"When everybody's greedy, you need to be fearful. When everybody's fearful, you need to be greedy"

~ Warren Buffett ~

When Is The Best Time To Buy an Investment Property?

Smart investing is about seizing market opportunities. But time can also work against you. Waiting for the the ideal interest rate, or to accumulate additional savings for a down payment can result in missing out on home appreciation and finding yourself in a tighter market was the market rebounds.

Always Think Long-term

Practically everyone has heard of investors who bought homes and "flipped" them shortly afterward for great profit. This practice is risky at best. As a prudent investor, you should carefully consider the reasons why you are making the purchase. The fact is, there are no guarantees: you cannot count on selling a property by a specific date. You can't be sure you'll attract renters to help cover costs. You can't be positive the market won't take a temporary downturn that slows sales.

"Everyone wants to make money fast. But if that's your goal, you've come to the wrong place. What we're talking about here isn't short-term speculation but long-term commitment."

Of all the secrets of financial security I can share with you, nothing beats homeownership. Nothing. If you do it right - and that's not hard to do over time - you will ultimately make more
money on your home than on any other investment you make. And as I said before, if you buy a handful of homes over the course of your lifetime and rent them to other people, you won't
just be financially secure, you'll be rich - maybe really rich!"

~ David Bach ~

Once you have committed to making a long-term investment, a second home can offer solid returns. Historically, real estate has consistently appreciated 3-6% per year over the long-haul. Another potential reward: rental income. NAR is predicting that with interest rates beginning to creep up, in 2007 there will be more 20-29 year olds looking for apartments to rent. This can make a multi-family property an attractive investment option. But before we discuss the rewards of being a landlord, let's start with the basics.

What Type Of Property?

A second home is any property you purchase that you do not intend to make your primary residence, but are buying for the purpose of building wealth. We will be discussing:

Investment Properties which are purchased strictly to generate income - either through on-going rental revenue or by renovating a property for resale. It's neither your current primary residence nor a vacation home used only by your family.

Vacation Homes which will be used to enhance your wealth potential. This can be achieved either by renting it out for part of the year or by purchasing a home now which you may use for a retirement home later in life or to supplement your savings as it appreciates.

There are many ways in which a buyer may break into the second home market. For instance, when a family relocates or decides to downsize, a primary residence can become an investment property if it doesn't need to be sold. Another investor may buy a multifamily property, choosing to live in one part while renting out the other. Here are some of the benefits an investment property offers:

• Ongoing And Long-term Profit Potential: An investment property offers two opportunities for financial gain: rent that can provide ongoing income, and appreciation that can result in a profit when the property is sold.
• Tax Breaks: Depending on your financial profile and what you intend to do with the profits from your investment property, you may receive tax advantages on the money you earn through purchasing an investment property.
• Diversification: Real estate has historically offered consistent, steady gains, even after market corrections and slowdowns such as the late-80s.
  

Caveat Emptor!

"Buyer Beware!" Wise words to remember as you search for your investment property. It is your responsibility to know precisely what you are purchasing. So you will want to fully assess any property you think you may buy. Following these basic suggestions can help give you the knowledge you need to make the best decisions:

• Get an inspection. Professionals will know what to look for and the financial implications of any problems they may find.
• If the property is currently being used as a rental unit, ask to see the sellers' Schedule E from their income tax return. It will document any loss of income involving the property. Ask your tax advisor for details.
• Consider the price carefully by asking about comps and recent sales. If you are considering a condo or co-op, add these to your ‘to-do' list before making an offer:
  Check the economic health of the homeowners association by obtaining a copy of recent annual reports.
• Review maintenance records for the building or complex to ensure upkeep has been regularly performed. Engineer's reports may also be available for recently converted facilities.
• Check vacancy rates in the complex to help judge renter interest in the community.
• Verify that renting your unit is allowed under the homeowners association rules. Are pets allowed? Other legal constraints may affect the length of each tenant's residency - an important issue for those investing in vacation properties.

Know what the risks and limitations are before you buy.

Another post from The Georgia Mortgage Cicerone.