As with any investment, you need to pick a sector and part of that industry you have a desire to become an expert within. In residential real estate investment, this means studying a particular market and asset class that are going to align with your goals and efforts in property management.
So, the question is, how do you determine your goals? That won't be our focus in this course, but I recommend checking out "The Art of Setting Smart Goals" by Anisa Marku and "Your Best Year Ever" by Michael Hyatt. At the end of the day, understanding where and why you are driving is most important. Let real estate investment or 3rd party property management provide the fuel in the vehicle to make it happen. At the end of the day, buying the property is the easy part.
Once your goals are determined for real estatement investment, it's time to choose the vehicle and location to help you drive to those goals. So, here's a set of questions to ask yourself:
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Do I want to self-manage properties? (I'm guessing the answer is yes!)
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What locations will permit me to self-manage those properties?
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Based upon those locations, what is the workforce composed of?
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Based upon those locations, what is the median income?
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Based upon locations, how old is the housing stock?
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Based upon locations, what are the crime statistics?
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Most importantly, based upon that location, is the population growing or shrinking?
Now, you may look at these questions and realize you simply don't have the information to answer the question itself. So, here's a list of resources you may use to assist you in your market determination:
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Costar. Simply the leader in obtaining data on individual commercial properties, owner information, and demographic information. However, access comes with an expensive monthly fee and contract. You may wish to reach out to a commercial real estate broker for further access.
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Data.Census.gov. If you ever have issues sleeping at night, this is a great place to burn off some steam. Tables, maps, graphs, etc. offered at a very granular level to assist the aspiring real estate investor in finding market data to better understand their own community and areas in which they want to invest in. Not to mention, census.gov also provides reports on population forecasting.
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Neighborhoodscout.com. While offering a subscription service, this website can provide plenty of crime-related data to assist the real estate investor or property manager in understanding the neighborhoods in which they are managing. I mean, are you really gonna wanna drive there at night?
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City-Data.com. Boy, this site has it all: schools, median income, home values, median resident age, and even the ability to search based upon listed subdivisions. A great site to supplement some of the other websites listed above.
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Call property managers for that location. Buy them a coffee. Send them a gift card. Appreciate the fact that a property manager holds a lot of the information that the websites just don't provide. This can include vacancy rates, average rents, the cost to renovate a bathroom, etc.
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Call real estate brokers that focus on that location. Do your homework on some of the big real estate websites or find a buddy with access to the local MLS to sort homes sold in a particular price point and location by broker name. Who is the most active? Who knows that neighborhood? How can they assist you with information you haven't obtained regarding market conditions? Could they be a resource for off-market deals? The opportunities are endless.
Once you have an idea of locations acceptable to you (for example: within a 10-mile radius of Elgin, IL), make a list of pros and cons for each location. Prioritize that list based upon that information. Then...it's time to start your residential rental property search!
So, what parameters are best when setting up a home search with your real estate broker?
First and foremost, you have to stick to your location. Then, I like to keep my home search fairly broad in order to capture the homes that have the most opportunity for instant value or equity. This could mean searching only for foreclosures or distressed sales. However, what if you are worried about maintaining the exterior or having the grass cut on a regular basis? Then, filtering out single-family homes may make sense. Regardless, you have to find a balance between what you are comfortable spending for capital improvement, what your comfortable maintaining over time, and finding opportunity in your local marketplace.
Now that you have chosen a handful of properties to explore with your broker get out there and make some notes. What did you like about the property from a management perspective? Is there a market demand for this type of rental? Most importantly, if you were to buy it, WHAT WOULD BE YOUR EXIT STRATEGY TO BUILD WEALTH?
Regardless of the property you chose, you need to consider the following:
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Will the rental of this property provide me positive cashflow after expenses?
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Will I be able to maintain the maintenance of this property while rented or vacant?
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What is my exit strategy? Meaning, at what point should you consider the sale of the property, take a profit while considering tax consequences, and move on?
Taking these steps will lay the foundation for building a buy and hold a portfolio that you can manage and grow. However, maintaining that property management portfolio over time is the next step. We will talk about the tools needed for property management in lesson 3.
