Benefits of Living in a HOA Community


Millions of homeowners now live in communities governed by homeowner associations or HOAs.  In fact, it is estimated that one in six Americans live in a HOA community.  That statistic is probably higher in Orange County as so many of our beautiful subdivisions are HOA communities.

Buyers are often wary of purchasing properties that require HOA fees.  Many view HOA fees as another expensive monthly cost and find HOA rules and regulations to be too restrictive.  But, there are many benefits of living in a well-governed HOA as the intent of HOAs is to protect the value of the homes in the area.  While every buyer should weigh the cost of the fees and determine what amenities and services are included, here are some common benefits to being in an HOA community.

Property Value Protection

A HOA provides greater certainty that the community will remain visually appealing over time, by imposing and enforcing rules on architecture, landscaping, fences, signs, parking, usage of public spaces, and more.  The rules are designed to create parameters for aesthetic uniformity so that no house is an eyesore to the neighborhood.  In addition, the HOA is responsible for the physical maintenance of common areas.  While residents often find HOA rules to architectural enhancements to be thorns in the remodeling or construction process, they are put into place to protect the collective interest of the residents.

Recreational Amenities

One of the most attractive benefits to HOA fees are the amenities provided.  Many communities in Orange County offer gated access and around-the-clock security presence to provide added safety for the residents.  Others offer pools, clubhouses for rent, parks, gyms, basketball courts, tennis courts, community events and even private beaches!  Obviously, the more amenities offered, the higher the fees may be.

Property Updates

The HOA sets aside a reserve account for future capital improvements or repairs from unexpected damages.  The reserve account provides assurance that the properties will remain in good shape and may save homeowners money in the long run.  Many people recognize the benefit of owning a home but being able to share in some of the management responsibilities

Community Environment

When a community has an HOA, the residents of that neighborhood have agreed to a set of “good neighbor” rules fostering a greater sense of community.  Many HOAs also provide community events and socials to increase community bonding and communication among the residents.  While this benefit is difficult to quantify, it is highly desired especially by young families, and that desirability can be a factor in property values.

As a prospective buyer looking for a property, decide early in the process if the HOA lifestyle is a fit for you.  If so, do some research and determine how much you are willing to pay per month on HOA fees.  Also, research what amenities are provided in each subdivision to help you narrow your property search.  A seasoned real estate agent knowledgeable in the areas of your interest should be able to provide you with the information you need at the onset of your home search.

How To Get Top Dollar For Your Home


How does a seller get top dollar for their home? Every seller wants the assurance that his/her house will sell at the highest price possible. But, real estate, as with most industries, is a highly inexact science. There are many factors at play within rapidly changing market terrain. While there are no concise answers as to how one ensures a house sells for top dollar, there are some important considerations to deliberate as the seller that can help you maximize profits, maintain control and reduce the stress that comes with home-selling.

  • Know why you’re selling and keep it to yourself.

The reasons behind your decision to sell impact the process greatly. Do you already have another house in escrow? Do you need to sell quickly? Or is profit your highest priority? All of these questions will factor into your pricing strategy. However, do not reveal your motivation to anyone else other than your agent or they may use the information against you during negotiations.

  • Set your price appropriately.

Setting the right price is the single most important decision you will make when you decide to sell. Price too high and you will turn off potential buyers. Price too low and you may leave money on the table. Make sure you do your homework by looking at comparable sales in your neighborhood in the last 3-6 months. Visit all the competitive offerings and see how they’ve been priced relative to the condition of the home. It’s always good practice to know your competition. While pricing, stay as objective as possible, and really look at your house from a potential buyer’s perspective. Emotional attachment to the house tends to drive pricing higher than necessary.

  • Maximize your home’s sales potential.

