the-abcs-of-real-estate-investing-ken LifeFeeling

• Pioneering. Pioneers have a romantic place in history, but I make a point of never
being one. Being too far out on the fore front of things can be expensive and dangerous. I
try not to create the wave, simply catch a wave I see beginning to build and ride it in.
• Affordability. I always look at the affordability of housing in a particular market. If a
single-family home is out of reach for most people, apartment living becomes a valuable
option. This is the case in big cities like New York and San Francisco, which attract large
populations, most of whom cannot afford homes. Look for markets where the cost of home
ownership far exceeds the cost of renting. The closer the two variables are to each other, the
harder it is to find renters and the harder it is to keep them.
LOCATION
Location is the most important thing when it comes to real estate, at least that’s what
everyone says. And I agree. But to me, locations have to be evaluated not based on
geography alone, but based on how they measure up in relation to supply and demand. After
a location has met the criterion of being in an area with good employment prospects and a
growing population, I look for a few important physical features that experience has shown
to be valuable:
• Great locations have drive-by visibility. The more cars that pass by your property and
see your “ For Rent” sign, the better your chances of success. Drive-bys are one of the most
effective forms of advertising and certainly one of the most cost-efficient. When your
property is on a street with no traffic, you’ll have to resort to more expensive and less
effective methods of advertising. This almost inevitably reduces your profitability because
lower occupancy means lower cash flow.
• Great locations possess a rare quality. There’s a one-of-a-kind quality about great
locations that you can’t find everywhere. Our Portland project was one of the only
waterfront properties left in a wildly popular area. It was an island waiting to be found.
That’s the rare quality I’m talking about.
• Great locations are in demand. Some investors think they can’t afford to even look at
property in the hot locations. I hear this often. But the truth is affordability is everywhere,
even in the hottest neighborhoods, if you buy the property based on operational
performance and not on the sale price. You’ll be reading more about this concept in
chapters to come, but for now know that you should never rule out A-plus neighborhoods.
Take another look at these three characteristics of great locations and what you find is
that they add up to one simple truth: Great locations are low in supply and high in demand.
This is at the heart of your market evaluation. Be realistic with your analysis and look at the
future of the market with a keen eye on the present. Property investing should pay off now
and later. The first step in buying right is knowing your market better than anyone else.
Focusing Your Market
After all the evaluation is said and done, you should be armed with the information you
need to narrow your market. A few chapters ago we talked about goal setting. I put forth as
an example the goal of finding an eight-unit property in Phoenix. The goal was as follows:
We will acquire one eight-unit property in your metro area within the next twelve months
that will generate at least $4,000 of average annual income over the next five years.