If you want to hold some of your portfolio in real estate you might decide to own investment property directly. Consider buying a house for rental or for re-sale. You may not be able to afford a house in your town’s best neighborhood but don’t buy in the worst, either. As a rule of thumb, don’t buy an investment property in a neighborhood where you wouldn’t want to live.
One strategy is to buy a house from a local bank that has foreclosed on it. You may be able to buy it for little or no money down. Find some reliable contractors to do some rehab work, and then put it on the market for sale or rent.
In a weak economy, there likely will be more foreclosures and thus more opportunities to buy from lenders. Making money this way in real estate is not easy but it can be done, if you’re willing to put in the necessary time and effort. A great deal of information is readily available, in bookstores and on the Internet. If you’re a beginner, offer to partner with someone in your community who has been doing this for a while.
Whether you’re buying for a quick profit or long-term gains, a real estate truism is that you make money when you buy a property at a good price, not when you sell. Establish a relationship with a seasoned real estate appraiser so you can understand the true value of your prospective property.
If you’re planning to rent your property, positive cash flow is vital. That is, you want to be confident that the income from the property will exceed all the out-of-pocket costs, including mortgage interest. Real estate tax breaks may shelter that income from tax and perhaps even provide a paper loss to offset other income.
