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Where to Buy Chicago Investment Properties in 2022?

November 23, 2022 by Marco Santarelli

chicago real estate investing

Looking to invest in the Chicago real estate market? If you're wondering where should you buy Chicago investment properties, you'll find all the answers here, in one place. Chicago is one of the major cities in the U.S., where you can find affordable investment properties for sale. However, not every neighborhood in Chicago is desirable for residents, and many desirable neighborhoods are a poor choice for real estate investment.

On this page, you’ll learn about some of the best neighborhoods for buying Chicago investment properties. The average property in Chicago costs just over 345,000 dollars. According to Redfin, a real estate brokerage, the Chicago housing market is somewhat competitive. The average homes sell for about 1% below list price and go pending in around 56 days but hot properties can sell for about 2% above list price and go pending in around 34 days.

In March 2022, Chicago home prices were up 0.7% compared to last year, selling for a median price of $345K. On average, homes in Chicago sell after 59 days on the market compared to 36 days last year. There were 3,222 homes sold in March this year, up from 3,216 last year. Chicago properties come in at around 260 dollars a square foot; this value increased roughly nine percent year over year.

The average home in New York costs nearly a million dollars, while a cheap home in Los Angeles costs half a million dollars. This makes Chicago investment properties a relative bargain. The average rent for a one-bedroom apartment is roughly a thousand dollars. Two-bedroom apartments in Chicago cost an average of 1300 dollars a month. Chicago rents have increased by 1.65% compared to last month, and are up by 11.16% compared to last year. The average rent for a Chicago 1-bedroom apartment is $2,155 while the average rent for a 2-bedroom apartment is $2,771.

As of March 2022, the median home price in the Chicago Primary Metropolitan Statistical Area is $310,000, up 5.1% from March last year. e Chicago PMSA has yet to revert to their pre-Covid levels on average. In the Chicago PMSA, the March 2020 median sale price was $260,000 (in $2020) and $290,000 (in $2022); the comparable figure for price recovery in March 2022 is 107% after adjustment (119% before adjusting). The median price forecast presented by UIC SHDRE indicates positive annual growth for April, May, and June in both Illinois and the Chicago PMSA, according to a recent report released by Illinois Realtors®.

The median price in Chicago PMSA is predicted to increase by 10.3% in April, 8.8% in May, and 8.8% in June. As a complement to the median housing price index (HPI), the SHDRE HPI forecasts a positive growth trend for the Chicago PMSA. In Chicago PMSA, the SHDRE HPI (Jan 2008=1) is forecast to change by 10.3% in April, 8.8% in May, and 8.8% in June. SHDRE (Stuart Handler Department of Real Estate) HPI takes housing characteristics into account and constructs comparable “baskets” of homes for each month.

Realtor.com also predicts a positive annual appreciation albeit slower than last year. According to them, Chicago-Naperville-Elgin, Ill.-Ind.-Wis. median price will appreciate by only 1.9% over last year (by the end of 2022).

Chicago Investment Properties For Sale

Should You Invest In Chicago Investment Properties?

Chicago is on the UBS list of the world’s richest cities. It is often rated as having the most balanced economy in the United States. For those who wish to invest in Chicago investment properties, know that there are several neighborhoods in this city that present a great opportunity to investors.

This is true whether you want to cater to families searching for starter homes, growing families, or the general rental population. Strong economic and job growth makes Chicago an ideal place for real estate investment. It is home to 12 Fortune Global 500 companies and 17 Financial Times 500 companies, having the third-largest gross metropolitan product in the United States.

Chicago has high private sector employment leading to a strong rental market, with over 50% of the population of renters. The tourism and hospitality industries have added thousands of jobs, generating billions of dollars in direct spending by visitors. Chicago’s real estate market has been one of the slowest to recover since the housing bubble burst at the start of the Great Recession.

Home prices were 19% below their pre-crash levels in 2017, and they aren’t expected to hit peak values until 2021. Chicago is the 3rd largest metro, very densely populated with an abundance of small multifamily properties. It is also one of the most affordable metros to live in the entire nation. It has an incredibly deep pool of potential renters at all levels of the market.

It's is the only metro in the country where typical renters spend less than 20% of their annual income on housing. Many factors guarantee that they’re not going to turn into new home buyers any time soon. Many people prefer to rent in Chicago for career and financial flexibility, to save a down payment, and to avoid repair bills, real estate taxes, and real estate market risk.

It is a prime destination for investors who would like to buy Chicago investment properties where the ROI is going to be high and likely to improve over time. In the city of Chicago, there are approx. 77 neighborhoods where you can buy investment properties. There are about 15-20 which are potentially overvalued right now, depending on who you ask and the product type.

Intrinsic values for the rest of the neighborhoods may not even be close to reaching their full potential. Taxes are reasonable (excluding Downtown Chicago neighborhoods), rents are very high and there's a high demand for Chicago rental properties.

Mortgage interest and property taxes remain tax-deductible for many Chicago home buyers. Rent, however, is generally not tax-deductible. In addition to annual tax deductions, homeowners can often make money on the sale of their homes and take profits tax-free within certain limits. The price to rent ratio is also reasonable in Chicago.

Plus, home investors can buy on a huge margin, in some cases with just 3% to 5% down. That’s a good deal that can't found in other big markets like NYC and San Franciso. We chose to ignore the short-term impact of the ongoing pandemic on the Chicago real estate market. People need places to live. Those who wanted to downsize or move into a larger property will need to move forward with their plans once life returns to normal.

This is why we think it makes sense to assess the Chicago real estate investment using pre-pandemic numbers, which should be back in effect by the end of the year. Investors can make good money in this city by building a portfolio of Chicago investment properties and renting them out to a massive population of renters.

Best Places To Buy Chicago Investment Properties

Chicago Investment Properties

With its low cost of living, relatively large housing inventory levels, and high affordability, Chicago has a large no. of renters. Therefore, buying investment properties in Chicago, and renting them out is an excellent choice for real estate investors. Here are the top neighborhoods in Chicago where you can buy investment properties.

1. Chicago's Rogers Park Neighborhood

You can find Chicago investment properties in Rogers Park. Rogers Park is an older neighborhood in Chicago which is dominated by pre-WW2 single-family homes and small multi-family apartment buildings. It is an affordable, walkable neighborhood. For example, the average home here costs around 220,000 dollars.

That makes it a relative bargain for those who want to invest in Chicago investment properties. While it is located 10 miles from downtown, the commute to Chicago's central business district is quick with many options. Public transportation is extensive with access to several bus and rail lines.

Rogers Park is also one of the most affordable areas in the city; that’s unusual given how close it is to the shore of Lake Michigan. Furthermore, they can gain access to many modern amenities in downtown Evanston. This is why Rogers Park's home values are increasing. The rental market is bolstered by the presence of Loyola University.

You’ll get high rental rates for Chicago investment properties near the ten beaches in the area, especially in the summer. With its extensive lakefront green space and unique street-end beaches, Rogers Park is a great place to live as well as invest in real estate.

2. Chicago's Logan Square Neighborhood

You can buy Chicago investment properties in Logan Square. Logan Square is a century-old neighborhood in downtown Chicago. It retains its tree-lined streets and classic Greystone buildings in addition to the massive Palmer Square green space. If you are looking for a good neighborhood to buy Chicago investment properties, know that the bungalows here are considered highly desirable by Millennials.

The area is gentrifying, though that’s true of the entire Northwest Side. This area has already seen decent appreciation, but it is notable for the very high rents. The average rental rate in this area is roughly two thousand dollars a month. Logan Square has been a hot neighborhood for real estate investment in Chicago for a long time.

Zillow ranked it one of the hottest real estate markets in Chicago in early 2020. The typical home now costs 500,075 dollars, up 6.5% over the past year. Studios cost 1300 to 1700 dollars a month, while two-bedroom apartments rent for 1600 to 2400 dollars. Three-bedroom apartments and homes can cost 2500 dollars a month to rent.

There are also opportunities for bargains for property buyers. For example, the higher property prices mean the average home in Logan Square sits on the market for around 100 days, and many buyers may accept a lower price tag to free them up to move or get them out from under their mortgage.

3. Chicago's Pilsen Neighborhood

You can buy Chicago investment properties in the Pilsen neighborhood. Pilsen is a great area for those who want a diverse portfolio of investment properties without having to run all over the city. Pilsen is located on Chicago’s Lower West Side. It features a mix of condos, apartment buildings, and single-family homes.

The area is suburban enough to attract families. Its schools are a C+, which is close to the Chicago average. Parks and other amenities explain why Niche.com gave the area a B- for families. For those who want to buy Chicago investment properties, the presence of the University of Illinois at Chicago is a point in its favor.

You can rent to students if you can’t find professional couples to rent a condo or apartment. Yet Pilsen seems to attract young adults who graduate from the university and move into local apartments. Others move here to work in the UIC Medical District. Another point in favor of the area is the L Pink Line’s three stops in the area, giving residents easy access to the rest of the city.

Pilsen properties can be among the most profitable Chicago real estate investments. The median rent is around 1600 dollars a month. The average property costs 300,000 dollars, a little less than the city average. You can find properties in need of rehabilitation for less than this.

Refurbish it to cater to students in search of Chicago rental properties or meet the expectations of picky Millennials, and you’ll see a significant return on the investment. If you convert a large classic home into several units, you could charge 900 to 1200 a month for a one-bedroom apartment or 1200 to 1300 dollars a month per studio apartment.

4. Chicago's Avondale Neighborhood

You can buy investment properties in Chicago's Avondale neighborhood. Avondale has started to gentrify as people get priced out of Logan Square, Wicker Park, and Bucktown. This is one of the more expensive middle-class areas to buy Chicago investment properties. The average home here costs around 400,000 dollars. However, many reports are suggesting the area will go even higher.

For example, the area is well serviced by the Blue Line ‘L' (24-hour rapid transit train service) and buses. And that’s aside from the easy access to I-90. If you don’t want to speculate in real estate, know that this family-friendly area still commands high rents, so you’ll see significant income from your investment property.

Avondale received a B from Niche.com for its family-friendliness, though the school district was rated a C. You can easily expect to see a significant appreciation of your investment property in this neighborhood. The area is in such demand that the price per square foot for Avondale homes is around 280 dollars a square foot, 40 dollars more than the average for Chicago investment properties.

This area does offer an excellent rental income. The average rent for a studio apartment is 1300 dollars a month. A two-bedroom apartment costs 1400 to 1900 dollars a month. A three-bedroom apartment or house costs up to 2000 dollars a month.

5. Chicago's Humboldt Park Neighborhood

Humboldt Park is another good neighborhood to buy investment properties in Chicago. The home prices in Humboldt Park peaked in 2006 but fell dramatically during the Great Recession. Home prices here hit a record low in 2012. Humboldt’s housing prices are on the rise again, though they remain below their 2006 peak.

The typical home value is around 379,417 dollars (ZHVI), while rents are around 1700 dollars a month. The area is notable for the number of foreclosed and distressed properties available to investors, and this helps pull the average rental rate down. This is why neighborhood rents could rise a little higher before they hit the Chicago average of 1700 to 1800 dollars a month.

Another option is breaking up a large home into several smaller units. You’d receive 1700 to 1800 dollars for a one decent bedroom apartment. A two-bedroom apartment could rent for up to 2000 dollars a month. Humboldt offers a variety of housing types for those who want to buy Chicago investment properties.