You may not be able to change your home’s floor plan or location, but you can make cosmetic updates that will enhance buyer impression. Assess your home, again, through the eyes of perspective buyers, and determine what can use updating. Fresh carpeting and/or a paint job can transform a space dramatically. If possible, avoid showing the house empty. You want to help potential buyers envision the home as their own, so provide neutral staging or de-personalize your existing décor. Furthermore, make repairs to visible damage. And don’t ignore the exterior. Buyer impression starts upon arrival at the house, so make your home appealing from the curb.

  • Consider a pre-appraisal and a pre-inspection.

A pre-appraisal will provide you with an objective basis for pricing your home. Additionally, a pre-inspection can identify any issues with the house that you can address ahead of time rather than during escrow as re-negotiating during escrow can be more costly since you’ll have less leverage and the transaction can be at stake.

  • Know your buyer.

While you shouldn’t disclose much about your reasons for selling, you should try and find out who your buyers are. Why are they moving? Do they need to move quickly? Are they in good financial standing? Having some information on the buyer’s motivation and personal situation will give you the upper hand in the negotiations process.

  • Time your sale.

If possible, watch market conditions carefully and time your sale. Typically, spring and summer are good times to sell. But specific to your market, be mindful of supply and demand. Are there more buyers than sellers? Are interest rates reasonably low? When there are more buyers in the market, sellers can get better pricing and terms, especially if there are multiple parties interested in your property.

  • Hire the right listing agent to represent you.

Truthfully, nothing is more instrumental to your successful home sale than the right real estate agent for your needs. Not all listing agents are created equal. If you hire an experienced agent, they will perform all the research necessary to advise you on all the points listed above: pricing, home improvements, negotiations, timing of the sale, etc. Get a few quality referrals from friends and interview several agents. As part of the interview, make sure you understand how each agent’s marketing plan for your property differs.

To sell your home for top dollar requires proper positioning of your property to the maximum number of prospective buyers. Educating yourself on market conditions and having an experienced agent as your representation will increase the likelihood of a successful transaction for top dollar.


Things That Can Derail Escrow


After all the trouble of putting a house on the market, showing the house to numerous buyers, and then going through several rounds of negotiations, a deal has been reached and the house is in escrow… what could go wrong?

The short answer is, plenty.  Escrow is a complicated process with many participants and equally numerous moving parts.  At the helm of it all should be the Realtors on the transaction guiding the deal to close for both the buyer and seller.  In my experience, the three biggest derailments of escrow are as follows:

1)   Financing & Appraisal

Next to having an experienced real estate agent, having a trusted and seasoned lender on the buyer’s side is vital to a smooth closing.  A lender should always advise buyers to withhold major purchases on credit during the home purchasing process.  Additionally, a diligent lender should proactively assist the buyer in fulfilling the underwriting conditions and have the buyer lock in a mortgage rate in a timely manner.  An essential piece of lending success is dependent on the appraisal coming in at the agreed upon price.  Should that not be the case and the property is under valued, then escrow is at serious risk unless the buyer and sellers can find a solution.

2)   Inspections

Nearly every real estate deal in current market conditions requires a physical inspection of the property.  When a buyer is handed an inspection report that itemizes things that are wrong with the house, from big items to little, it certainly can intimidate the buyer from proceeding.  A lengthy report from the buyer’s perspective is equivalent to excess expenditures and additional headaches for the buyer.  At this juncture, another round of negotiations could take place requesting the seller for repairs or adjustment to the price to cover for repairs.  If negotiations don’t result in a meeting of the minds, then escrow could be in jeopardy and the deal may fall apart.

3)   Disclosures

During the escrow process, the buyer is handed a list of disclosures.  While representing the seller, I tend to advise on disclosing more as opposed to less.  But it can be a little much for the buyers to digest depending on the severity of the disclosures.  The last thing anyone wants to happen is for the buyer to think that they were deceived and that the seller wasn’t forthcoming regarding the property.  Regardless, many deals have not come to fruition over items in the disclosure packet or that buyers discovered items that were not disclosed and therefore become suspicious about the property’s shortcomings.

