Top 10 Most Profitable Cities for Real Estate Investing

It’s no surprise that real estate is booming all over the country. Even cities that saw significantly smaller populations or were hit hard when the housing bubble popped years ago are on investors’ minds. First, let’s review what an investment property is and some of its benefits, then let’s cover the top ten most profitable cities for real estate investing and why you should consider investing there.

What is an investment property?

According to Investopedia, “Investment property is real estate property that has been purchased with the intention of earning a return on the investment, either through rental income, the future resale of the property or both.” These properties are usually not an investor’s main home, but serve as supplemental income through short or long-term rentals.

Short-term rentals are often referred to as vacation rentals and serve guests for shorter periods of time. Sites like Airbnb and VRBO provide outlets for investors to make money using short-term rentals.

Long-term rentals involve renting out an investment property to a renter who is looking to stay for a longer period of time. Investors interested in long-term rentals are focused on the end goal, like generating supplemental income or making a profit when the property sells in the future.

Depending on your needs and goals, different cities and properties will be best for you. Here, we show you the top 10 places best places to invest in real estate.

Where to Invest in Property?

10. Austin, Texas

Austin is an up-and-coming area for young people and families, alike. One of the draws of Austin is its increasing nightlife and attractions and its affordable homes. With the university close by, investors can expect to rent out their property to students or faculty in the area.

austin-texas-investment

Benefits of investing in austin

Some of the key benefits of buying a property in Austin, Texas include:

  • A rising demographic of young people, meaning that individuals might be looking for a long-term rental to grow or start a family.
  • More businesses, including the technology industry, are opening up in the area.
  • Nightlife is growing, as well, meaning that rent will increase as the population grows.
  • Real estate is affordable. The median home price in the West University area, for example, is $239,000, and downtown the median home price is $379,000.

Considerations of Investing in Austin

Don’t expect to get rich quick by investing in a city like Austin. In the area, most investors expect from 5-7% appreciation. In other areas, such as California, these rates are low. In addition, there is a high rate of people moving out of the area, including graduating students and people leaving for better paying jobs. This constant flight might be worrisome for some investors.

9. San Diego, California

Ask any local in San Diego and they will tell you to jump on the housing market while you can. This diverse city boasts some of the best weather in the country, access to beaches and cities, and many other attractions (including great Mexican food!). Investors who have more capital might be interested in this growing Southern California city.

san-diego-investment-property

Benefits of Investing in San Diego

  • Some of the key benefits of investing in San Diego include:
  • A booming real estate market and increasing home prices. If you invest in San Diego today, expect your investment to increase in a short amount of time.
  • A diverse population of renters. In the area you will likely see surfer kids, working professionals, international families, and much more. Chances are, you will be able to find renters for your property with this wide pool of applicants.
  • Views! Nothing beats a Southern California view, which you can find in almost every part of San Diego.

Considerations of Investing in San Diego

If you are a first time investor, chances are you won’t be able to afford your dream home in a city like San Diego. If you are looking for an investment property, expect to pay more in such a high-demand city.

Another consideration of the area is that it has a very transient population. A lot of San Diegans are in the military, are students, are Mexican citizens staying for a short time, or other people looking to leave in the near future. If you don’t mind changing tenants regularly this might not be a deal-breaker, but if you are looking for consistent renters, San Diego might not be for you.

8. Charlotte, North Carolina

Charlotte is a southern city that has taken Millennials and older generations by storm. While some of the recent news surrounding the city has been unfavorable, it is a growing metro area with a lot to offer. Located on the cusp of the Atlantic Ocean, real estate in this area is ever-increasing.

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Benefits of Investing in Charlotte

  • You can get a good home at an affordable price. The average home sale price is about $185,000, which means that average rent is about $750 a month.
  • Even amenities are cheap. Locals boast that you can get a beer for $2 during a night on the town. These prices will attract younger renters.
  • In addition to a lively downtown, Charlotte also has greenery and keeps up wildlife conservation.
  • Talk about good food! Charlotteans’ favorites are barbeque and fast food.

Considerations of Investing in Charlotte

  • It’s still the Deep South, meaning that it lacks the diversity that some renters and investors might be searching for.
  • Homes sell fast and might not be seen without working with a realtor. Even on the popular house-hunting site Zillow, some homes might be under contract in less than 24 hours after it hits the market.
  • Investment properties likely won’t increase in value as much as other areas (but is still a viable option!)

7. Houston, Texas

Like Austin, Houston is redefining what most of the country thinks of when they think of Texas. The city is attracting a younger market with lively downtowns and many schools in the area.

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Benefits of Investing in Houston

  • The city is growing rapidly. Since 2010 the population has grown by 8.9%. In one year, between July 2014 and July 2015, Houston added 40,000 residents.
  • Home prices are low, with the average around $150,000.
  • Business owners and wealthy families are growing the artistic and musical attractions that Houston has to offer, making it more cultural than ever.

Considerations of Investing in Houston

  • The biggest thing on residents’ minds are natural disasters such as hurricanes and tropical storms. They do happen.
  • Commutes are long and residents will need a car to take full advantage of the area. Compared to some metro areas, this may be a deal-breaker.

6. Boston, Massachusetts

The East Coast real estate market has always been booming, and Boston has continued to hold its own. Although the Boston scene may already be more developed than other cities on this list, it’s still a contender for the best place to buy an investment property.

