Fixing and flipping houses looks cool on reality TV, but in actuality, many are finding that it isnt nearly as profitable as what it is perceived to be.
House flipping TV shows have caused an epidemic. There are thousands of aspiring new investors out there, including my Uber driver, who are rushing to try their hand at it, after equipping themselves with a few episodes of a television series. Both the data and my personal experience seem to show that it isnt nearly as profitable as many believe. In fact, it can be a highly risky venture. Investors Are Losing Money on House Flips One of the first things experienced investors will notice about these TV shows is that the rough numbers shown at the end dont always appear to factor in a lot of the costs. That means even in these silver screen scenarios, the actors are typically pocketing a lot less than they are made out to be. New data from ATTOM, the leading provider of real estate and property data, shows that many are losing money, too. The latest Home Flipping Report reveals that average house flip profits are declining. The number of flippers using cash has also dropped to an eight-year low. RealtyTrac says that 21% of transactions show a gross profit of less than 10%. That means once all numbers are added up, these deals likely lost money. Thats in addition to 8% of flips thatsold for less than the property was purchased for. Related: Breaking News: Newbie Flipper Makes Disturbing Discovery That Its Not Like on TV None of these numbers track the much larger pool of new investors who have bought properties, have gotten stuck on rehabs, or have over-improvedand are still sitting on these liabilities costing them money every month. The Tax Issue I have flipped properties in the past. Honestly, I enjoyed it. However, investors need to differentiate between getting into an expensive hobby and investing for a positive return. One big flaw in the house flipping model is taxes. Uncle Sam takes a huge chunk of the profits in tax on flipped properties. Its extreme. Most overlook the fact that they are going to have to give up 20% to 40% of their profits in taxes. If flippers have already spent the money by the time they get their tax bill, a vicious cash crunch cycle can kick in. Most wont enjoy being chased down by the IRS for $50,000 or $500,00 in past taxes. This is all in addition to the speculation involved in flipping houses. Even if you really know your property values and market, there are a lot of factors outside of your control. That includes neighboring foreclosures, natural disasters, interest rates, and the media. All of these can impact your ability to resell for more within a given window of time. Millions lost out on this strategy in 2008. Related: 7 Ways TV Flipping Shows Are Completely Fake (As Any REAL Investor Knows!) Why I Like Buy & Hold I like the buy and hold model. It means that when I renovate a property, I know I will get a tenant in it who is paying rent and providing me with income. That property can keep on generating cash profit regardless of property values and the market. The income on long-term rental properties is taxed at a lower rate than you get with flipping, too. By using1031 exchanges or self-directed IRAs, you can defertaxes or make returns tax-free. For me, buy and hold also checks two of the most important boxes that people invest in real estate for in the first place. Those are time and location freedom, which come from thepassive incomeprovided by good property management. You just dont get that if you are rehabbing houses and are trying to flip them yourself. Were republishing this article to help out our newer readers. Whats your strategy of choicebuy and hold, fix and flip, or something else? Feel free to defend flipping in the comments! https://www.biggerpockets.com/renewsblog/dont-flip-houses
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HouseCanarys quarterly Canary Rental Index (CRI) explores rent return across the country; we examine how rental yield varies from state to state by pinpointing the effective gross yield (EGY) that investors can expect on average in any given state and in certain markets. The EGY calculation includes rental expenses (like the price of the home and state and local tax levies), then determines what kind of return on investment a rental investor can expect given the local fair-market rental value of homes.
