Tips on Successful Single Family Real Estate Investing
If you've ever thought about getting into real estate investing, there's no time like the present. According to the most recent market forecasts, home prices are on the rise over the foreseeable future, causing your investment today to grow with it.
Many potential homeowners balk at investing in real estate, however, believing the risk to be too great to swallow. While owning rental properties isn't for everyone, there are several reasons to consider it, starting with the massive potential rewards. The payment you receive from rental properties is normally enough to pay for the mortgage itself, allowing you to pay down the price of the home and then keep the equity once it's paid off. Moreover, you can also adjust rents and deduct some of the taxes on your rental properties, which helps protect your asset value from inflation while other investments like stocks are hit.
This market will likely continue to increase, and if you're looking at homes in the Orlando area, here are a few tips that will help you get started.
1. Know What You're Looking For
Before you ever start looking at properties, it's important to understand your own personal level of risk. Many would-be investors have gotten in over their heads by believing that they would be able to devote more time and resources to a home than they can in actuality and are then forced to abandon the investment, possibly at a loss.
If you're looking to minimize your risk, look for homes that need minimal repairs to allow you to bring them to market and are also located in a steady, reliable market. These homes will typically be priced higher which means it'll take longer for you to see a return, but you'll also have less volatility. If you're focused on the big returns, aim for a home that is lower-priced and possibly needs work, but it is in an area you believe will reap larger returns. Regardless, establish your level of risk tolerance before you start your home search.
2. Become an Owner, Not a Handyman
There are two sides to real estate investing: investments and operations. Investors look at homes, purchase a home, and then move on to acquire more homes; operations managers are the ones responsible for the upkeep of those facilities. There's nothing wrong with either role, but home buyers - especially at the early stages of their career - should strongly consider focusing on the investing side and leaving the operations to someone else.
Why? Simply put, because it'll stunt your growth to do both. Some investors believe that they'll be able to save money by maintaining their own homes; they might, but only if you're talking about basic repairs. The real issue here is scale: You simply won't be able to own many properties if you're having to maintain each one individually.
A much better idea is to develop relationships with people who can manage the properties for you (for a percentage of the rent) and allow you to be completely hands off. This is where a property management company comes in handy. Not only will you be able to focus your attention solely on buying properties, but you'll also avoid the constant headache of fixing leaky sinks, changing filters, and everything else that's required with home maintenance. The cost of a good property management company may be close to 10% of your rental income, but the time it will save you to build your portfolio is worth every penny. Here at American Dream Homes, Inc. we charge much less than the popular 10% rate and strive to take care of each home as if it was our own. Contact us for a a no cost consultation to see how much we can save you!
3. Consider Going National
In times past, your area of operations was mainly limited to the region that you were able to personally visit, limiting your portfolio to homes within a reasonable travel limit. Those days are long gone. Now, an investor can search for homes in a completely different state, contact a local agency to investigate, buy the home, list it, and maintain it all from thousands of miles away. And with the myriad of different websites, apps, and software that pops up every day, that whole process has never been easier.
While this has obvious implications to building your portfolio quicker, another major advantage is diversification. If you have all of your homes in one specific region that has a strong industrial center, what happens when that business leaves or goes bankrupt? Spreading out your assets over a wide geographical area ensures that your homes are protected from surprise environmental factors that can tank your home value.
One thing to keep in mind if you do decide to expand your area of operations, however, is to stay abreast of the different laws and regulations associated with real estate investing. The inspection process may be different in Spokane than it is in Orlando, so take some time to do some research before you invest.
4. Understand the Differences Between Neighborhoods
It can be tempting to read lists that tout the "Best Places to Live in Florida", pick a city, and start looking at houses, but doing so would be to over-generalize the area specifically. As you most likely know in your own hometown, there is a huge difference between the individual neighborhoods in these cities, sometimes even as specific as a few city blocks.
Do your research before you buy a home based on the environmental factors in that specific area; often, one area can be on the rise while another declines - both in the same city - because businesses are moving and other areas go through the process of gentrification much sooner. If that's the case, then simply whitewashing the whole town as a positive area for growth can spell disaster. Instead, become hyper-specific about where you're buying and investigate the area thoroughly.
5. Set Aside a Rainy Day Fund
There are two funds that need to be set aside specifically for expenses: the everyday maintenance costs that are associated with the upkeep of a property, such as broken pipes or clogged toilets, and a larger one that covers things like HVAC replacement or a new roof. Both of these will need to be paid out when hazards arise, as well as the cost of labor if you plan on hiring out.
Of course, this is just one more argument for hiring a management company: Not only will they take care of these types of issues which saves you extra headache, the cost of repairs are typically at a reduced rate than what the general public pays because of the relationships that property management companies have developed. Property management companies in Orlando should also assist with finding tenants, advertising properties, and many of the other invaluable services that management companies typically offer.
6. Settle in for the Long Haul
At the end of the day, owning investment properties is a long-term, wealth-building strategy, not something you generally buy and sell according to market valuations. Buy your houses accordingly: If you buy in a good neighborhood and set up the right systems, you should see a nice set of returns for a long period of time. Then, if you decide to get out of the real estate business or want to leave something with tangible value to your loved ones in your will, you'll have assets that you or they can sell for a premium.
Are you considering switching property management companies? Read our latest article on how to do it the right way.
Disclaimer: American Dream Homes, Inc. is not offering financial or legal advice. As always, please consult a licensed financial advisor or lawyer to discuss your investment options.
American Dream Homes, Inc. is a licensed real estate broker serving Central Florida, with buying, selling, and property management needs.