Tribune Print Share Text

Buying an investment property

Created date

December 20th, 2011

Purchasing an investment property can be a great way to take advantage of low housing prices and avoid some of the volatility of the stock market, while still generating income for retirement. Detroit financial planner Robert Schmansky says investing in property can be a smart option for retirees because real estate generally keeps pace with inflation and because it creates an income stream. [Investment properties] act as diversifiers to the stock market in that way, he says.

Research your market

No two real estate markets are the same. That s why California real estate agent Brian Sparr encourages would-be investors to study their markets to identify attractive neighborhoods. It s a boots on the ground approach, he says. Next, look for properties that will appeal to the largest pool of renters. There s no magic formula, but you can follow some basic guidelines to choose an investment property. Mia Melle is the president of operations at Renttoday.us, a California property management company. She says three-bedroom, two-bath single-family homes in middle-income neighborhoods have the broadest appeal. Melle reminds investors that they won t be living in the property, so they shouldn t base buying decisions on personal tastes. It should be a pleasant home, free of any oddities or issues that would make it less desirable to a renter, she says. Other than that, if it s priced right in a good neighborhood, then go for it.

Learn how to landlord

Some older homeowners who are ready to downsize, but unable get their asking price are turning their primary residences into rentals while they wait out the downturn. Melle says this can be a winning strategy if the homeowner is able to detach emotionally. You can t drive by every weekend, she says. You have to think this is a business now. Before you put your money or your home on the line, figure out what you ll be able to charge for rent. Sparr s number one source for researching rents is Craigslist.org. He advises potential investors to spend time reviewing rental listings to get an idea of what local landlords are charging. He also recommends calling several property managers, who can give you reliable estimates of the going rates in your area. But you can t just sit back and collect rent once you buy a property. You ll have to learn how to market and show the property, screen tenants, and respond to maintenance requests. That could mean late-night phone calls when a pipe bursts or evicting tenants who don t pay rent. Renters are not your friends, they are business associates, and rookie property owners turned landlords have a hard time understanding that, Melle says. That is why she recommends hiring a property management company. You can expect to pay 7% to 10% of your rental income, and in return, the company will handle showings, tenant background checks, rent collection, and property maintenance. meghan.streit@erickson.com

Comments