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Benefits of Investing in Boston

  • It is developed, attracts a wide array of individuals, and is close to many popular points of interests.
  • Once a Bostonian, always a Bostonian. Investors can likely expect renters to stay for a long time because the area is so attractive.
  • Besides being a popular city in itself, it is also close to hits like New York City and Washington, DC.

Considerations of Investing in Boston

  • Because it is already a large metro area, homes will sell for more than in other places. An investor must have enough capital to afford a place in the area. According to the Boston Globe, home sale prices are up 31% compared to in 2010.
  • Supply is very limited, so act fast!
  • Because housing is more expensive, most blue collar workers will be pushed to the suburbs, therefore increasing traffic and commuting times.

5. Salt Lake City, Utah

With Silicon Valley getting so crowded, some people are calling Salt Lake City the next big technology hub.

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Benefits of Investing in Salt Lake City

  • Job growth is at an all-time high and vacancy rates are at an all-time low.
  • Average rent rates jumped 4.9% and are at $892 for an apartment unit.
  • Tech, and other industries, are growing in the area and the city is no longer only for families with children.

Considerations of Investing in Salt Lake City

  • The weather may scare some renters away, with cold winters and hot summers.
  • The culture still lacks the diversity some Americans have come to expect.
  • There are a few strange liquor laws lingering around, such as no liquor at dine-in restaurants without ordering food, which might shy some younger renters away.

4. Tampa, Florida

Florida was a state hit hard by the recession and housing market crash, but it is getting back on its feet surely and stronger than ever.

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Benefits of Investing in Tampa

  • The city is located close to a major Air Force Base, which means that short-term renters are abundant. Military families also have a guaranteed housing budget, which might set some investors’ minds at ease.
  • There are a lot of condos and apartments for sale, as well as single family homes. It is likely that an investor can find a property that fits their needs.

Considerations of Investing in Tampa

  • Because of the large military population, expect renters to be more short-term than other areas.
  • Florida home sale prices fluctuate, meaning that you could sell your investment property and make a profit, or you might have to sit on it while waiting out the low times.
  • Like North Carolina, this southern state faces the threat of natural disasters regularly.

3. Las Vegas, Nevada

It may surprise you that the Las Vegas housing market is still alive and well, but as the city continues to grow so do its housing opportunities.

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Benefits of Investing in Las Vegas

  • We all know the saying “what happens in Vegas, stays in Vegas,” which is one of the reasons why people will always come back. Tourism is booming in Las Vegas, which means good news for business owners.
  • Although Vegas went through a slump a few years back, they are now attracting a younger crowd again. With live shows, DJs, and other entertainment, young people will come (and bring their friends!)
  • There is more to Vegas than just the strip. Locals know of all the good, less commercialized nightlife.

Considerations of Investing in Vegas

  • A lot of housing in Vegas is short lived, either because residents tire of its lively nature or because of better jobs elsewhere. Because of that, short-term rentals are more popular.
  • Although Las Vegas has done its job of attracting young people, the market isn’t as booming as it used to be. Investors might be curious of its future.

2. Boise, Idaho

When you hear about Idaho, you likely think of farmers and potatoes. But the state has a lot more to offer than you may think. From skiing at Sun Valley to living in cities like Boise, this market is hot.

boise-investment

Benefits of Investing in Boise

  • The market is new and fresh, meaning that you can purchase a property at a lower cost than other areas in the country.
  • Job growth and population has grown dramatically.
  • Multiple reports have considered Boise as one of the best cities to raise a family. This means that investors can expect new parents to stay for the long-term.

Considerations of Investing in Boise

  • While the population is growing, Boise isn’t as attractive to young people as some of the areas on this list.
  • The weather is extreme and might not be for all residents. Expect cold winters and hot summers.
  • Boise, and most of Idaho, is more rural than other metro areas. This could be good for some renters and not for others.

1. Denver, Colorado

Denver is a very profitable area for investors right now. It has been attracting diverse populations for years and has a lot to offer renters.

denver-co-investment

Benefits of Investing in Denver

  • The area has grown and there are many points of interest nearby.
  • Public transportation is prominent and appeals to many renters.
  • There are many schools and universities nearby for children of all ages.

Considerations of Investing in Denver

  • The market is hot, so act fast! Places sell fast in the area.
  • A lot of the homes for sale are older and may require extensive fixing up.

Investment properties are a great way to generate supplemental income and make a profit, if marketed correctly. These are ten of the most profitable cities for real estate investing, but no matter where you live Revestor can help you find the best short-term investment properties in your area.

Interview w/ George You: Rental Property Management

In this episode, Bill talks to George You, owner of several successful property management companies that have offerings in both the short-term and long-term markets across several areas including Big Bear, Mission Beach, and Cabo San Lucas. Listen as George shares his strategy for keeping both investors and customers happy, and how he has mastered the art of spotting properties ripe with potential.

