What Is Your Preferred Property Type?
How To Determine Your Market…
When you start to do your research and gathering information to improve your knowledge you will be quick to realize that there are multiple real estate markets in the United States.
What I mean by that is you can choose to specialize in different types of properties like residential, commercial, developments, land etc. Within residential you can choose single-family homes or multi family homes up to 4 units. You can also choose between 2 units and 4 units being a duplex, tri-plex or a four-plex. Once you move up to a six-plex you are entering the commercial real estate market.
The decision for my strategy of purchasing single-family residential homes was based on my location and the fact that I am here in Australia most of the year. I have other team members overseeing and managing my real estate portfolio and when you step up to multi-family homes they require a lot more attention. They require more intense property management, they require more repairs and maintenance and more attention in general.
As I am not on the ground I want the job for the property manager as easy as possible. There are very little neighborhood disputes when it comes to single-family homes. No-one is arguing about visitor car spaces and the loud music coming from the next door unit. One house, one block of land, one tenant, one lease and one title makes for less complex issues when it comes to tenancy and ownership.
When it comes to multi-family units you and your tenants have to be very clear about the utilities and whether or not they are shared, included or split. Do they have the capacity to measure the utilities separately, in other words are they metered separately.
Also, multi-family homes are valued differently as they are valued based on the rental income they can generate. Whereas, a single family home is valued based on the current market value and what families are willing to pay in that neighborhood. School district is one of the most important criteria’s when analyzing the type of neighborhoods I want to be in. Good school neighborhood, better chance of appreciation and better chance of good rent and rental demand.
Another different real estate market is you can purchase pre and post foreclosures. You can purchase houses for the price of unpaid taxes, tax lien markets. Also, short sales where you make an application to the bank to purchase based on the ‘as is’ value of that property. You can also purchase houses from different government organisations and they all have different processes and procedures that they follow. A lot of the time when you are making offers on houses you making them to computers that run the numbers and not people who might make decisions based on emotion.
I am in the post foreclosure single-family residential home market. I would prefer to deal with the bank rather than dealing with the owner that is loosing their home. I do not fancy knocking on the door and negotiating a deal with the family that is about to lose their home. I would rather pay more for the house after it has gone through the correct process and due diligence with the banks. This is the safest way to purchase a foreclosed property and the title it cleared of any liens or loans and you know you are receiving clear and proper title to the property. You are at more risk by buying from the owners.
One of my rules when I first started this business was to focus on one real estate market. It has proven to be the right and profitable decision. It is also important to decide on what prices you want to pay for your properties and what sort of rehab you want to complete. I have rules around that process also. It is very important to determine what rules you have around real estate buying decisions. I am in areas that you can buy a property for $30,000 and it requires up to $10,000 in rehab. More recently, I purchased a house for $18,000 and put $30,000 in rehab dollars total of $48,000 and I know the value of that house is now $75,000. This house required a lot more rehab.
I know that after mastering this niche market that I am going to have a competitive edge over other investors. I am noticing that more and more investors are coming into this market and making it more competitive. It means that I have to make decisions more quickly. It also demonstrates the importance of having that underpinning knowledge to enable me to act quickly. In my training I outline many case studies so you get used to analyzing transactions and looking for deals that give you the correct amount of rental income required to cover your expenses and give you positive cash-flow. This is when systems are important which I will discuss next.