Other issues that can derail closing include:

  • Termite inspection reveals serious infestation.
  • Title search reveals liens and clouds on title.
  • The house is uninsurable.
  • Closing is delayed due to errors, contingencies or missing documents.
  • Either the buyer or seller simply experiences a change of heart.

The good news once again is that if you have engaged an experienced Realtor to represent you, he/she will likely be have previously faced similar issues on another transaction and be able to help you navigate your way to a successful close regardless.   Whether it’s negotiating a request for repairs or connecting the buyer with a diligent lender, your real estate agent is your strongest ally towards a smooth close of escrow.

Buy or Build?


I hear it from buyers all the time, “For that price, I should just build my own dream house!” Maybe you should. But building a house comes with its own set of woes that may not be suitable for your current situation. Let’s take a look at some of the pros and cons of building a house.


  • The number one reason for building a house is so that you get exactly what you want from a house: floorplan, number of bedrooms, architectural style and design… right down to each and every last finish.
  • Because the house is new, it will have met all the latest building and safety codes so as an owner, you can be less concerned about the foundation, pipes, wiring, etc. Plus, you will get brand new appliances and not be so concerned with having to make repairs to an older home.
  • In certain markets and scenarios, building a house can be cost effective but it requires the owner to be fastidious with the budgeting and accounting.


  • There are a number of additional costs that need to be factored in, i.e. the carrying cost of the land during the construction, the construction loan, rent for the current abode, and more.
  • Very few construction projects are completed within the proposed timeline. Plus, there are issues that come up that are beyond your control, such as delays in city inspections or permitting. When the project is delayed, it costs you money and, most likely, stress.
  • Can you wait 18 months or 2 years for your dream house? Will your needs and wants have changed in that timeframe?
  • Chances are, you work and have a family. Building a house is an enormous strain on your time. Do you have the time or the patience to select all the finishes? Even if you hire a designer to help with those decisions, the designer will still need to meet with you to obtain your approval. What if you and your spouse don’t agree on fixtures and details? Can your family bear the anxiety and stress that comes with managing a construction project?

Now, buying a house is a relative cake walk to building especially if you’ve put together a good team of people to help with the purchase, i.e. your Realtor, your mortgage broker, lender, etc. The issue is that you are stuck selecting in current inventory and generally, every house has flaws that you can’t quite reconcile. And truth be told, a pre-existing house will never be 100% your taste or vision, so you are likely to embark on a construction project of some type even if you buy. Then there’s the frequent issue of not being able to remodel to your liking because of HOA regulations and restrictions or dilemmas presented by the home’s original structural engineering. All these scenarios are likely when it comes to buying an existing house.

So should you buy or build? It just depends on… you.


After the Listing Agreement: What to Expect

Red For Sale Real Estate Sign in Front of House.

You’ve decided to sell your house.  You’ve selected an experienced real estate agent to represent you and the “For Sale” sign has been placed in front of the house.  What next?

Selling a house is usually not a quick and easy process.  It takes longer than most imagine, can be emotionally taxing, and have some unexpected costs associated with it.  Knowing could happen next can help manage your personal expectations.  Here’s  a look at what you can expect once you’ve signed a listing agreement.

Prepping the House for Market

Most agents put their listings up in the local Multiple Listing Service (MLS) along with a set of beautiful photographs of the house to entice potential buyers.  Your real estate agent will hire the photographer and set the appointment.  All you have to do is tidy up, de-clutter and remove personal effects from sight.  Your real estate agent may also suggest some quick easy fixes to get the house photo-ready and primed for imminent showings.  Most sellers underestimate the time and effort required to get the house to market.

If you’ve already moved out, then staging might be a good idea to warm up the environment and give the buyers a sense of how to live in the space.  Whatever the case, the homeowner and the agent need to work together to make sure that the home is aesthetically ready for market, and that it is consistently maintained in tip-top condition during the selling period.  This is not an easy feat if you are actively living in the home with your family!

