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Savvy investors know when to hold 'em. They also know
when to walk away and know when to run.
The best advice: You've got to count your money.
That's what Richmond, Va.-based real estate agent
Apryl Kay advises all of her investor clients.
Being aware of just how much an investment in real
property will cost is even more important now with prices at record
highs -- thus making investing more of a risk and less of the sure
bet it has been in the last couple of years.
Kay, who has bought, sold and rented property in Texas
and in Virginia for her personal investment portfolio for 16 years,
has professionally helped others do so since 2002.
Investors must count money going out and hope it is
offset by the money they hope to bring in, Kay says. This includes
knowing not only the loan's interest rate, but being able to estimate
taxes, insurance, utilities, maintenance, advertising for tenants
and other business costs. If the plan is to hold on to the property
as a rental, investors should also know how much they can charge
for rent in the area.
Keep on walking
"You need to do research," says Kay, a top-selling agent
with Napier Realtors ERA. "If the numbers don't work, walk
away."
One of Kay's clients has done just that -- several
times.
"We've looked at about 30 homes since Christmas,''
Kay says. Since then, they've put in eight offers. Most were rejected
because Kay's buyer offered below the asking price, trying to make
the numbers work.
Because of higher prices in the Richmond area, it has taken them
some time to find an acceptable investment for the client. But their
persistence paid off. Now, after months of shopping, Kay and her
client think they've finally found their deal -- actually three
deals. Her client has contracts pending on three single-family homes.
Kay says it is harder to find an investment property
that will allow the buyer to charge enough rent to cover the mortgage
or even fix it up to sell it for a profit. People who bought before
the run-up on housing prices had more options, less competition
and more room for profit. With housing appreciating so quickly in
recent years, investing in real estate appeared to be a no-brainer,
which made the market tempting to neophytes.
"We've gotten so spoiled," Kay says. "The
investment property market hasn't replenished yet. The supply is
just not there like it used to be prior to the housing boom."
But Kay says her investor clients only dive in if they determine
it makes good financial sense. "Some investors get emotionally
involved,'' Kay says. "This is business."
And it's a business more and more people want to get
into.
In 2005, more than a quarter of all homes purchased
were bought as investments, according to the National Association
of Realtors. And, even as prices continued on their upward trajectory,
sales increased. Last year, there were 2.32 million investment-property
sales, up nearly 16 percent over sales in 2004.
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