With some signs the South Florida real estate market may be "bottoming out", we take a look at real estate investing. Having experience with investments and learning from the past, we look at a few ideas to keep in mind going forward.
As with most business ventures, one must think about an exit strategy. Seek out properties that will have some sort of utility regardless of market conditions. This will give you options in the future and mitigate downside risk. For instance, does the property have good re-sale features. Could the property be leased quickly or are there lease restrictions.
Do not count on price appreciation as a reason to purchase. Investors should pay close attention to cash flows and not so much on price speculation. Those who build new homes build "on spec" prior to the downturn can attest.
Try to aim for an adequate return on investment. Some have quoted a "rule of thumb" to pay no more than 1.5% to 3.0% of the annual rent. One must also be aware of other factors as discussed in earlier pieces.
Try to limit your use of leverage (i.e., borrowing). The property's purchase price should not exceed 70% of the value of the home in an adequate state of repair. Many investors purchased homes during the past several years and then put in even more money to fix and remodel. The additional costs beyond the purchase price exacerbated a bad situation in what has become a declining market.
I work with owners looking to sell, those buying a first or second home, investors, landlords and those seeking rentals. Please feel free to contact me.
Michael Friedman
Realtor, Certified Distressed Property Expert (CDPE)
Lang Realty
561-989-2100
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