Real Estate Investment Might Be Having a Moment

Nicholas Pell
MainStreet.com

The real estate market is still struggling. However, the fact that people aren't buying residential real estate right now can make this the perfect moment to invest in real estate commercially.

Whether as a career, a primary investment strategy or a side dalliance, investing in real estate can be very lucrative. If you've ever thought about investing in real estate, perhaps it's time you learned the lay of the land.

Two Types of Real Estate Investment

First, there are two types of real estate investment, according to Eli Verschleiser, chairman of the Multi Group of Companies.

"If you're buying a property because you want to add value and get a secure income, you're not really looking to make a home run," he says. This is advice for people looking to purchase a property for its cash flow potential. On the other hand, there's purchasing real estate for more speculative purposes.

"Someone who is retired is probably looking for something with some cash flow," he explains. On the other hand, "if you're young and you have a little bit of extra income, and some risk tolerance, this is definitely a business you should look into."

Where To Buy

"Real estate is a local business," says Kirk McGary, founder of Real Property Management. "You have to know the local market."

What's more, expensive properties are generally not the best investment. "The returns don't look good on more expensive properties," he explains. On the other hand, if you buy a less expensive property, you need to be aware of maintenance and repair costs.

Verschleiser adds that, for a first-time investor looking for cash flow, it's best to go with an established neighborhood rather than an up-and-coming one.

"You're not looking to take risks in new neighborhoods," he says.

McGary advises that the best type of property for a first-time investor is something in a good, clean, safe neighborhood for around $100,000 to $150,000. "Something like that has the best yield," he says.

Verschleiser agrees. "You can enter the real estate market for around $100,000," he said.

"You also need to look at the history," McGary added. "If it floods every spring, that's going to impact your return."

Getting the Mortgage

You might be surprised to find out that you only need 25 to 30% down to buy an investment property. "Banks that finance this are completely different from Fannie and Freddie-type lenders," says Verschleiser. "They calculate your income, expenses, net operating income and give you a loan based on that." What's more, according to Verschleiser, whether or not you get approved doesn't have a lot to do with your personal credit score.

Not only will you have better returns if you have less debt, "you can also hang tight in tough times when you have less debt," he says.

What About the Law?

One reason many people are skeptical about the real estate market is the legal implication of becoming a landlord. The place to begin, according to McGary, is your local landlord association.

"You can become a member for a couple hundred dollars," he says, adding "this is where you learn things like how to process evictions as well as what kinds of disclosures you need to make."

"How many people can rent you property?" he asks. "This is where you find things like this out."

Weighing the Pros and Cons

McGary thinks that real estate can be a great opportunity, as does Verschleiser. "I've been in it for years," says McGary. "You can make good money and get favorable returns."

While Verschleiser thinks it's a good investment, he also is clear that it's very hard work that often comes with a number of risks.

"It's not a 'get rich quick' type of business," he says. "You can have a very secure property and then you lose two or three tenants," he says. "That could be 30% of your income."

There are also expenses. "You have to come up with money to replace carpets and paint the place or you might have trouble bringing in new tenants," he says.

"A lot of people bought properties in '05 and '07," he says. "Now those properties are owned by someone else."

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About Multi Capital LLC

Multi Capital, Inc. (www.Multi-Capital.com) is a nationwide finance company specializing in the full spectrum of real estate financing. Multi Capital is known for its expertise in arranging Senior Debt, Mezzanine, and Equity for Development Deals. With its financing experts originating from the real estate development arena, Multi has the expertise needed to syndicate these transactions.

Multi Capital provides a service that is unmatched in efficiency, speed, and thoroughness. Multi currently has over $600,000,000 in development deals in the pipeline.