 

Time Stamped Show Notes:

  • 00:09 – Bill introduces George
  • 00:53 – Bill and George met in the Entrepreneur’s Organization
  • 01:13 – George’s vacation rentals are in Big Bear, Mission Beach, and Cabo
  • 01:20 – George works a lot with investors
    • 01:30 – “We make sure we can get the income they’re expecting on their properties”
  • 01:42 – Most of George’s long-term rental properties are in San Diego
    • 01:49 – They have 40-50 long-term rental properties and 80 short-term properties
  • 02:19 – George charges a management fee of 5-10% depending on the number of units on the long-term rental side
  • 03:05 – The advantage of having a property management company for a long-term rental property
    • 03:15 – No hassle
    • 03:25 – Be able to look at market rents constantly
  • 03:50 – Short-term rental property management fee ranges from 20-30%
  • 04:33 – 3 phases to get a good review from guests
    • 04:35 – Booking stage, arrival stage, and post-booking stage
    • 04:42 – George automates everything so guests can have a pleasant stay
    • 04:57 – George started an amenity program
      • 05:13 – Guests can enjoy one free amenity per guest per stay
    • 06:00 – Booking online is through their software or different channel partners
      • 06:15 – 50% of the guests book online and 50% still call to book
    • 06:30 – What would you say to an investor who thinks that the charge is too much for them?
      • 06:43 – Most investors don’t have a software where they can push a property out to all channel partners
    • 08:12 – Investors can actually save money by going through a property management company
    • 09:26 – George’s software recommendations for those who want to manage their own property
    • 09:54 – For investors to be successful in short-term rentals, the biggest thing is to research and talk to people who have been in the field
    • 10:43 – How to find the best ROI
      • 10:54 – Find a property that has the potential to stand-out from the usual
      • 11:54 – “The more occupancy, the higher rents you can get”
    • 12:26 – George has designers that can recommend for furnishings or be available for design consultation
    • 12:48 – Coordinate the colors of furnishing to enhance the ambiance of the place
    • 14:15 – Short-term versus long-term?—it depends on the property
    • 14:36 – In Mission Beach, George has 80 vacation rentals, 60 in Big Bear, and about 100 in Cabo
    • 15:02 – George will accept properties close to Mission Beach
      • 15:20 – Charge is 20% on short-term rentals
    • 15:37 – Team size
    • 15:50 – Get in touch with George through his email
    • 16:03 – “We offer investors customized proforma and guarantee what we’ll be able to do for them”
    • 16:27 – Revestor.com is a pre-due diligence tool for users to run the numbers and kick the tires
    • 16:47 – How do you handle a bad review?
      • 16:53 – Handle it publicly. Respond and be real
      • 17:10 – Handle it directly with the person. Reach out and ask what you can do next time to help take care of them
    • 18:10 – “Do your research, talk to the professionals and learn the business”

3 Key Points:

  1. Over correct the problem and take care of the people.
  2. Figure out a way where you can add value to the property.
  3. Never discount your price; just add value and bonuses.

Resources Mentioned:

Credits:

Show Notes provided by Mallard Creatives

Interview w/ Adam Dailey: Investing in Short-Term Rentals

In this episode, Bill talks to Adam Dailey, an entrepreneur and AirBNB investor/host. In addition to his love of entrepreneurship and AirBNB, Adam owns a beer marketing company. Listen as Adam shares his strategies for becoming a successful Airbnb host, identifying properties with true earning potential, and side-stepping those cumbersome HOA fees.

(SIDE NOTE: The audio quality is not the best but please bare with it because it is WELL worth it!)

Time Stamped Show Notes:

  • 00:09 – Bill introduces Adam Dailey
  • 00:10 – Bill and Adam met at Entrepreneur’s Organization
  • 00:20 – Adam’s background is in marketing and he now runs a beer marketing company
  • 00:30 – Adam has three properties available on AirBnb
  • 01:25 – Adam started with his place in Austin, which he rents out for South by Southwest
    • 01:40 – Adam bought and found everything he needed for the house in Home Depot
    • 02:30 – Adam’s place is good for 5-7 people
  • 02:45 – There are guests who won’t clean the place after their stay
  • 03:20 – Rent Like A Champion
  • 03:58 – Adam doesn’t use a management company
    • 04:10 – Adam wants to manage the place on his own
    • 04:20 – Adam’s son was born in one of the houses so it has a sentimental value to him
  • 05:18 – Adam’s stand regarding HOA fees
    • 05:24 – None of Adam’s properties have HOA
    • 06:00 – “There’s a way around it and as a business model, there’s a lot of people doing that”
  • 06:27 – Adam’s recommendation on people finding properties
    • 07:05 – Adam likes the downtown properties because of the businesses coming during the week
    • 07:35 – Guests would normally limit themselves between beaches and downtown
  • 08:08 – “Don’t look at the city. Look at the neighborhood and know your niche”
  • 09:10 – Ideal price per unit is $500 per night
    • 09:20 – “If you have a higher starting price, you get a higher level person as a guest”
  • 10:15 – Bill talking about Pablo who has a motel and turned it into Airbnb
  • 10:40 – When you have a hotel turned into an Airbnb, it is easier to run and control everything
  • 11:23 – Adam has a system for smaller scale properties that automates everything
  • 11:38 – Reviews are important
    • 11:56 – Adam has a welcome basket for the guests
  • 12:37 – What the host is getting will depend on how big the transaction is
    • 12:44 – In San Diego, the guest is going to pay an extra 10% of the hotel tax
  • 13:29 – Adam charges the guests whatever he charges the cleaning people
  • 13:57 – Adam will only stay in San Diego for now
  • 14:33 – Short-term rental is a good business model
  • 14:40 – Short-term and long-term rental properties rates can be seen at Revestor
  • 15:48 – “Research and be a sniper”

3 Key Points:

  1. Don’t look at the city. Look at the neighborhood and know your niche.
  2. If you have a higher starting price, you get a higher level person as guests—eliminates potential problems before they start.
  3. Research and be a sniper.

