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New Year's resolution: Invest wisely in Miami real estate

Apartment building
Apartment building
Foreclosed office condo for sale
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Foreclosed office condo for sale
Alicia Willen

In Miami, just as many opportunities abound to make a great real estate deal as to make a lousy one. In fact, the purchase of a property that could be financially rewarding for an investor could be a disaster for someone else, and the same investor can either invest wisely, or make a huge mistake. That is because the quality of the investment depends, not on the property itself, but on the investor.

Right now many people are excitedly considering putting money into Miami real estate thinking of the sure rewards that they can expect in a few years. Unfortunately, just as it happened during the frenzy of the last boom, many will not pause to analyze the decision they are about to make. If you are thinking of investing in Miami real estate, please keep in mind the following seven keys to a great real estate investment.

1. Know yourself. Your investment should be closely related to your experience and financial capacity, since a purchase of real estate requires an important financial commitment on your part to an asset that is not liquid. You must know beforehand what you can handle should the scenario change, such as losing several tenants at the same time, or having to make significant repairs. To be able to meet these unexpected challenges you must have a favorable ratio of capital to debt, and income to debt service because, regardless of your circumstances, your lender will still want to get paid on time.

You must also take into consideration the degree of diversification of your investment portfolio. The more diversified it is, the better you can handle unfavorable circumstances in any one asset class.
Your personal preferences and skills play a large role on your choice of property. For example, you may not have the time or inclination to manage an apartment complex, requiring active involvement with tenants and maintenance. On the other hand, you may have the skills to purchase and remodel single-family homes for resale.

2. Understand the various types of properties. You can invest in a residential property, such as a single-family home, or in a commercial property, such as a multifamily building, a warehouse or a shopping center. There are also specialized properties, such as medical facilities, historical buildings needing renovation, raw land for development, etc. Each type carries its own risks and rewards, and an experienced Realtor® should be able to explain them to you and help you find the type that best suits your needs.

3. Establish in advance the time horizon of your investment. You should know how long you plan to hold your investment and whether you are financially able to do so in a worst-case scenario. Establish whether your time line is realistic, considering the financial burden that you will incur and the trend in market conditions.

4. Understand real estate cycles. Knowing where your geographic area and property type are in the current real estate cycle will help you make a decision as to what you will buy, the price you will be willing to pay, and the length of time you will hold your investment.

5. Understand the geographic area where you are planning to invest. Be sure that it is experiencing economic and population growth, and that the government's development plans and the demographics of the population support the type of property that you are going to buy. Communication with local government officials, information gathered from official websites, such as www.census.gov, and articles in the local press are great sources of information as to what is going on in your chosen location. Of course, a real estate agent well worth his or her salt will be on top of events that can impact the future value of real estate in that specific area.

6. Know the specific location of your investment like the palm of your hand. Again, understand the demographics of the specific zip code or surrounding area. These are the people who will be your tenants and customers, and they should fit the profile of your target market. Map the location of the property you are considering and draw one-mile, three-mile and five-mile concentric circles around the spot. Walk and drive around the area until you understand how it lives, moves and breathes, days and nights, weekdays and weekends. Do you like what you see? Is there activity appropriate for the type of property? Is it a prosperous community or does the area feel lonely and untidy? Is the area supported by an infrastructure of government services, well-maintained roads, and access to public transportation? Take note of what is next door, on each side, and front and back, or what there could be in the future. Are there many competing properties in the area, or is there room for many more? All of these factors have an impact on the short-term and long-term value of your investment.

7. Surround yourself with a team of professionals. You will need a knowledgeable real estate agent who will spend with you the time necessary to understand your specific situation and investment needs, and be prepared to answer many questions before you are shown any properties. Find an attorney specialized in real estate that is experienced in the type of property that you are buying, and a CPA who can help you understand your financial condition and minimize the tax impact of your real estate deals. Other important members of your team will be a title insurance agent, a maintenance person or company and, possibly, a contractor.

Note: To search all Miami properties in the Southeast Florida Multiple Listing Service, please click here. Choose any combination of features and click the "Search" button, or just select the desired property type and the city of your choice and hit "Search." If you have any questions, please contact the author at Alicia@AliciaWillen.com.

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