You can find single-family homes and fairly large apartment buildings. Housing is expensive enough to preclude many residents from buying. The schools rate a C+, though the area’s crime is average for the city. The area received a grade of B- from Niche.com for family friendliness. Buses connect the neighborhood to the rest of the city. The area is notable for being biker friendly.

6. Chicago's West Town Neighborhood

You can buy investment properties in Chicago's West Town neighborhood. West Town has several points in its favor for Chicago real estate investment. It has low crime by Chicago standards. It is a walkable community. It offers great amenities. West Town has a suburban feel. The schools are average for Chicago, but crime and safety are slightly better than average. Yet homes are so expensive that many would-be buyers are forced to rent.

The only downside for those considering investing in Chicago properties is the price tag. The average home here costs around half a million dollars. This may be offset by the 2400 dollar a month median rental rate. You may be able to get a discount on these potential Chicago investment properties. For example, the average home sits on the market for four or more months.

Chicago Turnkey Investment Properties For Sale

Are you looking for a turnkey investment property in Chicago? NORADA REAL ESTATE INVESTMENTS has extensive experience investing in turnkey real estate and cash-flow properties. We strive to set the standard for our industry and inspire others by raising the bar on providing exceptional real estate investment opportunities in Chicago and many other growth markets in the United States.

We can help you succeed by minimizing risk and maximizing the profitability of your investment property in Chicago. Consult with one of the investment counselors who can help build you a custom portfolio of Chicago turnkey investment properties in some of the best neighborhoods.

All you have to do is fill up this form and schedule a consultation at your convenience. We’re standing by to help you take the guesswork out of real estate investing. By researching and structuring complete Chicago turnkey real estate investments, we help you succeed by minimizing risk and maximizing profitability.

Buying or selling real estate, for a majority of investors, is one of the most important decisions they will make. Choosing a real estate professional/counselor continues to be a vital part of this process. They are well-informed about critical factors that affect your specific market areas, such as changes in market conditions, market forecasts, consumer attitudes, best locations, timing, and interest rates.


References:

  • About the Chicago real estate market
    https://www.redfin.com/city/29470/IL/Chicago/housing-market
    https://chicago.curbed.com/2020/3/9/21171723/chicago-real-estate-coronavirus-home-buying
    https://www.mashvisor.com/blog/chicago-real-estate-market-2019-neighborhoods https://www.biggerpockets.com/forums/311/topics/531073-is-investing-in-chicago-brilliant-or-ridiculousgo https://www.bestchicagoproperties.com/blog/five-reasons-to-buy-rather-than-rent-in-chicago/
  • Best Chicago Neighborhoods
    https://en.wikipedia.org/wiki/Logan_Square,_Chicago
    https://www.zillow.com/logan-square-chicago-il/home-values/
    https://www.niche.com/places-to-live/n/lower-west-side-chicago-il/
    https://www.domu.com/chicago/neighborhoods/pilsen
    https://www.zillow.com/avondale-chicago-il/home-values/
    https://www.domu.com/chicago/neighborhoods/avondale
    https://www.niche.com/places-to-live/n/humboldt-park-chicago-il/
    https://www.zillow.com/humboldt-park-chicago-il/home-values/
    https://www.domu.com/chicago/neighborhoods/humboldt-park
    https://www.zillow.com/west-town-chicago-il/home-values/
    https://www.niche.com/places-to-live/n/west-town-chicago-il/
    https://www.rentcafe.com/blog/cities/rogers-park-chicago-neighborhood-guide/
    https://chicago.curbed.com/2019/6/4/18646462/chicago-best-neighborhood-homes-buy-rent
    https://homevestorsfranchise.com/the-best-chicago-neighborhoods-for-real-estate-investing-slp/

Filed Under: Real Estate Investing, Real Estate Investments

How To Make Money In Real Estate And Get Rich In 2022?

November 23, 2022 by Marco Santarelli

There is no quick way to make money or get rich in real estate, but you can grow wealth gradually and consistently by investing correctly. You are probably aware that there are numerous ways to accumulate wealth, but real estate is one of the most effective. Having said that, making money in real estate or profitable investing requires sound guidance, methods, and determination. While investing in real estate is a proven and true method of earning money, it, like any other business, comes with inherent dangers.

If done correctly, real estate can be an excellent vehicle for wealth accumulation if you take the time to educate yourself about the process and the best strategies for maximizing profits. If you have cash (a 20% down payment), getting started in real estate investing is substantially easier. However, the reality is that many entrepreneurs – including those in real estate investing – start their firms with very little money every day. Many of them begin by dreaming big and putting in a great deal of effort.

This blog is intended for novices who are interested in learning how to earn money in real estate. Today, investors have a plethora of possibilities for investing in real estate; there is no one-size-fits-all solution. Learning how to produce income through real estate is an excellent approach to diversifying your portfolio. If you have a large sum of money, you may, for instance, purchase an undervalued real estate property, repair it, and sell it to an investor. After the work is completed, you profit from the selling of the property for a significantly higher price than you paid for it.

You can also consider buying a long-term rental property or a second home where you vacation and rent out to others when it's not in use if you'd rather leverage your investment by using a mortgage to invest in a tenant-ready property. With the right steps, you can increase your wealth, hedge against inflation, and profit from a rising market. There are so many advantages to owning real estate like leverage, appreciation, tax benefits, that just getting a “good deal” can make for a great long-term investment.

We'll show you how to make money in real estate, and avoid the most common mistakes. The most popular way is to buy an investment property and slowly build up your portfolio. Generally, there are two primary ways to make money from real estate assets — appreciation, which is an increase in property value over a period of time, and rental income collected by renting out the property to tenants. The majority of the money & wealth you build through real estate comes from appreciation but cash flow is important because it helps in reducing your risk.

Buying a rental property that loses money every month in hopes of future appreciation is a bad investment. The positive cash flow doesn't only enable you to pay off the property but it also contributes to saving for another down payment to buy your next investment property sooner. The more properties you buy, the more you can save, and the faster you can achieve your money-making goals through real estate investing.

But we shall discuss some more “well-known” ways to make money in real estate which include both active and passive investing. Remember, knowledge is the key to using real estate as a vehicle for wealth building. Smart investors always know what drives markets, how to time market cycles, and whether to invest in a local market or to invest out of state.

10 Ways To Make Money In Real Estate And Get Rich

How To Make Money In Real Estate

Adding real estate to your investment portfolio might help you diversify your portfolio of investments. We will discuss how to generate money in real estate through a variety of various methods in this article. Are you looking forward to it? When it comes to real estate, there are a variety of options for starting to build your wealth. Take the first step toward being a successful real estate investor and discover how you, too, can achieve your goals.

1. Making Money in Real Estate by Renting Out Property

This is the classic way of making money in real estate and getting rich. In this type of investment, you make money by leveraging long-term buy-and-hold residential rentals. People will always require a place to live. Lords and nobles fought over titles that let them collect rent from those living, farming, and otherwise working the land. A few entrepreneurial types drained swamps and built businesses so that they could make more from the land than they would if they merely leased it out to farmers and ranchers.

We’ve come a long way in the intervening ways, providing many options for those who want to know how to make money in real estate. You may buy land, build a home, and then rent it out. You could find distressed properties, rehabilitate them, and then rent them out. Turnkey properties were purchased by someone else who rehabilitated them before finding a tenant. Regardless of how you acquire the property, it is a buy and holds strategy.

You can own residential, commercial, and industrial real estate property. One of the biggest benefits of owning rental real estate is the steady cash flow it generates. It is the best form of owning investment real estate for earning a passive income. The downside of this approach is that you’re putting all your eggs in relatively few baskets. If there are issues with the apartment complex you own, the rental income from it suffers as people leave or the repair costs eat into your profits.

This strategy is probably the one most likely to let you generate a steady income that is large enough to live off of once you own multiple rental properties. You may be able to utilize this strategy if you cash out money from a retirement account or equity in your home. If you want to know how to get rich in real estate, understand that this is one of the most secure routes to doing so as long as you manage expenses and the properties themselves well. Dallas is a very good real estate market for buying rental properties.

Know the rules for evicting tenants and raising rental rates if you’ll be managing an apartment building. Understand the local building code, community norms for properties in the price range you’ll be buying, and cost-effective upgrades if you’ll be buying and flipping properties.

You can’t afford to lose money turning a middle-class home into the only luxury property on the block. All of this requires the money to buy the properties. We’d recommend saving up or tapping into funds you have to put down the first down payments on single-family homes or small multi-family housing units. This may come from your savings, equity in your primary residence, or a retirement account.

We’d recommend against borrowing against your 401K since the money has to be paid back within a few weeks of losing your job or else you have to pay taxes and a penalty on it. You’d almost be better off pulling money out of an IRA. You have more control over the fees and taxes you’d pay. Set aside thousands of dollars in an emergency fund to cover unplanned repair bills, surprise legal fees, and other costs you haven’t properly taken into account.

Then you don’t end up cutting into your cash flow with high-interest hard money loans to pay for the little repairs needed to legally rent out the unit or hit your credit cards to pay contractors. Buy a single property with your cash down payment, a mortgage, and your business plan. Set the goal of renting out the unit for 1 percent of its total value per month.

For example, a 100,000 dollar house should rent for around a thousand dollars a month. Then apply your strategy. Sell the fixer-upper or collect the first few months of rent from your new tenant. Rebuild your emergency fund, since you may need thousands of dollars to fix a broken water heater or hole in the roof. Save up enough money for your next renovation or down payment.

Then seek a mortgage to buy that next property and repeat the pattern. Don’t rush out to buy a bunch of properties. Debt multiplies risk, and you don’t want to end up with a million dollars of outstanding unsecured debt because you tried to manage ten rental properties without any experience as a landlord. Nor can you afford to make a mistake with a property management company. Don’t try to fix and flip several properties at once. Grow slow so that you have the margin to absorb the cost of mistakes.

This is why you should be buying one to three rental properties a year, not the ten some property investment programs recommend. Buy and flip one property at a time, no matter how long that takes, until you have the expertise or expert contractor on your team to handle several such renovations at once. Buy a small apartment building and learn how to manage it or find a good property manager to do the work for you.

Remember that every month results in increased equity in the property, and that’s aside from the income you’re earning. You could dramatically improve the cash flow if you aggressively pay down the outstanding mortgage on a property. For example, you go from earning 300 dollars to 1000 dollars per month per single-family rental home.

What is a property that turns out to need far more work than you expected? What if the apartment building isn’t working out as expected? Sell it, pay off the debt, and then start over with the cash you have leftover. You will eventually be making millions in real estate as you build up your real estate portfolio, and you could see a million-dollar net worth in less than five years.

If you own dozens of rental homes, consider selling them to buy professionally managed multi-family housing. When you’re ready to earn truly passive income, that is one route. Selling the properties to other investors and investing in real estate investment trusts or shares of a property managed by others is another.

2. Interest-Based Income Through Investing in Mortgage Notes

Mortgage notes can be a good real estate investment for people seeking passive income. When you buy a mortgage note, you receive monthly payments that include both interest and principle. It is a steady stream of income like you’d receive from a rental property, but there is no need to maintain the property like a landlord. It is far easier to invest in real estate located around the country because you don’t have to deal with local rules regarding real estate licensing or taxes. The mortgage note spells out the loan duration. You know how long you’ll receive loan payments, and it may be 10 to 30 years.

