Are We in a Buy and Hold Investment Cycle?
My office fields a lot of questions and lately questions about buying strategies have been rising to the surface. How is the flipping market? Are we in a buy and hold market? What does the lease option market look like? Of course the unwelcome answer comes out as a reply...it depends. To give a true and accurate answer requires more details about the market you are asking about.
For example, markets that are very much undervalued like Oklahoma City or perhaps Atlanta can create some good flipping opportunities as property values have a long way to go before they become balanced markets.
On the opposite end of the spectrum, looking at many California markets such as Los Angeles or San Diego where it takes as much as 70+ percent of a median income to buy a median priced house, it would not make for a good flip market at all.
Country market snapshot
In general terms, 2 to 4 years ago when the entire country was coming out of a recession most markets were way undervalued or at least way below their peak values so flipping was viable in most parts of the country. Now fast forward to early 2015, many markets have rebounded so most flipping investors have realized they rode the economic wave of growth and are now investing for the long term hold.
Attributes of long term hold investing markets
There are 380 statistical markets (MSA) in the U.S. With this many markets it is easy to understand that there are markets which are better poised and positioned to give you better, longer lasting, more sustainable returns than others. Investors looking for long term investments are always looking to invest in emerging markets. You know you are investing in a great growth market when you find a market that has these basics distinctions.
Housing affordability: in short, the market should take less than 3 years of the median income to pay for the median home price.
Job growth: unemployment rate should be below the national average and shrinking.
Job diversity: when a business fails, such as the automobile industry packing up and leaving Detroit many years ago crippling the city, is there enough diversity in the city to keep it moving forward.
Population growth: a growing city is an economically strong city. Checking if the population is trending up or down is the most overlooked diligence and one that suggests stability or troubles.
City vision plan: Many cities looking to grow and advance forward have a 5, 10 and even a 20 year vision plan mapped out to attract new businesses which in turn adds new jobs, growing population and economic stability.
Once you have identified the best market for sustainability, it is imperative to find the properties that will be the most sustainable. There are a number of things to look for that make up these properties.
Major appliances: general condition and age of appliances and HVAC.
Age of roof: roof should have at least 10-15 years of useable life left. Most people hold an investment property during its market economic wave (typically 8 to 10 years), as a roof is a big expense, you do not want to have to replace it.
Owner occupied neighborhoods: a buy and hold investment typically has an exit strategy to sell to a retail buyer, to get your best return you want to buy in a strong owner occupied area within a good school district.
Buy within the path of progress: if a city is growing (lets say) to the north, it may be possible that the opposite side of the city becomes less desirable and may affect home values.
Buy Within The Sweet Spot
This is the property that represents the median home price for this market and is still in a price point that can be bought and rented for a profit. This will be the most highly sought after purchase when you go to sell.
Multi-year leases: I have had wonderful success with longer term leases. This helps me find tenants that indeed plan to stay for more than a year. This decreases my tenant turnover and increases my ROI as I spend less on re-leasing fees.
I truly believe that long term hold properties represent today's Number 1 investment objective. The key to successful long term hold investing is finding the sustainability on each aspect of the investment, everything from location, to the property, to the tenant and even the property management.
If you will be using a property manager, you will want sustainability there as well and you want to hire the right property manager.
Still have questions? I am here to help, give me a call today to find out the top markets that I recommend for both flipping and holding 941-718-7761.