In our most recent CRI, we see that EGY across the country is hovering at 7.7%. Rental investors can therefore expect a return on their investment of around 7.7%. Thats a solid return, but as we can see when we dive into the Mountain West region of the country, returns tend to be higher when real estate prices are relatively low (though not always), and there are ripple effects spreading to nearby markets from hot real estate market centers exploding with buyer interest (like Denver). Rocky Mountain High: Colorado Colorado has seen a population explosion in the past couple of years, adding almost 100,000 new residents in 2016 and nearly 80,000 new residents in 2017. That influx of people has slowed in 2018, but population growth has still had a significant impact on Denver in particularColorados capital city and the destination for many newcomers to the state. As a result, the home price growth in the Denver-Aurora-Lakewood metropolitan statistical area has been some of the fastest-paced growth in the country. Colorado as a whole showed an 8% increase in price growth year-over-year, and the results in the capitol MSA vary widely. For example, Franktown and Castle Rock to the south and Westminster to the north show the slowest current growth pace at 5.1%, but the 80218 ZIP codespanning the North Capitol Hill/City Park West neighborhoods down through Cherry Creek and to Alamo Placitaexperienced a whopping 11.8% price growth in the past year. But that high price growth doesnt necessarily translate into increased rental yield for investors. In the 80218 ZIP code, the average gross yield for rental investors is 5.8%. But the 80219 ZIP code, which encompasses the Barnum, Westwood, Mar Lee and Harvey Park neighborhoods, show a gross yield more in line with national averages at 7.7%. Its important to remember that gross yield and EGY arent exactly comparable (EGY includes the expenses of state and local taxes), so even that relatively high-return area of Denver sits below the national average when you factor in property taxes. Youll find the highest gross yield in the Denver MSA in Limon on the Eastern plainsalmost an hour outside of the city properwhich boasts an 11.3% gross yield for rental investors. Closer to the city center, investors would be well-advised to look at outlying suburbs like Thornton to the north. In between Denver and Boulder, Thornton is capitalizing on both hot markets by being somewhere in the middle. Its gross yield is 11.1%, the highest in the central metro area by at least 3 percentage points. Colorados Front Range is home to several MSAs besides Denver, that said. From south to north, the Front Range encompasses Pueblo, Colorado Springs, Denver, Boulder, Fort Collins, and Greeley, stretching in a chain across the state. Are these metros seeing any effects of Denvers red-hot market. And should investors be considering them more closely? Absolutely! In Boulder, for example, price growth has been slower in Longmont and Lyonsbut the only place in the central city where price growth has been slow is on property owned by the University of Colorado. Otherwise, Boulder has seen a collective price growth of 8.4% in the metro area during the past year, and in Central Boulder and North Boulder, that price growth is up to 9.6%. Those are also some of the worst places for investors to hope for relatively high returns: Central and North Boulder showed average gross yields of 4.4%, compared to a potential 6.8% gross yield in Longmont. The best MSA to invest on the Front Range? Believe it or not, Pueblo, Colorado, has an average EGY of 15.5%one of the highest yields in the country and more than double the 7.7% national average. This is one area where high price growth hasnt seemed to hurt rental yields very much: Pueblos price growth over the past year ranges from 7.8% in its 81004 ZIP code, which straddles I-25 from Pueblos Mesa Junction neighborhood all the way down to Colorado City, up to 13.6% in the 81005 area, which encompasses neighborhoods from Aberdeen to South Pointe. But despite that robust price growth, the lowest average gross yield in Pueblo is a respectable 12.8% in Stone City and Pueblo West, up to 16.8% in Avondale to the east of the city. Read our full Canary Rental Index, with details about Salt Lake City, Boise, Billings, and other Mountain West hotspots. Would you consider investing in any of these locales? Let us know with a comment! https://www.biggerpockets.com/renewsblog/head-west-finding-double-digit-rental-returns-in-the-mountains/ Fixing and flipping houses looks cool on reality TV, but in actuality, many are finding that it isnt nearly as profitable as what it is perceived to be.