You may be able to increase the value of the mortgage note by buying from a distressed note holder. For example, you may find a farm or family property sold via owner financing. The person sold their home, but now they have to manage the loan. They may need the money, whether it is to allow them to buy a new home or simply get cash to fund their retirement. In these cases, you might offer 80,000 dollars to buy a 100,000 dollar note. If they accept, you receive the interest and principal on a 100,000 dollar loan but only paid 20,000 dollars for it.

Another class of desperate sellers is the private lender with a slow or non-paying borrower. They’re not getting the income they expected. They may be reluctant to foreclose on a slow-paying family member. Or they may not want the property back. You can buy these notes for far less than their face value. However, you’re going to either need to ramp up collection efforts or foreclose on the property. Only buy notes like this if you have a plan for how to monetize the property, whether you rent it out, sell it to someone else or redevelop the property.

3. Getting Rich By Flipping Real Estate

This is another proven way to make quick money in real estate to get rich. Fix and Flip is a specific form of real estate investing. The investor buys a home, pays for repairs and renovations, and then sells the property for a profit. This type of real estate investing is the subject of numerous reality shows. The reality is that this form of real estate investing is high risk. If you’ve underestimated rehabilitation costs, you could lose money.

If you put too much money into the investment property because you don’t understand your target market and buyer expectations, you’ve probably wiped out your real estate profit margins. Whether there are problems with the selling price, the real estate agent, the neighborhood, or how the property looks, every month the house sits on the market subtracts the property’s carrying costs from your profit margin.

If you try to do the repairs yourself to save money, the theoretical savings on labor costs are offset by the delays in getting the property to market. If you’re not already a skilled building contractor, there is a risk that DIY repairs don’t meet code or potential buyers’ expectations. Then you may lose everything on the deal because you have to pay for someone else to redo what you thought was done. The ideal fix and flip is a property that only needs cosmetic repairs, but these are truly rare.

4. Making Money Through Real Estate Investment Trusts

Real Estate Investment Trusts or REITs allow you to invest in real estate without having to buy and manage a property. REITs may be invested in mortgages, properties, or a mix of both. You can diversify your holdings in real estate by buying REITS invested in particular market niches. Because REITs are publicly listed, you can buy and sell shares on the open market, making your money more liquid and allowing you to diversify your investments. One of the benefits of REITs is their non-correlation with other types of equities.

This means that the value of REITs depends on the real estate market, not the stock market. REITs are available in publicly traded and non-traded forms. The Securities and Exchange Commission recommends against non-traded REITs due to their high fees, the challenge of liquidating them, and the risk they may become worthless. Publicly traded REITs are as liquid as stocks and bonds. REITs stand out for their regular payment of dividends, something that a decreasing share of stocks offers anymore. Clearly, this also shows a way to make money in real estate and get rich.

5. Making Money Through Real Estate ETFs and Mutual Funds

You can buy exchange-traded funds (ETFs) and mutual funds that are broadly diversified or targeted to a particular sector. And you can buy ETFs and mutual funds that are themselves invested in real estate. For example, it is possible to buy ETFs that invest in real estate stocks such as publicly-traded home builders. Some ETFs invest in REITs, as well. There are mutual funds that invest in real estate developers and property management firms. Both investments are handled by a fund manager (ETFs are passively managed, and mutual funds are actively managed).

ETFs are less expensive than mutual funds, and you can trade them like stocks at any time during market hours. The benefits of investing in ETFs and mutual funds include high liquidity and low costs. Forget cashing out your 401K or 403B plan to buy rental real estate, since this strategy allows you to invest in real estate within tax-advantaged retirement accounts. You don’t need a lot of money upfront to start investing this way. Conversely, you may not receive dividends. You may not receive any returns until you sell the appreciated shares.

6. Using Private Lending To Making Money in Real Estate

Hard money lenders loan money to those utilizing the fix and flip strategy. They may lend money to those buying a property to renovate and then rent out; the property investor, in this case, would secure a traditional mortgage after they have an attractive property bank will now consider as collateral. Acting as a bank to property buyers yields a higher rate of return than you’d see if you left money sitting in the bank. You have to do your due diligence since mistakes could mean you don’t have a valid lien against the property.

For those not yet ready to invest a large sum into a single project, crowdfunding is an option. You can loan money to someone who wants to buy a rental property or secure a down payment on their own home. In either case, the loans are high-risk and illiquid. Another issue is that hard money lending of more than modest means that SEC rules apply. If you don’t meet the income and net worth requirements set by the SEC, you may not be allowed to loan money to real estate investors unless it is in token amounts through a crowdsourcing site.

7. Increase In Wealth Through Real Estate Appreciation

When the value of a property increases, we call this “appreciation.” While appreciation is not always guaranteed but historically real estate prices have appreciated over the long term. So, again, appreciation alone is not likely going to make you a millionaire but real estate has always increased in the US, averaging 3% per year over the past century. For example, if you purchased a property for $250,000 2 years ago, and today that property is worth $350,000, the appreciation made you $100,000 richer or in other words, your assets grew by $100,000.

Another type of appreciation that can come into play is known as “forced appreciation,” the concept of increasing the value by physically upgrading the property through renovation. Any form of appreciation makes you money in real estate and you become richer. Click on the link to find out how investing in Kansas City real estate can help you gain wealth.

8. Opting For 1031 Exchange in Real Estate

As a real estate investor, you can use this tax code called 1031 Exchange to sell an investment real estate and use the profit to buy a new one that is of equal or greater value. In this way, you can defer paying taxes until that next property is sold or you can opt for another 1031 Exchange.  When you choose to sell your property, you are required to pay taxes for your capital gains. With the help of section 1031 of the Internal Revenue Code, you are permitted to postpone paying taxes when you reinvest those gains in another property. IRS considers that you are exchanging your old property for another real estate property.

9. Loan Pay Down

When you purchase a rental property with a mortgage, each month you make a payment to the lender. That payment includes two parts: principal and interest. Interest is the profit for the lender, but the principal is the money you are paying down the loan with. Over time, your tenant is essentially paying the loan down for you, helping you build wealth automatically. For example, if you purchased a house five years ago for $100,000 and obtained an $80,000 mortgage (we’ll say it was a 30-year mortgage with a 5 percent fixed rate), today you would owe only $74,000.

Ten years from now, you would owe only $65,000. This means that every year your equity increases. You'd gain value, as long as the property value didn't drop. And if it made $0 in cash flow or broke even and never climbed in value, still after the mortgage is paid off, you’ll now have a property worth $100,000 or more that you didn’t save for. Your tenant paid it off due to the “loan pay-down.” This can't happen if you pay all your cash or savings for the property and don't go for the mortgage options. This is the smartest strategy for making money in real estate to get rich.

10. Refinancing Your Mortgage For Better Cash Flow

You can also opt for refinancing your mortgage. The number one benefit of refinancing your mortgage is to obtain a loan at a lower rate of interest and also to decrease the monthly mortgage payment amount. One of the benefits of refinancing your mortgage is also that refinancing provides the borrower with fresh money at lower interest rates due to which the homeowner can lower his/her monthly payment amount. Another advantage of refinancing your mortgage is that the decrease in the interest rates allows homeowners to replace an existing loan with another with an added benefit of a shorter loan term and no change in the payment amount.

Is Real Estate The Best Way To Make Money or Build Wealth?

how to get rich in real estate

While making money in real estate you can minimize the risks and get a high return on your investment but it comes with proper education and experience. You may be fixing and flipping properties. You may be buying fixer-uppers, repairing them, and renting them out. Or you might be buying existing rental properties with tenants, knowing you can improve the cash flow by getting rid of non-paying tenants and adding amenities that allow you to up the rental rates.

It doesn’t matter which strategy you use as long as you pick one and master it. You need to learn a lot of things and also understand the risks involved before buying your first investment property. Location is your priority for a successful real estate investment. It would enhance your chances of selling the property further.

Real estate is one of the best investments available to make a lot of money, assuming you buy properties that have good fundamentals in their favor. It is one of the few businesses where banks are almost eager to loan you money, whereas banks reject roughly half of all business loans. Real estate almost always appreciates at a rate higher than the rate of inflation. Property appreciation rates have averaged 3 to 5 percent annually for the past thirty years.

It takes a dramatic downturn like the Great Depression or the Great Recession of 2007-2012 to hurt property values across the board. Know that real estate is ultimately local, so individual real estate markets can collapse due to lack of demand or dramatic over-building though the national market is steadily growing. One of the points in favor of real estate is that you’re holding a real asset. A company could go bankrupt and wipe out the value of its shares. They could be hit with a massive lawsuit, and the dividends they were paying disappears.

When you own quality real estate, the value won’t go down unless the area as a whole becomes undesirable. As long as you don’t have to sell it in a hurry, you can get your money back. That’s why private mortgage insurance is canceled once you hit 20 percent equity in the property. All of this explains why real estate investing is safer than stock market investing. It is possible to buy real estate for capital gains. Buying condos in the hope of flipping them for a profit is one such case.

Buying land to eventually sell to developers is another. However, real estate offers significant cash flow. You can rent out apartments, condos, single-family houses, and commercial space. This generates monthly cash flow for the owner. The cash flow is offset by tax-deductible expenses like maintenance, property taxes, and insurance. There are a variety of ways to calculate the return on investment for rental real estate. If you use the cap rate equation, a good ROI is 10 percent, while 12 percent is considered excellent.

The cap rate is generally used because the equation is straightforward. (NOI / purchase price x 100 percent). Note that these returns are based on the income you see with every rent check. Appreciation of the property is a capital gain you don’t realize unless you sell the property. When you invest in real estate, you could achieve a million-dollar or greater net worth simply because the properties you own and manage have gone up in value over the years.

Few of us have the cash on hand to buy the property outright. This is why many put a down payment down on a property before repairing it. They may then rent it out or flip it. Renting it out generates steady income that has significant legal protection since you can generally evict non-paying tenants. The cash on cash returns take the mortgage on a property into account, and you can easily see a double-digit ROI using this equation.

Flipping the property or selling it after you’ve purchased it and repaired it will generate a profit. However, this approach is riskier than renting out real estate. You lose money every month you hold the property and pay carrying costs like the mortgage. If you sell the property for less than it is worth, you could lose tens of thousands of dollars. On the other hand, if you buy real estate and rent it out, you’ll get more for the property from investors because it comes with an income stream, the existing tenant.


References

REITs | Fix and flip
https://thecollegeinvestor.com/10414/ways-to-invest-in-real-estate
https://www.forbes.com/sites/jrose/2018/04/18/real-estate-investing-without-buying-property/#7b1b9b511496

Crowdfunding and Hard Money Lending
https://www.usatoday.com/story/money/personalfinance/2017/08/23/diversified-portfolio-5-ways-invest-real-estate/588610001

Appreciation
https://www.zillow.com/research/zillow-home-value-appreciation-5235

PMI
https://www.foxbusiness.com/features/how-to-dump-pmi-asap

ROI
https://www.mashvisor.com/blog/rate-of-return-on-a-rental-property
https://www.biggerpockets.com/blog/rental-investing-earn-2000-month

Strategy to make money
https://www.businessinsider.com/secret-to-wealth-real-estate-2015-4
https://www.biggerpockets.com/blog/rental-investing-earn-2000-month
https://www.biggerpockets.com/blog/plan-to-make-a-million

Loan Pay Down
https://www.forbes.com/sites/brandonturner/2016/10/18/4-things-you-need-to-become-a-millionaire-through-real-estate-investing/#3c402999247a

Business loans rejected
https://www.biz2credit.com/blog/2019/05/13/6-reasons-small-businesses-get-rejected-for-loans/

Filed Under: General Real Estate, Real Estate Investing, Real Estate Investments, Selling Real Estate

Single Family Rental Homes vs Multi-Family Investing in 2022

November 23, 2022 by Marco Santarelli

Single-Family Rental Homes

A single family home is a standalone property on its own lot. Investing in a single family home is basically investing in a house or a condo to rent to a single tenant. One of the simplest definitions of single family rental property investing is getting paid for what you own, rather than just paying to own it. It has a few pros and cons attached to it but it depends on your expectations from the property.

