Single-family homes are an asset to any investor—large or small. Of the investment properties available on the market, single-family homes often accrue the greatest appreciation rates and are most sought after by high quality tenants. In addition to holding lower upfront costs, single-family homes are often easier to secure financing for as they are considered residential properties, even if you plan to use them for commercial gain.
For investors, single-family homes hold no portfolio requirements. This means that an investor of any caliber can purchase single-family homes for investment purposes, regardless of how large or small their current portfolio is. As they are easy to secure financing and lower in upfront cost, single-family homes are the perfect catalyst for first time investors to begin building their portfolio. For those with an already large investment portfolio, single-family homes are an easy way to quickly add numbers to the current cash-flow.
For those looking to kick off their investing career with the purchase of a single-family home, there are a few factors which you should keep in mind when getting started.
One of the most important factors to keep in mind when investing in single-family homes is location. It is vital to ensure you are purchasing a property in an area of high rental demand. The majority of tenants look for single-family homes. Make sure to verify school rankings, crime rates, and proximity to amenities such as hospitals, grocery stores, and entertainment.
Keep in mind that as you begin to build your real estate portfolio, it is important to diversify. Diversifying your portfolio helps protect you in the event of an economic setback in a particular market. With the increase in technology and the help of an experienced property management company, investing out of state has become relatively simple in comparison to previous years. This allows you to protect yourself with a diverse portfolio and select homes in various markets.
Before making any purchase always ensure you take time out to research the area and the property itself, as well as any contractors or agents you will be using throughout the process. Trulia.com offers a great search overlay that let's you explore neighborhoods, schools, see crime, traffic, nearby restaurants and much more.
Real estate agents and brokers can be a useful tool when researching an investment, but shouldn’t be the crutch you use to lean on throughout the process. It is important for you to do your own research and compare your findings with their information. Without research, you cannot truly be sure that you are getting a good deal.
Working with a qualified, experienced agent is a great way to further enhance your knowledge as they will have connections and familiarity with the area. When you combine your own research with the help of a local industry expert, you are more likely to walk away with a successful business venture.
Similar to doing research of the area you are looking to invest in, it is important to do the research on the property you are looking to purchase. Calculate the numbers, analyze the figures. What will your initial investment be? Will you be financing or purchasing in cash? If financing, how much of a down payment are you looking to put down? Determine the approximate mortgage payment and factor in insurances and taxes. Compare that to the average monthly rental rate in the area. Consider other expenses, such as property management fees and monthly maintenance, as well.
If you plan on rehabbing the property, make sure to factor those approximated costs into your figures.
Never go into a property without fully analyzing the numbers or you may find yourself blind-sighted.
It’s generally a good idea to decide on whether you will be hiring a property management company or not before you make your initial offer. The fees associated with this service need to be factored into your numbers analysis of the property. Whether you decide to hire a company or handle the property management yourself is completely up to you. There is no right way or wrong way and you’re not likely to see an investment fail because of this choice. It is important to consider the pros and cons of both methods before making your purchase.
A property management company will handle all the nitty-gritty details for you, such as collecting and depositing rental payments, handling any legal issues that arise, or late-night or emergency maintenance calls. It is the choice between freedom with the cost or extra work for the extra cash.
Networking with Real Estate Professionals
Being involved in the real estate investment industry requires constant research to keep up with the changes in the market. A great way to keep involved in the industry is to network with real estate professionals. This is especially handy if you plan to continue adding single-family homes to your investment portfolio. In addition to keeping tabs on the latest changes and trends in the industry, having a network of experienced professionals will allow you to be first point of contact when new properties enter the market which match your investment goals. This network will also help you if you find yourself wanting to sell any properties down the road.
Investing in single-family homes can be a profitable venture if you take your time, do your research, and focus on the numbers. Whether you are a first-time investor or a multi-property owner, a well-planned out investment in a single-family home will be a great addition to your investment portfolio.