Finding Your Niche Investment Property

Townhomes, Investment Property

Townhomes, Investment PropertyFocusing your investment property strategy on a particular clientele often translates into success in the industry. When you invest money within your niche market, you are able to outperform your competition and secure better deals as you can target your audience more efficiently and identify pain points to minimize your risks. In addition to financial incentives that come with finding a niche, because you are operating in a more focused segment, the relationship between your brand and your customers becomes stronger, which is a key component to customer retention.

The most common way to specialize in real estate investing is by property type. Some popular investment property types include single-family, duplex/triplex, condos, raw land, commercial, REITs, and large apartment buildings. Let us delve a bit deeper into each category.

Single-Family

A single-family is an independent residential unit that sits on its own land. One of the benefits of this investment property type is that supply is plentiful, and market is vibrant as the vast majority of Americans would prefer to live in a detached, single-family home. From a landlord’s standpoint, it is worth noting that maintenance and repair costs are typically higher than, say, a condo.

Duplex/Triplex

Duplexes and triplexes are similar to houses in that they occupy their own land. But like apartment buildings, these investment properties generate higher rental income with lower relative expenses. Another great benefit is access to an array of lending products with favorable terms. If you are buying a multi-family investment property, you can qualify for a FHA loan, which allows for lower interest rate and down payment as low as 3.5%. Additionally, these loans are typically more forgiving when it comes to credit scores.

Condo

Condos are individually owned units that are part of a multi-unit complex. The allure of this type of investment property lies in more affordable purchase prices and fewer repair and maintenance expenses. Monthly HOA fees, however, can eat into your profits so it is important to budget for these when deciding to buy a condo. Furthermore, if your goal is the appreciation potential, keep in mind that single-family homes tend to appreciate more than condos.

Raw Land

Raw land is an investment property in its most natural state, with no improvements or infrastructure. While the niche for raw land is smaller, there are a number of considerations that need to be addressed when purchasing raw land. Make sure you have a plan for the intended use of the parcel, whether it is building a home, farming, running livestock, or diversifying your portfolio.

Commercial

A commercial investment property includes but is not limited to office buildings, retail space for lease, and warehouses. Because commercial properties come in all shapes and forms and serve various purposes, it is essential to do your due diligence about the subniches within this niche. Unlike residential loans, the terms of commercial loans typically range from 5 to 20 years.

REIT

A real estate investment trust (REIT) is a publicly traded entity that owns, operates, or finances income-generating real estate. REITs generate steady income stream for investors but offer little in the way of capital appreciation.

Large Apartment Building

Apartment buildings are defined as those containing 100 or more units. With more residences for rent, you have more economy of scale and are able to spread costs over multiple income streams, thereby reducing your risk exposure. The price points, however, are higher and oftentimes require a combination of commercial loans and higher down payments.

Are you looking to invest in a specific niche? RLG has the tools and resources at its disposal to get you on your way to purchasing the right investment property for you. Call us today to learn more and experience firsthand the dedicated, personalized customer service, and undivided attention that RLG has to offer!

The Effects of COVID-10 on Single-Family Rentals

House for rent, single-family rentals, investment property

House for rent, single-family rentals, investment propertyThe COVID-19 pandemic has affected most every aspect of our lives. Many Americans have been teleworking and all of us have been advised to keep physical distance from others due to the incredibly transmissible virus. As a result, many folks have been giving second thought to the kind of lifestyle they want. In a switch, Americans are gravitating away from large, densely populated cities in search of more space.

While the apartment rental market has remained active throughout the pandemic, the industry has noted an uptick in renters deciding not to renew their leases in favor of houses and apartments with lower rent. Rental prices in larger, more expensive cities have decreased as renters have moved to the suburbs, which has driven rental prices up there.

We have all watched the news reports of Americans migrating from larger cities like New York, Chicago, and San Francisco to less populated areas. Some report as many as 30% of Americans have begun to consider following this trend. As the pandemic continues, many corporations are rethinking the steep overhead of office space and are getting used to the reality that telecommuting has terrific advantages. This makes it easier for people to work further from city centers and company headquarters. And many renters and other city dwellers are hunting for space and a home where they can be more socially distant. Herein lies great potential for the astute investor.

Single family homes outside of major cities present strong opportunities for investors looking for return on investment. Demand for single family rental properties across the country, especially in the suburbs, is growing sharply. Renters and buyers alike seek privacy and space like never before making single-family homes an incredibly smart investment now. And the demand for single-family homes appears poised to continue growing as folks who held off on purchases during the last eight months return to the market. Erstwhile urban-loving millennials, in particular, might be a smart focus for investors as they may be most likely to seek a rental single-family dwelling.

Call RLG today to continue this discussion and to learn how our financial experts can help grow your business.

Fix and Flip: Estimating Rehab Costs and Profit

fix-and-flip loan

fix-and-flip loanSavvy investors focused on fix-and-flip properties know that estimating rehab costs is perhaps the most critical and challenging part of the deal. If your estimate to fix-and-flip the property is too high, you will likely lose the deal to another investor. If you underestimate, your potential profit will adversely be affected.

