the problem and more part of the solution as they are now part of stabilizing neighborhoods with excess inventory.
Stay with Fundamentals Best Investment Property Advice
Investors now are taking a much more long term view in this new economy. Residential real estate investors in today’s marketplace are intent on holding units and renting them out. Due to tight credit typically you are seeing investors putting down 20% as opposed to the low and no money down money loans that helped fuel the boom. If deals are structured correctly it’s a good strategy to figure another 10% of the price for property management, 10% for maintenance, an 8% vacancy rate, taxes, insurance and other home ownership expenses when doing the numbers on an investment property. If investors stay with conservative numbers a solid double digit return on investment is the norm. If the numbers on a particular investment don’t pencil out and produce positive cash flow out of the box move on to a property that does, there is no shortage of inventory.
If your particular local market is not offering enough cash flow positive opportunities then investigate a market that is. Real Estate investors today are much more likely to invest out of state if a turn key deal is cash flow positive and you have a quality team to help with management. For the long term the beauty of of focusing on cash flow regardless of market, is that even if the prices decline another 10% or 20% in some markets investors can live with that if they are cash flow postive positions. If you plan on holding for five years or more with cash flow as your fundamental strategy there’s no need to worry about price drops. A final piece of advice is to always minimize your tax burden and consider all tax deductions for investment property as well as an investment property exchange as a way to avoid capital gains.
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