Single Family Residences

Single family residential property is great if you have the right tenant. If you don't have the right tenant, it can be brutal. Successfully finding the right tenant to live in a house is the best thing that can happen. I have some tenants in a house I own in Los Angeles who think and act as if they won the place. And they don't want me bothering them. I also have a house in Hollywood. The tenants there recently wrote me a note saying they spent about $400 fixing up the yard and wanted to know what I thought about it? I said, "Wonderful. Send me the bill." And that was that. They always pay their rent on time and never complain about anything. It works out just super.

A good strategy to employ when buying residential property is to look for an older house in an area of high density that is, or eventually might be, zoned for multiple residential use. Oftentimes, it is possible to purchase the entire property- land and improvements - for about what the land alone is worth. If the property is in a prime location and increases in value over time, you can pay down the mortgage and end up with a desirable development site for an apartment house.

Condominiums and Townhouses

When you own a condominium or townhouse, you must belong to a home-owner association and pay monthly dues. There is a set of guidelines you must abide by from the association known as CC&Rs (covenants, conditions, and restrictions). These rules govern the use of real property. The homeowner association of a condominium complex, for instance, could limit the number of visitors who can stay with a homeowner or tenant at any give time. Some property owners find CC&Rs restrictive. As a landlord, I tend to look on them favorably because they ensure that tenants respect the rights of others and adhere to a set of uniform standards.

As mentioned, homeowner associations charge a monthly fee. It goes toward maintaining the grounds, pool, common elements, the building exterior, security, and waste removal. For me, this works out just fine. I own 30 condominiums in three separate projects that are virtually hassle free. Whenever there is a vacancy, the on-site manger is responsible for filling it, so I don't have to worry about renting the place. All I have to do is pay $200 each time I have a vacancy. Altogether, I pay $8,800 in homeowner fees per month. But my condominiums are all more or less self-sufficient. It's a headache-free situation, really. And that's well worth the expenditure.

One drawback to owning a condominium is that if your complex becomes embroiled in a lawsuit and your fellow property owners in the association vote to raise homeowner dues on account of legal fees or additional maintenance expense, there isn't much you can do except comply and pay the additional fees.

Duplexes, Triplexes, and Fourplexes

Duplexes are a good first-time investment because you have the option of inhabiting one unit and renting out the other(s), which helps make the payments and pay the taxes. A four-family flat, or fourplex, does even better and generally takes no more effort to take care of than a duplex.

If you live in one unit and take care of the other three, you're already on the property to deal with whatever problems and situation arise.

A duplex, triples, or even fourplex is usually a mom-and-pop operation. The owners may need the rent to help make the payment on the loan and pay the taxes. Maybe they figure that someday as they get along in years their mother or father might live in one of the units so they can keep an eye on them.

For a number of reasons, many people don't like the idea of living in an apartment. But certainly to get stared, if you can buy a two- or four-unit building and live in it for a while until you can raise the rents, then refinance it, taking the money and buying a single family residence, you would have a good start on the road toward building an estate.

Buying real estate is a long-term investment. When I first stated investing in income property, I had to hold on to property for about seven years before the cash flow would go from negative to positive. I bought most of my properties with very little down, so my mortgage payments were comparatively high. If you find a good piece of real estate, you'll be able to do wonders with it. But the key to the whole thing is to find the right property that you know through your research and analysis will increase in value.

Apartment Buildings

It is not easy for first-time buyers to start off with an apartment building, unless they have inherited the property or a lot of money from a rich uncle. This said, an apartment building is one of the best investments there is. A friend of mine who had accumulated a substantial amount of equity in four single family residences and two duplexes recently decided to trade his equity for a 38-unit apartment building in the San Gabriel Valley.

Since the mortgage on the apartment is high compared t the income, he has a negative cash flow. But he has faith in the area and believes that in a few years he will experience a positive cash flow. In 30 years, he will own an asset worth at least $8 million and have no outstanding mortgage on the property. There aren't many investments that offer this certainty, and size, of return.

Before making an offer to purchase an apartment building, be sure that the size and configuration of the rental units conform with the demand factor for similar apartments in the neighborhood. Study the building's occupancy in relation to community facilities. For instance, a three-bedroom apartment building that attracts families might work fantastically near a high school, whereas studio apartments for single professionals would probably be a poor investment choice if they were situated next to a grammar school.

Study vacancy rates, planned construction projects, and the developments in the surrounding area that act as a source of employment for potential tenants. Such developments may include hospitals, shopping malls, colleges, financial centers, business parks, and the like. With a specific property in mid, it is useful to look at the neighborhood and the subject building as a potential tenant would. The following is a checklist of items to consider when assessing the property:

• Is the outside appearance as attractive, or more attractive, than competitive buildings?
• What is the conditions of the balconies, porches, sidewalks, common areas, and landscaping?
• Are there any roof leaks or signs of water damage? Are the gutters and downspouts adequate?
• Does the apartment complex have adequate parking?
• What advantages does the location offer, such as proximity to traffic arteries, public transportation, shopping centers, churches, and schools?
• Are there any detrimental influences, such as adjacent noisy street, railroad tracks, or obnoxious odors or excessive noise from industrial plants?
• How do the size and configuration of individual apartment units compare with the competition?
• How do the rents compare?
• Does the subject building offer the same number of amenities as the competition, such as parking, swimming pool, recreation center, and workout facilities?
• Are there any structural defects or visible building flaws in the foundation, roofing, or framing?
• Are the walls and floors soundproof so that noise from one apartment will not disturb other tenants?
• Are the apartment clean and well maintained?

The importance of knowing the physical characteristics of the apartment property before making a firm commitment to purchase cannot be overemphasized. Be sure that all mechanical appliances in individual apartment units are in good working order, including refrigerators, ranges, dishwashers, garbage disposals, exhaust fans, individual air conditioners, heaters, and laundry facilities. Building-wide, inspect the electrical service, as well as plumbing and heating, in sufficient detail to determine if there are any major, foreseeable problems. In additions, it might be necessary to obtain a termite or other infestation report. Finally, to determine whether the building is settling, you might want to place a marble on the floor and see where it rolls.

Continued on Determine the Best Type of Real Estate Investment to Fit Your Needs – Part III