Real Estate Investing: Is This the Time?

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Author: Lee, Earl1

Given the escalation of home prices in most areas of the country over the past few years, potential real estate investors may be wondering if they have missed the boat on profit opportunities. But the fact is, according to many industry experts, a major national housing boom may be brewing over the next decade.

The U.S. Census Bureau projects the number of American households will increase by more than 12 million by the year 2010. A growing number of empty-nest baby boomers are being drawn back to the convenience of city centers -- and a general housing shortage continues to exist across many geographic and demographic sectors.

Sources as diverse as Freddie Mac, Fannie Mae and Harvard University's Joint Center for Housing agree that strong demand and muted supply will likely continue to push home prices up in most areas at an average of five to six percent a year.

So while real estate has long been considered a conservative and reliable long-term strategy to growing wealth, investing in affordable rental properties today may be a more attractive prospect than ever.

But if selecting the home you plan to live in remains a largely emotional decision, investing in rental property should be driven by more practical considerations.

Remember that real estate is not a liquid investment. It may take weeks or months to sell the property should you decide to do so. If you invest in rental property, you will need to have capital on hand and/or be prepared to set aside a portion of the rental income to cover such things as mortgage, taxes, unexpected repairs and any short-term vacancy loss of income.

First-time investors can get helpful information on a variety of topics from www.mrlandlord.com or from the National Real Estate Investors Association at www.nationalreia.com. It's also a good idea to consult a financial advisor about the impact of cash flow, tax benefits and liabilities, equity, appreciation and depreciation on your particular situation.

A real estate sales professional will be your best source for understanding the history of different communities and school districts in your town, what the tenant demand is in each market, what rental prices can be expected and at what pace homes are selling or renting.

In today's "global village," it is even possible to take advantage of lower price structures by investing in real estate far from where you live. That is one reason why Prudential Real Estate has more than 1,700 offices and 50,000 sales professionals in every state of the Union. Beyond that, here are some other issues new investors might consider:

• Control the vacancy factor by looking into moderately priced single-family homes or duplexes rather than apartment buildings or commercial properties.

• Inspect target properties for overt signs of roof damage, water damage or electrical or plumbing problems -- and get an independent home inspection before you buy.

• Drive the streets to see if neighboring homes and lawns are in good repair and reasonably maintained.

• Check with the city about surrounding land development plans; with the local police on crime rate in the area; and with the Chamber of Commerce about companies relocating in or out of the area. These are all factors that could impact your ability to rent or sell the property in a timely manner.

• If you are not prepared to be a hands-on landlord, consider hiring a property management firm to handle rental issues for you.

According to U.S. Census Bureau statistics, 75 percent of rental properties are owned by individual investors. More than half of these investors own less than five properties and are earning fully 31 percent of their total income from their ownership of these properties.

As with any type of investment, there is no profit guarantee -- and the financial implications of investing will vary from case to case.

But the overwhelming body of evidence suggests that now is as good a time as any to consider investing in real estate.

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By Earl Lee

Earl Lee is president of Prudential Real Estate Affiliates, Inc.