Real Estate Investments

organic_rosefaerieSeptember 21, 2010

Hi-

If you were going to invest in real estate now (going on the assumption that prices HAVE to rebound sometime) where would you invest?

Single houses, land or condos?

Vacation properties or primary residences?

Would love to hear what people think!

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patser

Small, detached single family homes. Since the 20-something crowd is living with mom/dad, when they are able to buy, I believe they'll go with small, starter homes and 30 yr fixed rate mortgages. By the time they can buy, they'll be married and be thinking kid.

I wouldn't touch a condo with a 10 ft pole. People who want vacation properties already have them and are getting old enough to want out. I think McMansions and 2nd homes will struggle for some time.

    Bookmark   September 21, 2010 at 7:53PM
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cmarlin20

If I have to choose one of three I'd pick SFR, not land or condo. That said in the right area a condo can be good, so can land.
If I can choose anything I'd choose more units, at least a triplex or small apartment bldg. More units, less price per door.
I'd buy in a middle of the road area, with solid employment. established.area, where tenants likely have family nearby.
Vacation areas are always more volatile, I want stable..

    Bookmark   September 21, 2010 at 9:37PM
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worthy

If I had any interest in "God's waiting room," otherwise known as South Florida, I'd buy there now that prices seem to have almost hit bottom.

Here in the Great White North I'm still betting on entry-level luxury single family residential. The recession has left some groups less scarred than others. Factoid: In the US, Porsche sales were up 33% this August vs. the same period in 2009.

    Bookmark   September 21, 2010 at 10:21PM
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krycek1984

Regardless of what you buy, there are excellent deals out there. We bought this house for 70k and it would have went for a little over 100k 5 years ago. Being only 26, it was the perfect opportunity to jump into housing for us.

I personally think the best bet is single family homes. They will always be in demand, whether from buyers or renters. You own the land with the house.

This house is our main residence and will be for quite a while, but it was also an "investment" in the sense that we got it for SUCH a good deal.

I also would not touch a condo with a ten foot pole. Many lenders are also very hesitant about them.

If you are going to be buying properties for investment purposes (whether it be to 'flip', rent, keep, etc.), make sure you contact an accountant to figure out if there are any tax implications for different strategies. You'd be surprised.

    Bookmark   September 22, 2010 at 3:30AM
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ottawavalleygardener

I think Single Family Home is a bit broad -- where I live, these can be very expensive, and personally, I wouldn't invest in a high-end SFH. And my small ranch home in a trendy area would sell fast, and the buyer would (according to my real estate agent) add a second floor. (If it were not in good shape, it'd get bulldozed & replaced by a monster home).

My father-in-law (real estate agent) used to say that "they're not making land anymore" so that's the best investment. Of course, location is critical. Here in Ontario, downtown condos are going like hotcakes, with people lining up to buy them. But I wouldn't invest in them, because these buyers want NEW.

So.. too many variables to give a firm answer!

    Bookmark   September 22, 2010 at 10:57AM
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brickeyee

"My father-in-law (real estate agent) used to say that "they're not making land anymore" so that's the best investment."

The problem with land is that it sucks money out of the owner (taxes & insurance at least) every year, with little or no payback until finally sold.

The present owners of the land are also well aware of what they have sunk into the land, and will seek to recover that and a premium if they think the land is ripe for development.

Some farming land can be rented out, but it rarely covers even the taxes (farmers like to make money also, so paying high rent is not going to fly).

Single family houses in a decent area with decent schools are very likely to continue to do well.

Put enough down to have the rent cover the PITI so they generate a neutral to positive cash flow.

With a fixed rate mortgage the cash flow gets better as rents increase.

    Bookmark   September 22, 2010 at 12:07PM
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chisue

We've owned SFH. One very old farmhouse had to be pulled down before we could set up a deal to sell it and an adjoining farmhouse for a small townhouse development. As Brickeye says, as 'vacant investment land' it cost us to hold it; as a rental it paid for itself.

Now we have only one property, a vacation rental condo on Maui. It has been a better investment than any SFH we've owned and rented. 2010 will be the first year it has not paid for itself, and it is still worth almost twice what we paid for it in 2001 -- even in a down market. It's also our vacation destination, saving us $6000 we'd pay to rent someone else's condo. Our airfares are tax deductions too.

They aren't making more Hawaiian vacation land! LOL (More may be ready on Big Island in a few centuries if Madame Pele continues to keep expanding her volcano home.)

    Bookmark   September 23, 2010 at 11:24AM
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lazy_gardens

My sister, who has been making an excellent living for several decades by investing in real estate, is buying smallish apartment complexes (triplex up to 15-20 units) and low to mid-priced SFRs. The rental market in this town is strong!

The location is all-important. She's looking for inexpensive buildings in locations where employers are, not the junk built way out in the boonies at the height of the bubble. They are easier to rent and to resell if she wants to.

Dunno what her current inventory is, but it's been as high as 50 or so buildings, with about half of them apartment complexes of various sizes.

    Bookmark   September 23, 2010 at 11:33AM
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dave_donhoff

Hi Organic Rosefaerie,

If you were going to invest in real estate now (going on the assumption that prices HAVE to rebound sometime) where would you invest?
Single houses, land or condos?
Vacation properties or primary residences?
Would love to hear what people think!

Its exponentially less important what others might think, and almost immeasurably more important to understand your own profile.