Usually, people tend to buy a property in a low-budget or affordable locality and revamp it to attract new tenants. Investing in single family rental homes gives the investors the liberty to determine their profits in many ways. Some of the advantages of buying single family rental properties are huge tax write-offs, a passive rental income, and a long-term capital appreciation of properties.

Single-family rental homes are easy to buy and hold for new real estate investors. Investing in them can deliver immediate returns, plus the long-term appreciation of the asset. It is a great way to save for your retirement as this type of real estate investment becomes a good source of regular passive income. The discrepancy between the number of renters and landlords in the United States is increasing every day.

Investors find real estate investing viable for many reasons. Unlike stocks, real estate is a tangible asset. Investors choose real estate because they can touch and feel the asset, and also watch it appreciate over time. They see single family rental homes as a way to improve monthly cash flow and diversify their investments.

Single-Family Homes vs. Multi-Family Properties: Which Investment is Better?

Single-Family Homes vs Multi-Family Properties

Both single and multi-family rental homes are good investments. They definitely lead to a positive cash flow, but there are differences between both investments. Single-family rental homes are affordable and have higher appreciation. You can get suitable tenants and maximum exit strategies with single family rental property investment.

On the other hand, multi-family rental properties give you high rent, maximum vacancies, and rent depends on the landlord as it is not subject to economic factors. So let’s begin by talking about the advantages of investing in multifamily properties.

Single-Family vs. Multi-Family: The Scalability Factor

The first thing that investors think about when it comes to multi-unit or multi-family properties, those that are five units and above, which could be 50, 500, or more, is that you can scale faster. And there is some truth to that. And this is the big thing that Grant Cardone talks about. I know Grant he’s been on my show. I’ve been on his ask the pros show a couple of years ago.

You know, the whole thing about scaling faster is that you can complete one transaction and end up with, let’s say 20, 30, or 50 units in one purchase under one roof typically, but it could be multiple properties. But the idea is that you have fewer closing costs. Although the closing costs are significantly higher and a little more complex when you’re purchasing multi-unit properties or multi-family properties of that scale.

You’re definitely going to be paying a lot more in terms of the appraisals, the inspections, the complexities of it, etc, but it’s still one transaction. And so if you’re getting one loan for that purchase, you essentially have fewer total transactions. So there’s some simplicity in that, but there’s greater complexity in the purchase or the transaction itself, but you can scale faster.

Now, this is assuming everything else is equal, meaning that you are starting with the same investment capital that could be, you know, 200, 500,000, a million dollars as your down payment versus using that same amount of capital to purchase single-family homes or duplexes or fourplexes, but something in the residential space.

So with the same amount of investment capital, it’s fewer transactions, but in terms of the number of units, you can do it either way, but that is the general argument. And sometimes the number one advantage of going the multifamily route over single families or duplexes and fourplexes is that you can scale quickly. And so there is truth in that, just understand that it’s not what you are hearing at face value, meaning that you can scale faster period, full stop.

End of story. It’s not exactly like that. You have to understand the other complexities and dynamics that are involved with the purchase of a multi-family property. And also realize that the lending side of this is a little bit different. They’re going to take a much closer look at you, but they’re certainly going to scrutinize the property.

That's because they’re typically qualifying the property just as much, if not more than you personally. After all, they’re looking at the property as a business and they want to make sure that the revenue or the cash flow from that property is more than enough. A higher enough metric that it can service the debt, something they call DSCR or debt service coverage ratio, which is often about 1:2. So that’s the first thing you can scale quickly.

Economies of Scale With Multi-Family Properties

The second benefit of the multi-family property has to do with economics, which economists or professional investors refer to as economies of scale. So when you have more units or more apartments under one roof, you are essentially sharing in the cost of upgrades to the common areas or the mechanicals such as the boiler hot water tank or roof.

And that cost is spread across all, whatever 20 units, 30, 50 units in that building. So it might be a very expensive repair, a 20, $30,000 roof repair, but you’re dividing that 20 or $30,000 roof repair amongst, let’s say 20 units in the building. So you have the economies of scale. You have mechanicals and items that are shared as common or common areas amongst all the residents and the units in the building. So that reduces the overall cost on a per-unit basis.

That doesn’t necessarily mean it’s cheaper than the equivalent repair in a single family home. It actually could be a lot more expensive, but the thought there is that it probably will last longer as well, being in a commercial building. Although that's not always true, what you often have are one item, one repair, one location, maintenance issues, and inspections are all done at that same place.

People are not being dispatched to different locations because you have different properties in different locations around a market. Property management may be completely localized. You may have an onsite property manager. If the building is large enough, usually that’s, you know, 50 to a hundred units.

And above is when you start to have resident managers. If you have a property management company and they’re looking after, let’s say 20 units at a building versus 20 single-family homes or duplexes peppered around the city, it adds some simplicity, but I would argue that it doesn’t matter. At the end of the day, if you’re working with a property management company that’s managing multiple properties in different locations within a market, that’s what they’re doing for many clients, that’s just built into their business model.

And that’s part of what they do, where there is saving with apartment complexes. And multi-family units are often in the management fees with multi-family properties. It’s not uncommon to have management fees in the 4 or 5, 6, 7% range of that monthly gross rental income that’s collected. Whereas with single-family residences, the street rate, as I say in air quotes is 10%.

But the reality is, is that often, and especially with the property management companies that we work with, uh, in many markets and often that rate is often 8%, sometimes nine and even sometimes 7%. So I don’t know what the average is, but I would guess that the average is probably around 8% as far as the management fee. And especially if you have more than one property with a property management company. So that’s also a negotiable item.

So keep that in mind, but there is a saving because of, again, the economies of scale with multi-family properties, especially as they become much larger, meaning a hundred units and above, it’s not uncommon to have a management fee of around four or 5% on the low end 6, 7% on the higher end. And you know, that doesn’t mean a lot if you have a small number of units, but it does add up if you are talking about large-scale properties.

Higher Monthly Cash-Flows in Multi-Family vs Single-Family Homes

Another advantage of multifamily properties has to do with supposedly higher monthly cash flows. Again, this is an arguable point because it assumes that all else is equal, but it doesn’t necessarily mean that you have higher cash flow. The basis of this argument by a lot of investors is that if you have, let’s say hypothetically, a 10 unit apartment complex, and you have two vacancies, you’re essentially 20% vacant or 80% occupied. However, you want to look at it.

So if you have a vacancy, you don’t have essentially a hundred percent vacancy in that property compared to a single family home where you’re a hundred percent vacant. Well, that is true, but that’s also an unfair comparison. And I see this and I hear this all the time. What they fail to do is compare your portfolio, not just the property. Sure. If I have a single-family property, it’s one property compared to a 10 unit apartment complex, which is still one property.

If I have one vacancy in each of them, it’s the difference between a hundred percent vacant with a single-family home versus being 10% vacant on the 10 unit apartment complex. Those are true statements, but it’s really not taking the true situation into account because I may have 10 single-family homes in that market versus having one 10 unit apartment complex in that market.

And if I have one vacancy with the apartment complex and one vacancy in my portfolio of 10 single family homes, I have the same thing. I have one vacancy, one unit is empty on both ends. So I really have the same overall occupancy of 90%. So I think this is where people are not being completely truthful in the comparison between multifamily and single-family. So a vacancy is a vacancy and it doesn’t matter where it happens. You have to look at what is my total portfolio size, and then you can make a fair comparison.

Return on Investment in Single-Family Homes vs Multi-Family

Another thing to keep in mind is that the ROI, the return on investment on multi-family properties typically, and especially today, and has been this way for the last several years is actually not as attractive. In fact, it’s usually lower with multi-family properties than single-family homes. And one of the main reasons for that is that capitalization rates on multi-family properties have been compressed over the years.

They’re hard to find very few people are selling them and the people who are wanting to buy them are chasing after them with a lot of competition. And because of that, it’s driving the prices up pretty much across the board, all around the country. So multi-family properties have become more and more expensive because of the high and growing demand that a lot of apartment buyers and syndicators are chasing after. That’s also somewhat true with single-family homes, but more so with multi-family properties.

And the fact is, is there’s just far fewer of them. So as you get larger and scale larger, the number of units in the property, the fewer and fewer and fewer there are of them. So your monthly net cash flow is just one part of the equation when you’re factoring in what your total return on investment is, but keep in mind that your ROI, your cash on cash, and your rate of returns on multi-family properties are typically, and more than likely going to be lower with all else being equal, same market, same types of things.

Also, when you have larger multifamily properties, you have a common area inside and outside of the building, aside from the shared mechanics and the roof, and whatever else. And that usually means that you’re going to find more wear and tear on these common areas and these common mechanics that are in the property. So your upkeep and maintenance are probably going to be higher and that’s just an added cost. So you have to factor that into the equation as well.

Financing Single-Family Homes vs Multi-Family Properties

Now, when it comes to financing multi-family properties, lenders will take a more rigorous approval process. So they’re going to look at the property and they’re going to look at the trailing 12 and 24 months of cash flow of rental income of tax returns. They’re underwriting that property as if it was a business.

And they look at it as a business and social due, but it is sometimes, and maybe often easier to finance a loan for a $10 million apartment complex than it is to finance a single family home. And the main reason for that is really just the cash flow that comes from the property.

Again, a multifamily property is considered a business in the eyes of a lender, whereas a single-family home, even though it may be a rental property and you are truly getting a non-owner occupied loan for that property as if it was a rental property, which is, and will be the lender still looks at the larger multifamily property as a business.

And so they’re going to underwrite it from a cash flow perspective. That’s the most important thing to them. They’re going to look at you as well. They’re going to consider other things like the market value of that property, but they’re going to look at its financial performance because they care about the cash flow and its ability to service the debt, which is what they’re extending to you to make that purchase. So they think of it as a safer bet because of the cash flow. That’s really the bottom line for them figuratively.

And literally, the other thing too, is that multi-family properties, the value is based on the income that it generates, what is essentially known as the NOI or net operating income, which is all income minus all expenses, not including the debt service. And so that’s the number that they hyper-focus on to make sure that it meets their underwriting criteria to be able to service that loan ongoing basis, even with some vacancy.

So property values will change with multi-family properties based on the net operating income. Whereas single-family homes will be based on whatever the real market value is of that property based on the comparables in the area that can be determined from an appraisal. So that’s the thing about financing.

