Real estate entrepreneur Ryan Moeller offers these four tips for anyone considering a consumer real estate investment:
1. Don’t count on appreciation. Appreciation is a bonus.
2. Watch the loan-to-value ratio. Ideally, the total cost of the purchase, fees, and repairs should be no more than 70 percent of the appraised value of property in good condition.
3. Maximize annual return. Aim for properties that can be rented for at least 1.5 percent to 3 percent of the purchase price. For example, plan to pay no more than $50,000 for a property that can be rented for $750 per month.
4. Have an exit strategy. Seek properties that are attractive enough to have value no matter what happens to the market – as rentals, for sale to other investors, or for sale to somebody who plans to live there via conventional financing or lease purchase.
Source: BiggerPockets.com, Ryan Moeller (09/01/2010)