Single-Family Home Investing
1. Know your investing criteria first
With any investment, be it stocks, bonds or real estate, you need to know what your objectives are and it is no different with single-family home investing. If you’re focused on safety and security, consider exploring low-risk investment homes that generate steady, reliable yield. An example of this may be a more expensive investment property in a good school district. You’re going to get a lower yield, but you may see better downside protection and less volatility. If you have a longer-term horizon or you’re seeking higher returns, you may want to take on a little more risk. Often, lower-priced homes will be more risky, but you may get higher yields and potentially higher long-term returns.
2. Don’t limit your investment property search to where you live
If your primary residence, income property, and job are all located in the same area, you have a lot of concentrated risks and are more vulnerable to the swings of the local economy. An online marketplace for buying and selling leased single-family rental homes, spread risk by investing in markets outside of where they live. (Hiring a local property manager or a “local community lender” like Land Home Financial is key here.)
Diversification is just one reason to expand your investment property search. You won’t be able to find a great income property for $100,000 in Seattle, Denver, or Oakland, Calif.; but you can if focus on the Midwest, South and Southeast, including Florida.
3. Separate investing from operations
One of the appeals of investing in single-family rental homes is you can hire strong local property management firms to handle day-to-day management tasks of rent collection, repairs and maintenance, and leasing. Over the past several years, property managers have adopted new technologies and business processes to manage homes more effectively for owners.
While some people do choose to self-manage, hiring a property manager can save you a lot of time and potentially money in the long run. While property management companies typically charge between 7% and 8% of the rent, they manage properties for a living and can work to ensure the property is leased, in good condition, and the tenants are happy. Additionally, using a local property manager effectively allows you to buy properties outside of where you live, as self-managing is difficult if the property is not nearby.
4. Real estate investing is a marathon, not a sprint
You might be familiar with the house-flipping reality TV shows in which a person buys a home, fixes it up, and sells quickly for a profit. While that can be an effective way to make a one-time profit, it’s the exact opposite of how you should approach single-family rental home investing, which is about building long-term wealth. Instead, treat it like a nest egg.
In addition, don’t be overly influenced or reactive to short-term fluctuations in your rental property portfolio. You may own a home for a few months and have to deal with a tenant moving out unexpectedly, but the next tenant might reside there for several years before you have another vacancy. Look at this investment over a multi-year horizon and consider your overall outlays and inflows over that long timespan. If you buy a decent house in a decent area, the returns tend to be quite attractive over time and can add a nice counterbalance to other types of investments.
5. Take advantage of the tools and resources available to you
New developments in technology and data access are making real estate ownership more broadly accessible to the everyday investor.
Single-family rental homes currently is a $3 trillion industry, with 1 million homes trading hands among investors every year. The investment opportunities are ripe, and never has it been less complicated for investors to buy and own homes outside their geographic location.
*Whether you are buying or selling, Land Home Financial can assist. We have developed Partner Relationship all over Florida to accommodate our customers*