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Turn on any financial news program and at
some point you'll hear the experts extolling the virtues of
diversification. Real estate has long been considered a conservative,
long-term strategy to growing wealth. While some seasoned real estate
investors make it look easy, to be successful, beginners should follow
some basic principles.
Learn all you can. Before committing your cash, you should have a
fundamental understanding of real estate. For example, be aware that, in
general, investment properties are not liquid investments. Barring
exceptional circumstances, real estate does not sell at a moment's
notice. It could take days or months to sell a property, depending on
the strength of the market in a particular region.
Consider cash flow. You'll need to have enough capital on hand to
cover any short-term losses due to vacancies between tenants.
Start small. Look into buying a single family home or a duplex.
Leave large apartment buildings and commercial properties to the pros.
Inquire at the local Chamber of Commerce about companies relocating
into or out of the area. Company movement is one indicator of demand for
rental and/or office space.
Find a property that will be in demand. Look for a moderately priced
home with three or four bedrooms, two bathrooms, and a garage that sits
on a quiet street.
Research the property. The most common way first-time investors lose
is by failing to investigate a property thoroughly. Look beyond the
front door. Investigate the reputation of the school district, the crime
rate, and plans for expanding a nearby highway or developing vacant
land. Ask a local real estate professional about the area, its history,
and how fast (or slow) properties are moving.
Inspect the home you're considering for signs of water damage, such
as stains on the ceiling and crinkling or gathering wallpaper; open and
close every door and window; and check all electrical sockets by
plugging in an appliance. Get an independent home inspection, roof
inspection and termite inspection. Unexpected repair costs can eat away
resale profit. Because even the best inspection can't always predict
problems, try to set aside some of the rental income for unexpected
repairs.
Spend time driving the streets of the neighborhood noting the
condition of other properties. Are lawns maintained? Are roofs in good
shape? Are homes kept up?
Be ready to make fixes quickly and respond to the renter's needs. If
you're not prepared to be a hands-on landlord, consider hiring a
property management firm.
Remember, investing in a property is much
different than living in one, and while emotion and attachment can be
prime motivators when it comes to homes, it is return on investment that
counts when investing in real estate.
Mike Cromie of Prudential Properties Northwest I,
Palatine, can be reached at 847-705-6500. Mike Yeats of Prudential
Properties Northwest, Arlington Heights, can be reached at 847-398-4600.
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