House flipping TV shows have caused an epidemic. There are thousands of aspiring new investors out there, including my Uber driver, who are rushing to try their hand at it, after equipping themselves with a few episodes of a television series. Both the data and my personal experience seem to show that it isnt nearly as profitable as many believe. In fact, it can be a highly risky venture. Investors Are Losing Money on House Flips One of the first things experienced investors will notice about these TV shows is that the rough numbers shown at the end dont always appear to factor in a lot of the costs. That means even in these silver screen scenarios, the actors are typically pocketing a lot less than they are made out to be. New data from ATTOM, the leading provider of real estate and property data, shows that many are losing money, too. The latest Home Flipping Report reveals that average house flip profits are declining. The number of flippers using cash has also dropped to an eight-year low. RealtyTrac says that 21% of transactions show a gross profit of less than 10%. That means once all numbers are added up, these deals likely lost money. Thats in addition to 8% of flips thatsold for less than the property was purchased for. Related: Breaking News: Newbie Flipper Makes Disturbing Discovery That Its Not Like on TV None of these numbers track the much larger pool of new investors who have bought properties, have gotten stuck on rehabs, or have over-improvedand are still sitting on these liabilities costing them money every month. The Tax Issue I have flipped properties in the past. Honestly, I enjoyed it. However, investors need to differentiate between getting into an expensive hobby and investing for a positive return. One big flaw in the house flipping model is taxes. Uncle Sam takes a huge chunk of the profits in tax on flipped properties. Its extreme. Most overlook the fact that they are going to have to give up 20% to 40% of their profits in taxes. If flippers have already spent the money by the time they get their tax bill, a vicious cash crunch cycle can kick in. Most wont enjoy being chased down by the IRS for $50,000 or $500,00 in past taxes. This is all in addition to the speculation involved in flipping houses. Even if you really know your property values and market, there are a lot of factors outside of your control. That includes neighboring foreclosures, natural disasters, interest rates, and the media. All of these can impact your ability to resell for more within a given window of time. Millions lost out on this strategy in 2008. Related: 7 Ways TV Flipping Shows Are Completely Fake (As Any REAL Investor Knows!) Why I Like Buy & Hold I like the buy and hold model. It means that when I renovate a property, I know I will get a tenant in it who is paying rent and providing me with income. That property can keep on generating cash profit regardless of property values and the market. The income on long-term rental properties is taxed at a lower rate than you get with flipping, too. By using1031 exchanges or self-directed IRAs, you can defertaxes or make returns tax-free. For me, buy and hold also checks two of the most important boxes that people invest in real estate for in the first place. Those are time and location freedom, which come from thepassive incomeprovided by good property management. You just dont get that if you are rehabbing houses and are trying to flip them yourself. Were republishing this article to help out our newer readers. Whats your strategy of choicebuy and hold, fix and flip, or something else? Feel free to defend flipping in the comments! https://www.biggerpockets.com/renewsblog/dont-flip-houses HouseCanarys quarterly Canary Rental Index (CRI) explores rent return across the country; we examine how rental yield varies from state to state by pinpointing the effective gross yield (EGY) that investors can expect on average in any given state and in certain markets. The EGY calculation includes rental expenses (like the price of the home and state and local tax levies), then determines what kind of return on investment a rental investor can expect given the local fair-market rental value of homes.
In our most recent CRI, we see that EGY across the country is hovering at 7.7%. Rental investors can therefore expect a return on their investment of around 7.7%. Thats a solid return, but as we can see when we dive into the Mountain West region of the country, returns tend to be higher when real estate prices are relatively low (though not always), and there are ripple effects spreading to nearby markets from hot real estate market centers exploding with buyer interest (like Denver). Rocky Mountain High: Colorado Colorado has seen a population explosion in the past couple of years, adding almost 100,000 new residents in 2016 and nearly 80,000 new residents in 2017. That influx of people has slowed in 2018, but population growth has still had a significant impact on Denver in particularColorados capital city and the destination for many newcomers to the state. As a result, the home price growth in the Denver-Aurora-Lakewood metropolitan statistical area has been some of the fastest-paced