What About Investing In Real Estate? Part 1 of a series. We have seen the ups and downs, even the crashes of our investments. I have been through much, as you probably have. Where should we invest? Should we invest?
Here is the first of some random thoughts and opinions for your consideration. I will address others in future articles. This series has a Salt Lake City focus.
As you read these articles be sure that I see the safest investment is free and clear real estate that can earn you income. In a market crash you my just have to lower your rents. What is more likely in Utah is a 10 year run up. Some say that Salt Lake City is a future of being a world wide hub. Consider how much happier that you would be if you had made your real estate purchase as recent as three years ago. (Three years!)
1- Duplex and/or fourplexes. I’m not into encouraging your going this route. The exception might be if you are living in one of them. Why do I have this opinion? The answer comes from extensive study for a client who thought that this would be his preferred route. The problem here is that so many are after this piece of the market that sellers can get away with what I consider to be absurd. The typical pricing offers a 5% cap rate. In other words if you paid cash for a $400,000 property you would achieve a $20,000 cash return. That might sound nice but virtually every property offered with this return is absolutely a deferred maintenance pit. Most of these are assuming that you are going to manage the headaches yourself. So you get all the phone calls and you get to subtract these costs from your revenue. If you hire a property management company, reduce the rate of return. The 5% is in my opinion too low and it will be reduced by the upkeep and property management.
What went through my mind on this recent study was that these are absolute junk. Don’t pit your future on junk. That’s my opinion.
For your information, my background includes an extensive part of my real estate career in the commercial side of real estate. I was the director of real estate acquisitions for a commercial real estate developer. I have been CCIM trained on numerous aspects of commercial real estate. I focus on residential because of the consistency in this market. However, upon joining Windermere I have been motivated by their strong commercial real estate department to look for good options for my clients. There are good options. In my opinion duplexes and fourplexes aren’t currently a good way to go.
Larry K Cragun – Windermere Real Estate