Real Estate for Beginners

Experts say investors of all levels can enter the local housing market and make a profit.



Everybody knows that most musicians, especially those working in New Orleans, need a day gig. And while having the time and freedom to follow their muse is the objective of many artists, paying the bills, providing for family and working toward economic security are realities that don't always mesh with a musician's pay.

That's where real estate investment can literally change one's fortunes, as is the case with one local musician in a popular local band. "Miles" (he requested anonymity, but his story is typical of many small-time investors) essentially taught himself through experience how to make money by investing in real estate on a scale that is possible for many working people. Real estate, as a mentor once told Miles, "is the easiest way for Joe Blow, instead of being a lifelong wage slave and retiring with no money, can secure a steady stream of income without punching a clock every day."

Sage advice, considering Miles had no plans to enter real estate when he moved to New Orleans more than a decade ago. At that time, he mainly wanted to pursue music. "It was conceivable that I could pursue what I wanted and still make a living for myself," he says. "I could afford to get my foot in the door."

New Orleans, especially historic areas of the city, have seen huge jumps in property values in recent years, yet it's still an ideal place to chase artistic dreams while forging a viable income through real estate. "You can make it happen for yourself," Miles says. "New Orleans still has some opportunities. Homeownership is a lot more obtainable than most people realize, basically because banks want to lend you money. You just have to understand how the financing works."

Miles admits he had no clue as to how such financing worked when he first came to town; in fact, he didn't even own a credit card. But his rent was cheap enough to allow him to save enough money for a down payment. He realized that whether you rent or own, you're paying for the mortgage -- the difference being that if you own the place, it's your mortgage you're paying for, instead of the landlord's. Thus inspired, Miles and his wife sought to buy a house. "We didn't even know what we were doing," he says. "We made mistakes and still made money."

The couple's first house "was very cheap." Such deals are much harder to find in the current local market, Miles says, but "there are still some of those out there." Why are there fewer lucrative investment properties?

"Now, there are more people in the game," Miles says. "The stock market's not doing anything, so investors are saying, ŒLet's try [real estate]. It's hot right now; it's the talk of all the money magazines. For me, the appeal is that property is something tangible, and the investment tends to rise and fall based on your own management skills, not those of some account manager you've never met before."

Miles says he and his wife were "pioneers" in their neighborhood, meaning the area was rough enough to discourage investment. Plus, their house was undervalued by the bank that owned the property. The house required no major renovations, just a paint job and work that the couple could handle themselves. They lived in the house most of the time they owned it, and eventually came across their second property by accident.

There was an abandoned house on their block that hosted some sketchy activity. When the house was placed on the market, Miles and his wife inquired about buying the place, figuring "we could fix it up and do something to improve the neighborhood."

The house was already under contract, but their Realtor led them to another property, described by their agent as "same price, same size, but in a much better neighborhood," Miles recalls. After doing some renovation work, Miles had a rental property with a steady source of income. A second career in real estate was begun.

Miles now stays active as an investor, regularly attending the monthly meetings of the New Orleans Real Estate Investment Association. He calls the atmosphere surrounding the meetings and its attendees "exciting," with the talk centered around the dealings in local real estate. Miles, along with most club members, whom he describes as coming "from all walks of life," educate themselves through discussion, books and Web sites.

However, one club member taught Miles a rule of thumb regarding real estate that has especially stuck with him: "In real estate, the deal of a lifetime comes around once a week."

The general consensus among local Realtors is that such a guideline is true, as they recount stories of helping investors of all levels enter the real estate market and make solid, regular profits.

"A lot of people are looking at investing in real estate rather than the stock market," says Eve Wolfe, a Realtor with RE/MAX Real Estate Partners. "People are investing in real estate, both singles and doubles, even if they're not making money every month, because it's a way of investing in their retirement."

Wolfe explains that any property over a four-plex is classified by mortgage regulations as a commercial property, making that size the ceiling in units for most non-professional investors. Wolfe says she always advises her clients to consult an attorney, and says many choose to form an LLC rather than place their own name on the deed, because that way the LLC -- and not the client personally -- is liable for injury, lawsuits and failure to make payments. Investments are often tax write-offs for investors -- interest, tax and insurance payments can become deductions.

The financial details vary from person to person. Yet Wolfe generally advises being proactive when securing property. "Sometimes people over-think things and miss out on great investment. Then five years down the line, they're saying, ŒI coulda, shoulda, woulda.'"

Wolfe says that many clients are not necessarily looking to clear a big profit every month. Rather, they simply want to let the rent payments cover the note and thus hold onto the property. This way, they can borrow for future investments based on the equity built up in what they already own. She recalls one client who eight years ago bought a four-plex and used that money to buy first a double and then a single. Now, he holds them all as rental properties. "He's got a great income coming in, and with relatively little investment and no work," Wolfe says.

Wolfe says that many areas of metro New Orleans are hot right now, from Arabi to Uptown. She advises that potential investors "cannot be informed enough." There are many strategies to employ, whether you're looking for large rates of return right now with a rental income that far surpasses your note, or holding onto a property that yields a minimal return each month with the goal of owning it 10, 20 or 30 years from now when the value will assuredly be much higher.

Maria Conceicao, a Realtor in Latter & Blum's Lakefront office, acknowledges that prices have risen dramatically in the last few years across metro New Orleans. Still, she says, she sees a great deal of investment opportunities. "I've worked with people that have gone away from the stock market, buying a house that's undervalued, or needs a little bit of work, and turned it around for a nice profit," she says.

Conceicao advises investing in an area that's either currently very hot in the local real estate market, where demand will allow selling prices above value, or up-and-coming areas, where the value will increase significantly in a few years. The Irish Channel was once prime for investment, though she admits most of the deals have been snapped up, as is the case with Lakeview. She says Mid-City, Algiers Point and parts of Gentilly are areas where an investor can still find a deal.

Areas that are up-and-coming -- where Conceicao says the most profit can be made through holding onto a property, renting it out for a few years to cover the note and ultimately selling it for a much higher price -- include historic areas of town such as Treme and Esplanade Ridge.

Conceicao advises putting as little money down as possible. This makes it possible to keep available money on hand for renovations, which she says often run much higher than originally estimated. "You want to have your house ready and on the market at a very good price, because you don't want it to stay on the market very long," Conceicao says. "I've seen investors buy, renovate and re-sell a place in 90 days, and a 120-day turnaround is tops." Conceicao says an investor who has "the resources, the patience" to live in a fixer-upper can enjoy a high return. But it's not necessary. "Either way, you're going to make money," she says.

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