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Investing for Success

Get into the Mindset of an Investor

According to Gary Keller, author of The Millionaire Real Estate Investor, serious investors should define three essential areas of focus: criteria, terms and network. Determine what you’ll buy, how you’ll buy it and who will help you.

Establishing an investor mindset is the foundation for building solid wealth over time. First, it’s important to determine if you’re investing for income or appreciation. Successful  Real Estate investors play the long game. Investing for short term gains is considerably riskier.

Develop Your Criteria

Successful investors have a secret formula. They create qualifying questions that allow them to immediately identify property that meets their criteria.

Criteria is like an “opportunity filter” that helps you identify a good opportunity and pass on a bad one. Questions like: is it a single family or multifamily property? Is it attractive for resale or rental? What’s the location?

The next step is to understand the different types of properties out there and how they’re owned and sold.

Understand the tradeoffs with different property types

1)    Single Family Homes are stand alone houses built on a detached lot. The name refers more to the type of structure than the number of people who occupy it. Houses historically have the greatest appreciation of any property type, but given they typically only hold one family, vacancy of any duration can have significant implications to your profitability. They hold their value longest in periods of correction, and are the quickest to bounce back.

2)    Condominiums are single units within a larger building or community. Units share walls with other units. Residents pay dues for the upkeep of the building and the common areas. (HOA dues). Condos are a great investment for investors who don't want to deal with a lot of hands-on issues, since the HOA takes care of the big ticket items like roof, foundation, paint, exterior maintenance.

3)    Townhouses are a hybrid between a condo and a single family home. Often they have multiple floors with one or two shared walls. Owners are often responsible for their own roofs and foundations, and the HOA usually covers common areas. Townhomes and houses often attract families who tend to stay in place for longer periods of time.

4)    Tenancy in Common (TIC) allows two or more people to own one property. All areas of the property are owned by the group, but a TIC Agreement governs which unit belongs to which ownerm, and what percentage each owner controls. In San Francisco, TICs are considered multi-unit buildings and are under rent-control. As a trade-off, they can be purchased at a discount between 10-20% compared to comparable condos.

5)    Cooperatives (Co-Op) are a different way of holding a title to a shared building. In a Co-Op, the owners own the shares of a corporation and the corporation owns the building(s).  The corporation leases the units to the owner for the balance of the their mortgage amount. There is often an interview process to become a part of the community. Coops are exempt from rent-control in San Francisco and are typically sold for 30% less than comparable condos. Property taxes are included in the HOA dues, so don't be surprised to see dues in the $800-$1k/mo range.

6)    Small Multi Family properties are usually 2-4 units, with shared or individual entrances. Small multi-unit buildings can be attractive to investors because their purchase price is more attainable than a larger building and they provide vacancy risk, meaning if one unit is vacant, chances are pretty good that you'll still have income from the other units. They still appreciate, but not as quickly as houses or condos. 2-4 unit buildings in SF, Oakland and Berkeley are under rent control.


7)    Apartments Buildings are residential dwellings of four or more apartments with a shared entrance and hallways. This is a great trade-up investment, especially for retirement or folks who want a consistent and predictable income from real estate. They take a lot to purchase and maintain and often require 40% down payment, but cash flow is fairly predictable. Their appreciation is tied to rental income and expenses - the more profitable the building, more valuable it is.

8)    Mixed Apartment & Commercial is commonly referred to as a “mixed use” property because it includes both commercial and residential space. It could be a smaller building with one shop and two apartments or a large apartment with commercial space on the ground floor.  This is another great trade-up investment. Commercial properties typically stay occupied for long periods of time, but also can stay vacant for long periods of time.

Negotiate favorable terms

Smart investors earn their income by negotiating the right terms at the right time. They then let the market work in their favor. As an investor, it's important that you offer a price that will cash flow positive or at the very least, neutral from day one. This could require writing multiple offers and touring multiple properties to find the hidden value that others have passed on. Persistence is the key to success when purchasing investment properties.

Even with a solid selection criteria, buying the right property under less favorable terms can work against you. The right team of advisors can help you evaluate the economic environment, so you can best decide how you want to invest.

Build your network now

Successful real estate investors have an eye for identifying value. The more properties you look at the sharper your sense of value will become. There really is no short cut.

Do your homework and look carefully at a wide range of real estate. Then, hone in on the two big variables: sales prices and rental rates.

The number one key to creating any element of your investor mindset is to have a strong support network. A seasoned real estate team that will keep an eye on the economic environment, explain nuances and vet properties is critical.

Call us to get started with your investment property search, or check out some of the properties currently for sale here: