Real Estate Investing

Chicago Tribune editors must read this blog! Just kidding, their article about investing in student housing actually ran one day before my recent post on the topic.

In the news article, readers learn how Illinois-based Prime Properties increased revenues eightfold over three years and landed on the Inc. 500 list of America’s fastest-growing privately held companies. All this success came after the company broadened its spectrum to include student housing.

Indeed, money hasn’t been the problem for Prime Properties. After all, the company has 1,544 beds in 56 buildings worth $60 million and plenty of investors waiting in the wings at the ready. Instead, one of Prime Properties’ true challenges has been keeping apartments full despite the turnover each fall, the article states.

Chicago-based Scion Group was having such success in the student housing market that it recently teamed with ASB Capital Management. The joint venture agreement tripled the size of Scion’s workforce and bolstered its buying power. Scion’s main challenge: time.

“We are limited far more by time than anything,” says Scion founder and CEO Rob Bronstein. “A building with 500 students is a complicated business. Literally every day, decisions need to be made by the manager and owner.”

Scion’s strategy: Plan multi-million dollar capital improvements like eco-friendly upgrades, pool tables and plasma screen televisions, with cost spread out over at least about five years. Don’t overlook community colleges and junior colleges. These schools are also interested in having student housing within close proximity, a niche that helped Scion get its start. Above all, remember that money alone does not ensure success. Experts recommend doing the research, knowing the “lay of the land,” carefully selecting tenants and studying up on management skills.

So we’ve talked a lot in recent posts about investing in real estate, whether in student housing, for vacation rentals or as a full-time business. Regardless of your intent, there are some basic, universal keys to real estate investing success. It’s always better to learn from the mistakes of others; the 10 most common are as follows.

10) Fall in love with the property – Making a home transaction personal is a sure way to turn potential buyers off. When searching for property to buy, look for aspects that enhance the home’s marketability and value. Objectivity is key. This is strictly business. You are a business owner; act like one.

9) Fail to plan – Do this, and you can definitely plan to fail. Planning is key to successful investing, because you need to have info on the neighborhood market value, the condition of the house, etc. Above all, start with an investment plan, not a house. The house is a mere accessory to the plan. It is a numbers game, so find several houses that fit into your investment plan and wait for one to pan out.

8 ) Overpaying – This is where research and objectivity come into play. Without those two factors, it can be difficult to set a budget and create an investment plan and stick to those numbers. This can cause you to lose money on the deal long-term.

7) Go it alone – Novice investors may be surprised at how much networking is involved in the real estate investment business. Picture anyone and everyone you could possibly have contact with during the selling, buying and improvement phases of a home. Everyone from closing attorneys to inspectors to painters – you need to establish good relationships with at least one of each.

6) Get greedy – The fast cash promised over late-night infomercials is not the true name of the real estate investment game. This is a long-term investment. In some cases, like now, you may need to sit on property and rent it out for a while, waiting for the market to recover. A packed pipeline of simultaneous transactions can help pad the bank account, especially during slow times. Ultimately though, patience is a virtue, especially in this business.

5) Invest in Egypt – It is difficult to keep tabs on the happenings and market conditions surrounding your property if you live a gazillion miles away. For the sake of mere convenience – especially if the house is a real fixer-upper – invest within a 30-mile radius of where you reside. You will need to drive by regularly if the property is being renovated or rented, just to ensure that everything is running smoothly. If the home is currently vacant, drive-bys are good for security checks as well. With the cost of gas, far travels mean the cost of being a savvy property owner can escalate fast.

4) Miscalculate – Misjudging your cash flow or your estimates will cause heartburn every time. Underestimate your cash flow, budgeting for every single cost and fee you can possibly think of. Overestimate your estimates on cost and time investment. A good rule of thumb is to double the time estimate and triple the cost estimate to get property market-ready.

