Best Method to Buy Investment Properties by Michael Kanehl
First off, there are all kinds of investment strategies you could employ, but let's concentrate on the two that are most appropriate form the individual investors. The first approach is to buy and sell the same property and the second one, more of a longterm strategy is to buy and rent or lease it out - hence generating an income flow.
Welcome to the " Let's talk REAL estate podcast - where we talk about real estate - life in general and how it affects you - today's topic will be
Seems like everyone's favorite topic around the proverbial watercooler, although in Vero Beach it may be more likely at the golf course or the dinner table.
let's take a closer look and bring some clarity to the subject.
First off, there are all kinds of investment strategies you could employ, but let's concentrate on the two that are most appropriate form the individual investors.
The first approach is to buy and sell the same property and the second one, more of a longterm strategy is to buy and rent or lease it out - hence generating an income flow.
Both have their advantages and disadvantages - some depend on your individual preference some deo=pends on prevailing market conditions.
Let's start with the buy and sell approach, or the more colloquial term " flipping." On the surface, it looks simple enough. You buy the property, make some improvements, and sell it again for a profit. Rinse and repeat.
How hard can it be? Lol - That approach has spawned several tv shows over the last decade as well. Probably one of the reasons it's pretty much the first thing first-time investors think of.
In theory, this works, no doubt about it. Here's the rub though, your success depends on three things
1. you have to buy the property below market value
2. you have to have the means for significant improvement - either your labor, hired, labor, etc.
3. you have to have an exit strategy - ideally a ready to go buyer to avoid any expensive holding costs
out of those three - number one is by far the most important - you have to buy it cheap enough - everything hinges on that.
Unfortunately, that's where the market conditions, I mentioned earlier come in, what worked 10 yrs ago, doesn't work anymore - or at least it doesn't work in the popular price range for individual investors - lets' 90-150K seems to be the range I get the most inquiries about.
These properties have doubled, sometimes tripled over the last 8-5 yrs. And quite honestly it's just not easy to find them.
Now here in Vero Beach, we have a unique situation in some areas where the buy and sell approach still works - and that would be on the beach side with some of the older homes. There's still tremendous potential to be had.
The downside is the initial price point and scope of renovation needed.
But it still possible to find the right candidate in the right locations in the $500-$600k price range, do a 200-300k remodel and end up with a nice profit margin.
and as an added bonus -Because of the financial firepower needed to pull this off - you'll also don't have many competitors.
SO with that approach not viable for a lot of people - let's talk about the cash flow approach. i.e., buy - improve- lease or rent out.
The good news here is the fact that the current rental market is your friend.
There seems to be a never-ending demand for affordable rental housing, affordable is subject to your local market of course, but in general, anything in the 1200-1500 range here will always be in demand.
Here are some observations I made over the years working with investors on those properties and le time point out some potential pitfalls.
1. the best return on your money will be on properties on the lower end of the market - just because you like the nice looking estate property better - those are making everything harder and less profitable, from improvements to finding tenants to the overall return
2. regarding your improvements, don't go overboard. Make it nice, make it clean, make it functional - everyone always initially agrees with me on that one - until your personal taste takes over and I'm looking at marble counter tops and expensive hardwood flooring -just because you like it or are accustomed to it - don't do it.
Lastly, You have to be comfortable with it being a landlord - or outsource that task- which in return will cut into your overall return
Let me mention one more approach that's being heavily touted right now.
It promises minimal initial cash outlay, little risk, and fast rewards.
The method is simple enough - you find a property in distress, or better said - you find a property owner that is willing, due to personal circumstances to sell his or her property a steep discount. Then you assign the contract , before you actually close ( either for a higher price or for some financial reward) to someone that has the means and time to rehab the property. In other words - you are now wholesaling.
In principle, this method can work well; but your success depends heavily on two factors. First off, finding these property owners can be tedious and but importantly - I would highly, highly suggest that you have build up your network of end buyers beforehand. Please, don't go out and put a house under contract and then try to find someone you can assign it to...
So there you have it in a nutshell- I can go much more into details about the various approaches mentioned, but hopefully, for now, this will give you a good overview or starting point.
Each individual situations and goals are different, so don't hesitate to contact me, and we can come up with a solution that fits best your situation and style.