It can be easier, but keep in mind, these are larger loans with larger down payments and not necessarily as attractive terms as single-family, residential properties last but not least. There’s the concept of house hacking. If you are purchasing a multifamily property, whether it’s 10, 20 units, 30 units, 50 units, a hundred units, you can do this also with a duplex or four-plex by the way. But the concept of house hacking is that you live in one of the units and you rent out all the other units. And so this reduces minimizes or eliminates your housing costs for the month.

So your rent or mortgage payment is essentially covered by the operations of the business or that property. So this is a, you know, a nice concept and a great way to get started for many people who are just getting started and they have a minimal down payment, or they want to actually live and manage the property and learn from the experience.

Well, they’re purchasing, they’re usually first property, but sometimes it could be even their second or third as they start to stair-step and grow their portfolio and move from one to another after two years or so because the tax benefits are there on the capital gains by living in a property for two years or more. So that can be a great benefit for those people who are looking to get started with their first property. And it’s easy to do with a two to four-unit property.

You can still call that a multi-family property, less likely to be able to do that with a large multi-family property, especially if you’re just getting started because you just don’t have the experience. And lenders will look at that. Okay. Now let’s take a look at the advantages of single-family rentals. So first and foremost, and this is going to be pretty obvious is that they are less expensive.

A single-family residential property can range from, let’s say, send the 80,000 on the low end to about 150 to 200,000 on the high end. And I’m just looking at the 20 or so markets that we’re in right now. So if you’re purchasing a single-family, residential property, there’s a wide range of prices because there’s a wide range of markets and neighborhoods within those markets. So the thing with multi-family properties is that a lot of things are going to cost more compared to a single-family home.

The other thing too is the down payments are going to be much smaller with single-family homes. So I always like to use a hundred thousand dollars property as an example, just because the numbers are easy to calculate, but with a conventional loan, you need 20% down for your down payment and that’s $20,000.

So that’s simple math, a hundred thousand dollars property, but when you compare that to a multiunit property or multi-family property, let’s say there are 20 units, and those are a hundred thousand dollars each. Well, now you got a $2 million property. However, your down payment is typically going to be 25 to 30% down.

That’s just what commercial lenders are going to require as far as that financing is concerned. So it’s a much larger amount, both in terms of price and percentages. It can add up pretty quickly because you’re looking at a minimum of 5% and probably 10% more in terms of percentages as far as the down payment.

So you got to keep that in mind, you’re looking at potentially $500,000 as a down payment on that $2 million property. So it’s not as easy to get started unless you have deep pockets. A lot of investible capital. Another thing to keep in mind is what the lenders require as a cash reserve to cover expenses or payments if needed, then they’d call these reserves.

And with a single-family home, it could be as little as two or three months’ worth of mortgage payments. Whereas with commercial property and a commercial loan, you will probably need six to as many as 12 months of reserves to qualify for that financing. So it’s considerably more in terms of what you need to have in the bank to show the lender after you’ve closed, that you’re able to be liquid enough to weather through any kind of storm that comes up.

Another thing with commercial real estate loans is that they typically have higher interest rates. And it’s often about two and a half percent higher plus or minus. It could be two to 3%, but about two and a half percent higher. On average, the terms are just less attractive. And there are also far fewer banks that you can choose from in order to get that type of loan.

And the main reason for that is because there’s a much smaller secondary market out there for them to take that mortgage and sell it off with conventional financing. Often these loans are sold right away like right after you closed, they’re already put into a package and sold onto the secondary market. So the lender can essentially reload their warehouse line or their capital to make the next mortgage loan. So the financing is a little more difficult and it’s not as widely available or abundant it’s out.

There there are many lenders out there, but certainly not as many as in the residential space last but not least in the process of getting financing, you are going to need to provide the last two years of financials and the rent rules for the property. As part of the qualification. You don’t need to do this with single family homes, because it really just comes down to your ability to qualify for that mortgage.

And I should mention that also with multifamily purchases, the lender is going to want to see that you have at least some prior property management experience, whereas again, with single family homes, you don’t need that. So the down payments are lower. The rates are lower, the financing terms are more attractive because you can get 30 year fixed rate loans. You can just lock it right in. You don’t need to show property management experience.

And often you’re not the one managing your own property. Anyway, you don’t need to show financials on the property like two years of tax returns or two years of rent rolls. So there are many advantages on the financing side.

Single-Family Homes Have Higher Liquidity

So when we say, you know, it’s less expensive to get started, it’s not just about the purchase price. It’s also about the down payment and the terms and the financing overall, by the way, appraisals are also much more expensive on commercial property. But again, you know, it goes back to the concept of economies of scale.

It’s much more expensive, but you’re also rolling out that appraisal across whatever 20 units, 30 units, or more the second advantage of single-family homes. And this is something I actually debated a couple of times with grant Cardone is the liquidity. There’s a greater ability to sell, resell, even purchase single-family homes.

It’s just a much, much larger, more liquid market real estate in general, as an asset class is not very liquid. It just, isn’t, it’s a little bit slow to buy and it’s potentially much slower to sell a property, but the smaller, the number of units right down to the single-family home, which is one unit that is the quickest property to sell in the residential space or the real estate space.

So it’s just an easier product to sell because they are less expensive and there’s a lower barrier to entry and you have a much wider pool of potential buyers. So it’s not just real estate investors that are buying and selling homes or real estate in general. But when it comes to single family homes, you have a large pool of wanting to be home buyers, people who want to buy and live in their own home, not necessarily rent the property.

The Higher Demand For Single-Family Homes

So when you think about the buying pool, it’s the largest with single-family homes, and then it gets smaller and smaller as you go up to duplexes, triplexes, fourplexes, and on up. So obviously you can’t compare a 500 unit apartment complex and the size of the buying pool for that compared to a single family home, it’s a vast difference.

And this was my whole argument with rent. And he just, as of the belief that he can sell a 500 unit apartment building much faster than I can sell a single family home. And that debate didn’t go too far. I think I clearly made my point and I’m sure he knows I’m right, but whatever growing demand is also another advantage of single-family homes. And I’ve talked about this on and off on the podcast here for quite a long time, the fastest-growing segment of the single family space happens to be single family rentals.

It’s just incredibly high in demand. They are selling very quickly. And if you’re working with one of our investment counselors here, you will know that we do have inventory. There is a pipeline, but they do come and go and they go under contract fairly quickly, but that’s a common problem around the country. It’s not just unique to us. It’s just the way it is.

So single family rentals have been outpacing, even single family, home sales, especially multi-family housing. So that’s one thing is just demand is strong. And it’s growing. According to the US Census, they estimated in a recent report that the number of single rentals in the US grew by 31% in the 10 years following the housing crisis of 2007. So that period of 2007 to 2016, had an increase in single family rentals by 31%, you compare that to the growth in the multi-family space, which is five units.

And above it grew by a healthy 14%, but you can see that single family rental demand grew by more than twice, as much as multifamily. So there’s strong demand and growing demand for single family homes, which is good for you from an appreciation perspective and a liquidity perspective, as well as the future demand for those properties in terms of rentals, sales, and price growth.

Also adding to this upside is that single family rentals traditionally have less tenant turnover compared to multi-family properties. And I’ll talk about this a little bit further here in a moment, but I just want to quickly say that another study that came out from the Urban Institute, put out a forecast showing that demand is very strong and continues to grow, especially from the millennial demographic, because they’re now entering that age when they want to start, not only buying their first home but having kids and the demand on new household formation is very strong and increasing.

So the desire for those single family homes is just increasing year-over-year. So that’s creating economic pressure and it’s just driving more demand for single family homes and rental homes. And that doesn’t mean demand is not there for multi-family properties. It’s just incredibly strong for the single-family from a diversification perspective.

Building a Diversified Portfolio With Single-Family Homes

Rental markets, as you know, are local dynamics. The economics are predominantly local. So what happens in one market is different than what happens in another market. So it’s easy or maybe easier to build a real estate portfolio. That’s geographically diversified because if you follow kind of my rule of thumb of three to five properties in three to five markets, you could quickly or relatively quickly build a portfolio of three, five houses, or even duplexes or fourplexes, but three to five single family homes in one particular market.

That makes sense for you from an investment perspective and then move to another market, geographically different, usually in another state where you continue to build your portfolio, adding another three to five properties there, because you’re dealing with single units, it’s easy to diversify geographically.

Whereas if you take that same investment capital that you use to build up that portfolio diversified across three to five markets and put it into one, let’s say a 20 or 30 unit apartment building, you’re stuck to one market you’re rooted there with all your units. And the only way to diversify geographically is to have additional investment capital where you can now start to acquire other properties, whether single families or multi-families in other markets in other States.

So it’s just easier to grow and diversify your portfolio in multiple markets using single family homes. And I guess anytime I say, single family homes here, I’m also adding in duplexes and fourplexes. I think you got that by now.

Single-Family Homes Have Low Vacancy & Tenant Turnover

So the final point I want to make is the benefit of single family homes is that both anecdotally and statistically, they have lower tenant turnover. And I saved this till last because to me, this is probably one of the biggest advantages. And one of my favorite things about single family rentals is the lower tenant turnover. For me, that is critically important because I am all about having long-term tenants. I want to have tenants that are on at least a one-year lease, ideally a two-year lease.

I don’t need anything longer than that, but I want them to stay and be happy where they live and, you know, enjoy the property, enjoy the neighborhood and keep renewing their lease for as many years as possible. Because the bottom line again, figuratively and quite literally is that tenant turnover is expensive.

It’s costly. It takes money and time. You know, there’s a cost to a turnover and there’s downtime. So here’s lost rental income. So I don’t want the lost rental income. I don’t want to pay my property manager all too often for that turnover because they’re going to make a fee on that turnover. And they also have to take the time where it’s vacant to clean repair, any damages, take care of wear and tear market, and show the listing, you know, screen applicants.

So, you know, you may only have a downtime of three, four days in a really hot market, but just assume that it’s probably going to take two weeks or maybe three. And so you’re going to have a month of vacancy plus the first month, or maybe the first half months of rent going to the property manager as the cost of that turnover.

It’s not the cost of the turnover, but it’s the lease-up fee. So, but that’s not going in your pocket. That’s going to your property manager for the service of turning over that property and releasing it. So turnovers are costly. It’s actually probably the biggest cost in owning property and your budget for this, of course.

So it’s not like it’s a surprise expense. Your budget for maintenance and repairs and your budget in your performance for vacancy and turnover. So you’ve already factored it in, it’s baked into the cake, you’ve accounted for it, but the less turnover you have, and that’s my point, the less turnover you have, the more consistent and predictable your cash flow is.

And that’s your short-term gain. Your long-term gain is equity, growth, and appreciation, but the short-term gains are monthly and annual cash flows. So I want to keep that going as much as possible, as long as possible. So this is the big thing for me is the lower turnover, the tenant turnover, one person or company that I like to follow is John Burns real estate consulting.

So I know John Burns and some of his data shows that 52% of single-family residential renters are families. You compare that to multifamily residential properties and that’s 30%. So that 30% are people who are more likely to be under the age of 35. And if you look at that demographic closely, you will find that they are for many reasons more transient.

They don’t tend to stay as long. For many reasons, it could be jobs, friends, getting a girlfriend, getting engaged, getting married, moving up, moving down when you’re dealing with apartment and apartment residents or dwellers that profile. And that demographic is just more transient.

It’s just normal. There’s nothing wrong with it. It just is what it is. The average single-family, residential tenant stays for three years. That’s average. I’ve had tenants stay for five-plus years. So it’s not uncommon to have a very long-term tenant, but the average SFR or single-family residential tenant stays for three years. And that’s roughly double the average apartment tenure, which is roughly about one to one and a half years.

