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Maryland Real Estate Investing-Profiting From Real Estate Purchases-Vicki Irvin


Profiting from Real Estate Purchases, Part 2

2. Look in Better (but Not the Best) Neighborhoods

The better the neighborhood, the easier it will be to rent
and eventually to sell (or trade) your property. Homes in
good neighborhoods are always in demand, while those in
poor neighborhoods languish. On the other hand, don’t try
for the very best areas. They are often over-priced and
you’ll find it hard to find an investment property there
that will rent for enough to cover your monthly costs.

Homes in the top neighborhoods, however, often make the
best flip properties. If you buy low here, you often have
the best chance to immediately resell for a big profit.

What makes a good neighborhood? Look for attractive homes;
and avoid areas where landscaping is neglected. Look for
wide streets; avoid areas where abandoned cars litter
streets. Look for conformity in housing; avoid areas where
there is a hodgepodge of homes.

TIP: Check the schools. The biggest indicator of a good
neighborhood is that it has quality schools, as evidenced
by high scores on standardized tests (always available at
the main school district office, or online). Poor schools
mean a poor neighborhood.

3. Look for Flippable Properties

The term “flipping” has come into the real estate
vernacular along with the big boom in property values. It
essentially means that you quickly buy and then resell a
property without holding on to it for long. If you can flip
a property and can make cash on it, the reasoning goes, do
it.

I agree, up to a point. The cash generated by flipping can
go toward your own income (supporting yourself) as well as
toward creating capital for the down payment on another
property. Flipping, when possible, has always been a good
way to generate cash from real estate.

The mistake that some people make, however, is to look only
for flippable properties, or to try and flip properties
that really aren’t suitable. It makes little sense to flip
a property to make $10,000 when if you hold it for a year,
you can make $100,000. Also, out of 10 properties you look
at, you’ll be lucky to find one that’s truly flippable.
Yet, five of the others might be good for holding, renting,
and then reselling.

4. Look for Strong Tenant Markets

It’s a truism that there are always tenants. But, the
underlying fact is that in some locales, there are more
tenants than in others. And in some locales, the tenant
population can afford to pay a higher rent than in others.
Ideally, you want to buy in an area where there are lots of
high-income tenants.

It’s important, here, to think locally. The country may be
doing well economically, but your area may be doing better,
or worse, than the nation as a whole. In order to get a
tenant for your property, you must be able to draw on local
workers. If there are few well-paying local jobs, you won’t
get many good tenants.

As a consequence, it’s important to do a tenant analysis
before leaping ahead and buying rental property. There are
a variety of ways to accomplish this: First, if you’re
buying into low-income housing, look for blue-collar
tenants. That means industrial plants will be nearby. On
the other hand, if you’re buying an upscale property, look
for white-collar workers. Check in the area for office
buildings, commercial buildings, financial institutions,
and the like.

Second, think like a tenant. If you’re a tenant, who’s
going to employ you? Look around the area. Who are the big
employers? Find the place that the tenant wants to live and
that’s where you’ll have your strongest tenant market.

Third, check the local newspapers under “Homes for Rent.”
You’ll quickly see which areas have rentals. Call to see
what the prices are (if they aren’t listed). Then recheck
the same paper over several weeks. If you find areas which
have the same homes advertised for weeks on end, avoid
those. If there are areas where homes rarely crop up and
then the ad appears only for a single weekend, go there.
That’s where the tenants want to live! Areas which rent
quickly indicate a good rental market. Areas with lots of
vacancies do not.

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