Resources Mentioned:

  • Rent Like A Champion – One episode on SharkTank that is similar with Airbnb
  • Revestor – Bill’s website where you can find short-term and long-term rental rate of properties

Credits

What Kind Of Investor Are You? Part 2 of 3

Last week I talked about approaching real estate investing from a long term buy and hold strategy. If the long term strategy is the most common then this week’s strategy is certainly the up and comer. Let’s go over some advantages and disadvantages to short term buy and hold real estate investing. Often referred to as short term or vacation rentals.

The National Association of Realtors has only collected data on vacation rentals since 2003 and in 2014 a record number of sales were made. The vacation rental industry has given birth to companies such as VRBO (Homeaway) and AirBNB just to name a couple. Furthermore the feedback we’ve received from our users, has caused us to adapt and develop new tools which will be coming to Revestor this Fall.
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With all of the users, investors and agents I polled for this week’s post there was one piece of advice that each gave. And that was to know your numbers. With all of the variable and unexpected costs that come along with buying a vacation rental it’s important to due your homework.

#1. Know the area

You need to be familiar with the area that you’re looking to buy in. I’m talking year round. Let me give you an example. I can rent out a 3 bedroom / 2 bath townhouse in Palm Springs from January 1st to April 30th for $5,000 / month and have people lining up to occupy the unit. From June 1st to September 30th it isn’t uncommon to have a 90% vacancy rate. Vacation destinations have seasonality and rents that coincide with those seasons. There are other cities such as New York, San Francisco and Chicago that may not be exposed to such a change in demand but the bottom line is that you must know your market. All 365 days of it. (Well New York can get really hot and really cold regardless there is demand but not so much so in Chicago)

#2. Know the rules

If you know the area then you must know the rules. Your neighbors may not be thrilled with the idea of living next door to a new tenant every few days, few weeks or few months. Perhaps there is something stated in the HOA, CC&R’s or local laws. The explosion of owner occupied vacation rentals is still a relatively new market and laws will be changing as a result.   

Screenshot 2016-07-27 15.01.43

#3. Know the numbers

Revestor can help you locate properties and run the numbers as a valuable due diligence tool. It’s up to you to understand those numbers. Here are just a few items you need to consider when understanding the numbers for a potential vacation rental.

  • Furnishings – You need to develop a budget for furnishings. Know ahead of time that your future tenants likely won’t care about the beer they spill on the couch.
  • Cleaning – Depending on your length of stays, vacancy rate, your proximity to the property, your willingness to clean etc. You’ll need a best case / worst case scenario in place.
  • Utilities – Running the A/C 24 hours a day may not be what you had in mind but it may be what your tenant has in mind. Or perhaps they prefer your pool be heated to 85 degrees. Those unexpected utility bills can wreak havoc on your bottom line.
    *You can manage utilities from afar on your smartphone nowadays.
  • Effects on neighbors – Your tenant is on vacation so they are likely going to do what others do on vacation. Stay up late, make noise, drink etc. This can have a negative impact on your neighbors and can make management difficult for you.

#4. Decide who will manage the property

Sites like VRBO & AirBNB are great resources to help monetize your vacation rental but what is the best solution for you? If you’re considering one of these methods I would highly recommend looking for a MeetUp or local event hosted by AirBNB where they will walk you through their platform. I would also recommend (just in the beginning) renting your place below the market price. The reason for this is two fold.

  1. You’ll get it occupied quicker saving you the expense of vacancy
  2. You can get more people through and get better reviews faster

If you decide to go with a property management company understand that they will likely take a higher percentage. Cuts as high as 20% are commonplace in the vacation rental market. There are advantages however to working with management companies that focus solely on the vacation rental market. Companies such as Pillow Homes and Mission Sands are good examples.

Vacation rentals can be a very lucrative strategy when it comes to real estate investing. IF, you know your market. If you’re searching for that starting point for getting started then Revestor is the place for you. Being able to run investment calculations over live listings will help familiarize you with the market and help you to make better decisions. When you’re ready, we also have a network of professionals to help you complete the purchase process.

Happy hunting,

Teevan

 

Six Real Estate Investment Practices You Should Stop Now.

Managing your real estate investment business effectively is the key to continued profitability in this fast-paced industry. Knowing what not to do is just as important as understanding the positive principles of successful property investments. Here are six practices you need to think about when buying, selling or brokering real estate transactions in the modern marketplace.

Stop-Sign-in-the-Real-Estate-Market


#1. Failing to Perform Due Diligence

Doing your homework on the local real estate market is critical to your success as a real estate investor. Some of the most important things to consider before making a move in real estate include the following:

  • Current number of homes on the market in your area
  • Average sale prices & Average time on the market
  • Number of distressed properties available for purchase
  • Rental occupancy rates and average monthly revenues collected on rental units
  • Purchase prices for comparable properties
  • Neighborhood details to include demographics, crime stats, walkability, school district information and public transportation options
  • Zoning restrictions applicable to the property

Intangibles can be as important as these practical factors. Determining whether a particular neighborhood is in decline or in demand, for instance, can help you decide on the likely value of a property now and into the future.

#2. Failing to Consider All Expenses

When calculating the likely return on investment for a property, remember to include maintenance costs, property taxes and homeowners’ association fees into your figures. According to the experts at Zillow, typical operating expenses can add up to between 35 and 80 percent of the revenues generated. Aiming for between 40 and 50 percent can provide you with a healthy profit on your ongoing investment.

