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Thursday, September 6, 2007
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   Thursday, September 6, 2007

Five Factors to Consider Before Investing in Residential Real Estate
During the past decade, many people have jumped into residential real estate investing. This was never so true as during the recent real estate boom. People read all the “get rich quick” schemes that litter the book shelves of libraries and book stores — use other people’s money, use no money of your own, and make millions! A lot of people did make great sums of money during the most recent boom; but now those, who did not get out before the market cooled, are seeing those investments in foreclosure due to their inability to make the mortgage payments.
Just because the real estate market isn’t over the top, as in the past few years, does not mean you no longer can make money in residential real estate. The difference between now (post-boom) and during the market boom is that the “get rich quick” schemes will not work.
Do You Have What It Takes?
Investing in real estate is not for the faint hearted, the non-risk takers. It is for investors who are in it for the long haul, who can easily sit on their investment (if need be) until the market shifts in their favor. It also is for those who truly enjoy this type of investment. They are the ones who are the most successful in real estate investing.
You must be willing to invest time — upfront and before each potential investment. If you do not take the time to research the properties and your target market, you probably will not be very successful. You also must gather knowledge on how to make a real estate deal that works in your favor. That requires educating yourself to understand the jargon and game rules. Today, it takes a careful, methodical approach to residential real estate investing, especially when acquiring your first property.
Besides needing time and money, being a risk taker, and being willing to commit to a long-term investment, if needed, there are five additional factors you must consider each time before you make an investment in residential real estate.
Supply and Demand — Where Is the Current Market?
The economics of supply and demand is what makes the long-term investors successful in residential real estate. They are willing to weather the ups and downs of the real estate market, waiting for an advantageous market to sell their property.
Supply and demand is influenced by many economic factors, which in turn affects the residential real estate market. Well-located residential real estate will endure fluctuations in the market and continue to appreciate in value. Knowing your market means knowing when to buy or not to buy, which deals will work when, and when to sit on an investment or sell it.
Your Creativity
Another factor to consider is your own creativity in managing your investments. Residential real estate is one type of investment that allows for a lot of creativity:
• You may invest for the long term, renting the property to continue making a profit while waiting to sell at a more advantageous time. You can purchase a home to fix up and resell immediately for a profit.
• There are many financing options available for residential real estate, allowing for even more creativity. You also can invest on your own, with a group of partners, with a corporation, or even with a Real Estate Investment Trust (REIT — a mutual fund with real property assets or mortgage securities).
• There is an abundant variety of residential real estate types in which to invest — single-family homes, townhouses, condominiums, and duplexes.
The more creative you are in creating and managing your real estate investments, the more profitable and successful you will be.
Other People’s Money
A third factor is knowing how you can use other people’s money to your advantage without landing in foreclosure, as so many people now are who subscribed to the “get rich quick” schemes during the boom.
You can begin with only a few thousand dollars, using other people’s money to underwrite the remaining mortgage. You must know all the different ways available to finance your investment. This goes back to taking the time to educate yourself, before you begin investing, and creatively making the best use of financing.
Other People’s Time
Whether you are fixing up real estate to sell or renting it, it will take time, effort and management. If you already have a full-time job and a family, you probably cannot do it all yourself, and I doubt you wish to be woke up at 2 a.m. by a renter with a plugged toilet.
Using contractors to fix up the property or experienced property managers to handle your rental real estate makes for less profit in your pocket on your individual investment properties. However, it frees up your time to invest in more properties, making your overall profits much higher.
Your Tax Advantage
Residential real estate investing is quite unique. It offers you tax write-offs not available in other types of investments. There are many deductions available to you — deducting the mortgage interest or refinancing without being taxed are just two examples. There are many benefits to real estate investing that reduce your tax liability and increase your profits.
If you believe residential real estate investing is for you, begin by learning more about it. There are thousands of books and resources on the topic. Stay away from anything that sounds too good to be true. It probably is, especially in today’s real estate market.
Click here for more information on San Diego Real Estate.