Open Houses

Your agent will want to hold the house open for colleagues and area agents.  This usually takes place on a weekday and it’s called a broker’s open.  The idea is to expose the house to as many agents as possible so they can start bringing forward suitable buyers.   Then, from time to time, your agents might suggest holding the house open for the general public.  It is best for the homeowners not to be present during an open house so that agents and buyers can tour the home freely and with ease.


During the first 2-3 weeks, you should be getting phone calls from your agent asking you to vacate your house while he/she brings through potential buyers.  If your agent placed a lockbox on your house, area agents and their clients may drop in on you during times you’ve specified as available for showings.

After a few weeks, traffic may taper a bit and showings may become a little less frequent.  Do not worry if the number of showings decreases, as the dip is rather typical.  Average days on market can be 60-90 days in a normal market.  If the market is slow, buyers will take their time.  It’s a positive sign of real interest when the same buyer returns for additional showings.

Next Steps

In my experience, after about 6 weeks, sellers tend to get anxious.  The initial excitement of being on the market has waned and keeping the house immaculate at all times has become tedious.  Unless you are in a very difficult market, if you haven’t netted any serious interest in 6 weeks, it might be time to assess a change in course or next steps.  The housing market can change quickly, so it may be worth a look at updated comps to determine if the house is competitively priced to sell.   Additionally, it may be in the best interest of everyone involved for the house to undergo some light improvements or cosmetic updates such as flooring or paint.

As real estate professionals, we hope that every house gets sold quickly and with minimal intrusiveness to the homeowner’s life.  But the truth is, the process of selling a house is laborious and can have many twists and turns.  Staying informed and knowing what to expect is key to a positive transaction.

Reasons Homes Don’t Sell


As a homeowner with a house on the market, your dream scenario is to have the house sell within days and with multiple offers. If you are selling during a housing boom, that can very well be the case.  But under current market conditions, the buying-frenzy scenario isn’t as likely, especially if you are inadvertently making any key selling mistakes.

If you’ve had your home on the market for several months and haven’t seen much activity or any offers, you might want to step back and identify the reasons why the house isn’t selling.

Price is too high

The most common reason for a home not selling is that the list price is too high.  Enthusiastic real estate agents who are eager to win your business may suggest a too high asking price.  Or often times, you as the seller have high expectations given your history with the house.  Whatever the reason, if a house is priced too high, it will limit traffic to the house and hinder buyers from making an offer.  Make sure when selecting an agent to work with, that you don’t necessarily go with the agent that suggests the highest price. Agents wishing to win your trust should have a lengthy comp list of recent sales to justify their suggested price.  The fact is, your home is in competition with other homes in the neighborhood, and what buyers are willing to pay will determine the final sales price.

The condition of your home

If there’s healthy inventory on the market, your home could be in a decent amount of competition.  What sets your home apart from the competition is its condition.  The more you can do to make your house appealing to a broader audience, the better your chances are for a quick sale.  That means de-cluttering the house, de-personalizing the space, and neutralizing the rooms.  If you make upgrades to the house prior to listing, don’t get too personal with finish selections.  Other easy and cost-effective fixes that make a huge impact would be paint, flooring/carpeting and curb appeal enhancements.

Location, location, location

So cliché to say, but so true… location is king.  Buyers want homes zoned for good schools, in a safe neighborhood and have great community amenities.  If your house is in a less than ideal location, your real estate agent might offer up some improvements to minimize the home’s shortcomings.  But the only reliable way to overcome a difficult location is with a lower price that adjusts for the less-than-ideal location.

Soft marketing campaign

With 90% of buyers starting their home search online, you need to make sure that the pictures of your house are appealing.  Online first impressions are very important in this day of age of real estate.  Beautiful pictures lead to appointments with interested buyers.  Flat, lackluster photos will leave your home with few showings.  Additionally, an aggressive listing agent should be touting your home to the greater agent community and running ads in numerous publications.  As the seller, make sure you understand the extent of the marketing campaign and ask for marketing updates from your realtor periodically.