#3. Misunderstanding the Element of Time

Especially when purchasing distressed properties, timing can be critical to your own success and to the financial well being of the seller. Rushing into a deal, however, can be counterproductive. Missing out on potential revenues is never as damaging as taking a loss on a real estate investment. By taking your time and analyzing the pros and cons of each potential transaction, you can avoid making a costly mistake when time is a critical element. You need to learn how to say “no” when it matters most (i.e. investing in anything.)

#4. Utilizing Outdated Technology

Do you rely on an outdated, mobile-UNfriendly site that takes forever to load? Clients today are tech-savvy and finicky. If they’re unimpressed with the ease-of-use ways you communicate, advertise, and respond to them, they’ll likely not give you a second chance. A recent survey showed that 45% of consumers say a bad website is WORSE than no site at all. Everything from applications, to rental payments, to advertising should be online and easily accessible for every party involved. If you’re not managing the properties make sure your property manager is up to speed.

#5. Overextending Yourself Financially

Adding properties to your portfolio can increase your potential revenues to help you build wealth. However, failing to maintain adequate cash in reserve can leave you in real financial trouble if unexpected setbacks occur. The loss of one or more tenants, unexpected repair costs or legal entanglements can drain your available cash on hand. By ensuring that you have sufficient monetary reserves to manage these expenses, you can maintain an even keel even when unexpected financial storms arise.

#6. Going against Your Gut

Intuition is a valuable tool for investors in any field of endeavor. In the real estate field, going against your gut instincts can saddle you with a bad investment that can drain away potential revenues. In general, always listen to that internal voice and walk away when a property deal doesn’t seem quite right. The reverse is not always true, however; if a questionable investment appeals to you, it may be the wisest course of action to move on and examine other options — when all else fails, fall back on tip #1 and do your due diligence.

By avoiding these six pitfalls, you can increase your chances of long-term profitability in the field of real estate investment.

To Fix & Flip Or to Buy & Hold – That Is the Question: Statistics to Help You Decide

As another fiscal year draws to a close, many investors are trying to decide whether they should hold on to their real estate properties or sell them for immediate profits. Some say the glory days of “flipping” are over, but we’re not so convinced that’s true. Read on for all the info you need to make an informed, right-for-your-situation decision.

fix flip buy hold

 

Here are some of the most important stats and trends you need to know to make the right choice about your investment properties.

 

Existing Home Sales in Decline

The National Association of Realtors (NAR) compiles statistics on a monthly basis regarding new and existing home sales and trends in the real estate marketplace. Here are some of the most important stats from their August 2015 report.[i]

  • 8% — percentage that existing home sales fell by month-over-month between July and August 2015. However, home prices were on the rise thanks to limited inventories and relatively low new home construction in the single-family residential marketplace.
  • 2% — percentage that year-over-year home sales improved by as of August 2015.
  • 7% — percentage of foreclosures and short sales that comprised the market in August 2015, holding steady from the previous month.
  • 18% — percentage below market value that foreclosed homes sold for in August 2015.
  • 12% — percentage of market value that short sales typically when sold.
  • 12% — percentage of real estate investors that accounted for sales in August 2015.
  • 60% — percentage of investors who paid cash.
  • 7% — percentage of gain over the $228,700 median price for all existing housing in August 2015.
  • 32% – percentage of first-time homebuyers.

Depending on your target audience and your expected return on investment, it may be worthwhile to research your local real estate market to determine the current value of your investment properties.

 

Rents Continue to Rise

On the other side of the equation, property owners and managers continue to enjoy high occupancy rates and increasing rental revenues in almost all areas of the country.

  • A joint report by Axiometrics and MPF Research indicates that the single-family rental market may have finally reached a tipping point. After months of low vacancy rates and high rents, builders and property owners are seeing a slight rise in the number of vacant units. This is attributable in part to the increased construction of apartment complexes and rental units across the U.S.[ii]
  • The 2015 Rental Market Report from Rent.com paints a rosier picture of the overall outlook for rental property owners in the current economic environment. Based on information from property managers across the country, this report indicates that high occupancy rates and demand for rental properties are driving current favorable conditions for real estate investors nationwide.[iii]

These statistics make a good case for holding on to high-performing rental properties in the current economy.

 

Future Predictions

The financial experts at Fortune are predicting increases in average rental costs of 8 percent or more in 2016.[iv] This will constitute a real windfall for real estate investors who stay the course and rent their properties for ongoing profit. These rent increases are attributable to high demand and low inventories that are expected to continue throughout the upcoming year.

At Revestor, we specialize in giving real estate investors the tools they need to succeed. Whether you are investing and and/or flipping your first house or your thirty-first, we’re here to help you make the most of your investments no matter what the housing market has in store.

 

[i] http://www.realtor.org/news-releases/2015/09/existing-home-sales-stall-in-august-prices-moderate

[ii] http://www.multifamilyexecutive.com/property-management/reis-vacancies-rise-in-3q_o

[iii] http://www.rent.com/blog/2015-rental-market-report/

[iv] http://fortune.com/2015/10/07/rents-rise-housing/

 

 

Real Estate Crowdfunding: The Future of Real Estate Financing is Here {Guest Post}

In the past few years, crowdfunding has become one of the most effective and popular ways for companies and individuals to raise capital over the Internet.  In fact, since Congress passed Title II of the JOBS Act in September 2013, one of the industries that’s benefited the most from crowdfunding has been the real estate industry.  These provisions, which allowed for debt and equity crowdfunding to become a legal and viable option, have spawned a new method for real estate investors and sponsors to raise capital for their projects, without having to rely on their local banks and hard money lenders for financing.

