LinkedIn Answers: What are the Top 10 factors you consider when investing in real estate?

For the second straight week in a row, LinkedIn Answers' question of the week focuses on housing and real estate and both relate to the 2nd most emailed article of that day from the New York Times (NYT). This week's question shines the spotlight on continued national interest in personal real estate as evidenced by this NYT article titled "Collateral Foreclosure damage for Condo owners".

LinkedIn Answers' Question of the week: What are the Top 10 Factors you consider when investing in real estate?

Answers category: Personal Real Estate

The question from Joel Landou, Supply Quality Engineer at Boeing, even surprised him in terms of the quality and number of answers that he offered to consolidate the answers into a nice spreadsheet for those interested. Even better, Doug Boedecker, another LinkedIn user spent an entire hour on Saturday explaining to Joel his analysis for investing in real estate. Joel says:

Thanks to Doug Boedecker!!! Doug spent about an hour on Saturday explaining his detailed analysis methodology for investing in real estate in select neighborhoods in the Mid West and Southern states. I believe he has some very profitable ideas and I highly recommend him to everyone of my contacts that are interested in investing in real estate in the future.

Besides Doug's answer, here was the best answer selected by Joel from Ray Garrett Jr., Realtor/Investor in ZipRealty. I'm going to publish the answer in its entirety for the benefit of the readers, long as it may be. Consider yourself warned.

Why:

Without a doubt, the most important question to ask is “why am I investing.” Investing strategies may sometimes be diametrically opposed based on the desired outcome of the strategy. For instance, if an investor seeks to build a portfolio of monthly income producing properties, he may consider buying homes in impoverished areas where a greater number of people rent. If he wants to flip homes, this would not be the best strategy.

Where:

Again, location is a very important part of strategy. When one buys a personal residence, he may select a property in an older, established neighborhood. While this may be an excellent decision for a personal residence, investors tend to gravitate toward neighborhoods on the upswing of their lifecycles. Also, rental returns are often higher in areas the investor would not personally choose to live.

Typically investors should focus on one or two neighborhoods if possible. This way, the investor will be aware of the intimate details of the area, and he will know exactly what homes sell for, and, more importantly, what he should pay.

How:

Very few residential property investors would be successful if traditional bank financing were the only method by which an investor could acquire properties. Bank financing is certainly an important part, but unconventional methods such as lease purchasing, wrap around mortgages, sandwich leasing, and purchase options are all important strategies when acquiring investment properties. An investor should spend considerable time determining by which means he will acquire desirable properties, and what resources and capital he has available prior to locating properties.

Who:

Very few investors will spend their entire career flying solo. At some point, most investors partner on deals. Investors should always make a list of people who would invest with them if an offer was presented that both parties feel could be mutually lucrative. Nothing is more frustrating than finding that “home-run” property, and not having the resources to acquire it.

Also, many people are involved in your investment property. They all need to make money. If they make money they will be happy to help you make money. The most important of these people is your contractor. Many novice investors try to cut almost all the profit from the contractor to maximize their own profit on a single investment property. This strategy will eventually spell doom. Everyone needs to make money. I’m not saying that an investor should pay whatever the contractor asks, but be fair and share the wealth. The investor has most all the risk, so he should get the lion’s share, but he needs good contractors who also need to make a living.

What:

Some investors buy a wide variety of homes, but most investors pick a style, price range, or home type to specialize in. If someone specializes in period craftsman homes, he will become very familiar with his typical buyer, and he will quickly develop a repertoire of contractors who specialize in these types of homes. I cannot emphasis strongly enough how important it is to have good relationships with several contractors.

When:

Every neighborhood goes through a life cycle. At what point of the life cycle an investor buys is high dependent on the investment strategy. Unless the investor is a seasoned, it is best to consult a professional for information on neighborhood life cycles. This information will prove invaluable to the investor.