As a new investor, you have a lot on your mind. And money is undoubtedly at the top of that list.
If you’re looking to start investing in real estate, here's just how much money it’ll take.
Before You Get Started...
Before you look for a real estate investment, make sure you have all other obligations under control. You want to be free of any debt, especially high interest liabilities, before you undertake this financial commitment. For example, if you make 10% on an investment property but pay 10% interest on your credit card debt, you’re losing your profit. It’s better to pay off the credit card first.
Once you’re free of debts, save enough to put down 20% on a property. Also, most lenders want to see six months of mortgage payments in your bank history. (Keep an additional 1% in a repair reserve for properties built in the last 10 years.)
ROI in North Texas
North Texas brings high returns for investment properties. It’s hard to get a good cash flow in many states, even places with plenty of tenants and high rents. California, Colorado, and Washington have lots of renters, but property is also very expensive. Even though rent seems steep, it’s not high enough to bring a good return from the amount you invest.
Here in North Texas, rent is high for the price of property. And the rent keeps going up. In Frisco, one of North Texas’ most booming areas, when home values jumped 6.8% in a year, rent jumped 8.5%. Compare that to San Francisco, a city that boasts the highest rent in the US, where the average home price increased 5.5% in a year, while rent dropped 0.3%.
Mortgage vs. Cash Up Front
Most buyers opt for a mortgage, even if they have the money to buy a house in cash. In these situations, they can use their funds to buy three or four properties. Everything depends on your investment goal. If you want to get a certain percent return on your cash, you may buy a property outright. But when your goal is to create multiple streams of revenue, you want more houses. So, if you have the option to pay cash, consider your end goal before you make a decision.
Turnkey vs. Rehab
Choosing a turnkey or rehab property is a tough decision. One brings much more return but also costs a lot of time and energy. The other makes renting simple but limits appreciation.
A rehab property needs a lot of work. You’re buying at a depressed price so you walk into equity when you purchase it. But you’re dealing with many factors: How much work will it need? Who do I hire? What’s a fair price? What happens if they don’t do the job right? It takes time to fix up, but it brings a higher return.
Single-Family vs. Multi-Family Homes
The single-family home gives you higher appreciation, but it only provides one source of income. A duplex, triplex, or quadruplex has better cash flow. If one unit is vacant, you still make a profit on the other units. So consider which you’d rather have: appreciation or cash flow.
Whatever you do, don’t invest on speculation. When people buy a single-family home hoping the market goes up and it doesn’t, they get into trouble — especially if their cash flow is too low.
Finding the Best Property for You
When investors come to us looking to buy an investment property, we start with their goals. Then we set criteria based on those goals.
So, if an investor says, “I want X amount return on my money before/after tax,” then we search properties that fit those criteria. Generally, we look for something less than 10 years old in a subdivision with a community pool and a park.
With LEAP, whatever we sell you, we will immediately manage it and fill it with a great tenant. So it’s in our best interest to keep your best interest in mind. Our motivations are aligned.
Other realtors aren’t as concerned with the logistics of filling your property. It’s natural for an agent to look at the comps and show you the stats of maximum rent potential. But, in reality, it won’t lease for more than what the market can handle. At LEAP, we won’t sell you a property we won’t be able to fill.
If you're considering real estate investment, give us a call, and we'll start looking for the best investment for you.