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Real Estate Investing for Retirees

By Mary Lamphere

Purchasing real estate can be a wise investment for retirees but only when proper care is taken to ensure that the investment is up to par and will provide a significant return on the investment. Getting good deals is of course on the forefront of importance when it comes to real estate investing, but the amount of time spent on a deal can also defray the return making it really not such a good deal after all. Retirees interested in investing in real estate should consider these tips before making a deal:

Understand the Neighborhood

A particular property may seem like a great deal but if you don't know the neighborhood that you are considering a major real estate purchase in you could be giving your money away. The most important factor to consider about real estate investing isn't the price, it's the location! In order to accurately predict what the property will be worth a few years from now you must first know the area. Are there schools with excellent grades close by? Are there plans for a major new highway to be built providing access to major cities? Can you rent the property out within 30 days or less from the time you purchase it or will it sit empty costing you time and money? These are all important considerations to make before making an investment.

Price is Important

Of course price matters when you purchase an investment property but not necessarily in terms of how cheap you can pick the property up. A good rule of thumb to follow is the 10 times rule. What this rule states is that, if you can purchase a property for ten times the annual rental amount then you've got a chance to make a good return on your investment. Essentially, you'll have to rent the property out for ten years at this rate in order to pay it off but with the anticipation of property value increasing over time, there's a good chance that you'll recuperate your investment in 7 years or less.

Keep Cash Reserves

Unexpected expenses are sure to pop up when you have investment properties in your portfolio. Keeping cash reserves ensures that you can cover the cost of any unexpected expenses such as a leaky roof or broken appliance along the way. Consider the miscellaneous expenses which can occur in a rental property over time and figure them into the total cost of ownership as well as your return. This will help you to decide if the investment is really worth the effort and the money or if you should consider other opportunities.

Stay Local

Purchasing property in a local neighborhood, one that you are familiar with, will reduce the amount of time that you must spend learning about the area, making sure that your investment is solid and following up with things like unexpected repairs. If you're planning on renting the property, staying local means you may be able to handle the property management on your own rather than pay for a property manager. If you will pay a property manager to manage the rental income, consider the costs of the property management into the overall equation when determining the real value of the investment.

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