With Pasadena home prices softening and the stock market testing new lows, now may be a good time to think about investing in the real estate market. Depending on your tolerance for risk and strategy, real estate may be a good alternative as opposed to watching your portfolio rise and decline by the minute on CNBC.

Paying close attention to Pasadena foreclosures and REO’s and, can offer you the opportunity to get back into real estate. From an investor standpoint, the ratio of housing prices to rents is much more favorable than a couple of years ago.

To be a successful property owner you also have to ask yourself if you would make a good landlord or landlady. Do you have the tenacity to insist that your tenants pay on time or would you allow them to be consistently late every month with the rent check? Owning investment property is an idea that many people can see themselves doing, however sometimes they don’t think through the ups and down associated with repairs, maintenance, vacancies or making the mortgage payment on a second property every month.

Provided that you have considered the possible scenarios, what type of property should you consider, single family or multi-family?

From a risk standpoint, you may want to consider multi-family. The reason is due to the income or lack of income from a vacancy. If you own single family properties a 1 to 2 month vacancy can have a dramatic effect on your cash flow. At least in a multi- family property a vacancy is more than likely offset by the rents on the other units, so at least there is some income produced.

Generating A Profit

The thing to keep in mind when buying investment real estate is that you a purchasing an income stream. What will require the least amount of cash outlay and minimal expenses that will generate the maximum profit? Some people go into this with a blind eye to the potential costs involved when a little forethought and planning can reduce your annual expenses.

A couple of things to consider are the ongoing maintenance issues as well as the improvements you want to make before actually renting the house. An example would be a swimming pool. Pools require continual maintenance. Pumps, filters, and cleaning more than likely will be the property owner’s responsibility, insuring that these items will be maintained and won’t deteriorate or subtract from the property value. Nothing worse than walking into the backyard and seeing a green pool. Regularly scheduled maintenance can be at least $100 a month. Replacing a filter or pump can easily set you back $1000. A leak in the plaster…..well I think you get the idea.

Air conditioning is another issue. If the property you purchase does not already have it installed, you might want to consider postponing the installation. Many houses in Pasadena do not have air conditioning let alone central air. Repairs to existing systems can usually run several hundred dollars.

In the duplex I owned we had a vacancy that required some work in the unit before we could rent it again. The tenants had been there about three years and it was really nothing more than just regular wear and tear. A fresh coat of paint can do wonders. Doing it yourself can save hundreds of dollars if you have the time. The carpet was worn and dirty. The replacement carpet that was installed was a berber. It was purchased at a local home center and found on their in stock inventory rolls. Nothing fancy, but it gave a new and fresh smell to the unit and was purchased for around $1.00 / square foot.

Remember Why You Bought It

It’s only natural that once you buy a new property your intention is to fix it up and make it nice. You want something you can be proud of. Remember your primary goal is to make money. Money is made two ways in rental real estate. You can charge more rent which will be set by local market conditions or you can reduce your expenses. Develop a track record with your tenants before you consider adding to the amenities of the property. Surprises can be expensive. Lastly you may want to consider a liability policy that would provide you additional protection. A million dollar policy will cost a few hundred dollars.

I would be remiss if I did not advise you to seek the advice of an accountant or also seek the appropriate legal advice before you begin to amass your fortune. There is no substitute for having a team of professionals on your side.