Investing in Real Estate – Part 1
Because I am a Realtor in the “it” city of Nashville, I get a lot of people asking about investing. I thought it would be helpful to give some tips on how to get started, what to look out for, and some things to watch out for. I interviewed one of my investor clients who has learned more than I may ever know. I have so much information that I am going to break it up into two posts.
If you have been bit by the real estate investment bug, it is wise to meet with a CPA and a Realtor on the front end. My CPA, Corey Barnes with CRG Waddill, suggests investors learn about the tax implications and benefits prior to purchasing their first property. You may be able to save money based on how you purchase, depending on your long-term objectives. A Realtor can help educate you on the investment market in your area. They will typically know what areas have better investment opportunities based on the criteria you are looking to use. Some people want to buy and flip, others want to keep for rental income and you can do either in a wide range of price points.
Here’s some background on the investor that I interviewed. I asked him how he got started in real estate investment in the first place. He said that early on it was explained to him that regardless of what happens in the world there are 2 things that aren’t going away, food and shelter. People need to eat and have a roof over their head.
In his teens, he was working at a paint and wallpaper retail store. He met an understated painting contractor who was painting the second phase of a housing development. He had a gruff beard and wore overalls, not exactly what you would think of as Harvard material but his looks were deceiving and this teenager learned a lot from this man. The builder of the housing development raised price of phase 2. It was the exact same product but priced it $5000 more per home because phase 1 was sold out. This lit a fire under the painting contractor to buy a house and rent it out. He got the tax benefits and the tenant paid down the loan balance. This got him thinking about to go about doing it himself.
He was 19 years old. It was 1976. Developers were doing condo conversions. Within walking distance to the paint store he purchased a 2 bed/2 bath condo with a 1-car garage for $27,000 with his brother and sister-in-law. He didn’t understand taxes, insurance, etc. He was green. He didn’t know what he didn’t know. They kept it for 1-2 years, rented it for $300 and the mortgage payment was $290 He was splitting profits of $10/mo. and thought he was the next Donald Trump. He may have owned half a house but he was still living at home. He was standing in his parent’s kitchen when they said, “It’s time you start paying rent.” He said, “I think it’s time for me to move out.” So he bought a second house for $62,000 with $5000 down and immediately got a pinhead friend (his words, not mine) to rent a room from him. The payment was $404. His truck payment was $150, so he rented the room for $150. The friend moved his pinhead girlfriend into his room and that was the end of that.
This young investor ran into a man named Charlie who used to own a gas station in his home town. Charlie was an investor himself. They started a discussion about real estate and he told Charlie he wanted to sell his house and find something with less maintenance. Charlie called him Monday and said he had someone who wanted to buy his house (It was an assumable loan so that made it very attractive). With that sold, he bought a condo for himself, Charlie sold him another investment property and just like that, he had a mentor and the beginnings of a career in real estate investing.
Next week, you’ll get answers to specific questions I asked this investor and learn a little of what he gained from his mentor. In summary, before you run to the closing table with your check in hand, meet with a CPA, a Realtor, and get a mentor!
Photos courtesy of Ambro and hywards via freedigitalphotos.net
Michelle Froedge is a residential Realtor and Principal Broker in the Greater Nashville and Williamson County areas of Tennessee. “Mom” to four-legged fur baby, Tyler, Auntie to Zelamie, she is a vegetarian and sings in her spare time. Michelle has lived in Nashville and Franklin since 1997 and has been selling homes since 2004.