Investing in Residential Real Estate
With an appreciation rate far more rapid than any other U.S. industry, the real estate market is a viable resource for gaining capital through investment. In 2006, while prices of most goods and services rose only 4.2%, house prices ballooned by 12.5% in the past year. Although the market is still growing strong, the past quarter has seen appreciation rates level off in several areas where prices have been skyrocketing the highest, indicating a need for houses to remain affordable to the common consumer.

Current Appreciation Rate in Sevier County is 8.06%
Source: Office of Federal Housing Enterprise Oversight

Prices continue to rise, but at a more stable rate, in most states with the Pacific central states (led by Arizona) displaying the highest growth. These recent phenomenal growth rates all over the country indicate an opportune time to invest in real estate as opposed to the many other investment arenas that are not appreciating like the recent real estate market.

Along with the census data that shows specific states that have been lucrative recently, there are several general areas that consistently return high profits. Since larger cities have larger populations, they spawn a greater amount of potential buyers and tenants. Communities located near major thoroughfares and vacation homes tend to be reliable investments because of their proximity to popular destinations for either business or pleasure. The strength of the local job market is also an important factor in real estate investment. A robust job market draws people to the area, thus draws buyers who will pay an investor for the property due to its proximity to the job. Also, a flagging job market will consistently lower real estate prices.

Short Term Real Estate Investment
With the rapidly appreciating market, short term investors see great profits from merely buying a home and reselling it after only a short ownership term. The wait for profit potential is definitely shorter than any other investment market today, and the probability for high return is almost a guarantee. In only six months, many investors today are seeing $10,000 profit on initial investments of less than $50,000.

But as appealing as this sounds, there are some risks associated with short term real estate investing that mostly have to do with the preparedness of the investor. Several situations can arise where the investor will have to spend more than their original budget; more money is needed for repairs, the house sits on the market for more time than allotted, etc. With these scenarios in mind, there are factors that investors should keep in mind when looking for short term investment properties.

When planning a short term investment, be sure that:

Property values are increasing at a stable rate in the area.
You have the means to get repairs done quickly and the connections to do so at a reasonable price.
Your credit and taxes can withstand possible negative feedback.
Short term investment is also referred to as “turning for profit,” a common practice in today’s lucrative market for investors who want to make a quick profit without having to hold onto a property for very long. Due to the short time frame of such investments, profit returns can be exponentially higher than most investments, but it can be difficult to secure a property with such potential. Just like any other investment, it is essential to buy low and sell high, and a property that will make this possible is a hot commodity, even in today’s real estate market that is reaching epic proportions.

Several investors compete for each of these properties, so acting quickly on the buy is just as important as acting quickly on the sell. Not only do potential investors compete with each other, but also face opposition from first-time homebuyers who are looking to fix up a house to live in. It is also essential to act quickly during the renovation stage. The real estate market fluctuates throughout each year, specific times acting as either good or poor times for real estate investment, and a slow renovation process can push the house from a healthy, lucrative season to a less profitable time of year.

So do your research. Contact the local governments, housing authority, investment groups, other investors, and other resources that you feel will help aid your search.

Long Term Real Estate Investment
For those who are not just looking for a quick return, long term investing provides a viable option with a potential for high profit. Long term investment requires much more effort and commitment to maintenance than a short term real estate investment, where one just does enough rehabilitation work to turn a profit quickly. Long term investors purchase a property in an area where the long term appreciation rate appears favorable and rent the property to tenants, acting as landlord and taking care of all the maintenance that the property requires, while profiting from the monthly rent checks while waiting for the property value to rise enough to sell it for profit. As with short term real estate investment, there are several factors that must be considered in order to secure a successful investment;

When planning a long term investment, be sure that:

You are able to deal with renters.
You have investigated the possibilities of a continuous tax break.
The long term appreciation rate for the home is positive.
You do not have the start-up capital at the moment, or you do not wish to do quick renovations to sell the home for profit immediately.

Long term investment as mentioned above requires constant maintenance of the property in order to keep its value higher, thus increasing the amount the investor can charge in rent. Landlords who consistently defer maintenance in order to cut their short term costs are always renting out their properties to new unhappy tenants, seeing their properties vacant for prolonged time periods due to their lack of appeal, and getting tenants who actually inflict more damage to the property.

Smart long term investors avoid situations like these by repairing all minor damage when it arises, thus saving money on having to fix huge problems that occur when the minor injuries have been ignored for too long. These investors keep to strict maintenance schedules and keep a readily accessible list of people to call when any repairs are needed to perform them quickly and keep the tenant satisfied.

Sometimes even the most cognizant investors face problem tenants, so choosing the renters is an important step when committing to a long term real estate investment. Avoiding irresponsible, unreliable people who don’t maintain the property is important, as is writing a valid lease that covers the significant aspects of the rental agreement.

A complete lease agreement covers the who, what, when, and how, and also includes a carefully designed set of rules (pets, etc.) and policies on a security deposit. Laws on real estate rental contracts vary in each locality, so it is important to be well-versed in the specific policies of every region to ensure the legality of the agreement.

Long term investments also carry several risks that the smart investor tries to minimize in the beginning stages of the investment. Investors should prepare for a worst-case scenario, keeping enough capital devoted to the property to maintain their investment if there is a vacancy or a decline in the market value.

Keeping a strict eye on local trends is essential, and this task can be greatly alleviated by having contacts in the local real estate industry (such as appraisers, brokers, attorneys, and other investors) who are cognizant of market patterns. Investors must allot money for repairs, set a realistic rent cost and schedule, and plan an exit strategy.

Inside, every room should be photographed with the lights on, the blinds opened, anything that destroys the illusion of perfection (i.e., trash cans) removed from the shots, and focused on the most interesting features of the house (like details on the floor, mantle, or windows). Virtual tours are also essential in today’s technology-driven culture, allowing the viewer to walk through the property with just the click of a mouse.

More traditional means of advertising are still applicable, with sign campaigns still an important way to draw potential buyers. Print advertising is equally powerful, providing a cheap way to get your property exposed. Major newspapers and smaller local papers are both essential resources for the seller, with the local papers providing a means by which to print a larger ad with more visibility for a lower cost.

Real estate publications are another resource often tapped by home sellers. Direct mail also aids in the advertising process, and mailing lists can be purchased from list brokers. Experts advise that sellers send these mailings to neighbors, local agents, and potential buyers from other areas that have a high rate of migration to the for sale property’s neighborhood. The open house is yet another classic way of marketing the property, especially if the property is in an area that has high real estate traffic. The means to advertise an open house are the same as the aforementioned ways to advertise the property in general.