The Real Estate Market May Soon Take an Upturn with Homes for Sale Inventories Back to Normal Levels
According to the February 19, 2007, issue of BusinessWeek, the homes for sale market has not crashed and is forecasting normal inventory levels for homes for sale by midyear.
We have gone through quite a lot of up and down forecasts over the past few years. For several years, forecasters were predicting the burst of the real estate market bubble, as it continued to grow by leaps and bounds. They said it would burst and insinuated that every real estate investor, as well as buyers and sellers of homes for sale would lose their shirts.
While prices have deflated in most areas in the past couple of years, thee was never the doom and gloom “burst”. There are many investors of residential homes for sale, who now find themselves in foreclosure, will probably lose a lot of money, and will suffer a less-than-favorable credit rating because of it. Many of these investors of homes for sale used the “no money down” and/or “get rich quick” financing schemes. For these unfortunate investors, that is the risk they took by investing in residential real estate. There also are some current sellers, however, who must sell their homes for reasons other than the deflating market. They may be forced to take a lot less money for their homes for sale than they originally planned. They are the real victims of the market bubble, but it is getting better — much sooner than anyone expected.
Currently, many existing San Diego homes for sale are priced about the same as last year at this time, which were at 2003 price levels. Construction has fallen sharply with builders trying to sell their current homes for sale inventories before building more. BusinessWeek’s Peter Coy, however, is predicting that the homes for sale inventories may be back to normal levels by midyear. He based his projections on the continued low interest rates for homes for sale and income growth.
Current fixed-rate, 30-year mortgages have interest rates no higher than in June 2004. They averaged 6.2 percent during the last quarter of 2006, which is well below the average ten years ago.
Homes for sale in most areas remain affordable, according to the National Association of Realtors. Even with the rising prices during the bubble of more than 50 percent in the past five years, the association shows an affordability index for homes for sale of over 100. That means that income growth has kept up with rising prices, allowing a median income family to be able to afford a median-priced homes for sale.
Click here for more information on San Diego homes for sale.


Realtor Certifications — Should Your Realtor Have One?
In real estate display ads, you will see many realtors with initials listed behind their names. These are realtor designations, representing the certifications held by the realtors. Here are just a few realtor designations:
• ABR — The abbreviation stands for Accredited Buyer Representative. This certification means the realtor specializes in representing buyers.
• ALC — The Accredited Land Consultant specializes in land brokerage transactions.
• CIPS — The Certified International Property Specialist will have more knowledge of the international real estate market.
• CRB — The Certified Real Estate Broker has specialized knowledge in brokerage and real estate business management.
• CRE — These realtors hold a Counselor of Real Estate certification that is by invitation only. They give seasoned advice on real estate and land-related matters.
• CRS — The Council of Residential Specialist certification means the realtor concentrates on the buying and selling of residential homes.
• GRI — The realtor with a Graduate Realtors Institute certification has attained what the industry considers to be the highest professional standing for a residential realtor.
• SRES — The Seniors Real Estate Specialist has specialized knowledge for working with seniors, who probably have not sold a home for many years. This realtor is able to properly explain new terms, laws, procedures and financing to seniors, as well as help them to more fully understand their seller and buyer rights.

Why Get Designations?
Realtors who have these designations have studied specific areas of real estate in order to gain advanced knowledge within these areas. Qualifying for these designations takes a lot of classroom time, testing and learning extensive practical knowledge. Some designations require up to six-to-eight months of regular classroom study. In addition to giving the realtor more knowledge, such study also increases the realtors’ professionalism.
Realtors have found these designations quite valuable; since the more knowledge they have, the more confidence their clients have in their skills and ability. Such certifications are especially valuable for new realtors, increasing their knowledge faster than with on-hands experience.
All realtors are required by their state to have a certain level of knowledge in order to be licensed. Additionally, realtors are required to take coursework every four years to maintain their license. Certification coursework is completely optional for realtors.
What Does This Mean to the Buyer or Seller?
That depends upon the individual realtor. I worked in the insurance industry for many years, where such designations are aggressively promoted and just as hard to obtain. I found the following concerning insurance agents and their designations that easily translates to realtors and their designations:
• For many, the coursework improved their knowledge and ability to sell,
• The designations attracted more clients,
• Many of our firm’s top insurance agents held designations,
• Many of the top agents held no designations, and
• One of the most successful agents the firm ever had held no designations, continuously topped everyone in sales each year, and was so successful that he had his own private secretary, who screened all his calls, because he was so busy with clients who just seemed to gravitate toward him.
My point is this — A designation indicates that the realtors have completed some extensive study on their own time. It means they should be well versed in that particular area of real estate. It does not mean that they are more knowledgeable than a realtor without the designation, because the latter may have learned much more through actual experience than the person holding the designation.
So, when looking to hire a realtor, keep a good perspective on designations. Opt to do a good interview with the realtor, rather than simply accepting he/she is the best because of a designation.
Click here for more information on San Diego Realtors