Are you wanting to invest*, or speculate?
(*Investing means you have multiple ways to benefit from being involved other than simply rising resale prices, so you don't have any pressure or worry of what prices will do, or how soon.)

Do you want to manage your holdings? Manage tenants?
If you are going to self-manage, you need to know how to find (and create/negotiate) outstanding deals within a 30 minute drive of your back door.

Do you want to pay for others to do so for you (ain't no such thing as free management.)
If you are going to outsource management, you have to acquire enough units, at a high enough cashflow, to cover the management costs... else you are buying negative cashflow "alligators*" and clearly speculating.
(*"Alligators" in real estate language are properties that eat a little bit of you every month.)

Can you afford to buy real estate that offers no cashflow? (Land, vacant properties, deficient properties, blighted areas in the path of development, etc.)

Can you afford to buy properties with cash that cannot qualify for financing? (Properties tied up in litigation, environmental problems, etc.)

George Ross, the right-hand-man attorney/negotiator for Donal Trump, says (and I paraphrase from memory:) "there is no deal-killer problem in real estate because everything can be solved with discounts or subsidies to one side or the other."

KNOW THYSELF FIRST.

Real estate is an amazing game where anyone can win grandly in any market over any cycle... but most people do not, because they rush in with very small understanding and little flexibility or creativity.

Luck!
Dave Donhoff
Leverage Planner

    Bookmark   September 23, 2010 at 2:00PM
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brickeyee

"...buying smallish apartment complexes (triplex up to 15-20 units) and low to mid-priced SFRs."

Local law sometimes exempts small investors from portions of landlord-tenant law.

I have never heard of exempting the owner of 15-20 unit building, and there are even limits on the number of SF properties before the exemption does not apply (though there are often ways around them using LLCs and limited partnerships to hold down the actual ownership attributable to a single person/entity).

    Bookmark   September 24, 2010 at 11:22AM
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lazy_gardens

Brickeyee - But why would you want or need an exemption? From what part?

    Bookmark   September 24, 2010 at 11:07PM
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brickeyee

"Brickeyee - But why would you want or need an exemption? From what part?"

Paying interest on the security deposit for one.

Having to obey all the time lines for evictions is another (though I have not had to evict anyone in over 20 years).

    Bookmark   September 25, 2010 at 10:32AM
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lazy_gardens

I managed my sister's properties for a while, and part of the lease package was a copy of the AZ landlord/tenant handbook with a stern command to read it.

Tenants who know what is legal and what isn't are far less of a problem for the landlord.

1 - All you have to do is stick the deposits into a savings account. Landlords who co-mingle funds usually end up with other financial problems. And small landlords who have already spent the security deposit and then can't pay it on time are the ones who end up in court and lose even more money.

2 - Keeping up on the timelines is just part of being a landlord. And if you want to - as a landlord - slip timelines, why shouldn't tenants be allowed to do the same?

    Bookmark   September 25, 2010 at 2:58PM
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blueheron

Why is giving interest to renters on the security deposit a problem? Just wondering.

    Bookmark   September 25, 2010 at 8:02PM
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brickeyee

"Why is giving interest to renters on the security deposit a problem? Just wondering."

Because I rarely can earn any interest on the security deposit.

Why deal with the time lines when there are simple ways to avoid them>

    Bookmark   September 26, 2010 at 10:03AM
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metaxa

Some real good advice in this thread.

I'm with the SFH crowd.

One thing to think on, if you want to go a bit up-market: If you are near a large educational institution they have visiting lecturers, term profs, visiting experts, etc. If the university is large enough and "prestigious" enough there will be a strata of these visitors who need upscale accommodations.

We have a house in Calgary that is used by the university for this purpose. They pay a retainer whether it is used or not (about 80% occupancy) and a daily, weekly or monthly rate depending on length of stay.

We have to keep it up, mind you, the place has better furniture, linens, dishes and etc than my personal home, lol. Gardener, cleaning service and nothing tattered or broken or needing attention ever.

TVs etc have to be current but its a good way to get a plasma into my home when we installed the LED unit, right?

anyway, like running a top end hotel but lucrative by a large factor over plain rentals, if you can get hooked up.

We (brother and I) are thinking of getting another one for that purpose.

    Bookmark   September 27, 2010 at 11:50PM
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bruceingram1958

I'd rather invest in single houses. It you will rent it out there will be a steady cash flow. If done right, renting it out will cover your mortgage, property taxes, insurance, warranty, maintenance, marketing and vacancy costs.

    Bookmark   April 15, 2013 at 8:55PM
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kabir

Single family home. 2000 or later built. Bank owned or Sheriff sale!!

    Bookmark   April 15, 2013 at 10:19PM
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oklahomarose

I tend to avoid single family homes because they have limited cash flow, compared to duplexes. I try to buy really cute brick bungalow-duplexes circa the 1920s, one bedroom. I buy properties where I would want to live, which guarantees that others will want to live there. I maintain them well. I have clear leases and high damage deposits. I own a condo on the 13th floor of a downtown high-rise and rent it out to businessmen on a year's lease. (We have a large local employer that tends to relocate its employees.) I am now searching for a really pretty, small apartment building with some nice, funky character. I am learning through my friends and acquaintances that small complexes have even better cash flow that duplexes or triplexes. I am picky, but I do not mind taking my time to find the right property. For anyone who is considering buying investment property--go for it! And I wish you the very best.

    Bookmark   April 18, 2013 at 5:06PM
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