Before investment, analyzing market, sale is important to success of deal Real estate Q&A
Before investment, analyzing market, sale is important to success of deal Real estate Q&A

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By Thomas Musil

Published: August 30, 2008

Q: I would like to ask your opinion about a real estate investment. It appears that the timing is right to buy a beach condo as an investment, assuming that the rental history is good and that the unit is in sound condition.

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We are looking at the Myrtle Beach, S.C., area. I have some rental houses in North Carolina, but don't know much about beach real estate. Are there red flags that I should look for?

A: Your real estate investment experience will help you a great deal. However, the economy and real estate markets may continue to fluctuate in a confusing pattern.

Understanding real estate fundamentals like financing, negotiation, investment analysis, taxation, property management and property inspection will be helpful, but you also need to consider other factors that may affect property values and trends.

First, look at the overall area and review economic and employment trends. Patterns in foreclosures, rental rates, seasonal rental trends and business failures will be valuable to know.

Work with a real estate agent who can supply you with property data on sold properties over the past five years and examine the sales and listing history of units in developments you are considering.

Find out as much as possible

For a specific development under consideration, talk with the property management company, try to find out the number of units in foreclosure, not rented, delinquent in association assessment or fee payments, the amount of money in the association reserve fund, or any other factors that could hurt future sales and leasing.

Will the property cash flow with a 20 to 25 percent down payment, a 6 percent mortgage interest rate on a 15- or 20-year amortization schedule? That would be my goal. The success of your investment endeavors is a function of rigorous market analysis.

Thomas Musil is the director of the Shenehon Center for Real Estate in the Opus College of Business at the University of St. Thomas in Minneapolis. He has more than 25 years of experience in real estate as a broker, analyst, consultant and expert witness in real estate litigation and arbitration disputes. E-mail questions to: tamusil@stthomas.edu. Please include your name, city and state.