Investing in Real Estate 101

CHAPTER SIX:

Step One

 

You must first decide what you are going to invest in and what you are looking to purchase.  Is it a single-family residence, condominium, or multi-family rental unit they all have their pros and cons?  I have focused my investing on condominiums' because of their lower price and yes, the homeowners association.  Although HOA's can be difficult to deal with, at times, they are mostly responsible for maintaining all exterior components of the structure.  The only components that remain are the inside of the unit, which is minimal and easier to maintain.  The major components of the inside of the condominium include, the drywall, ceilings, paint, water fixtures, electrical, kitchen & bathroom cabinets, and heating & Air-conditioning components.

          Determine what your components are and estimate their useful life expectancy.  Component cycles, Minor-Paint, Medium- Appliances, Major- Cabinets.  As a rule of thumb, I plan on a medium component replacement cycle every 5-7 years.

          Minor Component Cycle – This can include small repairs and paint touch-up upon a rental change.  Less than $500 in total costs.

          Medium Component Cycle – There comes a time where you will have to replace some medium components of your purchase.  Stoves, dishwashers, garbage disposals, carpeting, and painting the entire unit.  This usually costs around $2000-$3000 each time.  Remember I do my own repairs, have someone install inexpensive carpeting and this is what I usually spend.  What is your expertise and if you need to hire someone, make sure you account for this expense every 3-5 years. 

          Major Component Cycle – This includes all the above and may include the replacement of kitchen cabinets, counter-tops, heating & air conditioning components etc.

          If you are not handy with a hammer, you can avoid large expenses on your purchase by having an extended home warranty policy.  When you purchase your unit make sure that you ask the seller to pay for a one year extended home warranty policy.  This will protect you from having to replace most of the components of your unit, i.e. garbage disposal, water leaks, A/C unit, etc.  These companies can protect you for less than $50 for a service call and possibly save you thousands of dollars in losses.  In addition, it is nice having the piece of mind of an expert a phone call away.  These policies are also extendable, after the first year, usually for a cost of around $500.00 or less.  Remember, if your not handy this might be a great way to mitigate some major losses suffered by component failure.