3) Ignoring Competition – You’re the best game in town, right? Wrong. Your competition matters. Learn from what they are doing. If they are holding open houses or buying in a particular part of town, consider doing the same. Ultimately, to avoid the lemming syndrome, think for yourself and do research on how to improve your business and your profit margins.

2) Underinsure – Whether it’s your health, your car, your life or your home, underinsuring is never a good idea. Disaster can strike at any time, so be proactive. Don’t forget about accident insurance for on-property incidents, as well as fire, natural disaster and even flood insurance, if applicable.

1) Moving too quick – Sleep on the deal overnight. Do plenty of research. This can help avoid costly mistakes #10, #8, #6 and #5. Foreclosures, divorces, deaths and down markets (buyer’s markets) are key ways to obtain a good real estate investment price. In all these scenarios, the buyer has the upper hand, so let sellers sweat a bit if it gets you a better deal.

Lisa Moren Bromma is a real estate investor of nearly 30 years, a national speaker, business consultant and sits on the board of directors for the National Real Estate Investors Association. She has authored several books, including Real Estate Investing for the Utterly Confused, and most recently, Wise Women Invest in Real Estate. Here, she shares her experience with real estate investing and offers advice for women interested in joining the field:

What gave you courage in the beginning to invest in real estate?

1978 – I bought a 1,900-square-foot house in Pinellas Park, Florida. The real estate broker carried the note for me, because at that time interest rates were at 18 percent. I sold it five years later and it appreciated, so I bought another house, and from there bought more than one. I was a single mom with two kids and I viewed real estate as a savings vehicle.

Is this a viable income option for single women and mothers?

The market is made up a lot more these days of single women buying property. I would say yes, depending on their time constraints. It’s about four things: income, cash flow, appreciation and taxes. There is no cookie cutter, magic wand approach to real estate investing any more. It’s a business and you need to run it as a business and look at it as a diversification of your portfolio. You need to hire a property manager or be willing to do the work, which can be done on the weekends. I hold open houses for my rental properties on Sundays. It’s a very easy way of renting property.

Is it better to flip houses or just rent them?

It’s definitely not better to flip houses. If you’re buying property right now, you’re buying it to hold it. You should not have to pay anywhere near the asking price, and you should be prepared to hold it. I’m talking about markets that have really suffered, like Florida, where builders have overbuilt. I’m not talking about Hot Springs, Arkansas, which is actually doing quite well. It depends on your investment strategy – is this something you want to have in your portfolio long-term or do you want immediate gratification? It’s an individual question. I tend to always go for the long-term.

How do women handle not-so-pretty aspects of renting property like collecting overdue rent and possibly evicting?

That’s a whole course. That’s a whole hour-long conversation. To put it shortly, they have to screen the tenants to put the right tenants in place. Homeowners’ associations are starting to get in on the act, so if you’ve got a tenant who’s not taking care of the property, you as a landlord can be held responsible. You’ve got to oversee your tenants, and that takes work. It’s much more work-intensive than it’s been, which is why some people may opt to go with property managers.

Why do you say women are inherently good property investors?

I believe women listen much better than men. They can empathize with the seller’s motivation, which is especially important right now with the way the market is. I think women do an excellent job in being able to plan. The women I work with seem to be much more proactive in planning. You do need to plan, especially now. It’s vital to your financial life, because otherwise you won’t succeed.

Any special considerations for women investing in real estate?

I would recommend women be very comfortable dealing with certain types of people – bankers, realtors, contractors, insurance agents, CPAs and a property manager if you’re not managing your own. I call it their team of advisors. By putting these people in place, women are saving themselves a whole lot of hassle.

What is your top tip for women getting into property investing?

Women should not be afraid to ask the seller if they would be willing to carry some part of the financing. But the number one tip I would give to women is to know their market, know how many houses are for sale and for rent so they know what they’re up against. They can get a lot of that information from Zillow.com. Secondly, I would tell them to know where they’re going to get the money before they start.