Real Estate Investors Handbook

Why Real Estate?

Real estate is one of the most exciting markets in which you can invest. By providing a universal need – a roof over one’s head, it has remained timelessly relevant. This has made buying and selling real estate one of the most reliable ways to build long-term wealth that lasts for generations. As the market cycles through different phases, unique opportunities arrive. This offers buyers, sellers, and large portfolio investors rare ways to capitalize on situations that may not happen in the same way for years – or even decades.

When you strategically acquire and release properties, real estate can become a phenomenal source of passive income and stable cash flow. It enables you to diversify and leverage your investment funds to reach their full potential. In fact, cash flow is one of the top benefits of real estate investing – especially when the market leans in your favor.

Right now, low inventory is sustaining demand for single-family homes. A ton of institutional capital is pouring into acquiring real estate too. Rent prices are also soaring due to a surging demand for temporary housing.

If you acquire investment properties in strategic locations, you can set the stage for collecting long-term passive income. Over time, this benefit will only improve as you pay down your mortgage and build equity. Also, real estate investing gives you access to many deductions and tax breaks such as writing off the properties’ depreciation.

Our hand-picked team of brokers, real estate professionals, and marketing specialists are ready to help you meet your real estate needs. Whether you need to promote and rent a newly acquired property, eliminate contingencies to purchase a new build, avoid hefty taxes with a 1031 exchange, or manage a large portfolio of properties, there is a specialist here waiting to assist you.

What Types Of Properties Make Good Investments?

In general, there are two kinds of real estate investment properties—single-family rentals (SFRs) and multi-family homes. With an SFR, you’re investing in a traditional home for one family. This kind of investment might include fixing and flipping a property. Alternatively, you could rent a property out to short-term or long-term tenants. Multifamily properties are a bit different. These kinds of properties might include:

  • Apartment buildings
  • Condo communities
  • Duplexes
  • Triplexes
  • Fourplexes

With these properties, an investor would typically retain ownership while renting units for income. There are many benefits to starting out with SFRs. For example, they’re more affordable and easier to finance. You can also select your tenants more carefully with SFRs. Conversely, you can’t afford to turn away tenants with multifamily real estate.

properties that make good investments

With a multifamily property, a real estate investor must continually generate revenue. Also, you’ll typically need a commercial mortgage loan to buy a multifamily property, which is harder to acquire than a traditional loan. You must also consider the liquidity of your real estate investment. The average person can’t afford to buy a multifamily property. As a result, there’s not as much demand for multifamily properties compared to SFRs. On the other hand, you can sell a SFR much quicker.

As a real estate investor, you must also consider whether to flip properties or buy and hold. Flipping is attractive to many entrepreneurs because it offers a faster return on investment (ROI). However, house flipping requires a lot of upfront money, which can lead to problems with cash flow. Also, flipping can generate large swings in your income, consider – ably increasing your tax bill.

Buying and holding property will provide you with a steady income. With this route, you’re more likely to benefit from inflation the longer you hold onto your investment property. In addition, buying and holding rental property will provide you with tax benefits that you can’t access with flipping. Marketplace Homes is your partner in real estate investing. We can help you buy and sell SFRs and figure out how to make the most of your investments.

Considering Location

Owning real estate comes with risk, but you can receive ample compensation for it if you acquire and release properties under favorable circumstances. Still, you can reduce your risk by investing nationally instead of just locally. If conditions in one market should start to decline, you can adjust as needed. Look at it from the perspective of stocks.

You wouldn’t invest in companies solely because they’re based in your area. Likewise, it’s not prudent to invest in real estate solely because it’s local. Instead, it’s a good idea to research and find opportunities in up-and-coming lucrative areas and diversify your portfolio. You won’t always find the best opportunities locally. Fortunately, an expert national real estate management company like Marketplace Homes can help you find profitable opportunities across the country

We’re a national property management and brokerage firm that can help you diversify your portfolio. Our experienced staff can help you profit in real estate, whether you invest across the street or across the nation. In addition to expanding your reach, you should consider whether to lease your properties short-term or long-term. With this in mind, you should think about your investment goals. For instance, you might invest in properties near popular destinations.

best real estate locations

In these areas, you’d most likely have a high volume of short-term renters. However, it’s expensive to purchase property in tourist areas. Also, your property will most likely receive more wear and tear because of high tenant turnover. Suppose you invest in non-tourist destinations. In that case, you can rent to long-term renters, and your properties will receive less wear and tear. Although these locations are less desirable, they’re much more affordable.

