Investors who poured their capital into real estate during the boom conditions of recent years enjoyed considerable success. When the market is hot, most investments will yield a substantial return. But when the market slows down, how do you evaluate whether a property is a good investment?
The same principles apply for real estate investing whether the market is strong or weak. Everyone is familiar with the old saying, “the three most important words in real estate are location, location, location”. Stick to that adage, no matter what’s happening with prices, and your odds of success are much greater. Choose locations with potential for home price appreciation, based on areas with limited housing supply and increasing demand. As parents reel from $30,000-plus annual private school tuition, look for towns with an excellent school system and low inventory: Manchester-by-the-Sea is a good example. With about a 2,500-house inventory and one of the highest-rated public school systems in Massachusetts, there is great demand for three- and four-bedroom homes here.
As the Boomers age, they’re looking for the amenities they’ve become accustomed to, with some modifications for age. Invest in neighborhoods that offer easy access to shops, medical facilities, recreational opportunities and cultural activities. Close proximity to airports for visiting children and grandchildren, public transportation for easy access to sports and cultural events, an up-scale health club, and college-level continuing education opportunities make an area very attractive to the 55-plus crowd.
It’s hard to go wrong with waterfront, but make sure you’re aware of all the strings that come with this package. FEMA has recently redrawn its flood maps, requiring flood insurance on properties that didn’t need it in the past. This can add thousands of dollars per year to your maintenance fees. Buying waterfront property that needs expansion can cause headaches for you and your builder, and in fact, may make the investment not worthwhile. The DEP can keep you busy for years with paperwork, delaying any construction and therefore sale or rental. The second-home market is still strong, and the north shore offers great opportunity for investors willing to buy now and sell when the timing is right.
Be aware of major condo conversions planned for the area you’re investing in. You don’t want to buy a four-unit apartment building, condo docs in hand, and find out that the local shoe factory is being turned into 95 condominiums with all the latest bells and whistles, priced at $50,000 less than your planned units. These major condo projects skew the average and median sale prices for an area, and give buyers more opportunity to walk away from your listing.
Don’t forget to utilize the resources of your local realtor. While the commission fee may make you head for the internet, keep in mind that you’re paying for years of experience. A good realtor has his/her ear to the ground, and knows good investment opportunities before they become public. You want to be at the top of their phone list before these money-making properties hit the MLS.