And also another interesting little fact is that single-family, residential tenants often will stay five or six years as long as you’re not above-market rent. If you’re at, or just below fair market rent, they have a good deal in other words, and they know they have a good deal and you’ve got a house in a great neighborhood and it’s safe, clean, functional.

It is not uncommon to have people stay five, six years, or more. It’s not unheard of in the single-family, residential space and over time, that just means a considerable cost saving. So that’s just money in your pocket. I think it’s well worth it. Single-family homes are easy to acquire, easy to understand, easy to repair, easy to address, easy to fix, easy to deal with, easy to show.

There are just a lot of benefits. In my opinion, if I’m sounding pretty excited about this last bullet point of having lower tenant turnover, it’s because I really am. I think this is a big deal and I don’t think enough people talk about, you know, how important it is and how beneficial it is.

Advantages of Buying Single-Family Rental Properties

Buying single family rental properties has a lot of advantages such as forced savings for retirement, tax benefits, increase in wealth, stable income, and long-term capital gains. Single-family homes have the widest market appeal. In a softening marketplace, real estate that houses jobs (retail, office, etc.) will generally show rental weakness before the real estate that houses people (single-family homes). Changes in job indicators give investors in single-family homes opportunities to re-position faster than investors in commercial property can.

Single-family homes have lower rates of vacancy (downtime) than commercial properties because there are more potential renters for a single family home than there are for a gas station or a big box store. Single family homes have the most attractive financing terms available.  Single family homes will never become technologically obsolete. What technology could replace the need and desire for a place with four walls and a roof where humans sleep at night?

Contrast this with an investor who buys a retail center and then internet shopping and a slow economy makes this retail center obsolete.  Corner video stores are being replaced by Netflix and streaming movie downloads. Movie theaters are being replaced by home entertainment systems. Soon you may see gas stations becoming technologically obsolete because of major changes in the ways we travel and fuel our vehicles.

At the very least, gas stations of the future will require expensive retooling that will erode years of profits for the owner. Although real estate is relatively illiquid, single-family homes typically sell faster and have more liberal access to financing than any other type of real estate.  Single family homes can be purchased with cheap, fixed-rate financing, with a thirty-year amortization and a 20-25% down payment.

Apartments will usually be financed at a higher interest rate and require 30% down, plus you’ll pay a large premium to get an interest rate that is fixed longer than 5 years, and you’ll have an amortization period of 20 – 25 years.  If a house and an apartment unit generate an equivalent net operating income, the house will provide superior cash on cash return due to the better financing available for single family homes.

There are two general approaches to single family property investment – Fix and flip investing and buy and hold strategy. Each approach has its advantages and disadvantages, depending on whether the investor is aiming for short-term or long-term capital gains.

Buy And Hold Strategy

Buy and hold real estate investing is the process of acquiring real estate, particularly rental property, to own and profit from over a long period of time. Buy and hold real estate is a great way for investors to diversify their investment portfolios and achieve financial freedom.

Fixing and Flipping

Fix and flip involves buying real estate, repairing or renovating it, and then reselling it for a profit. On the other hand, the buy and hold strategy is often referred to as buying and holding rental property. The investor buys and holds the property with the expectation that it will generate dividends through rental income. Fix and flip real estate strategies often require a lot of work because repairing or renovating a house usually takes months.

It is also considered a bit riskier, especially for new investors venturing into real estate. Nevertheless, fix and flip investments are lucrative because the investor can earn huge profits after reselling the property. You may not earn so much as a flip, but investing in a rental property is a permanent income.  You don’t have to deal with any problems or tenants if you don’t want to. It's easy to hire a property management company and you can work the numbers in before you purchase the property.

Single Family Homes Can Be Purchased in ‘Bite Size’ Portions

Using the ‘bite size’ investment strategy with single family homes gives you flexibility in your tax and estate planning as well as making it easier to harvest equity.  If you want to cash out some of the equity in your real estate portfolio, you can sell or refinance one or two single family homes rather than liquidate an entire apartment building.

The same ‘bite size’ concept applies to income taxes. For example, offsetting a stock loss with a real estate gain could result in ‘tax-free’ real estate profits.  Please note, income taxes are a very specialized subject.  I am not a tax professional.  Always consult your tax advisor.

The income tax benefit from depreciation strongly favors single family homes over commercial property. Single family homes can be depreciated over 27.5 years while commercial property is depreciated over 39 years. The shorter depreciation schedule of single family homes can be a great boost to an investor’s initial cash flow.

Avoid all vacant land investments!  These take specialized skills to manage, are difficult and expensive to finance, and are very hard to sell.  I know many people who have made huge profits buying and selling vacant land, but vacant land is not hassle-free and it definitely does not cash flow!  Making money investing in vacant land requires a lot of skill or a lot of luck.

Vacant land takes money out of your pocket for taxes, maintenance, and liability insurance while it produces no revenue.  If you are a new or part-time investor, just avoid vacant land. Many people call vacant land “the alligator” of real estate investing because it slowly eats away all of your savings.

A word on buying condominiums: Don’t! While a condo may give you cash flow, it is never a hassle-free investment.  I’ve spent years of my life developing, owning, and managing condominiums. I HATE THEM!  The only winner in the world of condominiums is the developer who originally sells the condo to the general public.

Condos come with the huge, wasteful expense of a Home Owners’ Association (HOA).  These collective management groups have different names depending on the location of the property and are sometimes called Property Owners’ Association (POA) or the ominous-sounding Horizontal Property Regime.  Cooperatives (co-ops) are legally very different beasts than condominiums, but they are all hideous investments.

  • Overpaid vendors
  • Restrictions on property usage
  • HOAs are run by an untrained volunteer board
  • HOA dues are variable
  • Your neighbor's failure to pay means you pay
  • Lower rent and higher operating costs
  • Higher costs of financing
  • The inability to get condo financing can decimate condo values
  • Non-volunteerism/Double management expense

These negative factors apply to all types of condos: retail condos, office condos, storage condos, residential condos, but none of these factors apply to my favorite cash flow investment… single-family rental homes!

If you have the capacity to buy $1,000,000 of real estate you are generally better off buying ten single-family houses for $100,000 each than buying a single apartment building with sixteen units for $62,500 each.

8 Single-Family Homes

  • Purchase Price: $100,000 x 10 houses = $1,000,000
  • Net Operating Income at 8% CAP = $80,000
  • 25% Down payment = $250,000
  • Cost of 75% Financing (@ 5% 30-year fixed) = $48,312
  • Positive Cash Flow = $31,688
  • Cash on Cash Return = 12.7%

16 Unit Apartment Building

  • Purchase Price: $62,500 x 16 units = $1,000,000
  • Net Operating Income at 7% CAP = $70,000
  • 30% Down payment = $300,000
  • Cost of 70% Financing (@ 7% int. only) = $49,000
  • (25 year fully amortized payment $59,369)
  • Positive Cash Flow = $21,000
  • Cash on Cash Return = 7%

Forced Savings for Retirement

One of the top advantages of buying a single family rental property is that it is a great way to save for retirement. A single family rental property is a good source of regular passive income. The rent is often used to pay off the mortgage for the property. Once the mortgage has been fully paid, the landlord has the choice of whether to hold the rental property for a monthly check or sell it for a lump sum profit.

Tax Benefits

Rental property owners also have significant tax benefits, which is one of the advantages of buying a single family rental property. The IRS allows tax deductions for property tax, repairs, and ordinary and necessary expenses for managing the rental property. Costs of supplies and materials, as well as maintenance and repairs needed to keep the property in good condition, are also deductible. The biggest benefit is writing off depreciation, which can save you thousands each year in taxes.

Long-Term Capital Gains

Single-family rental property investors purchase properties to rent them out, with the expectation that the property value will increase in the long term. Landlords can sell their single family rental properties at a profit when the market conditions are right. This is especially profitable for real estate investors who leveraged their rental property investments.

Investment With Leverage

You can buy a single family rental property with a 20-25% down payment and a mortgage loan for the balance. In other words, you get a $100,000 investment for a $20,000 cash payment which means you are using a relatively small percentage of your funds to make the purchase. For the leverage to work in your favor, the real estate prices in that location should not decline. In real estate markets where prices fall significantly, homeowners can end up owing more money on the house than the house is actually worth. With good credit, it is not difficult to get financing for a rental property. ‘

A Tangible Investment

A single family rental property is a tangible asset unlike financial investments such as stocks, bonds, mutual funds, and other financial instruments. You can call it your own and it lets you have better control over it. You can sell it whenever you want to.

Stable Income

Unlike the stock market, the real estate market is not prone to sudden and extreme fluctuations in price. Certain factors such as population growth and growing demand for housing and rentals ensure that the investment you make on a single family rental property will be a profitable one.

Increase In Wealth

Real Estate is the best avenue for long-term investment for the accumulation of wealth with minimum risks involved. No other asset increases wealth the way real estate does. Real estate is a powerful wealth-building tool that has made millions of individuals millionaires over a period of time. Appreciation of a property is one of the biggest ways to increase your wealth as a real estate investor. You can do it by choosing the right properties in the right market and managing them the right way.

With the current real estate market conditions in the US, now is a great time to invest in single family rental homes. Compared to the low yields in stocks and bonds, rental properties are a good source of regular monthly income. For investors wanting to diversify their portfolios, tapping into this market with the help of a good realtor or turnkey provider can provide higher ROls.

There are factors to consider when choosing a real estate market for single family rental property investing, such as population and employment growth, and an increase in house values. When buying single family rental properties located in a different city or state, investors also research purchase prices, taxes, and housing regulations. Other investors also look at the percentage of the population that is renting. For instance, D.C., New York, and California have the most renters, in terms of percentage of the population.

So let me just wrap this up by quoting something from a recent Zillow article. And I’ll just quote right from the article here. It says among young adults, renters of single-family homes have always tended to move less often than apartment renters and single-family home rentals are one of the fastest-growing market segments. Uh, unquote. So there you have it.

I hope this has been helpful for all of you again, you know, I just need to compare single-family to multifamily rental properties as fairly as possible. But like I said, I have a preference and I have a little bit of a bias, but I’m not saying that one is bad and I’m not saying one is better than the other.

It really comes down to your personal criteria and your investing goals. But you also have to consider what is your investment budget? What is your investible capital? What is your access to financing and what do you qualify for? And last but not least, you need to ask yourself what is my risk profile.

And especially if you’re thinking about single-family investing, you know, let us help you put that strategy together because it’s probably a very good fit for you. And my team of investment counselors is certainly here to help you. Norada Real Estate Investments helps take the guesswork out of real estate investing. By researching top real estate growth markets and structuring complete turnkey real estate investments, they help you succeed by minimizing risk and maximizing profitability.

Click on the link for the complete list of investment properties for sale in the various real estate markets of the U.S.

Filed Under: General Real Estate, Getting Started, Real Estate Investing, Real Estate Investments

10 Tips to Be Successful in Real Estate Investing

November 23, 2022 by Marco Santarelli

Successful real estate investment has long been one of the proven ways to become wealthy. Buy or secure title to land. Develop the improved agricultural potential of the property or build housing you can rent out, or make the investment property more attractive to tenants so you can charge higher rent. These are common ways to become successful in real estate investing. The real estate market is always changing, and not just in terms of where people want to live.

