Investing in Real Estate 101

Chances are if you are reading this you have not had much chance to experience the fun and excitement of investing in real estate.  Most of the people I know who are avid real estate investors are self taught.  Several of my more affluent real estate investor clients were brought up in families that were avid real estate investors and much of their wealth came from those type of investments. 

If you are not one of the lucky ones that was born into a family that is real estate savvy, you will need to learn the ropes.  You can read all the Rich Dad Poor Dad books that give theory, but you'll want to go far beyond books and actually set up a network of knowledgeable contacts that can support your venture.  Buying a home for a residence is one thing, but buying a home to invest in is an entirely different ball game.  The type of contacts necessary to fulfill a decent real estate investment strategy... Loan Officer,  Attorney, Realtor, Accountant and possibly a property manager.  Choose these contacts carefully as their advice and knowledge can make or break your investment success capability.

Your loan officer is going to be a business partner of sorts and you will need a good one with a strong reputation.    When you venture into the realm of investment real estate cash is more important and typically lenders will require a more substantial down payment than on a residence.  Also, you will probably pay a higher interest rate since this is not for your primary residence.

In Hawaii, the type of property (Fee Simple or Leasehold )you are purchasing is important .  Fee simple is much easier to finance.  Leasehold will depend on the length of the lease.  In the condominium realm, and especially in areas like Waikiki, the percentage of owner occupants will also play a role in your ability to finance.  Lenders prefer to see 50% or higher owner occupancy.  With Condo-tels, lenders are not as likely to provide funding on these properties since their portfolios are fully leveraged.  Condo-tels are like hotels, but you can own the room and they usually have a management company that provides services such as, cleaning, maintenance, reservations, front desk and other amenities.  These amenities do vary by project.

You'll also need to decide what type of investor you want to be.  Are you going to "Buy and Hold" or will you "Buy and Improve to Sell"?.  This will also be a key part of your buying strategy.  Cash flow is another consideration.  Most first time investors purchase condominiums or townhomes.  They tend to be easier to rent and manage in the Hawaii real estate market.

If you are a "Buy and Hold" investor, then cash flow will an important factor to consider.  You'll need to look at the purchase price, monthly payments,  maintenance fees, association fees, and ensure you can handle the overhead.  Determine which type of property rental will be.  Long term rentals can be easier to maintain tenant occupancy and cleaning overhead.  Short term rentals (30days or less) may be restricted to certain buildings, areas and also subject to a transient tax.  Due to the high demand of rental properties in the Hawaii market, the best places to get an idea of how much rental income you can ask for, look in the www.honoluluadvertiser.com 

If you are a "Buy, Improve and Sell" investor you will need to keep a good eye at market fluctuations, interest rates and know where the likely venue is your buyer will come from.  Ensure you have experienced, dependable, contractors to help you with the improvements, obtain the necessary permits, and manage the sub-contractors.  Having these contacts in line prior to purchasing a property is key because delays in improvements and work can cost you big dollars and be the demise of your real estate investing business.  Make sure you run numbers for your investment overhead, cost of improvements, financing, taxes, any necessary maintenance, projected months off market while improvements are being made.  You'll also need to consider how much time like properties will require to be sold and how much inventory there is in your price category.  If your price range is full of like properties you will spend a lot more time on market.   

Bottom line is the experts bring to the table, realizing your capabilities and limitations, doing your homework and keeping an eye on your goal while managing the tasks at hand.  Choosing a realtor who understands the principles of investing and can help bring some of your necessary experts to the table is a huge bonus.  Well established agents have the contacts and resources to help you realize your dreams.

For more information on Kelly Mitchell and Honolulu Real Estate visit: the Kelly Mitchell Group