The genius of the real estate crowdfunding model is in its simplicity.  Typically, in a real estate crowdfunding scenario, a developer of a property brings a deal to the table by submitting the details of their project to a platform.  The project is then vetted by the platform to make sure the investment is a sound and lucrative venture.  After the platform has conducted their due diligence they will then host the project on their site, giving investors the opportunity to contribute funds towards that particular loan.  As the project moves towards completion, the Borrower pays down their loan with interest while the contributors receive dividend distributions as a return on their principal investment.  The exit strategy for the Borrower depends on what type of project they’re working on.  Regardless, the peer to peer lending process is fairly simple for all parties involved and everyone is able to benefit from the experience if all goes as planned.

Ultimately, Patch of Land’s real estate crowdfunding platform bridges the gap between traditional and hard money lenders by combining the best elements from each.  This concept provides a fast and reliable solution for real estate investors looking to borrow funds and raise capital for their projects in an easy and repeatable way.  Here are just some of the benefits of getting a peer to peer loan through Patch of Land:

  • Access to Capital – Our large network (or “crowd”) of accredited investors provides you with a source of capital that never runs dry.
  • Speed to Close – Our tech-enabled platform helps us work with a sense of urgency to approve and fund your loan in as little as 7 days.
  • Prefunded Loans – After we’ve approved your loan, we will fund you at closing first, then offer your deal to the “crowd” second. This is opposed to traditional real estate crowdfunding platforms that make you wait until the “crowd” fully funds your loan before moving forward with your financing.
  • Nationwide Reach – We operate in every state throughout the nation with exception to a select few.
  • Brand Your Business – The projects hosted on our industry-leading platform are listed on CNBC’s Crowdfinance 50 Real Estate Average which means investors throughout the world will take notice and recognize your business.
  • Easy to Repeat – Once we’ve worked with you in the past we’re able to close your loans even faster in the future.

pol - logo - 2014-02-27 TAGLINE REV VERT HIGH RES

For more information on how you can use real estate crowdfunding to finance your next project, visit Patch of Land.  Our Lending Parameters, FREE Borrower Handbook, and Application Center will provide you with the educational resources you need to get started on financing your next short-term residential or commercial real estate loan today.

 

Guest Post by:
Marco Rivera with Patch of Land
marco@patchofland.com

The Top 5 Key Benefits of Purchasing and Owning Investment Real Estate

So… You may ask yourself, why should you buy or invest in real estate in the First Place? Because it’s the IDEAL investment! Let’s take a moment to address the reasons why people should have investment real estate in the first place. The easiest answer is a well-known acronym that addresses the key benefits for all investment real estate. Put simply, Investment Real Estate is an IDEAL investment. The IDEAL stands for:

    • I – Income
    • D – Depreciation
    • E – Expenses
    • A – Appreciation
    • L – Leverage

Real estate is the IDEAL investment compared to all others. I’ll explain each benefit in depth.

The “I” in IDEAL stands for Income. (a.k.a. positive cash flow) Does it even generate income? Your investment property should be generating income from rents received each month. Of course, there will be months where you may experience a vacancy, but for the most part your investment will be producing an income. Be careful because many times beginning investors exaggerate their assumptions and don’t take into account all potential costs. The investor should know going into the purchase that the property will COST money each month (otherwise known as negative cash flow). This scenario, although not ideal, may be OK, only in specific instances that we will discuss later. It boils down to the risk tolerance and ability for the owner to fund and pay for a negative producing asset. In the boom years of real estate, prices were sky high and the rents didn’t increase proportionately with many residential real estate investment properties. Many naïve investors purchased properties with the assumption that the appreciation in prices would more than compensate for the fact that the high balance mortgage would be a significant negative impact on the funds each month. Be aware of this and do your best to forecast a positive cash flow scenario, so that you can actually realize the INCOME part of the IDEAL equation.

Often times, it may require a higher down payment (therefore lesser amount being mortgaged) so that your cash flow is acceptable each month. Ideally, you eventually pay off the mortgage so there is no question that cash flow will be coming in each month, and substantially so. This ought to be a vital component to one’s retirement plan. Do this a few times and you won’t have to worry about money later on down the road, which is the main goal as well as the reward for taking the risk in purchasing investment property in the first place.

The “D” in IDEAL Stands for Depreciation. With investment real estate, you are able to utilize its depreciation for your own tax benefit. What is depreciation anyway? It’s a non-cost accounting method to take into account the overall financial burden incurred through real estate investment. Look at this another way, when you buy a brand new car, the minute you drive off the lot, that car has depreciated in value. When it comes to your investment real estate property, the IRS allows you to deduct this amount yearly against your taxes. Please note: I am not a tax professional, so this is not meant to be a lesson in taxation policy or to be construed as tax advice.

With that said, the depreciation of a real estate investment property is determined by the overall value of the structure of the property and the length of time (recovery period based on the property type-either residential or commercial). If you have ever gotten a property tax bill, they usually break your property’s assessed value into two categories: one for the value of the land, and the other for the value of the structure. Both of these values added up equals your total “basis” for property taxation. When it comes to depreciation, you can deduct against your taxes on the original base value of the structure only; the IRS doesn’t allow you to depreciate land value (because land is typically only APPRECIATING). Just like your new car driving off the lot, it’s the structure on the property that is getting less and less valuable every year as its effective age gets older and older. And you can use this to your tax advantage.