The key here is to look for a housing market that’s expanding. This kind of area can present an excellent investment opportunity. Conversely, if a neighborhood starts to decline, you must unload your investment quickly before it sinks. You must also consider whether you want to invest in urban or suburban properties.

Urban properties typically have a steady flow of renters, more amenities, and lower depreciation rates compared to suburban properties. However, urban properties cost more. You’ll also have to overcome potential renter deterrents like limited parking and higher crime rates.

Estimating Real Estate Investor Expenses & ROI

A property might look good on paper, but that doesn’t always mean it’s a good return on your investment. What represents a good opportunity depends on your investment goals. Conversely, you may encounter a property that doesn’t pass the “1% rule” test. However, you shouldn’t immediately write it off—more on the 1% rule in a moment. Instead, you should consider other factors that could affect the rate of return for that property. These factors could include the following:

  • Amenities
  • Current Occupants
  • Local Market
  • Neighborhood Quality

Various computations like net present value can help you assess the potential profitability of a property. However, they don’t tell the whole story about a property’s investment potential. An experienced real estate investment partner can help you weigh the math against market conditions. Now, let’s have a closer look at the 1% rule.

estimating expenses and ROI

A real estate investor references the 1% rule frequently. It’s one way of evaluating a potential property investment. It’s a mathematical rule of thumb that says the monthly rent should equal or exceed 1% of the total price of an investment property. However, this rule doesn’t consider other expenses. These expenses might include:

  • Acquisition Fees
  • Closing Costs
  • Insurance
  • Loan Fees
  • Maintenance
  • Property Taxes
  • Repairs
  • Other Expenses

The formula for the 1% rule is straightforward:

Rent Price x 100

Any property deal that results in a value of 1% or more is a potentially viable investment according to the 1% rule. Again, however, the rule isn’t steadfast. It’s simply a tool for estimating cash flow quickly. You can perform other calculations to determine if a property is a worthwhile investment.

For example, you might assess the capitalization rate (cap rate) to evaluate a property’s potential financials. As with other real estate investing calculations, you should not rely on a cap rate assessment alone. Other factors might influence the profitability of a buy and hold investment property. You can use the following formula to find the cap rate:

Cap Rate = Net Operating Income/Current Market Value of Property

You can also assess rental property ROI. However, you’ll first need to define your goals. For example, you may want to invest for cash flow. Alternatively, you may want to invest for appreciation. As a rule of thumb, a property with higher cash flow has a lower appreciation rate and vice versa. The formula for calculating rental property ROI is as follows:

Cash Flow = Gross Rental Income – Expenses

You could also estimate how well an investment property might perform with a cash-on-cash return assessment. This formula will give you the annual cash flow relative to your investment. The formula for cash-on-cash return is as follows:

Cash-On-Cash Return = Annual Cash Flow/Initial Cash Out of Pocket

rental home for a real estate investor

There are several other calculations you can perform to evaluate a new property. For example, you could calculate the appreciation or internal rate of return, but don’t get stuck on numbers when looking for your first investment property. It’s more important to begin by closing a deal.

Financing: Where To Find It & What To Look For?

Real estate is a good hedge against stock market volatility. It’s also an excellent way to create a passive income stream. However, real estate investing has a relatively high startup cost. You’ll need to figure out how to secure financing for your venture. There are four kinds of funding you might pursue:

  • Bank Loans
  • Hard Money Loans
  • Private Money Loans
  • Home Equity Loans

The success of your real estate investor venture, in part, depends on choosing the right kind of loan. It’s essential to understand how each one works. For instance, a conventional lender might require a 30% down payment. Your credit history and score will also affect your ability to qualify for this kind of loan as well as your interest rate.

financing and where to find it

You could also consider a hard money loan, but this kind of loan is short-term funding that’s more suited for flipping properties rather than buying and holding them. You might borrow money from a friend or family member with a private money loan. Alternatively, you could participate in a local real estate investment networking event to find a private lender.

You may consider accessing a home equity line of credit (HELOC) or cash-out refinancing to invest in real estate. In many cases, you can borrow up to 80% of your home’s value to invest in a rental property with these kinds of loans.

If you already have an investment or a portfolio, you may also consider drawing credit from a property or a group of investments via an investment line of credit or portfolio line of credit.

If you already have the assets to buy a house with cash alone, that is the simplest method for acquiring investment properties. Buying with cash is especially useful when you want to buy distressed properties.

Another creative way to generate cash for your investments is to begin your real estate journey through wholesaling. In this process, you get distressed homes under contract and sell the right to buy it to a cash buyer for a profit. Over time, you can earn to get cash to buy a house without a loan.

