There are three types of buyers in market.

What should you think about before you buy real estate? The market is right for the purchase, but how does one choose real estate as an investment?

Three types of buyers will be addressed:
--- The buyer who is purchasing a "dream home" to live in forever.
--- The buyer who is purchasing a home to live in for two to four years.
--- The investor looking to rent the property and hold for a long term.

Long-term
For the long-term purchase of your dream home, look at the old adage -- location, location, location. But what else is necessary? One becomes emotional about the purchase of a home that he or she will live in for a long period of time.

If you are quite certain that this is a long-term purchase, then go with what you like in location, floor plan and amenities. The price will be right if you have your agent pull the last sales and comparable listings in the neighborhood, and you negotiate with this information at hand.

It is hard to go wrong in a buyer's market if you are going to stay in this home for many years.
For those in professions such as teachers, firefighters and police officers, there are wonderful programs offering 100 percent financing with excellent low-interest rates.

Shorter-term

There are some proven formulas for guidance for those buyers who will be living in their home for only two to four years. This buyer must look carefully at the home purchase to safeguard the investment, knowing that resale is a possibility within the next few years. This buyer needs to compromise the emotion for the practical aspect of an investment purchase.

There is the ratio of land to building. This sounds more difficult than it is, but the ratio of land to building on a typical home should be 25 percent land to 75 percent improvements. This does not hold for waterfront or more valuable property. A 50 percent/50 percent ratio is used in this category.

The rationale for this ratio of 25 percent land to 75 percent improvements is the fact that land typically does not depreciate over time, but improvements do depreciate (they age). If you are buying the most expensive home in a neighborhood, when you go to sell, it will be more difficult, and you may not have made a wise investment, unless your purchase was a great deal. Stay with the idea of purchasing the least expensive home in the most expensive neighborhood that you can comfortably afford. Most likely, your ratio of land to value will be within the 25 percent to 75 percent range.

If you are building a new home, it is easy to follow this formula: If your lot price is $100,000, then your improvements should not go more than $300,000, for a total package price of $400,000. If you "overimprove," it is more difficult to protect your investment if you must sell your home.

Many new subdivisions host the premium builders to feature their spectacular home. This is the time to purchase those spec homes, as the price probably has dropped more to the 25 percent to 75 percent ratio, even though the home costs more than 75 percent of the land cost to build.
In essence, when you purchase these homes at today's prices, you might very well be getting all of the extra custom features for no cost or minimal costs.

Check the popular number of bedrooms. For instance a four-bedroom pool home usually is the hottest seller on the market in most areas.

Stay clear of "locational objections," such as backing up to busy streets or having commercial property abutting your investment.

Make this purchase a clear, popular, calculated choice.

Investment rentals

Investment rental property is another challenge. I used to consider putting aside three times the payment on a rental property for vacancy when the property is not rented. Now, I direct an investor to hold three times the payment for repairs/assessments and six times the payment for possible vacancy -- a total of nine months' carrying costs for this property.

The market is a tenant's market also. Many past investors could not sell their properties, so they have rented them, thus flooding the rental market. This market is soft -- that is, still a buyer's market -- but changing slightly as each month passes.

Be conservative in selecting an investment. Seek information on future taxes and assessments, and project maximum insurance costs. If the negative cash flow shows a promise for future market appreciation, and you, as an investor, are here for the five years' or longer stay, then go for it. The time is right.

Many of the negative features -- such as the negative cash flow, high insurance and taxes -- are forecasted to be reduced in the years to come, but do not count on it. Play this in a conservative manner, and you most likely will profit.

Second-home markets are ripe for purchases. Condominiums are still, in most cases, in abundance, so begin your study of the real estate market now, and do not wait too long to purchase. Interest rates are low, and the values are incredible at this time.