Investing in Real Estate: Income, Potential Long-Term Gains

Conditions have rarely been better to add real estate to your investment portfolio. Most markets have plenty of affordable properties, interest rates remain historically low, and with homeownership rates declining, the market for rentals is increasingly strong.

Of course, conditions differ by market. Real estate investments may be more or less favorable depending on your locale. But if you're looking for a good return on investment with the potential to produce significant profit down the road, you owe it to yourself to look into real estate.

You also may realize tax advantages by investing in real estate; please check with your CPA or tax advisor for the details.

RE/MAX Broker/Owners in New York and British Columbia offer their perspective on investing in real estate:

Positive Cash Flow

"There's never been a better opportunity to have a positive cash flow with investment properties," says Nunzio Salafia of RE/MAX Plus in Rochester, N.Y.

"In my market, rental rates haven't declined at the same rate that prices and interest rates have. There are awesome deals out there. I own several properties myself, and the units are producing a strong income stream for me. If you can make money every day, it's far better than having money in a bank."

Investing in real estate isn't for neophytes, Salafia cautions. You should have real estate experience, a capable agent, and of course the financial wherewithal. Even branching out into an unfamiliar sector is problematic, he says.

"I'm not sure now is the time to take a chance with learning curves," he says. "For instance, if you have experience buying and selling single-family homes, investing in that sector would be smart. But you probably shouldn't be looking at commercial properties."

Diversify Your Portfolio

"Anybody who's investing in the stock market, or in bonds or other equities, should also be investing in real estate to give themselves a diverse portfolio," says Brian Naphtali, with RE/MAX Select Properties in Vancouver, British Columbia. "How does real estate compare to other investments? Favorably from an income point of view, and if you consider the capital gains real estate has seen in the last 20 years, then it's done very well.

"The thing about real estate is that even if values fluctuate, it still provides rental income. Real estate continues to be an excellent investment."

Naphtali advises anyone interested in real estate investing to start by speaking with a mortgage officer.

"This will help you quickly determine if you have the ability to more forward," he says. "Next, visit with a Realtor in your area who's knowledgeable in the investment market. He or she can help you identify the right property and purchase it at the right price."

Find a RE/MAX real estate investment specialist in your area (In the Residential Sub-Specialties field, check "Investments").

The advice offered here comes from sales associates affiliated with independently owned and operated RE/MAX real estate offices and may not be applicable to all areas. Contact an independent RE/MAX real estate agent near you for expertise tailored to your locale.

5 Steps for Getting Ready to Buy

Step: 1. Find a Local Lender You Can Talk To in Person
Local lenders understand your market and know of loan programs that might be beneficial to you.

Check with your lender on any local programs that might help with closing costs or in other ways. Even though the media have pronounced the 100-percent-financing option dead, this is not always the case. Check it out for yourself and then get preapproved for a loan so you know how much house you're able to buy.

Step 2. Be Specific in the Area You Want To Live
Educate yourself. Familiarize yourself with the neighborhoods you're interested in, the taxes and school districts. This not only helps you narrow down your search when you need to move fast, but also helps you figure out potential mortgage payments. Find a home in your desired neighborhoods.

Step 3. Find an Agent Specializing in the Area You Want to Live
This will save you time and effort. Once you've identified a real estate agent, trust him or her to do the job. Agents who are thriving in this challenging market have proven their worth. They have the resources and skills to help you find your next home.

Step 4. Don't Shy Away From Houses That Need Some Work
Just because a house needs some paint or cosmetic fixes doesn't mean it's not a good buy. Most real estate agents have an address book full of trusted businesses they work with to help you fix up your new home. There's a HUD program known as 203(k) that enables you to fold repair money into a primary mortgage; ask a RE/MAX agent in your market about the program.

Read more about the 203(k) program.

Step 5. Be Prepared To Act
Sometimes the first home you see is the right one for you. Don't discount it. Remember, good deals still go fast. Take advantage of the electronic tools your real estate agent has to offer. In many instances, real estate agents have access to better information than what you can find in a standard Internet search.