The better you assess rehab costs, the more successful you will be. Let us look at some key aspects to consider as you estimate rehab costs that will help ensure a strong ROI:

  • Know your buyer and neighborhood: Study the comparables – recently sold properties in the neighborhood similar to the property you are interested in – so you have a clear idea for how much you should be able to sell the house. If the property is in an upmarket neighborhood, potential buyers will want higher end rehabs. If it is in a med-low income neighborhood, you will need to spend less on the total project.
  • Spend time in the property and note problems: With an idea of how you want the property to look post flip, have a checklist in hand as you walk through the home. Take notes of all issues or problems with the home that you will want to address. If you need help, take your contractor with you. Taking photos and videos is also a great tip.
  • Begin your estimate: Sort your check list into categories (Exterior, Foundation, Interior, etc) and include other line items such as contractors. Either from experience, with the aid of a contractor, or by searching the web, assign costs to the items in each category so you come up with total costs for each category. Now you know your estimated rehab cost.

It is important to never lose sight of your after-repair value (ARV), the value of the home post fix. Your ARV will not only help you determine your rehab budget, but also how much you are willing to pay initially for the property. Most experts agree that to profit from the project, you should bid no more than 70% of the price for which you believe you can sell the property. But remember to factor in what it will cost you to fix up the property.

There is no doubt there is much money to be made in the fix-and-flip market. And lots of factors will determine whether or not you are successful. Contact the RLG team today to schedule some time to discuss how RLG’s vast experience in the sector can help guide you to success.

Buying A Turnkey Investment Property

house key in door, turnkey investment property

house key in door, turnkey investment propertyIt is called turnkey investment property because all you must do is unlock the door. A turnkey property is one that is fully renovated and ready to rent. There are generally no fixes or repairs to be made. Once your renter signs the contract, they can move in straight away. Let us take a look at some of the pros and cons of investing in turnkey property.

Pros of turnkey properties

  • The property requires no or minimal repairs and is ready to rent.
  • There should not be significant repair costs during the first years as the property has been recently renovated, translating to good cash flow prospect.
  • The turnkey concept provides the opportunity to easily and quickly invest in areas or states far from you.
  • Can help you diversify your real estate properties and weather economic ups and downs by buying properties in different markets.
  • For investors who are incredibly busy, turnkey properties can save you time. There is no months-long rehab. Your property is ready to generate income.

Cons of turnkey properties

  • It can be hard to find good deals that will maximize your cap rate. Someone has already rehabbed the property and seeks to capitalize on their investment.
  • Either you or a management company will have to manage the property.
  • Unlike flipping houses, you need to evaluate the long-term economic health of the local market since you are making a long-term investment.
  • Turnkey properties can come already rented. Check to ensure they have been properly vetted.
  • Many investors work with turnkey companies who handle many of the details. Make sure you trust them. A lot could go wrong.

Turnkey real estate investing is not for everyone. There are inherent risks, including working with a turnkey company. But there is also a lot to gain. If all turns out splendidly, you could be poised to make solid passive income without doing too much work.

If you are interested in turnkey investing, be sure to research thoroughly. And that begins by contacting the experts at RLG. We stand ready to help you grow your investment portfolio.

Purchasing A Home or Investment Property Through Financing vs. All Cash

Cash, Investment Lending, Investment Property

Cash, Investment Lending, Investment PropertyWhen purchasing a home or investment property most homebuyers provide a down payment and rely on financing for the rest. But did you know that some 20% of home purchases in the United States are made with cash? Some finance gurus even urge folks to avoid debt as much as possible. So, it may be logical to think that, if your coffers allow, paying cash for a home or putting down as much as you can is the sound approach. But there is a lot to consider before deciding to finance a home or paying cash. Let us take a look at the pros and cons of buying a home or investment property with cash versus mortgage.

CASH

Pros of buying a house or investment property with cash:

  • No interest – the cost of interest on a 30-year loan can be many thousands of dollars.
  • No closing costs – you will avoid loan origination fees, appraisal fees, and other fees.
  • More attractive to sellers – private sellers may be keener to accept cash offers over financed offers as they do not have to worry about buyers backing out due to financing issues.
  • Faster closing – by skipping the mortgage process, closings are generally much faster.
  • It’s your home – You will own the home outright, which will make it easier to sell.

Cons of buying a house or investment property with cash:

  • Loss of liquidity – Tying up a lot of money in a house can be risky. Cash tied in real estate is not easily accessed in case of financial misfortunes.
  • Loss of leverage – Most people eschew debt or work to pay it off quickly. However, being leveraged in real estate presents an upside to debt. If your mortgage is locked in and you have a low interest rate, you may make money having a mortgage due to the effects of inflation. Paying cash would give up that leverage.
  • Cheap financing – Mortgages are typically the cheapest source of financing.
  • ROI – You may miss out on other investments that could yield high return.

FINANCING

Pros of buying a house or investment property with a mortgage:

  • Affordability – Spreading payments over many years translates to manageable payments.
  • Flexibility – Tying up less of your money in the house purchase, you can put more money into a reserve account or invest it elsewhere.
  • Low rates – Mortgage rates are low compared to other types of loans.
  • Tax Benefits – You can deduct mortgage interest.

