RENTALS CATCH ON AS INVESTMENTBUYING SO-CALLED 'INCOME PROPERTY' POPULAR AS WAY TO START BUILDING PERSONAL WEALTH THROUGH REAL ESTATE

It may take some fancy footwork to get started, but buying rental property

continues to be one of the best ways to accumulate personal wealth, according

to area real estate brokers.

The inventory of duplexes in Sonoma County remains low. Triplexes and

fourplexes also are hard to find. But there are many condos and single-family

residences available for $350,000 or less, and they make excellent income

property.

''I don't mind being a landlord,'' said Sheila Giovan, a real estate agent

with Frank Howard Allen. ''When you choose tenants carefully, being a landlord

isn't that much work.''

Giovan said she is seeing investors flee from the stock market to invest in

real estate because the returns are more dependable.

''In one month,'' she said, ''I lost $40,000 in one account in the stock

market. Other people have lost more. It's depressing. But it's a good reason

to invest in real estate.''

There are pitfalls in real estate investing, financial planners cautioned.

Landlords need to invest time overseeing their property. They don't have

instant access to their money. Property values can fall, as they did in Sonoma

County between 1992 and 1997. Rents can fall and vacancy rates can rise, as

they have in Sonoma County this year. And investors need to study the market

carefully, to be sure the rents they hope to charge are realistic. For

example, the typical three-bedroom single family home in Santa Rosa currently

rents for $1,400 to $1,700 a month, property managers said.

Giovan owns seven rentals in Sonoma County and is the listing agent for a

number of similar income properties. She said she has income-property clients

who have earned $500,000 or more per year by investing in real estate.

One such client is Tom Glenn, who started buying income property in 1978.

He owns seven rental properties in Sonoma County and is in the process of

buying more in Redding.

''My first income property was a 16-unit building in Guerneville,'' Glenn

said. ''I bought it with a friend of mine.''

His experience with that property taught him that pre-purchase inspections

are very important. That property was in a flood zone and needed a great deal

of work.

''I immediately realized I was in over my head and I sold it as fast as I

could. I made a profit, though. Now I sometimes have a general contractor go

through a property before I buy it so he can give me an idea of what to

expect,'' Glenn said.

The secret to income property, according to experts, is knowing when to buy

and when to sell. Glenn said he watches the housing market and, when values

start to escalate, he buys income property. Income property is any property

that produces an income for the owner, usually through rents, rather than

being the owner's principal residence.

''There's a lag time between the increase in real estate values in the

general housing market and increases in values of income property,'' Glenn

said. ''If you can buy during that lag period, you can turn your investment

around faster.''

Now is a good time to buy, he said, but Sonoma County has very little

inventory that enters the market as income property.

''I just bought a home in Rincon Valley,'' Giovan said. ''It was $500,000,

but it has a granny unit I can rent out for $1,100 per month. In essence, that

rent money will service at least $100,000 of the debt on the property.''

There are more people who can afford this type of property than can afford

to buy apartment complexes of 16 or more units, real estate agents agree.

''A house selling for $435,000 might rent for $2,500 per month,'' Giovan

said. ''You could put down about $100,000, and you could pull that out of the

equity on your own residence. If you had an adjustable rate mortgage, you'd

have a loan of $335,000 that would be serviced by the rent payments.''

As the property increased in value, she said, a prudent investor might pull

out some of the equity to invest in yet another rental.

''It's hard for people to do this for the first time,'' she said. ''But

once they've done it, they want to keep doing it.''

For singles or young couples without children, one of the best ways to get

started in building personal wealth through income property is to buy a

duplex, live in one unit and rent out the other. A home with a granny unit or

over-the-garage apartment would accomplish the same thing.

''I like to buy new properties,'' Giovan said, ''because they increase in

value faster and have fewer maintenance and repair problems. The $300,000 to

$400,000 range is best because they appreciate the fastest. Homes costing more

than that have a slower rate of appreciation.''

Giovan said she has experienced appreciated value of $150,000 or more in

less than four years when buying newly constructed homes. Building equity at

that rate makes it easier to continue investing in income property.

Glenn said he likes duplexes and multiple-unit properties. He owns a pair

of ''twin'' houses separated by a carport on Santa Rosa's Morgan Street.

Purchased in 1986 and constantly occupied, the property so far has provided

sufficient income for him to invest in a duplex and a fourplex in Ukiah.

Giovan and Glenn have some advice for those planning on becoming landlords:

* Don't buy properties in run-down neighborhoods.

* Don't improve a property beyond the market value of neighboring

properties.

* Do buy newly constructed homes when possible, especially those priced

below $400,000.

* Plan to hold the property at least five to seven years before selling.

* Screen tenants carefully and check all references.

* Go to the prospective tenants' existing residence to see how they take

care of the property where they have been living.

* Look at the cars of potential tenants to see how they care for their

property.

* Consider hiring a gardener to maintain the exterior landscape, and add

that cost to the rent.

* Require an additional deposit for those who have pets or don't accept

such tenants.

You can reach Staff Writer Sheri Graves at 527-9078 or

sgraves@pressdemocrat.com.