There is a surreal slice of life for each of us when timing and opportunity meet.  You know the feeling; all of creation stands still - you can hear your own breath inside your body and you excite to the charge of adrenaline.  For some it's stepping out onto the front porch just as a sparkling comet trails its green glow across the sky.  For some it's perfectly executing the sneakiest surprise party.  And for some it's knowing the time to buy a piece of Real Estate is now.

 Of course you have heard the news reports.  Across the country foreclosure files are piling up on the desks of Loss Mitigation clerks.  Sellers are reducing prices on homes to breakeven or lower.  But there is a winner in this real estate turn down... You.  The Real Estate Investment Buyer. 

 The media is infamous for painting a picture of our nations economic condition as bleak, but every glass that is half empty is also half full.  The Yin Yang truth of the situation is that there is always balance. Relief balances trouble, joy balances sorrow and opportunity balances loss.  The balance for most people buying and selling now is that they are doing so in the same market condition.  If they are taking a loss on their sale, they are likely also getting a great deal on their purchase.  However, if you have been one of those rare and beautiful consumers who have tucked a penny or two away you are able to take advantage of buyer benefits without selling anything first.

 There are two main indicators that show investment property purchases to be a sound idea:

1. Properties can be bought at low prices.
2. The number of people being refused mortgage loans is rising.  Foreclosures drive the mortgage lenders to tighten loan qualification requirements.  Consumers who could have been approved for a mortgage loan a year ago may now be denied.  Responsible, employed people are looking for comfortable, respectable, clean and lovely homes to rent.

 That's where you come in.  There are two ways to make money as a real estate investor.  One is to buy a distressed property, improve it and sell it for a profit.  This scenario earns income.  The second way is to buy a property at the low end of market value, fix it up if needed and rent it out.  This scenario builds wealth.  Using real estate as a wealth-building tool is not without risk.  There are vacancy rates, property damage issues, late rent payments and 2 AM calls about flooding basements.  Here we are back to balance, but now it's the balance between risk and reward, between effort and satisfaction and between careful planning and following your gut.  Successful real estate investing requires a balance between these three continuums as well as the obvious balance between profit and loss.

 We will explore just one wealth-building plan for the purpose of illustration.  The premise of this scenario is to buy a residential property with a down payment large enough to insure a total monthly payment smaller than a potential rent amount, rent out the home to a qualified tenant until the house has appreciated enough to repay the down payment to you at a satisfactory rate.

 Some banks will allow 10% of the purchase price for down payment on an investment piece, while most still require the traditional 20% down.  Manipulate the amount you use for a down payment to create a positive cash flow every month.  For instance, a home purchased for $170,000.00 with 20% down at 7.5% mortgaged over 30 years has a monthly principle, interest, tax and insurance payment of $1,200.00.  Rent must cover this amount.  If the house can rent for $1,250.00 per month your costs are covered and your down payment will accrue value at the rate the real estate appreciates.  20% of $170,000.00 is $34,000.00, so in this example you can double your down payment investment when the real estate is worth $204,000.00.  At a modest annual appreciate estimate of 4%, the property will be worth more than $204,000.00 in less than 5 years.  In this example, it will take less than 5 years to double your $34,000.00 down payment.  That's a 15% annual return on your down payment.  Reality rarely follows a neat example and anything can happen.  There in lies the risk.  If property values fall, like they have been in California and Florida (and to a lesser extent - even here!) it may take longer to achieve profit

 This investment is not for the faint of heart.  Study the market.  Explore every possible risk factor and all costs involved before you decide to invest your hard earned money into real estate or into any investment vehicle.  If the balance you seek is between hard work and reward, then take a look a property that needs some fixing up and study the pros and cons of buying it for rental income.  Contact your accountant for more information on the tax risks and benefits and your attorney for more information about the different ways to take title.

Originally printed in McHenry County Woman Magazine