But we all know that real estate provides better returns on investment than the stock market without as much volatility. In real estate, your risk of loss is minimized by the length of time you hold on to your investment property. When the market improves, so does the value of your property. Here’s our rundown of how to become successful in real estate investment.

People think about money when they invest in real estate. There are numerous compelling reasons for this. Real estate is a scarce resource. After all, it is impossible to manufacture additional land. As a result, real estate is widely regarded as a sound investment. However, it must be recognised that conventional wisdom regarding real estate is evolving. This almost certainly has to do with the economy.

It is not unusual to encounter individuals who are fearful of real estate investing. They believe there is no money left. Additionally, they may believe that they cannot succeed without investing substantial amounts of their own money. Both of these beliefs are demonstrably false. Regardless of the market, real estate investing is an excellent way to build wealth. Markets that are “down” may actually be the most fertile for opportunity. If you have a creative mind, real estate investing is for you.

Here are some basic principles that you need to understand in order to succeed in real estate investing:

  • Keep your mind open to new ideas. The most successful real estate investors see profit opportunities everywhere. The ability to see creative financing is critical, even more so in today's market.
  • It's important to know all of your options. By definition, real estate investing is a high-stakes game. Never make an investment that you are unsure of. It is critical to understand what you are doing in order to succeed.
  • Investing in your education will pay off in the long run. It is common for real estate investors to invest in properties that generate multiples of their initial investment. Consider your own education in this light as well. The ability to employ a strategy correctly can result in substantial returns. Naturally, if you do not utilize critical resources, you risk experiencing loss.

10 Tips to Become Successful in Real Estate Investment in 2022

how to be successful in real estate investing

1. Choosing Your Market & Timing The Investment Wisely

For successful real estate investment, it’s more important to know your local market than just what’s going on nationwide. Your purchase and its success will be most influenced by the factors at work in your specific real estate market. A good rule of thumb to become successful in real estate investing is to avoid very hot markets. Some real estate investors here may brag about the appreciation of their properties or rising rates, but you risk buying at the top of the market and losing your money.

The real estate markets move in cycles due to the desire for economic profits, and every real estate market is at a slightly different phase of its housing cycle. You need to find markets that are in the phase of expansion – where sales and prices are rising, affordability is good, construction is low and capital investment is rising.

The exact market you’re in should inform your approach as you choose investments. Peak new construction tends to occur past peak housing demand, which ultimately leads to temporary oversupply and lower prices. This bust phase usually lasts between 1-3 years before a price floor is found.

To become successful in real estate investment, your focus should also be on the location of the property within the market. You need to invest in those neighborhoods which have high population density, are developing, and have all basic amenities nearby.

All great neighborhoods have this in common:

  • Low crime rate
  • Great schools
  • Access to parks and leisure destinations
  • Access to medical care
  • Family-friendly
  • Access to public transportation
  • Access to shopping malls and restaurants
  • Good walkability

All of these translate into high demand for housing. If housing supply meets housing demand, real estate investors should not miss the opportunity since entry prices of homes remain affordable.

Avoid any area that is dependent on one economic driver such as the tourism or auto industry. Detroit is one such example of a market whose economy was heavily driven by the auto industry. When its auto industry failed, it led to a drastic decline in home values. All the rentals went vacant as no one able to find work. Fewer jobs in the city eventually resulted in fewer people able to live there. There were more houses than people who want them, so the law of supply-and-demand drove prices down.

2. Buy Low

Real estate investing can be compared to investing in a dividend-paying stock. The return on investment is based on how cheap you bought the commodity. However, you have to look at the return on the investment. A cheap little house in an unsafe neighborhood can be bought for little money, but you won’t get much money from it, either.

3. Tap into the Hidden Market

The ideal case is buying property from a distressed seller because you can get it way below the fair market value. Forget foreclosure auctions; this can yield deals, but you’ll often find properties in dire need of repair. Instead, look for homes with distressed sellers who haven’t put it on the market yet. The couple going through a divorce or family that wants to sell Mom’s home after she passed are the ideal sellers; they just want to get the money, and the buyer is probably getting a well-maintained home.

4. Understand Your Costs Up Front

If you’re new in the business of real estate investment, it is crucial to understand your costs upfront. It isn’t just the cost of the property and realtor commissions. You’ll need to pay for repairs, and too many newcomers to real estate investing don’t know how to accurately estimate costs to repair that cracked foundation, fix electrical problems, and address pest infestations.

Don’t think you can solve the problem by working on weekends to add a little paint. Most DIY work detracts from the value of the home, and trying to fix someone’s electrical and plumbing issues yourself may make it unsellable unless you’re already capable of doing work like this to code. Others fail to budget for closing costs, insurance, or utility costs and end up losing money on a deal.

5. Understand The Market

One of the best ways to avoid problems when investing in real estate is to understand the market. Understanding your real estate market will help you to evaluate the price of an investment property. Know how much the typical house in a community is worth per square foot and the rent you could charge for a given investment property. Renovate properties in ways that make it more appealing to the expected buyer.

For example, never reduce the bedroom count in a family-friendly community. Nor should you reduce the size of the closet or shrink the master bath to put in a hot tub few in the area would appreciate. Don’t rip out a good yard to put in a pool if there is little demand for it.  Choose the best real estate markets like the metro Atlanta area which has seen stellar growth in real estate.

In the Atlanta real estate market, demand has caused home values to rise around ten percent a year for the last few years. Housing prices in Atlanta dipped in 2017, allowing prices to adjust. Average home prices today are similar to where they were at the 2006 peak, but they’re more affordable when you take inflation into account. If you put time and effort into truly understanding your local real estate market, you can significantly improve your chances of becoming successful in real estate investment

6. Manage Your Risks In Real Estate Investment

There are several ways in which you can manage risk in a real estate investment. First, don’t go deeply into debt. When buying an investment property for sale, aim to put at least 10% down. Twenty percent is better since it eliminates private mortgage insurance and often yields a lower interest rate on the loan as well. Second, maintain a large cash reserve. You’ll reduce the risk of having to sell a property fast at a loss if you have the cash to carry the property long before it needs to move.

By having a larger cash reserve, you’ll also be able to pay for unexpected repair bills before you can put a property on the market. Running to a hard money lender to get the last $20,000 to fix a property is possible, but it comes with a high-interest rate that eats into your profit margin. Managing risks in the right manner can significantly improve your chances of becoming successful in real estate investment.

Don’t buy a property for which the math looks bad because you’re afraid you’ll lose out on the deal. Never fall in love with an investment property. You’re not going to live there – someone else will. Be aware of your risk tolerance. Then take action to manage the risk, whether you’re avoiding the fixer-upper you’re afraid will be a money hole or improving your cash position before you buy it. If you can’t handle the potential stresses of fix and flip, buy turnkey properties instead.

7. Go for Best in Class – Not “The Best”

A common mistake in real estate investment is trying to develop a property to be the best in the area. They may try to renovate homes in a working-class area and turn it into luxury homes. You can’t sell that for the same price you would receive in an upscale area. You end up losing money. Over-building a home is wasteful. Go for “best in class” touches, not trying to make an office building the fanciest or elite product.

First, fix everything that is broken or damaged. Then make little changes that stand out but don’t cost much. Two-tone paint over a single color paint job is one good example. More convenient soap dispensers and trash receptacles are another. Skip the Corian or granite countertops, the top-of-the-line appliances, or expensive decorating.

8. Maximize Value of Real Estate

Look for ways to maximize the value of the real estate, eking out more profit for the same investment property. It could involve renting out a corner to a bank to install an ATM. You could rent out space in the lobby for a small commissary, generating rental income from what otherwise failed to add to the business’ cash flow. In an apartment complex, you can look for value-added services. For example, offer trash pickup from someone’s door to the dumpster for a modest fee per month.

Or add a concierge or security guard to the building. Now you can charge higher rent for a more attractive property. Another variation of this applies to house flipping. Instead of buying the home, fixing it up, and selling it to a home buyer, fill it with a tenant, instead. Once the tenant has moved in with a lease, start looking for buyers. This is called a turnkey rental property, and it can easily be sold to a new investor who wants to jump into real estate investment without any hassles.

9. Know the Rules and Regulations of Real Estate Investment

Don’t turn that basement into a second rental unit until you know whether or not that’s allowed. Don’t convert the first floor of the building into commercial space if local zoning laws prohibit it. Be careful about food service business rules before you replace a break area full of vending machines with a little sandwich shop. Never assume you can add another room or second story to a building. Understand the degree of work that requires a permit before you start it.

10. Consider Non-Traditional Real Estate Investments

Remember that real estate investing doesn’t have to equal a choice between investing in single-family homes and apartment buildings. You could invest in office buildings, storage unit complexes, industrial space, and warehouses. All of these generate rental income. In the case of offices and industrial buildings, you may be able to reduce overall costs with a triple-net lease where the tenant covers basic insurance and pays the property taxes and maintenance. Your investment then yields steady cash flow with few out-of-pocket expenses.

Easiest Way To Become A Successful Real Estate Investor

Real estate is a great investment option for those who want to achieve financial success. Becoming a successful real estate investor is a great step toward achieving that much desired financial freedom. Real estate investment offers better cash flow prospects than the stock market. However, you need to take care to avoid mistakes that cause so many dreams of getting rich investing in property to turn into nightmares in bankruptcy court.

Good cash flow from the rental real estate means the investment is, needless to say, profitable. A bad cash flow, on the other hand, means you won’t have money on hand to repay your debt. Therefore, finding a good investment opportunity would be key to becoming successful in real estate investing. The less expensive the investment property is, the lower your ongoing expenses will be.

Real estate investing represents a perennial opportunity. However, the faces of real estate investing can be very different depending on the state of the economy and the real estate market. As a real estate investor, you must be aware of every opportunity. Keeping an open mind in real estate investing is vital to your success. We can help you succeed by minimizing risk and maximizing profitability. Consult with one of the investment counselors who can help build you a custom portfolio of turnkey cash-flow rental properties in the various growth markets across the United States.

All you have to do is fill up this form and schedule a consultation at your convenience. We’re standing by to help you take the guesswork out of real estate investing. By researching top real estate growth markets and structuring complete turnkey real estate investments, we help you succeed by minimizing risk and maximizing profitability.


References

  • https://www.huffingtonpost.com/aj-agrawal/5-basic-tips-for-investing-in-real-estate_b_9072532.html
  • https://money.usnews.com/money/personal-finance/articles/2017-06-29/9-secrets-of-successful-house-flippers
  • http://www.remodeling.hw.net/business/leadership/buy-fix-sell-profit-flipping-homes-can-be-lucrative-but-its-not-for-the-timid
  • https://www.forbes.com/sites/forbesrealestatecouncil/2018/02/23/18-ways-new-real-estate-investors-can-succeed-in-2018/#6ccdd9f12980
  • https://www.financialsamurai.com/what-if-you-buy-a-home-at-the-top-of-the-market-and-a-recession-hits/

Filed Under: Flipping, General Real Estate, Getting Started, Real Estate Investing, Real Estate Investments

How to Find Investment Properties for Sale in 2022?

November 23, 2022 by Marco Santarelli

Most newbie investors are perplexed by the question of how to find investment properties for sale? This page will focus on how to find a profitable real estate investment property. A good investment property often has very different characteristics than one’s dream home. For some, investment properties are those that are cheaper than average yet command average or above-average rents.