growth in the country. Colorado as a whole showed an 8% increase in price growth year-over-year, and the results in the capitol MSA vary widely. For example, Franktown and Castle Rock to the south and Westminster to the north show the slowest current growth pace at 5.1%, but the 80218 ZIP codespanning the North Capitol Hill/City Park West neighborhoods down through Cherry Creek and to Alamo Placitaexperienced a whopping 11.8% price growth in the past year. But that high price growth doesnt necessarily translate into increased rental yield for investors. In the 80218 ZIP code, the average gross yield for rental investors is 5.8%. But the 80219 ZIP code, which encompasses the Barnum, Westwood, Mar Lee and Harvey Park neighborhoods, show a gross yield more in line with national averages at 7.7%. Its important to remember that gross yield and EGY arent exactly comparable (EGY includes the expenses of state and local taxes), so even that relatively high-return area of Denver sits below the national average when you factor in property taxes. Youll find the highest gross yield in the Denver MSA in Limon on the Eastern plainsalmost an hour outside of the city properwhich boasts an 11.3% gross yield for rental investors. Closer to the city center, investors would be well-advised to look at outlying suburbs like Thornton to the north. In between Denver and Boulder, Thornton is capitalizing on both hot markets by being somewhere in the middle. Its gross yield is 11.1%, the highest in the central metro area by at least 3 percentage points. Colorados Front Range is home to several MSAs besides Denver, that said. From south to north, the Front Range encompasses Pueblo, Colorado Springs, Denver, Boulder, Fort Collins, and Greeley, stretching in a chain across the state. Are these metros seeing any effects of Denvers red-hot market. And should investors be considering them more closely? Absolutely! In Boulder, for example, price growth has been slower in Longmont and Lyonsbut the only place in the central city where price growth has been slow is on property owned by the University of Colorado. Otherwise, Boulder has seen a collective price growth of 8.4% in the metro area during the past year, and in Central Boulder and North Boulder, that price growth is up to 9.6%. Those are also some of the worst places for investors to hope for relatively high returns: Central and North Boulder showed average gross yields of 4.4%, compared to a potential 6.8% gross yield in Longmont. The best MSA to invest on the Front Range? Believe it or not, Pueblo, Colorado, has an average EGY of 15.5%one of the highest yields in the country and more than double the 7.7% national average. This is one area where high price growth hasnt seemed to hurt rental yields very much: Pueblos price growth over the past year ranges from 7.8% in its 81004 ZIP code, which straddles I-25 from Pueblos Mesa Junction neighborhood all the way down to Colorado City, up to 13.6% in the 81005 area, which encompasses neighborhoods from Aberdeen to South Pointe. But despite that robust price growth, the lowest average gross yield in Pueblo is a respectable 12.8% in Stone City and Pueblo West, up to 16.8% in Avondale to the east of the city. Read our full Canary Rental Index, with details about Salt Lake City, Boise, Billings, and other Mountain West hotspots. Would you consider investing in any of these locales? Let us know with a comment! https://www.biggerpockets.com/renewsblog/head-west-finding-double-digit-rental-returns-in-the-mountains/ In this world of real estate, there are some truthsbut there are also many lies. I assume since youre reading this that youre interested in real estate wholesaling. Lets dive into some of the most common real estate lies about wholesaling.
Lately, Ive been doing 30-minute free strategy sessions with aspiring wholesalers. I take this time to introduce newbies to the world of real estate investing. During these sessions, they can ask me anything about real estate and wholesaling more specifically. What Ive found is that there are a ton of misconceptions out there, and I want present the truth. The 8 Most Common Lies Newbies Believe About Wholesaling1. Wholesaling is illegal. This is the biggest question Im asked. My answer, despite what critics might say, is no, wholesaling, at least how I do it, is not illegal. I am here to clarify that brokering a real estate transaction without a license is illegal. There is a small gray area, and although I do not like to operate in the gray area because I consider myself to be somewhat conservative, I tell aspiring wholesalers to get their license to eliminate that gray area. Do not broker deals without a license. As a wholesaler without a license, you need to ensure you clarify with your seller that you are purchasing the property and not finding an end buyer. I know this is small semantics, but it is key that you clarify this. Again, I am an advocate for getting your license to help minimize risk. Plus, having a license may also help open other doors. Related: 5 Ways to Lose Your Wholesale Deal (After Signing the Contract) 2. Wholesaling is dead. Yes, I actually heard this. Although in many markets its harder to find deals, this strategy is not dead. I have a deal closing next week in one if the toughest markets in the nation. I agree that it is much more challenging than it was just two years ago. During this time of market saturation, you have to be more creative and liquid to find deals. 