Tenants & Management

A lot goes into managing investment property and being a great landlord. Your responsibilities will vary based on your portfolio. Suppose you rent to Section 8 tenants. In that case, you must conduct yearly inspections and conform with the program’s price limits. You must also consider your cash flow.

The Section 8 office will not issue the first rental payment until the renter has moved in. There’s also the potential for difficult tenants, which makes eviction necessary. The eviction process is longer for Section 8 tenants. Since there is an increased chance of wear and tear on the property when renting through the program, you must consider how you’ll manage this risk. It’s important to minimize incidents with regular inspections and maintenance as part of your insurance coverage.

As a real estate investor, you also have to consider administrative risks. An overlooked clause, missed deadline, or improper claim can cost you a massive amount of time and money. Section 8 rentals involve a lot of paperwork on the administrative side of real estate investing. For instance, you must manage:

  • Background Checks
  • Credit Checks
  • Leases
  • Rental Applications
  • Rental Insurance Records
  • Tax Records

These are just some of the documents you must manage. The list of daily responsibilities involved in the operations aspect of property management is equally as lengthy. You must collect rent, pay bills, keep records, and the list goes on. However, you can take all this work off your plate with just a phone call. When you partner with an experienced property.

Expanding & Diversifying Your Portfolio 

Real estate investor portfolio diversification should be an essential part of your real estate investment strategy. And though it’s tempting to jump right in and buy in bulk, it’s prudent to acquire properties slowly. You must walk a fine line to avoid unnecessary risks without missing excellent opportunities.

expanding and diversifying portfolio as a real estate investor

While it’s unwise to expand too quickly, you also don’t want someone else to grab a property in a strategic location. The trick here is to expand when you have steady positive cash flow and the capacity to manage more properties. It’s also wise to keep your search parameters wide and not be limited to just what you see on the MLS. Off-market properties are a strong secondary market that contain plenty of distressed properties and discounts that aren’t privy to the average buyer.

By partnering with a real estate management specialist and exercising due diligence, you can successfully expand your real estate portfolio. We can help you choose properties, boost values, and show you when to cut your losses through real estate disposition.

Exit Strategies & Exchanges

Speaking of cutting losses, it’s also essential to develop an exit plan as part of your investment strategy. By doing so, you’ll get the highest return on your investment. Real estate investing is a long-term commitment. However, you must figure out how to exit your investment at some point. An exit strategy will help you maximize your total return. There are a few real estate investment exit strategies. These strategies include:

  • 1031 Exchanges
  • Cash-Out Refinancing
  • Lease Options
  • Passing Your Investments to Heirs
  • Seller Financing
  • Selling and Walking Away

Alternatively, you could hire a property management company to take over your investment completely. You’ll continue to receive income from your properties without having to micromanage the details. Marketplace Homes is a national property management and brokerage company with assets in all the hottest markets in the country.

We can help you sell and rent your existing real estate investments and also help you acquire new properties. No other management company can provide this wide range of services. That’s what sets us apart. We’ll show you how the bigger picture aligns with your real estate investment goals and help you find the best opportunities for your portfolio. We will also do our utmost during the due diligence phase to ensure you are getting the property you need for your investment goals.

Contact us today at (800) 331-0646 or connect with us online to start the conversation about diversifying and expanding your real estate investor portfolio.

Your Real Estate Investor Journey: What’s Next?

When your investment goals depend on the right timing, it’s best to have cash in hand. This allows you to make quick, clean offers without home sale contingencies. However, in a typical real estate transaction, it can take between 30 to 45 days to close on a home sale.

Also, the closing process can take up to two hours. That’s a long time to wait to free up cash to make a competitive, contingent-free offer. This is why Marketplace Homes offers special incentive programs that help you turn your home’s equity into cash while not turning your life upside down.

For example, our Sell & Stay program allows you to cash in on your home and lease it as long as desired. You can also arrange to repurchase it at any time. Not only do we offer these unique programs, but our experts can help you prepare your listings.

We will help you create a digital marketing plan and negotiate offers on your home. We’ll also help you run comps to determine a property’s market value for selling and investment purposes. Most importantly, we’ll help you get top dollar in every possible situation.

What's next in real estate investor activity?

With Marketplace Homes, you can also access our backup selling option. For example, your home may not sell as you wait to complete your new construction home. If so, Marketplace Homes will buy your existing home. Based on our real estate market analysis, we’ll guarantee the sale at a previously agreed-upon price.

If you want to become a real estate investor, contact Marketplace Homes today at (800) 331-0646, or connect with us online to learn more about your options for going from zero to close in 30 days.

Contact Us | 800-331-0646