(Photo: Dennis Skley)
Let’s face it. If you aren’t already closing on an investment property this year, you may be wondering “where are the deals?” It’s one of the myths we debunked in a previous blog post. The myth goes “there aren’t any deals out there, I missed the recovery.” If you are feeling hopeless about finding a deal, you may need help knowing what to look for and where to focus your efforts.
If you’re the average real estate investor out there, you probably work a day job and have one or two rental properties on the side. You manage them yourself unless you’ve discovered the benefits of a property manager and most likely have a home of your own to maintain as well. Long story short, you need to save time…and you need to find the best deals quickly.
Single Family Rentals
The single family rental market is your best bet this year. A USA Today article in mid-2014 stated that “post recession, single-family home rentals are hot”. A Wall Street Journal headline discussed “new ways to profit from renting out single-family homes.” The mainstream market is certainly starting to pay attention. According to a report put together by the Joint Center for Housing Studies of Harvard University, “from 31 percent in 2004, renter share of all US households climbed to 35 percent in 2012, bringing the total number to 43 million by early 2013.”
One also needs to think about the attractiveness of single family homes vs. condos or townhomes. The absence of Homeowner’s Association Dues and by-laws make single family homes an attractive alternative. Condos and townhomes are typically cheaper and newer than a lot of single family homes on the market, but the purpose of your real estate investment is control. Having a third party (i.e. the HOA) governing how you use your investment, without a reason to care about the success of that investment, may not be a scenario you want to be involved with.
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With a single family home as a rental, you have full control over the investment. You won’t have a third party like an HOA to help pay for a new roof or building improvements, but save the money that usually goes to HOA dues and create your own disaster recovery plan. Solid homeowner’s insurance can also help protect you from major damages and issues at the home. An umbrella policy can cover multiple properties at once.
Residental real estate is truly an increasing trend that would-be investors may want to take notice of. With a low entry point and affordable money due to low interest rates, you typically only need 15-20% of the value of a property to get started, and there are many real estate deals under $100K. Just make sure your calculations are sound in order to take the guesswork out of your real estate deals and back up your future investment with hard numbers.
Private Money Lending
More and more sites are coming on-board with lending and borrowing options for real estate investors, especially after the housing market has been recovering. One site I ran into, called GroundFloor, connects you (as a private lender) with property investors who have been presumably vetted and screened by the company. These borrowers have usually tapped out their ability to borrow any more cash from the banks and need some secondary loans. If this is the sort of thing you are interested in, you could look at lending through a site like GroundFloor to hold you over until your own great real estate deals take flight. Other similar sites are iFunding and Patch of Land.
The Flipside: Private Money Borrowing
Just as opportunities are abound for lending money, if you are having an opposite problem with cash, i.e., you have none to invest, you can be the cash receiver instead of the lender. The average real estate investor has nearly unlimited funding through private money. The fact that you can easily lend money should clue you in to the equally important idea that you can easily receive this money as well. The interest rate is worse than the banks, but if you buy a property below market value with a good rental cash flow (i.e. 8% or higher), you can lock down an investment property now and reap all of the benefits of “IDEAL Investing”. A word of caution: be very careful with borrowing and be sure you don’t over extend yourself. Building a house of cards with real estate debt is not the goal here. Use caution in borrowing and ensure you back each property up with enough cash to cover 6-12 months of vacancy.
Hopefully some of these ideas will help you plan out your yearly investment strategy and open your eyes to the feasibility of real estate investing. We feel big wins are underway in just about every year. There are plenty of real estate deals in your area. Running the proper numbers, being open minded to different investment opportunities in your area, and keeping a close eye on your local economy and market will make your best year yet!