Tom Kelly: Buying basics to think about when you are homebound

If you have taken some time during your sheltering at home to dream about a possible real estate investment, try to target how it will be used. Whether you are personally enjoying the use of the property or are looking to derive income from its ownership, where you buy will go far in determining how well you can realize your goals.

The importance of the factors determining the choice of location will differ depending on your plans for the property. For example, when considering a temporary property for investment, perhaps a remodel-flip, it’s usually better to emphasize locations close to your primary residence. You are more familiar with the qualities of the area, and you can easily look in on your property even if you use a professional to manage it for you.

For vacation homes, the convenience of the property to the type of activities or environment you most enjoy will be very important, even if being in that location requires travel of several hours. For potential retirement homes, the need for consistent social and medical services often becomes critical, as does the proximity of transportation centers that will allow family and friends to come for a visit or in an emergency.

There are two aspects to selecting a community in which to invest or vacation. The first of these can be done in the relative quiet of the home or office, and that is gathering information. Here, the internet is a marvelous tool and ally, since it can provide the facts about a given community with greater detail and far less effort than would be available or required if you were to seek out the sources yourself.

The second part of selecting a community is personal inspection. While the internet can give you a very good overview of the facts about the community, there is no substitute for the personal visit. You must take the time to actually inspect the area. For investment, this means seeing the property at different hours of the day and night.

If the property is in your neighborhood, you might be able to drive by during an “essential” trip to the supermarket. For vacation property, it means spending some time in the area, which will most likely have to wait until we can travel as we wish.

Let’s look at the considerations that go into choosing a community in which to buy, either for investment or vacation purposes. These obviously overlap in some ways. A vacation home can be a source of investment if you want to rent it out when you’re not using it, or if you are looking to realize a profit when you sell it. We will differentiate between the considerations that are most important for investment property and for vacation property but will indicate which considerations are important to both. We will also look at the information gathering and personal inspection aspects and suggest how to accomplish these efficiently and economically.

This week we’ll look at for investment only.

A lot of real estate investment advice, particularly the type you see on television, makes it look so easy. If it were, there would be no profit available since everyone would do it. But with careful observation and decision-making, it can be done successfully. The primary motivations for buying investment property are income and appreciation.

There are three basic types of investment homes: single-family detached houses, condominiums and multifamily buildings. Multifamily buildings can either be market rate rentals, where the processes of supply and demand will determine prices, and government- assisted housing, where rent levels and income eligibility levels are preset by federal, state or local government.

Each of these types carries with it its own challenges and financial arrangements, and each will appeal to different markets. As a general rule, multifamily buildings, either market rate or government-assisted, will have a more continuous rental history than the other types. However, these are lumpy investments requiring substantial capital and large maintenance budgets. It’s usually better for the small investor who is attracted to this property type to become part of an investment group, either private or through a publicly traded real estate investment trust.

Single-family rentals are generally easier to manage, both financially and physically, for the small investor. They can be acquired with a relatively low capital investment, record-keeping is simple and the tax-reporting requirements are as simple as those for regular income. Physical upkeep is simple (and virtually identical) for anyone who owns a principal residence, whether he does it himself or hires professionals.

Condominiums represent sort of a middle ground. Acquisition costs are similar to those of the single-family house, but the additional condominium fees are analogous to the higher maintenance costs of multifamily buildings. Condominiums, however, are more flexible investments than either of the other two. You can buy a condominium as either a full-year home investment or as a vacation-season investment. In the latter case, it can serve as a dual-purpose property if you choose to spend several weeks a year in it as a vacation home.