Firstly there is a new »»]]> When the effects marketing was booming prior to August 2007 many new property investors entered the buy-to-let market, buying one and two bed properties with light-to-get mortgages. The market has now dramatically changed and here we look at the predictions for the buy-to-let market in 2009.

Firstly there is a new type of hotelier – homeowners who are unable to sell their properties are renting them out. The homeowner may set their rental cost at only the amount that they need to cover the mortgage rather than on furnish rates and also at a rate that will as good as guarantee a tenant. The condition of homeowner property is also generally of a very high beau id and as a result this new competition drives down previous market rates. This generally affects larger, family properties rather than smaller flats.

Availability of invest in is dramatically reduced and as a result the profile of a property investor has changed. Prior to the credit crunch no set aside was needed – a mortgage could be given on the expected yield provided the rental yields were 125% of the mortgage repayments. Now, a touchstone 25% deposit is required and the applicant must have a good credit history. When mortgages were easily obtainable, buyers could form around a property quickly i.e. buy, renovate and sell on at a profit, and then repeat the process, cashing in not only on the price increase due to the renovation calling but also on the cash increase from the rising property prices. Now, the profile of the property investor will be someone who has cash for a sizable part, a good credit history, and someone who is willing to hold onto the property for a few years waiting for the property market and thrift to turn around.

And for the newer property developers? Well, for some who kept securely on top of the figures or those that did not overstretch themselves then they should survive the downturn. But for those also fledgeling property developers who perhaps bought property without fully researching the possible pitfalls, well, they could be in trouble. If they were assuming to offer on their property quickly and at a profit, they are likely to be selling it at a loss, if they can sell it at all. Or, possibly they are unable to rent out their real estate and need to cover the mortgages themselves. Or they have taken on too many properties and find that their own employment is at risk and their main source of income will not be the shelter it was. Or they were keener to buy a set number of properties rather than buying property that met strict criteria i.e. properties that would yield a set positive coin of the realm flow each month. Or they have come to the end of a mortgage deal and now the mortgage rates for buy-to-let are less favorable. The list could go on…

However, for the hallmark investor who ticks all the right boxes 2009 could be a good year. The key is that you are credit safe in order to fix a mortgage. If you can secure a mortgage or have enough cash, then you will be able to find some bargains, particularly in the latter half of the year as the recession continues to bit. If you are thinking of buying an investment property you need to consider the five following points:

1. Consider it to be a mid-protracted term investment – the property market is likely to fall and then stabilize for a few years before rising again.
2. Your expected rental cede has to be realistic and has to cover the costs of the mortgage, insurance, maintenance costs and void periods.
3. Although interest rates have fallen again, they will go back up at some apex – you need to factor this into your costs, or choose a mid to long term fixed rate mortgage to avoid unfavorable notwithstanding changes.
4. Research and know where you want to buy property and be sure to stay within this patch – your rental throw in the towel depends on it.
5. Always make a low offer when purchasing, stick to your figures and know your limits.

2009 could be a huge year for property investors providing you research, plan and take care at every turn.

For most of us the obvious choice of properties »»]]> We all are thinking about it and some of us are actually taking action and getting their hands on real estate  investment properties. The longer the NY Stock Exchanges doesn’t produce desirable returns the more people are starting with real estate invesments.

For most of us the obvious choice of properties are single family homes. Although you can invest in real estate without owning a home, most people follow the experience they made while purchasing their own home. This is familiar ground and the learning curve for doing a real estate deal of this type is pretty slim.

Of course there’s a drawback with this approach. The competition is fierce and there are markets where investors are artificially driving up the cost of the properties while completely discouraging first time home buyers. If this is the case, the burst of the real estate bubble is just a matter of time.

How do you avoid these situations and still successfully invest in real estate? How do you get ahead of the competition and be prepared for bad times in real estate investments as well? The only answer I have is commercial real estate.

Why commercial real estate you might ask? Commercial real estate is a solid invetment in good and bad times of the local real estate market. The commercial real estate I’m referring to are multi unit apartment buildings.

Yes you will become a landlord and No you don’t have to do the work by yourself. You are the owner and not the manager of the apartment building. The cost of owning and managing the building is part of your expenses and will be covered by the rent income.

Apartment buildings are considered commercial real estate if there are 5 or more units. To make the numbers work you should consider to either own multiple small apartment buildings or you should opt for bigger buildings. This will keep the expense to income ratio at a positive cash flow. Owning rental
properties is all about positive cash flow.

With investing in single family homes it is easy to achieve positive cash flow. Even if your rent income doesn’t cover your expenses 100%, the appreciation of the house will contribute to the positive cash flow. With commercial real estate the rules are different.

While single family homes are appraised by the value of recent sales of similar homes in your neighborhood, commercial real estate doesn’t care about the value appreciation of other buildings. The value of the property is solely based on the rent income. To increase the value of a commercial real estate you need to find a way to increase the rent income. The formula on how this is calculated would be too much for this short article. I listed a few very helpful books where you can find all the details.

What’s another advantage to invest in commercial real estate? Commercial real estate financing is completely different than financing a single family home. While financing a single family home you are at the mercy of
lenders who want to make sure that you are in the position to pay for the house with your personal income. Commercial real estate financing is based in the properties ability to produce positive cash flow and to
cover the financing cost. After reading all these information about commercial real estate you want to go out there and dive into the deals. Not so fast. First, you need to learn as much about real estate as possible. In commercial real estate you’re dealing with professionals. If you come across too much as a newbie you will waste these guys’s time and your commercial real estate career ended before it actually started. Second, no commercial real estate lender will lend you any money if you can’t show at least a little bit of real estate
investment experience.

What’s the solution to this? Go out there and do one or two single family home deals yourself. It doesn’t matter if you make huge profits to start off with. Most newbie investors are loosing money on their first deal anyway. If you can manage to show positive cash flow with your single family home deals you are ahead of
the pack.

My advice, buy a small single family home in a decent neighborhood and rent it immediately. This will keep your out of the pocket expenses at a minimum and you will have rent income to cover for your monthly expenses. Bonus, you gain experience as an investor and as a landlord.

Here’s another observation I made during my real estate investment career. Most people like to analyze, learn, discuss and analyze some more. They never actually got to do a real estate deal. They love to talk about real estate ivestments, but never did it themselves.

My approach to real estate investment was simple.

- I bought some books about real estate investment.

- I read every single one of them.

- I put together a simple plan on how I want to get started.

- I started looking for properties.

- I bought my first investment property 30 days after I started reading my first book.

- I made positive cash flow with all of my properties so far.

What is my point? You have to go out there and practice what you’ve learned. The only valid credential in the real estate business is practical experience. Having a couple of deals under your belt, you can go out there and start looking at commercial real estate and even impress seasoned investors with your knowledge. Because you made this experience by yourself and you know what you’re talking about.

Book reference for commercial real estate investments:

Gary W. Eldred, PhD: “Make Money with Small Income Properties”

Jack Cummings: “Real Estate Financing and Investment Manual”

You will find these books and many more on my real estate investment website at http://www.suncoastrenttoown.com/author_directory.htm

Sincerely,
Peter Dobler

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