Looking for investment property? You want to think outside the box!
This is largely because real estate can be leveraged, allowing more and more investors to begin their investing career early on. With the introduction of the so called "reality" fix and flip and renovation shows, everyone is looking to get in on the action and are now looking for property.
The entry level affordable home has became a very highly sought after precious commodity that everyone wants. First time home buyers, empty nesters and of course investors are all squirming to get in on the action. With so much demand there are literally more buyers for these highly sought after properties than are available in most markets.
Finding great investment property can prove challenging
I always love the energy that some visionary investors have. I had been working with a young woman who was eagerly looking for a local investment and looking within Florida MLS website in search of good cash flowing 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 two or three properties that made sense and after doing your diligence 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. The ones that looked most promising she would arrange for me to show her the properties and study them for plausibility. 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.
Why good investment properties are not found on the MLS
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 retail priced home buyers and sellers.
Investment properties are sold through different venues than the retail outlet that makes up the MLS system. Most good investment property is not listed. Primarily because good investment property are either fix and flip properties which means the properties are distressed. Meaning they will not sell retail pricing so these are bought and sold privately to Wholesale buyers.
Then there are the performing asset properties that already have a tenant in them. These properties are basically little tiny businesses that you buy with an income stream already in place. Typical buyers within the MLS system are looking to buy a home to live in, so this retail outlet is not a favorable place to list performing asset real estate.
How To Find Investment Properties
Investment groups who understand investment real estate are the "go to place" where you will find the best real estate deals. While the MLS system is a great tool to buy retail houses to live in, Investment Real Estate Groups are where you want to turn to buy investment real estate. This is a whole different venue of properties for sale that are not listed on the MLS and represent the best investments available.
You can go to wholesale distributors to buy fix and flip properties. Wholesalers search out distressed properties that have challenges that do not allow them to sell to the end user. These properties need to be renovated and they sell these properties cheap to the person who wants to do fix and flip real estate.
Then there is my favorite, the “turnkey investment properties”, Houses that already have tenants and professional property management already in place. These properties have good SUSTAINABLE cash flow with good SUSTAINABLE equity growth. Your best investment potential of course is found in certain geographic locations around the country known as emerging markets.
These emerging market locations must have certain attributes to them, such as:
- Undervalued Markets: 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.
- Job growth: The area must have consistent job growth.
- Job diversity: Should an industry falter or business fail, the area must have enough job diversity to sustain the market in a positive growth.
- Population growth: When population expands housing needs demand grows, causing increased pressure on pricing.
- Vision plan: 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 highly rated schools and price points that 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. Turnkey marketing companies, such as mine, are to the investor as the MLS system is the retail home buyer.
The turnkey business model
There are businesses who 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 turnkey marketing companies like us, How To Buy USA Real Estate, 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 How To Buy USA Real Estate.
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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