Limited Home Accessibility

To get your home sold quickly, it’s important that the home is widely exposed to other agents and potential buyers.  That means the house needs to be easily and frequently accessible for broker’s open, showings and open houses.  While highly inconvenient for you as the seller, being flexible and making the house accessible for potential buyers can help reduce your days on market.

If your house is languishing on the market, make sure you take a step back and survey your home from a buyer’s perspective.  Ask yourself if your home is priced appropriately amongst the competition.  Verify that your real estate agent has a comprehensive and strategic marketing campaign in place.  And make your home available for as many showings as possible.  If what your home needs is a quality rehab, take it off the market and make some updates to give it a fresh facelift.  A break from the market is often necessary to give a new lease to the listing.

Routine Maintenance on Your Home


Last week, my wife smartly scheduled a company to come and clean out our dryer duct. She noticed that the dryer wasn’t as efficient in drying our laundry and that there were linty remnants raining down the side of the house beneath the duct vent. Upon a quick inspection, the technician said it was clear that we were long overdue for a cleaning. That got me thinking… what other routine maintenance should I schedule to be performed on the house? After all, regular maintenance on a home is so important in keeping a house at its optimal condition. When it comes time to sell, it’s easy to see which houses have been well maintained and which ones have been neglected. Deferred maintenance can cost a seller a significant amount when it comes time to negotiate the price.

Here is a checklist of maintenance to be mindful of from time to time:

Change out HVAC filters: Experts say to change out the filters monthly. If you are a pet-free home and have minimal allergy issues, you can change them out every 2-3 months. Look up at your vents and see if there’s a collection of dust along the grates. If it’s visible on the outside of the grates, then the filter is likely to be maxed out.

Have your dryer ducts cleaned: Having the ducts cleaned increases the efficiency of your dryer. The filter in the dryer that you clean out every time you use the dryer catches only 10% of all the lint. The rest gets built up inside the ductwork that vents to the outside of your house. Not only will a cleaning reduce your monthly utility cost, but it may actually prevent an accident as a clogged ducts can lead to a fire inside your dryer.

Test smoke/carbon dioxide detectors: Good rule of thumb is to test these every 6 months. Push the text button on each detector to see if it emits the alert signal. Better yet, just replace the batteries every 6 months so that you won’t have to deal with a low battery warning signal at 4am!

Clean out the gutters: Spring is a good time to clean gutters and rid them of the grime and sediments from the winter weather conditions.

Have your AC serviced: For single family homes with central air conditioning units, getting it routinely serviced by a professional is a really good idea. If you don’t, inevitably on the hottest day of summer, the AC will cease to work and a technician will be hard to come by during their peak season.

Have your heating units serviced: Conversely, in preparation for the winter, get your furnace inspected and serviced annually. Make sure all heating vents are venting properly and not blocked by furniture.

Have the chimneys cleaned: Getting your chimney cleaned once a year before cold weather sets saves you from surprise issues for that moment when you actually go to use your fireplace.

Conduct a quarterly pest control: There are many companies that come out on a quarterly basis and spray the exterior of your house to rid you of common household pests such as spiders, silverfish, ants, earwigs, etc. More difficult insect problems such as cockroaches, fleas, termites and bees might require more specialized pest control services. Routine applications decrease the presence of these bugs and prevent future infestations from occurring.

Test your water heater’s pressure relief valve: This will prevent mineral and corrosion buildup, which safeguards against leaks. It will also help your heater run more efficiently.

We are lucky to live in California, and in Southern California no less, where we experience less volatile seasonal changes so we can be a less vigilant about protecting the home from weather extremities. But do be mindful and conduct visual checks on the exterior of your house looking for cracks in the pavement, damage to window frames, proper drainage function and potential issues on the roof. And while this is not a comprehensive list, this is a good place to start. Lastly, if you are like me, always get your outdoor BBQ serviced and cleaned in time for Memorial Day to kick off the summer right.

