Making a sound Investment Decision

Making a sound Investment Decision

As investors tire of stock market instability, the idea of owning a piece of real estate is gaining in popularity. Now, not everyone has what it takes to become a landlord, but if you can make a go of it, it certainly has the potential to become a good money-earner. Here are some tips from successful real estate mogul, Janet Anderson, on how to start building up your property portfolio.

According to Janet, one of the best ways to identify a bargain is to hunt for foreclosures. Foreclosures are properties banks have repossessed because their owners were unable to meet the mortgage repayments. Banks want a quick sell on these places, Janet says. They want to cut their losses and get their money back as quickly as possible. Developing a network – making connections with city clerks and bank employees who know which properties are about to be sold – can be an excellent way to identify such bargains. And bargains they certainly can prove to be; in a recent firesale auction (‘firesale auction’ is the phrase that has been coined to describe auction-room events dedicated entirely to the disposal of repossessed assets) a house with a market value nearing $1,000,000, but with a low reserve price designed to encourage bidders and secure a quick sale, went for $450,000; that’s a whopping 55% discount.

It’s also important to be realistic though and not stretch yourself too far financially. Janet says the biggest mistake you can make is to borrow too much or over-borrow. For first-time investors, lenders usually demand bigger down payments because you haven’t got a proven track record. That’s more of your money on the table and, therefore, should anything go wrong, you’re in for a big financial hit.

Her business partner, James Nylles, is in complete agreement on this point. He also highlights the fact that the mortgage payments and deposits are only part of the long-term cost of buying a rental property. There is also the cost of repairs, administration and maintenance, rental manager’s fees, insurance and so on, all of which require you to hold a significant amount of money in reserve. Failure to factor this in when calculating how much you can afford to part with in mortgage repayments can lead to disaster.

One of the biggest traps for first-time investors, according to Nylles, is the temptation to pay over the odds to get the property you desire. Buyers often get carried away, especially in the auction-room setting, which can get quite competitive and even descend into a racket of one-upmanship. They end up paying top-dollar and landing themselves in a financial situation they can ill afford to be in. Remember, you are in the property game to make money, so the more money you have to pay upfront for a property, the less likely you are to recoup your investment in the long run. The good news, however, is that the housing market is not very hot at the moment, which means the danger of overpaying is not so great. Always set emotions to one side and think from a purely business perspective. The question of your liking or disliking the property is irrelevant. As Nylles points out: “you will not be living there.” Business decisions are made in the cold hard light of day; your objective is to minimise your outlay and maximise your return. Whether you secure a huge home in pristine condition or a tiny flat with barely room to stretch in is irrelevant – if the tiny flat gets you a better return on your investment then the choice is a no-brainer.

And last of all, do your homework. You’ve got to get to know the location in which you are going to invest. Look out for areas which are earmarked for government investment. Urban renewal areas are often very attractive since house and rental prices in such places are low right now but can be expected to rise in the not too distant future. The range of local amenities, safety and the state of the local economy are all important factors to consider, too. As the old