The best example of the benefit regarding this concept is through depreciation, you can actually turn a property that creates a positive cash flow into one that shows a loss (on paper) when dealing with taxes and the IRS. And by doing so, that (paper) loss is deductible against your income for tax purposes. Therefore, it’s a great benefit for people that are specifically looking for a “tax-shelter” of sorts for their real estate investments.

For example, and without getting too technical, assume that you are able to depreciate $15,000 a year from a $500,000 residential investment property that you own. Let’s say that you are cash-flowing $1,000 a month (meaning that after all expenses, you are net-positive $1000 each month), so you have $12,000 total annual income for the year from this property’s rental income. Although you took in $12,000, you can show through your accountancy with the depreciation of the investment real estate that you actually lost $3,000 on paper, which is used against any income taxes that you may owe. From the standpoint of IRS, this property realized a loss of $3,000 after the “expense” of the $15,000 depreciation amount was taken into account. Not only are there no taxes due on that rental income, you can utilize the paper loss of $3,000 against your other regular taxable income from your day-job. Investment property at higher price points will have proportionally higher tax-shelter qualities. Investors use this to their benefit in being able to deduct as much against their taxable amount owed each year through the benefit of depreciation with their underlying real estate investment.

Although this is a vastly important benefit to owning investment real estate, the subject is not well understood. Because depreciation is a somewhat complicated tax subject, the above explanation was meant to be cursory in nature. When it comes to issues involving taxes and depreciation, make sure you have a tax professional that can advise you appropriately so you know where you stand.

The “E” in IDEAL is for Expenses – Generally, all expenses incurred relating to the property are deductible when it comes to your investment property. The cost for utilities, the cost for insurance, the mortgage, and the interest and property taxes you pay. If you use a property manager or if you’re repairing or improving the property itself, all of this is deductible. Real estate investment comes with a lot of expenses, duties, and responsibilities to ensure the investment property itself performs to its highest capability. Because of this, contemporary tax law generally allows that all of these related expenses are deductible to the benefit of the investment real estate landowner. If you were to ever take a loss, or purposefully took a loss on a business investment or investment property, that loss (expense) can carry over for multiple years against your income taxes. For some people, this is an aggressive and technical strategy. Yet it’s another potential benefit of investment real estate.

The “A” in IDEAL is for Appreciation – Appreciation means the growth of value of the underlying investment. It’s one of the main reasons that we invest in the first place, and it’s a powerful way to grow your net worth. Many homes in the city of San Francisco are several million dollars in today’s market, but back in the 1960s, the same property was worth about the cost of the car you are currently driving (probably even less!). Throughout the years, the area became more popular and the demand that ensued caused the real estate prices in the city to grow exponentially compared to where they were a few decades ago. People that were lucky enough to recognize this, or who were just in the right place at the right time and continued to live in their home have realized an investment return in the 1000’s of percent. Now that’s what appreciation is all about. What other investment can make you this kind of return without drastically increased risk? The best part about investment real estate is that someone is paying you to live in your property, paying off your mortgage, and creating an income (positive cash flow) to you each month along the way throughout your course of ownership.

The “L” in IDEAL stands for Leverage – A lot of people refer to this as “OPM” (other people’s money). This is when you are using a small amount of your money to control a much more expensive asset. You are essentially leveraging your down payment and gaining control of an asset that you would normally not be able to purchase without the loan itself. Leverage is much more acceptable in the real estate world and inherently less risky than leverage in the stock world (where this is done through means of options or buying “on Margin”). Leverage is common in real estate. Otherwise, people would only buy property when they had 100% of the cash to do so. Over a third of all purchase transactions are all-cash transactions as our recovery continues. Still, about 2/3 of all purchases are done with some level of financing, so the majority of buyers in the market enjoy the power that leverage can offer when it comes to investment real estate.

For example, if a real estate investor was to buy a house that costs $100,000 with 10% down payment, they are leveraging the remaining 90% through the use of the associated mortgage. Let’s say the local market improves by 20% over the next year, and therefore the actual property is now worth $120,000. When it comes to leverage, from the standpoint of this property, its value increased by 20%. But compared to the investor’s actual down payment (the “skin in the game”) of $10,000- this increase in property value of 20% really means the investor doubled their return on the investment actually made-also known as the “cash on cash” return. In this case, that is 200%-because the $10,000 is now responsible and entitled to a $20,000 increase in overall value and the overall potential profit.

Although leverage is considered a benefit, like everything else, there can always be too much of a good thing. In 2007, when the real estate market took a turn for the worst, many investors were over-leveraged and fared the worst. They could not weather the storm of a correcting economy. Exercising caution with every investment made will help to ensure that you can purchase, retain, pay-off debt, and grow your wealth from the investment decisions made as opposed to being at the mercy and whim of the overall market fluctuations. Surely there will be future booms and busts as the past would dictate as we continue to move forward. More planning and preparing while building net worth will help prevent getting bruised and battered by the side effects of whatever market we find ourselves in.

Many people think that investment real estate is only about cash flow and appreciation, but it’s so much more than that. As mentioned above, you can realize several benefits through each real estate investment property you purchase. The challenge is to maximize the benefits through every investment.