Listing Agreement: What Does It Cover?


You’ve decided to sell your home and you’ve engaged a real estate agent to get the job done. The agent will subsequently present you with a listing agreement, the contract between the seller and the agent that sets forth the conditions of the listing. It’s important to understand the terms of the agreement because once executed, you will be bound by them for the duration of the agreement. And while the listing agreement protects the agent because it obligates you to work with the agent for a minimum amount of time, it also protects you by detailing the agent’s responsibilities and what recourse you have should he/she not fulfill them.

Here are the key terms of listing agreements:

1)   Length of the listing period.

The listing agreement defines the start date and the end date. During this time period, your agent has the exclusive right to sell your property. Generally, the agreement is written for 3 to 6 months. While sellers typically prefer to have shorter time frames in case a sale doesn’t happen as quickly as imagined, it’s important to recognize that it takes a fair amount of time, effort and expense for the agent to prepare the house for sale, take it to market, and generate interest around the property.

2)   Sales price.

The listing agreement also defines the mutually agreed upon initial list price for the property. The sales price can be further amended during the listing agreement period with the execution of an addendum document.

3)   Amount of commission.

The commission rate is the percentage of your sale that is paid out to the brokerage companies that sponsor the real estate agents involved in the transaction. Typically this is set forth at 5-6%, to be split between the listing broker and the selling broker. The listing agreement should also specify exceptions to the commission as well. For instance, if your agent “double-ends” the sale, meaning that he/she also represents the buyer on the transaction, the commission rate for that scenario should be spelled out.

4)   Duties.

The agreement should lay out all the necessary activities the agent is authorized to conduct on your behalf to sell the property. In addition, the agreement will also specify how you will handle disputes should there be a disagreement between you and the agent. Generally, the contract calls for mediation or binding arbitration.

The listing agreement is the first of several forms a seller will be asked to review and sign during a sale transaction. Read it carefully and have your real estate agent walk you through any portions you don’t understand. Make sure you are comfortable with the terms and clear on how things will proceed.

1031 Exchange: What Is It?

Home - Office

In keeping with our discussion on real estate investing, there is a powerful tool available to taxpayers called the 1031 Exchange that allows a person to sell an income, investment or business property, and replace it with a “like-kind” property while the capital gains on the sale of the original property are deferred.  Essentially, the profit made on the sale of the original property will not be hit with the capital gains tax which can run as high as 15 to 20% between state and federal taxes combined.

In effect, one can change the form of your investment without cashing out or recognizing a capital gain.  The investment can in theory continue to grow tax deferred in perpetuity, as long as you follow the stringent rules as specified in the tax code.  There’s no limit to how many times you can roll your investment via the 1031 exchange.  But the tax code is tricky and difficult to navigate, and there are specific stipulations and time constraints that must be adhered to.  Here are a few basic tenets of a 1031 Exchange:

1)   A 1031 is not for personal use.

The 1031 provision is written for investment and business properties only, so one may not swap a primary residence for another.

2)  “Like-kind” is a broad term.

Most exchanges must merely be “like-kind,” which is a fairly liberal term.  You can exchange a house for an apartment building, a building for land, a land for a strip mall, etc.

3)  You can “delay” an exchange.

An exchange in theory is a simplae swap of one property for another between two people, but the likelihood of finding someone with the exact property you want and wants your property in exchange is slim.  For that reason, most exchanges are “delayed,” and have an intermediary party that holds the cash after the sale of your property and uses the funds to buy the replacement property.

4)  You must designate a replacement property. 

Once the sale of your property occurs, you have 45 days to designate replacement property to the intermediary, specifying the property you want to acquire.

5)  You can designate multiple replacement properties.

The IRS states that you can designate up to 3 properties as the replacement property as long as you eventually close on one of them.

6)  You must close within 6 months.

You must close on the new property within 180 days of the sale of the original property.  The clock starts to tick the day your original property is sold.  If you take 45 days to designate a replacement property, then you have 135 days from that point forward to close.