3. You absolutely have to have a license to wholesale. As I explain above, this is an advantage but not a necessity. This is just my advice. You can draw your own conclusions, but you do not have to have a license. Is it more beneficial? Yes. 4. You can be successful without money. Lets be clear: You cannot get something for nothing. Keep this in mind. You definitely cannot sustain a business without money. Can you get started with limited money? Yes, but you will have limited success. 5. Theres no risk involved. This is the most audacious remark Ive heard. What investment strategy that you know of has no risk and no downside? None. Here is one of the risks: You can be sued. Yes, this is a possibility. I dont want you to have a false sense of security thinking that you can do this and not face any challenges. Ive seen and heard of wholesalers being sued by the seller, the buyer, and other wholesalers. Beware and get educated. 6. Wholesaling is for beginners only. I am here to inform you that many seasoned investors still wholesale. Is it their primary strategy? Well, of course not. However, there are times where you have a deal is too sweet to pass up, but the deal does not fit your model. Youre not going to let money run through your fingers. As an entrepreneur, you look at every possibility to leverage your resources. Many non-beginner investors I know personally wholesale a lot of deals. 7. You can virtually wholesale deals by yourself. Now, this is a bunch of crap. Virtual wholesaling is difficult, and you cannot do it alone. Its actually more important to have a team when virtual wholesaling rather than wholesaling in your local market. Ive heard of courses that inform aspiring wholesalers to simply virtually wholesale if the local market is too competitive or saturated. Is virtual wholesaling a possible? Absolutely. Ive done many virtual deals, but you have to have a strong team in place. This team may consist of a wholesaler in that market, birddogs, attorneys, title agents, etc. This is not a task you want to try and implement independently. Related: A 60-Day Action Guide to Wholesaling Your First Property 8. Real estate agents hate wholesalers. Ive heard this quite often, and although the real estate agent/wholesaler relationship sometimes may not be the greatest, this isnt always the case. There are real estate agents who work with investors and who love wholesalers. This is because wholesalers can provide agents clients with off-market deals. This helps agents show their clients that they are embedded in the local industry. Agents can make a lot of money from wholesalers. I get that many agents believe wholesalers are taking possible listings. However, if wholesalers hand off below-market deals toagents, that is a benefit for the agent and his/her client. We have many agents on our buyers list, and you should too. Remember, when you hear a negative statement, you must evaluate the source. Some of these lies are from those who have ulterior motives. When working to be a wholesaler, you will encounter many things that can skew your perspective. By reading this article, you have the upper hand on your competition. Were republishing this article to help out our newer readers. What wholesaling myths and lies have you encountered? Comment below! https://www.biggerpockets.com/renewsblog/wholesaling-lies At some point in my life, Ive dreamed about living in a gigantic mansion on some exotic location where the ocean breeze lightly blows against some beautiful Egyptian cotton curtains. Id bet that most of us have that dream at some pointand perhaps some of us are already creating a path to get there some way, somehow.
Well, maybe not all of us have those dreamsbut still, we often strive to live a little better. Lets start with that small 2-bedroom condo. Oh wait, we need more space. We need a 3-bedroom townhouse. But then we really want a yardand this kitchen is too small. And wheres the man cave? Our kids need a room. Pretty soon, we are trading up from that tiny apartment to a gigantic house or from a neighborhood where you are a bit scared to walk at night to that subdivision with the really good schools. Its the American dream, isnt it? But sometimes you have to consider the costs of trading up your residence. I know two couples who live in Orange County, California who, after living there maybe a couple of years, are already looking to trade up to a new home that cost nearly double what their previous residence is worth (i.e., $350,000 to the $800,000 range). Sure, it is in a much better neighborhood. Sure, sometimes you need that extra office and nurserybut consider the costs! Even at 4%, your monthly payment will have gone from $1,337 to $3,055 (assuming you put 20% down each time and this is a 30-year fixed loan)! That is a lot of change no matter what you do. Related: Should I Pay Off Debt or Use Those Funds to