Getting Started In Real Estate...where the heck are all the "good" investment properties?
I always love the energy that some visionary investors have. I had been working with a young woman who was eagerly looking at my local Florida MLS website in search of good cash flowing investment property. She and her husband has recently purchased a "regular" home through my brokerage that they were going to live in with their family. She knew that the majority of my business was working with investors and she was now ready to purchase her first investment property.
She was sharing with me that she looked at many properties on the MLS and followed the objective that she has often heard talked about. You have to look at a hundred properties to find one or two properties that made sense and perhaps you could purchase one of those.
The search begins
After looking at a number of properties she narrowed them down to a few that may make financial sense and she hopped in the car to do a drive by...she was looking to buy low, but not have low cash flow. The ones that looked most promising she would arrange with me to take a look at them. The challenge was the drive by alone convinced her that these properties will need too much work to fix up and the added cost would now kill the deal.
Call to clarify
Frustrated by all the time she had spent already and virtually nothing found to date, she called me for help. She shared this story of her searches and drive-bys and since I do investment real estate, she wanted me to provide some clarity. What I first explained to her was “I could have saved you a lot of time (and I can save you money) if you called me first.” Investment real estate is done much differently than buying a home to live in.
While some investment properties are acquired through the MLS (Multiple Listing Service), the majority of investment property is not listed there. The MLS system is designed for home buyers and sellers. Investment properties are sold through investment groups who understand investment real estate.
How To Find Investment Properties
The next thing I did was tell her about "turnkey investment properties". Houses that make for great investment properties that have good SUSTAINABLE cash flow with good SUSTAINABLE equity growth potential are found in certain geographic locations around the country known as emerging markets.
These locations must have certain attributes to them, such as:
In the U.S. the national average price of a home is able to be purchased for 1/3 of the area’s median income. In markets where it takes less than 1/3 of the median income to pay for a median home price is considered undervalued.
The area must have consistent job growth.
Should an industry falter or business fail, the area must have enough job diversity to sustain the market in a positive growth.
Emerging markets have a local government with a 5, 10, or 20 year vision plan. A road map as to how they plan to attract businesses to the area. When this happens a market is much more likely to grow and expand.
Within these best markets you want to find properties that are located within the sweet spot of the market. This is the area where home values are matching the median home price for that market, areas with high rated schools and prices points reflect a price that an investor can purchase, rent and make a nice ROI.
Easier than you may think!
While this made great sense to her, she found this to be a whole lot of work as well. How does a new investor track and analyze all this and how does an investor find the properties? She was surprised to hear (as most are) there are businesses that do this every day. They are called turnkey companies.
The turnkey business model
These companies find sweet spots within emerging markets, then buy these properties as distressed properties at large discounts using economies of scale leverage to buy low. They rehab them with their own construction company, further leveraging economies of scale. And finally place tenants with their own property management companies, again providing economies of scale efficiencies.
Finally they sell the (now performing asset) to investors. This gives an investor the ability to know what all income and expenses truly are up front.
Of course she was very impressed to see this very complex process simplified to where she simply could look at turnkey properties that already have been turned into a mini business. She was thrilled to have the guess work removed and all she had to do is to look at and understand the Pro-Forma.
How Do You Buy Turnkey Properties
The last step in the process for the turnkey companies is to sell the homes. These homes rarely, if ever, go "on the market". Instead they work with companies like ours who already have a pool of investors ready to cherry pick these good deals. A newbie investor like our gal wouldn't have access to these investments at all unless she joined an investment club like the Equity Builders Real Estate Investment Buyers Group.
The neat thing is that the turnkey companies pay us as marketers so there is no cost to join and get access to these turnkey real estate deals.
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