Real estate markets have become white-hot in recent months as home and property prices have soared. Unsurprisingly, some people are looking to invest in real estate. That’s why Rusty Tweed, a real estate investor with a long and successful career under his belt, is going to offer some real estate investing insights.
“There is a lot of potential upsides when it comes to real estate investing,” Rusty Tweed notes. “That said, there are some risks as well. By taking the time to understand real estate markets and risk factors, you may be able to reduce the risk of losing money and increase your chances of turning a profit.”
Right now, some investors are worried that real estate markets are entering bubble territory. While Mr. Tweed isn’t hitting the panic button, he does believe that it’s smart to hear out contrarians and to always consider markets from a “what if” point of view. What if the economy slows down? What if a bubble is forming?
“Read financial news long enough, and you’ll find there are always people predicting recessions or bubbles or whatever,” Rusty Tweed points out. “Yet the sky rarely falls. That said, it’s wise to consider different scenarios and to come to your own conclusions.”
When it comes to prices, basic economics suggests that supply and demand are often key to determining whether prices will rise or fall. If demand greatly outstrips supply, prices will often trend upward. If supply exceeds demand, prices tend to decline.
The same is true with real estate markets. If a lot of people are moving to a particular city or region, say the San Francisco Bay Area, demand should increase, which could drive prices upward. If population growth has stagnated or is negative, prices may decline.
Many things could impact your investment and ultimately how much you make or lose. If you buy a property and sell it five years later for 25% more than what you paid, you turned a profit, right? Actually, depending on how much you had to pay for improvements, upkeep, and taxes, you might end up losing money.
“Before you buy or sell a property, make sure you understand local property tax laws,” Rusty Tweed argues. “Some states and cities are very friendly from a tax perspective, others aren’t so friendly. You can still invest and profit in markets with unfavorable tax laws, but you need to take taxes into account from the get-go.”
With taxes and upkeep such a major factor, some real estate owners are turning to “triple N” leases. With these leases, the tenants pay for upkeep and also property taxes. However, in exchange, many tenants will demand long-term leases stretching out for 20 years or more.
“Triple N leases are great because tenants pay for many costs, including taxes and upkeep,” Robert Tweed says. “But in exchange, the leases are normally quite long, and you can’t easily raise rent prices. Triple N leases are often great, but in a hot real estate market, you may prefer shorter leases, so you can more easily keep rent in line with the market.”