A guide to selecting rental property

REAL ESTATE INVESTING
PART 2 OF 3

Three-part series focusing on strategies for today’s investor

NEXT SUNDAY: Using a 1031 to reposition your portfolio

 

HONOLULU ADVERTISER   March 18, 2007

 

BY LISA SCONTRAS.

 

Custom Publishing Group

 

 

You have no trouble saving for a rainy day or finding the best CPA in town. You may even be a whizz at picking stock funds for your 401k; but when it comes to selecting a good investment property, you haven’t got a clue.

 

 

Experts agree there is much more to real estate investing — especially long-term retirement portfolio investments — than simply shopping for the least expensive property. Cash flow, tax ramifications and vacancy rates are among the factors that must be evaluated if that studio has any hope of becoming part of a million-dollar real estate portfolio.

 

A great real estate investment has everything to do with picking the right property, according to Rod Mukai, Prudential Locations, LLC, senior partner and 35-year veteran real estate agent.

 

He recommends you evaluate the following criteria when shopping for your gold mine property.

 

Location

 

Look for a location that has a history of attracting a broad base of buyers or renters for stability and growth potential. Mukai also suggests staying close to home.

 

“As a first-time investor, a Mainland property would be unfamiliar territory and not a good choice as a first-time real estate investment,” he cautions. “The neighborhood where you live should be the first place you look. In addition to being familiar with the neighborhood you chose, the property itself should be something you can observe, look after and care for immediately, if necessary. Anything between your residence and workplace would be ideal.”

 

Condition of the building

 

Be wary of potentially costly hidden defects.

 

Big ticket items like the roof, electrical and plumbing should be checked out by a professional home inspector before you buy. Defects can become expensive to repair and are generally big turnoffs to investors. Know the condition of the property and it’s mechanical components up front.

 

Cosmetic problems, on the other hand, may actually be appealing to investors.

 

“One of the fundamental elements to look for in an investment property — that can affect cash flow positively — is upside potential,” advises Mukai.

 

Defined as the amount of upward price movement anticipated, a property with upside potential is one that needs cosmetic work like paint, new carpet, or window coverings. Making these minor repairs can be pivotal factors in increasing the income.

 

Costs

 

Research the expenses thoroughly. In addition to knowing the condition of the building, you must also know the maintenance fees, real property taxes, property management fees, insurance, and mortgage expenses.

 

Since the purpose of an investment property is to put money into your pocket — and you know what your expenses are — next on the list of criteria is cash flow.

 

Show me the money

 

“Probably the most asked question I hear from prospective investors is ‘Is the rent coming in going to cover my expenses?’” says Mukai. “It’s not often that you’ll have a positive cash flow right from the start.”

 

In Mukai’s 35 years of experience, the payoff from a single-family home investment usually takes somewhere between three and 10 years, historically, to materialize and it is within this timeframe that a positive cash flow goal should be set.

 

 

 

back to Helpful Articles for Buyers