---

The stock market is volatile. Bonds and CD’s are producing paltry yields. You’ve got some money to invest for the long-term and it’s burning a hole in your pocket. Maybe you’re thinking about investing in real estate given the recent weakness in the housing market. Before you do, here is a quick primer on investment real estate.

There are four types of investors out there; investors who buy property to rent out (a.k.a. landlords), those who buy a property to rehab and re-sell (a.k.a. “flippers”), speculators who buy raw land hoping for long-term appreciation, and “wholesalers” who look for distressed properties to sell to rehabbers. While all of these approaches has the propensity to generate attractive returns if done correctly, the strong rental market has made becoming a landlord far more attractive from a long-term investment standpoint. Most investors who start out as a wholesaler or flipper eventually find their way to owning at least a few rental properties. As a landlord owning a single- or multi-family home, you have the opportunity to make money three ways: through the positive cash flow difference between the rent you charge and your monthly mortgage payment, long-term appreciation of the home itself, and the beneficial tax treatment of rental real estate.

Financing an investment property is not as easy as it once was, but for well-qualified applicants, today’s low rates make it very worthwhile. Investors looking to purchase rental property should plan to have at least a 20% down payment and show a credit score of at least 700. There are a few programs that are particularly attractive including the HomePath program sponsored by Fannie Mae. This program is offered on foreclosed Fannie Mae properties and will allow an investor to buy a property with as little at 10% down and slightly lower credit scores, typically around 660. A further advantage is the waiver of private mortgage insurance, which can save the investor thousands of dollars over the life of the loan. For a list of eligible properties, visit www.HomePath.com. You will also need to find an approved HomePath lender.

Multi-family properties such as a duplex or fourplex can be extremely attractive because they often generate very attractive cash flows. However, affordably priced multi-family residential properties tend to be more difficult to find and are always in high demand. Anything above a four unit property cannot be financed using traditional residential mortgage financing and becomes the purview of commercial lending, often requiring even larger down payments and structured as balloon notes. The novice investor is best served starting with a few residential properties before venturing out into the complex world of commercial real estate.

As with any investment, real estate requires doing your homework. You should investigate sales trends, rental rates and inventory, schools, crime, tax rates, insurance coverage and rates, maintenance and repair costs, demand for the type of home you are considering, and the neighborhood. As the old adage goes, the three most important things in real estate are location, location, and location.