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 November 5, 1999

Don’t wait to buy rental property

The real estate market in Northern Colorado is HOT! How many times have you heard this comment? As a Realtor in Fort Collins, I have observed the average price of a home double in the past 15 years. Along with this statistic, rents have also gone up, and our vacancy factor is currently 3 percent.

Many of my clients ask, “Is it too late to invest in real estate?” And the answer is no.

So where does one begin? Your first purchase should be your own home. Peter Lynch, the great stock market guru and author of “Beating the Street,” was once asked what he thought was the greatest investment.

His answer, “A single-family home.”

So if you have taken care of that, what are the advantages of owning rental property.”

1.) Cash flow. The rent provides income. This is the ultimate goal. Once your property is free and clear, your cash flow becomes your supplemental and/or primary income.

Often, though, the rent may not cover all expenses. But even if you have a small negative cash flow, it still may be a good investment for tax reasons. In what other investment can you spend $100 a month and own a home worth $120,000?

2.) Leverage. You can own $120,000 worth of real estate with a zero-to-30 percent cash investment. You can also borrow cash out of one property to buy another. Your short-term goal is to use leverage to acquire a portfolio of real estate. Your longer-term goal is to pay off the loans and own your properties free and clear.

3.) Debt reduction. Real estate is one of the few investments where someone else (your tenant) will make your payments.

4.) Tax savings. You are allowed to depreciate the house and write off your expenses in order to reduce your taxes.

5.) Appreciation. Over time, the value of houses, condos and townhomes has increased.

So how does one get started? A wise investor will create a written plan establishing his goals for rental and investment property. It is recommended that you seek the advice of your financial and/or tax planner, and Realtor. Some points to cover in your goal-planning session include:

n Financing the purchase.

n Tax considerations.

n Management issues.

n Selecting the right property.

n Number of properties.

n Time period.

n Loan term/years.

Once your game plan has been established, here are some general guidelines for investing.

1.) Buy residential properties — houses, condos, and townhomes. Stay away from land and commercial real estate unless you are an experienced investor or are buying as a business user.

2.) Buy “mainstream” houses and condos. Buy properties that are at or below the average sales price. Buy properties that appeal to most buyers/renters. Avoid high-priced or unusual properties. Buy houses with at least 3 bedrooms and condos with at least 2. If possible, buy properties with a garage. An experienced and knowledgeable Realtor can help you learn the market and show you available properties that match your parameters. They can also recommend inspectors and property managers, assist with the purchase contract, and help make the process a smooth transaction overall.

3.) Don’t buy with partners, unless you must. If you have to buy with partners, make sure they have the same goals and values and have job, geographic, and marital stability.

4.) Believe in the long run. Real estate markets are cyclical, but the long-term trend has been up. The great investor’s lament is, “I should never have sold that property.” The other investor’s lament is, “I could have bought that property for _____!”

5.) Take care of your property, and it will take care of you. It’s your “golden goose.” If you don’t like property management or you are not a “handyman,” then either hire one or the other or buy condos and townhomes, since they generally require less management.

6.) Get started early. Albert Einstein once asked what he thought was the most powerful thing in the world. His reply: “compound interest.” Don’t wait to buy real estate. Buy real estate and wait!

7.) If you don’t have the money, make a plan and commitment to get it. Consider borrowing your investment money from the equity in your personal residence. You may already have a “nest egg” in your own home due to the appreciation over the years.

8.) Know your “enough.” Know when you are ready to stop accumulating property, and start paying off what you have and enjoying life!

9.) Work with knowledgeable people. Pick Realtors, accountants, attorneys and property managers who know what they are doing.

These tips should give you a workable outline. Whatever your reason for investing — for your children’s college education or for diversifying your retirement portfolio — just do it!

Marsha Raymond, CAS, CSP, is a broker/partner at The Group Inc. in Fort Collins. She owns and manages several residential properties. Some of the concepts included here come from the “Real Estate Insider,” published by The Group Inc.

The real estate market in Northern Colorado is HOT! How many times have you heard this comment? As a Realtor in Fort Collins, I have observed the average price of a home double in the past 15 years. Along with this statistic, rents have also gone up, and our vacancy factor is currently 3 percent.

Many of my clients ask, “Is it too late to invest in real estate?” And the answer is no.

So where does one begin? Your first purchase should be your own home. Peter Lynch, the great stock market guru and author of “Beating the Street,” was once…

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