Why Rental Income Properties Are Great Investments
With so much talk about how hot South Florida Real Estate is and new developments inching their way into just about every piece of vacant land possible, it’s no wonder there’s so much interest in investing. And the good news is, the opportunity is ripe regardless of whether you have an unlimited source of cash or are looking to invest under 100k of your savings, Real Estate investing is the safest option and for those wanting to generate monthly income while increasing their net worth, rental investment is ideal.
We recently had the chance to sit down with one of our partners at Lifestyle Digs, Carlos Vanegas and chat with him about a rental investment transaction he handled for a first time investor from Colombia. Below he shares how he navigated the search process and how he was able to pinpoint an area that had little inventory and a rental property that was in high demand ultimately yielding a quick and seamless transaction.
How did your customer initially know she was interested in purchasing an income property?
For someone with $80,000 dollars in cash or more is a much better investment option to buy a property for a good price that they can rent and generate monthly income that’s way above what banks pay today with their low interest rates. She realized that she needed to generate income on a monthly basis that could supplement her other sources of income. In every residential property, one bedroom is the most profitable. Following the law of diminishing returns, second and third rooms are less valuable, while a 4th room kicks up the price of a property. In other words, it’s better to own and rent three 1-bedroom than one 3-bedroom condo.
What was her investment limit?
She set her limit at $80k, plus closing cost, plus any repairs needed. She had the funds in cash. With this budget, Broward County offers much higher ROI options than Miami-Dade or Palm Beach counties.
Based on her investment, how did you begin your property search?
I knew that in order for the investment to work for our client, she needed to be able to rent the property without significant restrictions (no wait period, all ages accepted are the two big ones). This criteria “weeds out” a significant number of properties, so the search gets a lot smaller. Then, I also knew that in order for the investment to be worth it, she needed to net at least 7 or 8%, otherwise you might as well put your money in a high-yield financial product such as a CD.
Was that an area that you knew right away would be a good area?
No. I had to research the different areas, see pictures, look at crime rates, etc. It is one of the challenges of covering a large area: you just don’t know enough about every neighborhood. Another factor is looking at availability of similar rental units in the area. If it’s low, you know your unit will command a premium rent price and will likely rent fast.
Did you look at other properties?
Yes, we looked at several but I made sure we only went to see those that met the criteria that would work for our client.
What was the size and condition of the condo?
Our client was a first-time investor in the US. Therefore she couldn’t afford, financially and otherwise, to embark on a significant remodeling project. The unit needed some work but it was not structural or of significance.
How did you determine what the rental rate should be?
Our team worked on “comparables” for the area as well as availability. We wanted the unit to be competitive and to rent fast because our client needed to start generating income quickly.
How was that process?
We had a thorough conversation with the client to learn what her needs were. We then started our search. We kept our client informed of our progress on a weekly basis. In all, it took about three weeks to find the right property and make an offer.
Was it easy to find a tenant for the property?
We listed the property for a competitive rate and in an area that we knew was in high demand and with little inventory. We had 18 individuals interested in renting the unit in the first weekend it was advertised, not just on the MLS but through Facebook, Instagram and other social media advertising.
What kind of return will your customer be getting from this property and will they want to purchase more properties?
Gross will be 15%. Net about 9.5%. Many first-time investors learn a lot from their first investment and like it so much that they’re ready for their second income property. So, it’s likely that this client will end up buying other units and renting them successfully.
Would you recommend this type of investment for someone looking to make an investment?
Absolutely. Real Estate still is the safest investment. And for someone looking to generate monthly income while increasing his or her net worth, rental investment is ideal.
What would be your advice for those that may be interested?
Work with a real estate professional that is knowledgeable and thorough in his/her process. Someone who understands income, risk and lifestyle needs. It’s essential for an investor that her property fits her unique lifestyle, in other words, does it add value to how they live their lives, or is it a burden and therefore diminishes their enjoyment of their every day life. We always look at those important factors when figuring out the best way to help a client invest in Real Estate.