Invest? What About Building Net Worth? Sure, you can build equity faster every month with the bigger house, but that is because you are putting that much more money into it. You are tying up cash into a house that you have to live in. Whether the housing market goes up or down, you are tied to living in that residence. It is also an extremely illiquid investment. While you think you can sell a house quickly today, thats not always the case in a given market. Your entire net worth has become dependent on what the next person is willing to pay for your home. It is an extremely volatile and risky investment if you tie up most of your wealth into a house. The Market is Going Up. I Can Sell to Buy a Better House! Can you? If you only own that one house, is it worth it for you to sell that home to buy another one? In a rising market, all houses go up in value. If you are trying to buy a similar or better house, wouldnt it cost you more money even though you sold your house for more money? What difference would it make? And another thing: Every time you trade up a house, you are paying a lot of expenses. I have flipped properties before, and I know selling costs can sometimes range from 8 to 10% of the actual selling price. It is a huge transaction cost. Those real estate agents are waiting for those big bucks, bucks that you dont have to spend if you decide not to sell your property and go buy another one. Imagine selling a $350,000 house and having to spend $30,000 for transaction fees. Thats the price of a car! Related: Are Extra Mortgage Payments Worth It? A Look at the Numbers If You Have to Trade Up, Trade Up Wisely All I am saying is that it may not necessarily be wise to trade up for a bigger place until you are truly financially ready. Sometimes living in that 2-bedroom condo will give you an opportunity to save a lot of your wealth for other investments. Or maybe you could live small and trade up really big further down the line instead of constantly switching. Ive heard that the average time Americans live in a residence is 7 years. Maybe the next time you switch up you should wait 15 to 20 years. It is a long wait. You may not like your old home so much, but hey, the rewards for saving now can benefit you greatly in the future. Were republishing this article to help out our newer readers. What do you think? Leave your comments below! https://www.biggerpockets.com/renewsblog/2013/08/17/trade-up-your-house/ Tony Gayden grew up in a lower middle class household where money and finance were not discussed. He sought comfort in food, eventually reaching 476 pounds and drowning in debt. In this episode,Tony shares his weight-loss journey and how he parlayed the lessons and discipline he learned into successful debt reduction and finally starting to invest.
Today, Tony works at his dream job with no plans to quit, but uses his investments to protect himself should his circumstances change. Click hereto listen on iTunes. Listen to the Podcast HerePodcast: Play in new window | Download Subscribe: Apple Podcasts | Android | RSS Watch the Podcast Here [embedded content] Help Us Out! Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds.Thanks! We reall y appreciate it! Podcast Sponsor The all-new FreshBooks is accounting software that makes running your small business easy, fast and secure. Spend less time on accounting and more time doing the work you love. For a 30-day unrestricted trial, go to FreshBooks.com/bpmoney In This Episode We Cover:Tonys life journeyHis addiction to food and how he overcame itHis journey to weight lossThe challenges he encountered during his weight lossThe rock bottom of his job and financeWhat makes him out of debtWhat his salary was when he was paying all of his debtThe correlation between weight and moneyHow he decided to jump into real estateHow he got into his first propertyHow BiggerPockets helped himWhat his career has been like after buying his first propertyPocket listingsHis journey from 2015 to the presentWhat got him so luckyAnd SO much more!Links from the ShowBooks Mentioned in this ShowTweetable Topics:When you see progress, it motivates you. (Tweet This!)Losing weight is not the hard part. The truly hard part is keeping it off. (Tweet This!)The weight loss is the catalyst that fits everything. (Tweet This!)For success, you have to give 10 times the amount of effort as what you originally thought was necessary in order to accomplish any goal. (Tweet This!)Connect with the Tony https://www.biggerpockets.com/renewsblog/biggerpockets-money-podcast-21-how-losing-260-pounds-spurred-success-with-tony-garden One huge advantage to having (and/or being part of) an investing club is that you meet smart, like-minded people with similar interests and resources. After hosting my last Denver womens investment group, I was excited to receive the below chart from one of our participants:Jennifer Ward. Like so many people in the BiggerPockets community, Jennifer Wardwants her investments to be dictated by what makes the most sense, rather than sheer proximity. In other words, just because you live in an expensive city or state (ahem, Denver, ahem, Colorado) doesnt mean you need to invest there.
