The Rules

The profit potential in single family homes for investment has been a consistently good long-term investment. They offer investors the opportunity of high loan-to-value mortgages at fixed interest rates for 30 years on appreciating assets, tax advantages and reasonable control that other investments don’t offer.
Last year, Warren Buffett said that if he had a way of buying a couple hundred thousand single-family homes, he would load up on them. Blackstone group L.P. (BX) has now purchased over 30,000 homes and American Homes 4 Rent (AMH) has more than 19,000 for rental purposes.
Individual investors actually have an advantage over the institutional investor but if they are not familiar with rental real estate, some basic rules could be very helpful.

1. Invest now to get more in the future.
   Whether it is time, effort or money, the prudent investor is willing to forego immediate gratification for something more at a later date.
2. Real estate is an IDEAL investment.
   IDEAL is an acronym that stands for income, depreciation, equity build-up, appreciation and leverage. 
3. Invest in single family homes in predominantly owner-occupied neighborhoods at or below average price range.
   This strategy should involve homes that will increase in value, rent well and appeal to an owner-occupant in the future who will pay a higher price than an investor.
4. Location, location, location.
   The same homes in different areas will not behave the same. You can improve the condition, modify the terms or adjust the price but the location can’t be changed.
5. Understand your strategy – buy and sell, buy and hold or buy, rent and hold.
   These three distinct strategies involve big differences in acquisition, management and taxation.
6. Know where your profit is coming from before you invest.
   The four contributors to profit are cash flow, appreciation, amortization and tax savings. They don’t contribute equally or the same in all investments.
7. Profit starts with purchase.
   Buying the property below market value builds profit into the investment initially.
8. Risk is directly proportionate to the reward involved.
   An investment that has a high degree of upside also will have considerable downside possible.
9. Avoid functional obsolescence unless you have a plan before you buy.
   The lack of usefulness or desirability of a home that exists when you buy it will still be there when you sell it. Unless it can be cured, it will affect future profit.
10. Good property + good tenant + good management = great investment.
    These are three solid components for a successful investment.
11. Problems left unresolved have a tendency to get worse.
    It is generally cheaper in time or money to fix a problem earlier rather than later.

If you’d like more information about the opportunities in our market, contact me.
-----------------------------------
About the author: Marilyn Messenger, a broker associate with Andrew Mitchell and Company, Concord has been representing buyers and sellers in Wayland, Sudbury, Maynard, Stow and the towns west of Boston for 20 years. She is an area expert and combines personal service with cutting-edge technology and negotiating systems to maximize results and minimize stress throughout the home-buying and/or selling process. Visit: www.marilynmesenger.com to see homes for sale.
Connect with Marilyn Messenger on Google+

Will the "Good Life" Be Ready When You Are?

The Life of Riley was a TV show from the 50’s starring William Bendix but the title’s origin came from an expression meaning that a person was living the “good life.” Most people envision themselves living the good life by retirement but don’t really have a plan to get there.

There’s a rough rule of thumb used to estimate how much net worth a person would need by the time they retire to generate a certain income. The target annual income is divided by a safe, conservative yield to determine the investable assets needed.

A person who wanted $100,000 annual income generated from a 5% investment would need investable assets of $2,000,000. If a person had $500,000 now, they would need to accumulate $1.5 million more by the time they retire. If it was estimated to be 15 years away, they would need to save about $100,000 a year, each year until retirement.
It is a sobering example that could be depressing without a plan. It might be easy to say, “I should have started sooner” which may be true but there is still hope.

Gradually, over the next several years, accumulate rental property and allow the tenant to retire the debt for you. The equity in each property will grow from the amortization of the loan each time a payment is made. It also grows as the property increases in value due to appreciation.

Single family homes as rentals offer the investor an opportunity to meet their retirement and financial goals for the following reasons:

• The ability to borrow large loan-to-value mortgages
• At fixed interest rates
• For long terms (easily up to 30 years)
• On appreciating assets
• With significant tax advantages
• And reasonable control not offered by alternative investments.