Planning For The Future Of Long-term Real Estate Investments
Imagine this scenario:
Imagine this scenario:Jane Investor buys a property when she is in her late forties. She wants to use it as a long-term investment, so she gets a conventional loan on the property and makes the payments as well as maintaining the property for the next 30 years. After 30 years, Jane has paid off the mortgage, and she is about to turn 80. Its time to cash her investment in. She wants to use the money to help her pay for some unexpected assisted-living expenses that will help her continue to live in her own apartment rather than having to move into a nursing facility. Jane sells the property for its appraised value, and then uses the profits to sustain her through the next decade and nearly into her nineties.
This probably sounds like a pretty good scenario to you, and it does to the thousands of people who invest in real estate each year as part of their retirement plans. However, in many cases, things do not go so smoothly. In Janes case, she simply paid the mortgage until she was ready to sell, then sold. Does that sound like an uncertain plan in todays market to you? Of course it does. Elderly people are selling off their paid-off houses for a fraction of what they are worth or worse, finding themselves unable to sell at all to get the money out of these properties every day because they need access to the money. Even if they can get at the investment, it may actually have shrunk rather than multiplied over the years.
As a result, when you are involved in long-term real estate investing, you need a serious plan. Of course, this has always been an important factor of long-term real estate investing, but now it is more important than ever. Before you invest in a property, you must determine more than when you want to sell it (presumably 10 to 30 years into the future); you also must determine how.
In todays uncertain market, making plans involves designing methods of flexibility. For example, if you plan to rent the house out, you will want to look for tenants who will view the home as their own. This might even involve a price break on the rent contingent on basic maintenance, upkeep and landscaping being performed by the tenant. A good tenant can be a great form of insurance on a home, since they may ultimately be willing to purchase the property rather than move out in years to come when the time comes for you to sell. Another good contingency plan is to determine how you will know when to sell. For example, instead of refusing to consider letting the property go before a certain amount of time has elapsed, set a boundary of return on your investment. For example, imagine that when Jane was in her late fifties, the area was up for rezoning. In this scenario, Jane could have sold the property for a mint to a developer who knew that he could make a lot of money and create a lot of tax credits for himself and possibly Jane as well by doing energy retrofits and making the home a multi-use property. However, since Jane was not ready to sell at that time, the developer went elsewhere. By establishing a monetary goal instead of a timeframe, you prevent yourself from overlooking major profit opportunities.
Long-term real estate investing requires more planning than it used to, and more detailed planning than you might think. Be sure that you have created multiple game plans for a property long before you make the decision to buy even if those game plans will not be played out for years.
Peter Vekselman has been successfully investing in real estate since 1996. He has completed over 1200 real estate deals, owned a construction company, been a private lender, and owned a property management company. Peter currently works with clients all over the US helping them achieve riches in real estate investing. For more information please visit www.CoachingByPeter.com.
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