This might be a “distressed single-family” home or a small apartment building. In other cases, the investment property is the one in desperate need of repairs or renovations. You buy it for a low price, invest in repairs and strategic upgrades, and then sell the property.

Fix-and-rent is a hybrid of these two approaches, buying homes in need of repair, making the needed renovations and repairs, and then renting out your newly desirable rental property. You need to look for areas with high growth, higher rental yield, and low vacancy rates. You make the money when you rent it. The challenge for many is finding the right properties to buy.

Finding a good investment property can give you some great benefits such as:

  • Income – You earn rental income by converting your investment property into a rental.
  • Capital growth or Appreciation – As your property increases in value, you will benefit from a capital gain when you sell it.
  • Tax deductions – You can deduct certain expenses relating to an investment property such as a rental. These expenses can be property tax, mortgage interest, property repairs, property insurance, etc.
  • 1031 Exchange: You can take advantage of the 1031 tax-deferred exchange to acquire a more valuable investment property. You can find a “like-kind” but much more valuable investment property and exchange your old property to defer capital gains taxes on profits until that property is sold for cash.

Unlike some complex investments, you don't need any specialized knowledge to invest in real estate. You need to know where you are in the market cycle and find some good deals. Let’s learn about different options to find investment properties for sale in 2022.

how to find investment property for sale

How To Find Investment Properties For Sale By Searching Off-Market Deals

The best deals are those that haven’t hit the market yet. Once the property hits the MLS, you’re going to be in a bidding war with others considering buying the same property. In other cases, you’re trying to find homes before they go up for auction on the courthouse steps. The best way to find these properties is to network with realtors. Raise the cash to pay for these properties, because distressed sellers want to close on the deal as quickly as possible.

Then begin networking with realtors. Prove to them that you can afford to buy properties you want to buy because they don’t want to waste their time or that of their distressed sellers. Once they know you’re a serious buyer, discuss the types of properties you want to buy. You may begin to get leads on homes that are going to be sold to settle an estate or as part of an upcoming divorce.

You may learn about distressed sellers who will sell to you to avoid having a foreclosure on their credit reports. In summary, realtors are one of the best resources available to those seeking investment properties for sale. Cultivate relationships with several realtors so that you’ll have a steady stream of leads. Just make sure you give each of the businesses if you want them to continue working with you.

Find Investment Properties For Sale Through Multiple Listing System

Buying through the MLS is still the most common way people find real estate or investment property for sale. Short for “Multiple Listing Service,” the MLS is the collection of most of the properties that all real estate agents are currently trying to sell on the market. When you search a site like realtor.com, you’ll be searching the MLS. This information is widely distributed for most eyes to see.

The problem with the MLS is that every potential buyer is searching there. It’s the largest database of properties for sale, so trying to find a good deal can be a bit difficult as you have to compete with other buyers by entering into bidding wars. Every buyer is represented by a real estate agent or broker on MLS.

Being the first one to submit a “verbal offer” on a deal can often help you get it under contract before others get to see it. Have your financing option ready before you submit an offer as most sellers want to see a pre-approval letter before accepting an offer. This can help you avoid competition, and bidding wars. Hiring a competent broker can help to close a deal as well as avoid paying far more than you should for an investment property.

Find Investment Property By Working With Real Estate Wholesalers

Wholesalers find properties, often distressed, and buy them at a bargain price. They then shop for buyers. Wholesalers may advertise that they buy houses from divorcing couples, estates that need to be settled, rentals where tenants won’t pay the rent, homes in need of dire repairs, and sellers who need to close as soon as possible.

These sellers get 50 to 80 percent of what the house is worth, but they get the cash they need to settle their financial affairs or just move on in life. In other cases, the wholesaler buys the contract for the home and then shops for a buyer. Wholesalers then sell the house to someone else. This may be to the general public, but these properties are regularly sold to investors.

Buying investment properties from wholesalers has several advantages. You don’t have to shop around for the deals. You’re still free to assess the condition of the property and its relative price. They may have several investment properties for sale that you can choose from. And you don’t have to pay for the double closing if you’re going to fix and then rent out the property.

Another solution in this category is buying investment properties for sale from property developers in private investment groups. These investment properties for sale may be fixed and flipped, fix and rent out, or massive redevelopments of multi-family housing. Buying “fix and rent out” properties has the added benefit of giving you a property that already comes with known cash flow. Ironically, you might find realtors who do this type of property development on the side.

Find Investment Properties By Reaching Out to Potential Sellers Yourself

This can take several forms. One is driving for dollars or driving around looking for neglected properties. Note the address, and then send a letter offering to buy it. Another approach is direct mail to everyone in a given area. Send postcards letting everyone in the neighborhood know you buy distressed properties.

A few may contact you, and your information may be forwarded to someone they know who needs to sell fast. Direct mail only requires looking up public information regarding owner names and addresses. You don’t have to try to collect email addresses. You’re not cold-calling people in the area, something that could get you labeled a spammer.

What can you do if you’re interested in multi-family residential properties? Check the “for rent” ads. Are there developments that constantly have to advertise for new tenants? They may be willing to sell. Just make sure you have a plan to rehab the building and change how things are done.

For example, an apartment building owner ready to sell may be dealing with slow-paying tenants, high crime, or challenging government regulations. You may have to update the lease terms, evict non-paying tenants, make massive repairs, get government inspections, upgrade security features, or take more drastic action.

And you may not want to own a property in a dangerous neighborhood regardless of the ROI. On the other hand, you might find a real bargain when the soon-to-be-former landlady sells you the entire triplex so they can retire in Florida.

How To Find Investment Property For Sale Using Real Estate Websites

If you’re looking for investment properties, single-family homes can be found through traditional means like an MLS search as well as networking and direct marketing. Real estate investors looking for multi-family properties are rarely going to find this in the newspaper or the digital equivalent. Sellers of 50-unit apartment buildings and shopping malls aren’t going to list them on the average real estate listing site, either.

This is why you need to find websites like LoopNet, Realtor.com, and Costar that offer only commercial and multi-family residential properties. Sites like Zillow and Trulia rarely have such properties on their site. In some cases, you can find multi-family investment properties for sale by searching the offerings of various real estate investment groups.

People who buy, upgrade, and eventually sell multi-family properties are one of the few that will sell turnkey apartment buildings to renters. If you’re willing to take a risk and have excellent self-control, you might consider sites like Auction.com. This site focuses on housing auctions. This includes everything from land to newly built homes in foreclosure to luxury real estate subdivisions where the builder went bankrupt.

You can search their inventory for deals. You can look for properties you’re interested in. The challenge many would-be investors face is not over-bidding on the property. It is easy to get carried away when you’re trying to outbid others, though this could wipe out your profit margin.

How To Find Investment Properties For Sale By Talking to Bankers

An often overlooked way to find investment properties for sale is to talk to bankers. Let banks and credit unions know that you’re interested in buying foreclosed investment properties. You might be able to pick up newly renovated homes that house flippers couldn’t sell in time to avoid losing their shirts.

On the other hand, you might pick up a property that needs the renovations completed to sell it or rent it out. In this case, bankers will be happy to give you first dibs because they know it will be hard to sell on the open market. You could also get leads on multi-family properties that are at risk of going into foreclosure.

Talking to bankers may lead you to bank-owned properties that haven’t been listed yet or were taken down off the website because it hadn’t sold yet. Better yet, they’re the ones who can give you lists of homes available for short-sale. They’ll offer a discount because they didn’t have to pay the legal fees associated with the foreclosure. And almost none of the situations we’ve outlined will result in a property hitting the MLS.

Find Investment Property For Sale By Reviewing Publicly Available Information

This requires detailed research, but you may find leads for real deals. For example, reading lists of eviction notices published in the newspaper could tell you which apartment buildings have trouble with non-paying tenants. If the same property sees a steady stream of evictions, the owner may be eager to sell the property.

The same may be true of rented-out single-family homes. If you can find notice of default listings for multi-family buildings, you could make an offer before it goes into foreclosure. Sites like RealtyTrac are tailored toward searching existing foreclosures.

Another approach involves for sale by owner or FSBO ads. Owners trying to sell their own homes may be trying to save money. The property may need major repairs they can’t afford, or they may have an unusual home that’s hard to sell otherwise. In this case, you aren’t interested in the fresh listings. Instead, you’re interested in the FSBO listings that have been up for months. You already know from this that they are a distressed seller.

We would not recommend searching general real estate websites like Zillow to find FSBO properties, because it is hard to get a hold of the real owner instead of an agent working through Zillow hoping to act as an intermediary between you and the seller. However, you can use direct mail to reach everyone who has or has recently had FSBO ads to try to drum up leads.

One side benefit of this approach is that you can get very creative in the financing terms. This may include taking over someone else’s mortgage or signing a note with them to buy the property. However, we’d recommend getting a conventional mortgage to pay off their loan unless you’re going to sell the property in short order.

Always have a real estate attorney involved in this process. And have a thorough title search done every time because these kinds of investment properties for sale are much more likely to have clouded titles and issues like past-due liens. We do not recommend using tax liens as a way to get investment properties for sale.

Find A Profitable Investment Property For Sale: Contact Norada Real Estate Investments

Investment Properties For Sale

There are many ways to find potential investment properties for sale, no matter what type of property you’d like to own. You can find a strategy that works for you, whether you have the time to do detailed research or want to be presented with several options to choose from.

Choosing a real estate professional/counselor continues to be a vital part of this process. They are well-informed about critical factors that affect your specific market areas, such as changes in market conditions, market forecasts, consumer attitudes, best locations, timing, and interest rates.

NORADA REAL ESTATE INVESTMENTS has extensive experience investing in real estate and cash-flow investment properties. We strive to set the standard for our industry and inspire others by raising the bar on providing exceptional real estate investment opportunities in many other growth markets in the United States. We can help you succeed by minimizing risk and maximizing the profitability of your investment property for sale.

Consult with one of the investment counselors who can help build you a custom portfolio of investment properties in some of the best real estate markets. All you have to do is fill up this form and schedule a consultation at your convenience. We’re standing by to help you take the guesswork out of real estate investing. By researching and structuring complete real estate investments, we help you succeed by minimizing risk and maximizing profitability.


References

  • https://www.fool.com/millionacres/real-estate-investing/articles/how-find-investment-properties-outside-mls
  • https://www.mashvisor.com/blog/how-find-real-estate-agent-investment-properties
  • https://www.fortunebuilders.com/how-to-get-started-in-wholesaling                             
  • https://www.thanmerrill.com/how-to-find-investment-properties                       
  • https://www.biggerpockets.com/member-blogs/8266/64085-10-best-ways-to-find-great-multifamily-properties
  • https://www.biggerpockets.com/guides/ultimate-real-estate-investing-guide/how-to-find-investment-properties
  • https://www.thebalancesmb.com/websites-for-investment-property-for-sale-2124875
  • https://www.rocketmortgage.com/learn/buying-house-for-sale-by-owner                           
  • https://finance.zacks.com/risks-tax-lien-investing-avoid-7495.html                         
  • https://www.realestatewitch.com/fsbo-zillow/#The%20Problem%20with%20Zillow%E2%80%99s%20FSBO%20Business%20Model

Filed Under: General Real Estate, Real Estate Investing, Real Estate Investments

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