Furthermore, the IDEAL acronym is not just a reminder of the benefits of investment real estate; it’s also here to serve as a guide for every investment property you will consider purchasing in the future. Any property you purchase should conform to all of the letters that represent the IDEAL acronym. The underlying property should have a good reason for not fitting all the guidelines. And in almost every case, if there is an investment you are considering that doesn’t hit all the guidelines, by most accounts you should probably PASS on it!

Take for example a story of my own, regarding a property that I purchased early on in my real estate career. To this day, it’s the biggest investment mistake that I’ve made, and it’s precisely because I didn’t follow the IDEAL guidelines that you are reading and learning about now. I was naïve and my experience was not yet fully developed. The property I purchased was a vacant lot in a gated community development. The property already had an HOA (a monthly maintenance fee) because of the nice amenity facilities that were built for it, and in anticipation of would-be-built homes. There were high expectations for the future appreciation potential-but then the market turned for the worse as we headed into the great recession that lasted from 2007-2012. Can you see what parts of the IDEAL guidelines I missed on completely?

Let’s start with “I”. The vacant lot made no income! Sometimes this can be acceptable, if the deal is something that cannot be missed. But for the most part this deal was nothing special. In all honesty, I’ve considered selling the trees that are currently on the vacant lot to the local wood mill for some actual income, or putting up a camping spot ad on the local Craigslist; but unfortunately the lumber isn’t worth enough and there are better spots to camp! My expectations and desire for price appreciation blocked the rational and logical questions that needed to be asked. So, when it came to the income aspect of the IDEAL guidelines for a real estate investment, I paid no attention to it. And I paid the price for my hubris. Furthermore, this investment failed to realize the benefit of depreciation as you cannot depreciate land! So, we are zero for two so far, with the IDEAL guideline to real estate investing. All I can do is hope the land appreciates to a point where it can be sold one day. Let’s call it an expensive learning lesson. You too will have these “learning lessons”; just try to have as few of them as possible and you will be better off.

When it comes to making the most of your real estate investments, ALWAYS keep the IDEAL guideline in mind to make certain you are making a good decision and a solid investment.

 

 

MichaelBook2014SmallcolorGuest Blogger:
Michael Wolf, GRI & Author

858-722-6847

www.mikeandjessica.net

Real Estate Investing is a $175 Billion Market

First checkout the infograph below via BiggerPockets.com AND Memphis Invest then we will get to the $175 Billion!

The $9.2 Billion Impact of 28.1 Million Real Estate Investors

Infographic Courtesy of: BiggerPockets.com AND Memphis Invest

________________________________________________________________________

According to the survey above 28.1 million American’s currently own an investment property and 7 million of them consider themselves active investors with plans to purchase in the next 12 months (please keep in mind the survey was done in 2012). If investors plan to spend a median of $7,500 on 1.2million properties then investors will spend $9.2 Billion on rehab costs per year.

These are great stats but what are investors spending on tools, closing costs and service providers to close these deals?

Well let’s start from the top and go from there:

GDP and Real Estate Investing

You are welcome to use this graphic on your site or blog as long as you provide credit to Revestor by providing a link to our site www.revestor.com

If you start with GDP, Real Estate is 12.6% or $1.926 Trillion of the total $15.685 Trillion GDP.

Residential real estate sales end up being about 38% of all real estate totaling $729 Billion.

24% or $175 Billion of all residential real estate is investing.

There are a lot of dollars made off of that $175 Billion!

At the top of the list, according to RealtyTrac, are investors – with an average profit of $18,391 per sale. (Not all properties are flips but if they were, investors would be earning 13%, or $22 Billion of the pie.)

According to the above survey from our friends at BiggerPockets, next on the list would be contractors with $9.2 Billion of the pie. (we did not include in our graph)

Then of course real estate brokers and agents earning an estimated 5-6% of the pie at $8.75-$10.5 Billion.

According to NAR the ratio of investors using financing to all cash is about 50/50. Mortgage Brokers, Lenders and Servicers are next on the list with at an estimated 3-4% of $87.5 Billion. I know this seems high but 3-4 points includes origination, gain on sale (GOS), service release premium (SRP), servicing, etc. In fact this is quite conservative at $2.62-$3.5 Billion.

Closing costs from service providers (appraisal, inspection, escrow, title, etc.) we estimate to be 1.5-2.0%, or $2.6-$3.5 Billion.

How much do investors spend on support staff, assistants, analysts, researchers, education, software, tools, etc to acquire investment properties? [COMMENT BELOW] with your thoughts…

How much do real estate professionals (agents, brokers, mortgage providers) spend on online marketing?

Well according to the 2012 Real Estate Advertising Outlook report by Borrell Associates this year, 55% of all real estate advertising, or $13 billion, will be spent on online media. Total advertising equals $23.7 Billion.

Does that mean if 24% of the business is from investors that real estate professionals will spend 24% or $3.12 Billion on online advertising? If real estate professionals who work with investors spend a total of $5.69 Billion we’d be surprised. I would estimate the number to be more like $3.4-$4.2 with $1.87-$2.3 Billion of that spent online to target investors. (not a bad number and we hope we can carve out a nice slice of that pie by connecting investors to real estate professionals)

24% of the residential real estate market is a big slice of the pie and $175 Billion is a big number and can’t be ignored. We believe the numbers will continue to grow as more investors are able to qualify to buy again. The first wave of foreclosures occurred in 2007. The seven year waiting period will be up for many “re-investors” starting in 2014. Will they make better decisions this time around?