Investing in real estate is one of the most talked about subjects online, at the coffee shop, and in the breakroom. With the onslaught of DIY and HGTV series glamorizing the world of real estate investing, it’s no wonder many people are trying their hand at it. If you are curious about jumping into this arena, there are a few things you should know.
1. What’s the difference in investment properties?
When you look at properties to purchase you have two options. First, you can purchase a property, fix it up, and re-sell it. That is known as a flip. When considering if the property is good for a flip, you need to have a general idea of how much renovations are going to cost, how much money you want to profit, how much you have to purchase the property, and finally what you can sell the house for. For example: Let’s say you have $60k cash to purchase a house. The house needs $40k worth of work and you want to profit $20k. That gives you a total of $120k that you need to sell the house for. The next step is to look at the houses in the same neighborhood and figure out if $120k is an accurate number to work with. Any licensed real estate agent can help you with that part of the process by running calculating ARV (after repair value) with a CMA (comparable market analysis). Also keep in mind contingencies or unseen variables in the rehab process.
Second, you have a buy and hold. With these properties, you update it and then rent it out. With a rental, again, you need to consider the neighborhood and what rental rates are for the area. When determining your return, you will need to account for all variables associated with the property i.e. maintenance costs, property taxes, yearly insurance costs, etc. It is a good idea to have a licensed real estate agent on hand for the contracts and lease agreements. You do not want to execute a rental agreement without a legal contract to protect you and your investment.
2. Where do I need to buy?
Now that you know which type of property you want to invest in, you need to figure out where you want that property to be. The DFW market is booming right now and there isn’t much of a slowdown expected anytime soon. For a flip investment, a neighborhood that is being revitalized is the place to go. The ideal location is one that is just starting to come around. Find a location that has a new highway or restaurant and shopping development; search out good schools and nature trails or parks. Again, a real estate agent that is up on current events and commercial developments can give you a jump on where to buy before the prices start going up.
For rental houses, an established neighborhood is ideal. Look at proximity to highways, businesses, and highly ranked schools. A good place to start looking is the top cities in the state that relocation is occurring. Where is the most growth? In the State of Texas, Mansfield, Allen, McKinney, Frisco, and Plano are listed over and over again as the cities with the most growth. (See our previous blog on relocating.)
3. What about investing out of State?
Where this one may be a little trickier to manage, it’s not impossible. All of the formulas are the same. Do your research, see where people are moving to, and find the top-rated schools. Next, partner with a real estate agent that you can trust. They will help you not only select the perfect house to invest in, but can also find a reputable management company. Since you won’t be accessible to manage the rental yourself, it’s a good idea to hire a company to do that for you. They will take care of the day to day including payments and maintenance.
The housing market in Texas is ideal for investors. If you have considered investing in residential real estate, contact the agents of Seven6 today. We would love to help you accomplish your real estate goals!