With the decline in housing prices and the demand for rentals up, now might be the time for you to consider investing in real estate.
There are basically two strategies in investing in residential real estate. They are buy and hold, and flipping. Each avenue has a slightly different approach and criteria used for selecting the right house.
They are as follow:
What to look for if you're an investor looking to Buy and Hold:
- A house in a neighborhood that is not on the decline.
- One that is structurally sound
- That need only cosmetic changes
- That only need $10,000 to $15,000 in repairs and upgrades
- That can generate good cash flow*
When searching for my clients I keep these in mind in evaluating the listings on the market. You should also look at the rental history for a neighborhood or area for the past two years. Know what is currently for rent and what the rental absorption rate has been over the past 6 months.
*In my area, which includes Woodstock, Canton, and Holly Springs, GA, I have seen an increase in the number of rentals on the market and a slight decrease in rental rates in some areas over the past year. The increased numbers are from home owners not willing to take a loss on the sale of their homes and are trying to hold out until prices improve (this will be covered in a future blog).
What to look for if you're an investor looking for a Flip:
- What will be the after repair value (ARV) of the house*
- Have realistic idea of what the expenses will be and the holding time
- Holding cost - Debt service, Utilities, etc.
- Realtor Fees
- Permitting and inspection time frames and cost (each city and county are different)
- Get quotes from licensed reputable contractors (have a realistic repair budget)
- Look for houses in a neighborhood that are just starting to turn around.
- Look in areas with new high-end commercial, and/or improved infrastructure (roads, parks, etc)
*Avoid buying houses in need of these three costly repairs or adjust for them in your offer.
- Homes built prior to 1978 because of the lead paint abatement issue. Its removal is costly and has hefty fines if not performed by a certified company
Homes with foundation issues
- Homes with mechanical system issues (electrical, HVAC, plumbing, etc.)
My final tip in today's blog : Find a good real estate agent with experience as an investor, as well as experience working with other investors. Their knowledge and experience could be invaluable to you in your search for the perfect investment home.