Another aspect to consider when investing in property is whether you, the investor, are skilled and can do repair work in a home.   Today there are thousands of REO properties for sale, real estate owned properties – another term for bank owned properties.  Many of these properties need work. 

    I have often thought a consortium of tradespeople would be an ideal investment group;  a person who knows drywall, a plumber, an electrician, a tile person, and maybe a roofer.   Between these people and someone to put up the initial amount of money, the group  purchases property, fixes it up, and then puts it on the resale market.  (This would have to be an LLC, limited liabiity corporation, with exit strategies defined for group members and legally enforceable.  Consultation with an attorney is advisable.)

    The key is to purchase the property at the correct price, and with today’s pricing, making offers would be the name of the game.  Doing the repairs in a timely manner is critical. The sooner repairs are done, the sooner the property can be put back on the market.  If you buy correctly, the property can be priced in the mid range for the area so the property does not languish on the market.  The sooner the profit can be made the quicker the group can move to the next property.

    A 1031 Tax Deferred Exchange may not work in this instance because the property has not been held for any appreciable period of time.  Short term capital gains tax would have to be calculated prior to determining profit.  Again, here is where a good accountant who also understands the workings of 1031 tax deferred exchanges is necessary.

   Think about a team and who you need on your team to make investing in property profitable and fun! Check professional people with good credentials, too many properties have been fixed up by rank amateurs.  Your goal is to have your property stand out and sell immediately!

      We all are familiar with the person who needs to buy “whatever” at a discounted price, but doesn’t act. When when the price goes up, he/she begins the “I coulda….I woulda…I shoulda…” refrain.   Things are miserable because he/she missed the “golden opportunity” to buy at rock bottom prices.

   But how many of us are intelligent enough or savy enough to get what we want at rock bottom prices? Too many factors impact pricing and especially the price of real estate.  You may follow interest rates, but do you follow the bond market, and the stock market?  And what impact does the bond market and the stock market have on the price of real estate?

     In my experience, I have had potential investors tell me they wanted to buy “a good property”…and I ask, “what is a good property?”…The standard answer is …”I need a property with a positive cash flow”…and then I ask, “is that on paper or is it actual?”  

      There is a big difference here.   The potential buyer wants the money in hand, month after month.  The greater gain may be on paper through capital appreciation by inflation, plus the tax advantages.

    I ask the buyer if he/she has an investment philosophy….and I have rarely received a satisfactory answer. I begin to explain philosophies of investmen;  A properties, B properties, C properties; university properties, active adult communties, snowbird rental properties; Section 8 properties…areas of town, concentrating properties all in one area, or throughout town …and the big question, who will manage the properties…?

     What is the point of all of this?  For the investor willing to dig a little deeper, willing to do some elbow grease, willing to have a bit of patience on short sales, or purchase bank owned properties, this is the Tucson time now which will be “woulda, coulda, shoulda” in another few years.

    With a well thought out investment philosophy utilizing 1031 Tax Deferred Exchanges,  doing the homework necessary, and understanding the potential of leveraging, combined with today’s lower interest rates and low prices,  the time is now.  The key to the puzzle is an excellent Realtor and a desire to suceed.

    Couldas, Wouldas, Shouldas, are a dime a dozen and in three years a lot of people will be crooning that tune.

Resources:

http://en.wikipedia.org/wiki/Internal_Revenue_Code_section_1031

http://www.realtor.org/library/library/fg408