7)  If you receive any cash, it will be taxed.

If there’s cash leftover after the intermediary acquires the replacement property, it will be returned to you at the end of the 180 days and that cash, also know as the “boot,” will be taxed as a capital gain.

A 1031 Exchange is a great tool for real estate investing and building wealth over time.  But there are a lot of exclusions and time constraints involved with successfully executing a 1031 exchange.  Employ a trusted real estate advisor like a realtor before you embark on an exchange.  A realtor should have valuable insights on how exchanges work and help you buy and sell the properties for the swap.  Furthermore, they should be able to refer you to a trusted intermediary who will be the foremost expert on the tax code and instrumental towards facilitating the transaction to an effective close.

Real Estate Investment: What to Consider

Exterior 3

Without a doubt, the real estate game can be a lucrative investment strategy that produces positive return on investment above and beyond traditional investing, which is what makes investing in real estate so attractive.  But owning a rental property isn’t as easy as buying a house, renting it out and collecting the rent month after month.  There are many challenges, often financial, that can erode your returns.

The secret to getting great returns on real estate lies in understanding the fundamentals of what makes a great real estate investment within your own set of financial parameters and capabilities.  Here are a couple of important considerations to think about before you buy your first investment property.

1.  Are you ready to invest?

Investing in real estate isn’t for everyone.  Buying a property for the explicit purpose of letting others live in it doesn’t preclude you from taxes, insurance, HOA dues, and other recurring costs above and beyond the cost of the house.  And the financial commitment is only part of the equation.  Do you have the bandwith to make capital improvements, market the property, select tenants and deal with tenancy issues and repairs?

2.  What kind of property suits your investment needs best?

There many different strategies you could adopt when it comes to real estate investing.  Some people look for “flip” opportunities, buying a house cheaply, renovating it and selling it for a quick profit.  Others prefer the long-term stability of single-family rentals or multi-family units.  Others just want to bankroll other investors to earn a passive return.  There are so many opportunities in real estate, you just have to understand your own personal finances and see what fits your lifestyle best.

3.  What is the neighborhood like?

The importance of location is no less vital when it comes to choosing a real estate investment.  Often times, people buy investment properties in a different neighborhood from where they reside, and hence have less first-hand knowledge about the location.  Who are your potential tenants?  What kind of industries do they work in?  How are the schools in the area?  What is the crime rate?  Do your homework and make sure you are comfortable with the neighborhood of your investment property, keeping in mind that as the landlord/manager, you will likely be making many trips to the property.

4.  What are your investment expenses?

A common oversight of first-time real estate investors is underestimating their expenses.  Above the occasional unknown repairs that inevitably pop up, are you ready to shoulder expenses to cover:

  • Utilities
  • Garbage/sewage
  • HOA fees
  • Landscaping
  • Insurance
  • Vacancy costs
  • Scheduled maintenance
  • Capital improvements
  • Fuel (if you are driving frequently)
  • Marketing costs
  • Accounting
  • Legal fees

5.  What can you charge for rent?

Within the neighborhood of your interest, what are comparable units charging for rent?  After expenses, will you net positive cash flow on the property?  With every rental, there are months of vacancy from time to time.  Make sure when forecasting income, to build in loss for vacancy.

6.  Will you self-manage or hire a property manager?

Whether or not you should manage your property depends on your personality, resources, skills and availability.  A typical property manager may cost between 8%-12% of the monthly rent, but a good property manager should also decrease vacancy and maximize rents.  They also handle all the tenant issues and building repairs.  Some companies even manage construction projects on your behalf.

Even when property values are declining, investing in real estate can be profitable.  The long-term historical appreciation rate for housing is over 8%.  So if you buy low, even if prices go lower in the short term, you can still do very well if you hold the property for the long haul.  When you find your ideal rental property, keep your expectations realistic and make sure that your finances are in a healthy state that you can wait for the property to start producing cash flow.