Cons of buying a house or investment property with a mortgage:

  • Interest – The total you pay back is much more than the cost of the home.
  • Process – You must qualify for a mortgage and the mortgage process can be lengthy.
  • PMI – If you put less than 20% down, you will have to pay a mortgage insurance premium, which increases your monthly payment.
  • Debt – A mortgage is the highest form of debt most folks will ever have.

This is just a broad overview of the pros and cons between using cash to buy a home or investment property versus working with a lender to secure financing. The best place to start is by running the numbers. Contact the professionals at RLG today who are ready to work with you to see what best fits your needs in home and investment property purchasing.

Credit Requirements for Investment Property Loans

There is no easy answer as to what credit score you need for a residential or commercial investment property loan as credit requirements can differ greatly among lenders and are based on numerous factors. Let us look at credit requirements for a conventional mortgage for an investment property.

You will need a credit score of at least 720 to obtain a conventional investment property loan from a private lender. However, this requirement is flexible depending on other factors, such as your debt-to-income ratio and credit history. Interest rates will run 1-3% higher than those of traditional home loans. You can expect to be required to make a down payment of at least 20% on a conventional mortgage for investment property. The loan-to-value ratio will need to be 80% or less and you may need as many as six months liquid cash reserves.

Call your mortgage professionals at RLG today and we will be happy to discuss in more detail how to set you up with an investment property loan that will fit your growth needs.

What is the 1% Rule for an Investment Property?

The 1% rule is predicated on the idea that for an investment property to generate positive cash flow, the monthly rent earned from it must be greater than or equal to 1% of the total purchase price. The end goal is to ensure that the monthly mortgage payments never exceeds the rent. For instance, assume you purchased an investment property for $250,000. Using the 1% rule, we can determine that your monthly mortgage payments should be less than $2,500 and your rental income equal to or higher than $2,500.

In addition, the 1% rule can be a helpful tool when used in reverse to calculate a maximum purchase price for a rental property. The formula is given as follows:

100 x Monthly Rent = Maximum Purchase Price

Suppose you are an investor looking to buy a condo listed at $200,000. To cover upfront repair costs, you would factor in an estimated $20,000, for a total of $220,000. If you know that comparable properties in the neighborhood rent for $2,000, you can quickly deduce it is not in your best interest to pay more than $180,000 for it. This is particularly useful as you put together an offer on the property or negotiate contingencies to include in your offer.

While this rule serves a baseline for most real estate investors, it is only one step of several in determining whether a property is a good investment or not. A high cap rate is another popular metric to gauge your returns on a rental property. Other points to consider in your decision-making process may include the local market, forecasted price appreciate, and projected rent growth, to name a few.

A property that does not quite meet the 1% rule could still be a lucrative long-term investment based on appreciation if your goal is to build equity over time. An attractive commuting distance, easy access to or ongoing expansion of transportation systems and hubs, as well as steep demographic growth all suggest a desirable area that can be worth investing in.

Do you have more questions about rental homes? Are you ready to invest in real estate and build wealth?  RLG has the tools and resources at its disposal to get you on your way. Call us today to learn more and experience firsthand the dedicated, personalized customer service and undivided attention that RLG has to offer!

Fix-and-Flip Loans

Fix-and-Flip Loans

fix-and-flip loanFlipping property is all the rage with both individual and institutional investors. Turn on any home or DIY network or browse social media platforms and you will undoubtedly find thousands of folks showcasing their home flips. In order to carry out these flips, many of them take advantage of fix-and-flip loans, which are residential loans used by short-term real estate investors to purchase and renovate a property before flipping it for a profit. These loans bridge the gap between the investor’s capital and the property’s purchase price and renovation costs. These loans are generally repaid with proceeds from the final property sale.

In many cases, the investor purchases the property through a foreclosure or bank short sale or even at auction. The buyer will then decide what type of renovation project to undertake. The most common projects include:

  • Purchase: Buy the home, make minor renovations, and return it to market
  • Renovate: Buy the home, make updates, such as painting inside and out, a new master bath, new carpet, or new appliances, before returning it to market
  • Build: Buy the home, completely replace it with new construction, and return it to market

Let us take a brief look at the two most popular types of fix-and-flip loans:

  1. Hard Money Loan – A short term privately funded loan secured solely by the real estate asset’s value that investors use to purchase and renovate a property.
  2. Bridge Loan – A temporary loan used to cover the time between two real estate transactions, allowing investors to purchase their next flip property without having a contingency to sell the other property first.

There are other financing options for investors looking to fix and flip homes. Some of them include fix-and-flip cash-out refinance, equity line of credit, and investment property line of credit. Speak with your mortgage professional to find out what is best for your endeavors.

And finally, it bears mentioning the 70 Rule – or 70% Rule. When determining the most you should consider paying for a property, the 70% Rule dictates that you should pay no more than 70% of the property’s after repair value minus repair costs.

If you are interested in a Fix-and-Flip loan or would like more information about how to jumpstart your property investment business, contact the professionals at RLG today.