One of the first comments every new client makes to us is I only want good investments or more often they say I want a “good deal.” I have no doubt that everyone wants to make the best purchase they can when they buy something that costs as much as a piece of real estate. Using those words does make it challenging for most agents because everyone has a different definition of what good investments means to them. It is easy to start with the point of view that the best price might mean the best investment but not always. In the world of real estate investing there are so many other factors. The condition of the interiors and exterior can be a huge factor that can make that good investment look bad once you factor in the cost to do the fixing. There are also other issues like location, tenant base, and utility considerations that come into the overall analysis of a property being a good investment or not. At Buckingham we take another position with our clients and urge them to work to make smart investments. That is not to say that a smart investments is not also a good investment but we like to make the long term needs of the client the most important consideration. To properly do that we feel that our clients need to have a well thought out plan of what they are trying to accomplish by buying an investment property. This should include a careful analysis of their financial condition so that they have sufficient reserves so that they do not over extend themselves just to get that “good deal.” What do I mean by that? Let’s say that you have a $100,000 net egg for investing and you are looking at making your first purchase. For this example let’s assume you are looking at two properties. One will take $75,000 to close escrow and needs some work but appears to have a nice upside and the other is in great shape and you can close for $60,000 and keep the rest in reserves. In my opinion, it would not be wise for the beginning investor taking on a property that needs work and takes most of their liquid funds. In this case the smart investment would be the one that is in nice shape and leaves the first time investor with plenty of reserves. That investor will be able to get plenty of experience in owning and managing a property so that next time that “fixer” might be the smart investment that also offers some additional upside in value. Remember that upside almost always takes more money and a lot more time to earn so it in not FREE. Buckingham Investments Marty Stone
