Real Estate Investing - 3 Important Factors to Consider Before Investing Your Money

One of the biggest concerns is to make sure you have a sound business concept that makes sense. Today, in this environment, the flipping or wholesaling of houses I believe is a very difficult concept.

The universe of investors out there that are looking to take your property over have diminished dramatically over the last few months. That doesn't say that flipping or wholesaling a year or two ago didn't make sense. It doesn't mean it won't make sense two years out. It probably will.

Buy and Hold

Right now with our environment, the buy and hold concept is what makes sense. To buy at the right price, too. You're getting dramatically lower prices today than a couple of years ago.

Buy aggressively. Buy right and buy cheap. You should be able to hold properties relatively easy and they should produce positive cash flow in this environment. A couple of years ago that was very difficult to get a property to cash flow. In today's environment it's far easier than it was just a year or so ago.

Make sure that the concept of your business plan makes sense given the environment and what's going on in the world. That's one of the key elements to it.

Buy in Stable Neighborhoods

Also make sure you're buying in what I call healthy, growing, stable neighborhoods. Make sure you have done a little bit of demographic analysis of the areas that you're buying properties in. It's so much better if the neighborhood you're buying in is also moving in the right direction.

If you're buying in a neighborhood that is declining, where drugs, crime, and those kinds of things are starting to take over, it is going to be very hard long term to make significant money. You're going to have trouble convincing investors to invest with you if you're buying in rough areas - what I call war zone areas.

I know particularly that in some of these war zone areas, as a property manager, it's very hard to rent properties in these areas, too. If you do get them rented the turnover is very high, as is the cost of turnover.

The people renting there tend to like to take everything on their way out. That can even include the copper and the appliances, the toilets and sinks and what not.

Focus on Neighborhoods That Are Improving

I would stress that you try to focus on neighborhoods that are improving. They don't have to be upper economic neighborhoods. They do need to certainly be stable or improving neighborhoods. If the population is growing in those neighborhoods, that's even better.

That implies there is going to be demand for both buying homes in the future and to rent them. So if you can get in a neighborhood that's growing in terms of economics and population, it is clearly a far better and more feasible plan to present to a private investor than buying in a war zone.

I deal with a lot of investors at buying war zones. I'm telling you that in my experience over the years it's a tough way to make a living. I would much rather see you move up a notch or two in terms of the economic neighborhood you're in.

Buy homes where you would be willing to live. If you're not willing to drive down to see a property at night, then maybe that's not the best of areas to be in.

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