If you’re in the real estate world, you may have heard, “buy box” come up in conversation.
What is a buy box?
In its simplest form, a buy box is a list of criteria that a piece of property or home must meet to qualify for purchase. These criteria can include broad basics like location, property size, and local comps, but they can also get very granular. Demographic details like local school districts, proximity to shopping centers, and safety ratings can also factor into your buy box.
One of the most important things you can focus on when searching for real estate investments is the “local comps” or comparable properties. This is an involved process in which you pull any sales within the last 6 months to a year within a tight radius of your potential investment property.
As a general rule at Marketplace Homes, we try to stay within 1 mile of the home in question. Vice President of National Brokerage, Chas Nichol, says that the closer you can get, the better your outcome. “You want to be as specific as possible. For instance, if you cross the street you can lose value, so it’s important to keep your radius as tight as possible if you can obtain enough comparables.”
Once you find a property that has good comps, you’ll want to look at the state of the property itself.
Two key things to look at before buying your investment property
Many times people can get pulled in by a home that’s in a desirable area, only to find that they’ve purchased a lemon. If you’ve ever done any DIY then you’ll be familiar with a simple project turning into a complex one and costs can add up quickly.
Head of the rehab at Marketplace Homes, Jon Wilson, is all too familiar with home rehab projects starting out simple and turning complex quickly. “It’s usually always more work than you think it will be. A good rule of thumb is to over budget for your rehab in case you run into any surprises. Even with home inspections before you buy, you can always run into surprises.”
Home inspections can save you time and money. As any new homeowner will tell you, the inspection process is a crucial part of any real estate transaction because it lets you know exactly what you’re getting into.
It’s typically a smart move to budget your home inspection finds into your investment property cost. Depending on the age of the home, you may want to budget $8,000 – $12,000 dollars to cover anything that may turn up during the home inspection such as a new HVAC system or roof repairs or replacements. Keep in mind that you can also negotiate these repairs with the seller during the purchase process and in turn save some money.
What to do once you’ve decided to purchase your investment home
Once you’ve found you’ve purchased your investment home, the next step is to identify if you need to make any repairs or changes prior to a tenant moving in. These changes can be as simple as painting a couple of rooms to ripping out carpet and replacing it with lament because you’re anticipating having tenants with pets.
Did you know that 72% of renters now have pets? (Courtesy of the American Humane Society)
Thinking through everything you’re planning on doing with the home prior to purchase is always a good idea. When in doubt, go for the most cost-effective option. At Marketplace Homes we not only have a buy box for our properties prior to purchase, but we also have a rehab toolbox so we know the costs of a majority of our upgrades and changes to the property upfront.
Why you should buy now
Whatever you end up spending on rehab or upgrades, know that it will likely come back to you in rent. Across the country, rent prices have soared in the last year and they’re currently at an all-time high.
According to Apartment List’s national report, “the national median rent has increased by 11.4%,” since the beginning of 2021. Even with a slow down in the real estate market, it’s anticipated that rental rates will stay consistent.
In fact, many people have been encouraged to buy in lieu of renting because their mortgage payment would be the same or less than their monthly rental payment.
In line with the statistics released after the Covid-19 pandemic began in March 2020, we’ve seen an uptick in rental properties in suburbs around cities such as Atlanta and Chicago. Single-family homes are becoming more and more desirable to rent as well, not only for their location but also for their space. John Burns reported in May of this year that single-family rental homes partnerships between builders and investors were on the rise. This paving the way for residential investors to make their move as the market begins to move.
What’s next for the housing market?
Experts are already predicting that we’ve made it through the housing peak (June) and that housing prices will slowly begin to drop. As the market shifts from a seller’s market to a buyer’s market, there’s never been a better time to invest in real estate.
If you’re in the same boat as most, you have limited capital to invest in real estate, and that’s okay because there are many options out there to help. One of our favorites right now is Backflip. From the ground up, Backflip is built to help local real estate entrepreneurs make strategic investment decisions with confidence. Utilizing data and technology to enhance everything you do, they can help you optimize investment opportunities and quickly get borrower-friendly capital to grow your business.
If you have more questions about buy boxes or real estate investments, let us know by emailing email@example.com.
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