The below chart reviews six U.S. cities for investor desirability: Atlanta, Cleveland, Memphis, Kansas City, Indianapolis, and Minneapolis. The final line is an average of the metric for the cities reviewed, and the boxes colored green mean that the city in question has a better score than the average for these six cities. Basically, the more green, the better. Related: Why Overpriced Markets Like San Francisco May Be Healthier Than You Think An Analysis of 6 U.S. Cities for Investor Desirability Assuming all metrics are equal, Minneapolis is the clear winner for this data set. It outperforms the other cities in 7 of the 8 metrics, and is followed by Indianapolis, which has strong scores for 5 of the 7 metrics. Two major losers here are Cleveland and Memphis, both of which have high crime stats, poor population growth, and fairly high taxes. Whats interesting about this chart is the pattern we see in the rent to value column. This is calculated by dividing the median rent by the median house/condo value. So, for Minneapolis, you see that the cost of homes is moving up faster than the cost of rent. On the inverse side, you can command more rent in Cleveland and Memphis compared to the cost of the home. That said, we still think Minneapolis is a better value with less headaches when you look at all the other metrics present here. Thanks again toJennifer Ward. What do you think of this analysis? Weigh in below! https://www.biggerpockets.com/renewsblog/places-invest-real-estate Investment properties can serve as the foundation for future financial stability, but theres a widespread perspective that you need to be fairly wealthy to start investing in the first place. But how much money do you really need to take the first step? If you play your cards right, a few thousand dollars can help you throw open the doors to your first tenants.
Focus on the Flip When working on the low-budget end of the investment spectrum, your best bet is to look for distressed propertiesor affordable houses that need a little work. In the wake of the sub-prime mortgage crisis, these homes are plentiful and many are in foreclosure. Buy them from the bank at auction and get to work. Related: Why You Should Consider Private Lending for Your Financing Needs Smaller cities and rural areas have a particularly abundant supply of rehab-ready houses available for rock-bottom prices. Maybe its not the location you would choose, but long-distance management of D-list properties will help you make the money you need to move into more established, expensive areas. Expand Your Funding Horizons Most of the time, when young investors say they dont have enough money to buy property, what they mean is that they dont have enough cash. And of course they dontvery few people do. As it turns out, you dont have to be equipped with cash. You just need to think more expansively about where you get your funding. The most common way to finance an investment property is by taking out a loan, but this is different from applying for a private mortgage. Many mortgage applicants are financially ill-equipped for homeownership and make poor candidates, meaning they pay high interest rates and have little room to negotiate. When you seek an investment loan, though, youre more likely to be viewed as responsible and financially stable, meaning lenders will be competing for your account. Another option you can avail yourself of in order to pay for an investment property is equity or other assets. If you already own a home, for example, you can take out an equity loan on that property. Similarly, if you have supplemental assets such as a second car, stocks, or even jewelry, those things can be converted into cash to be used towards an investment property. Think Income One reason its easier to get a loan for an investment property rather than a private home is because investment properties produce an income stream. When youre buying, then you need to consider how much income a property can provide and how reliable that cash flow will be. Related: What Newbies Should Know About Financing Investment Properties (Versus Homes) If you want to maximize your potential income and achieve more consistency, one option is to invest in a multifamily home. Though single-family properties appreciate more rapidly, with multifamily properties, you have multiple cash streams. You can also renovate one apartment while leasing out the others, allowing to keep making money while also making capital improvements. Investment properties are a source of countless opportunities, providing a consistent source of income that can fund future education, retirement, or travel among other possibilitiesbut you need to start early. So look at your savings and see where it can take you. With a little financial ingenuity, a few thousands dollars can be transformed into great prosperity. How do you plan to finance your first real estate deals? Comment below! https://www.biggerpockets.com/renewsblog/how-to-finance-your-first-investment-property/ 4 Ways Technology is Shaking Up Commercial Real Estate (& Why Multifamily Will Pull Ahead)5/18/2018 Here are two undeniable truths:
Commercial real estate has built many investors fortunes throughout history, andTechnology is changing the world at a faster pace than ever. But how do those two truths affect one another? There is a reason 80 percent of millionaires attribute their financial success to real estate, muchof which focuses in commercial real estate. In past blog articles, Ive explained in detail how the wealth-building power of commercial real estate works, specifically for multifamily. Due to thesearticles, I have had many people ask, Why multifamily? Why not office, retail, or industrial? All of these options are classified as commercial, and all of them give the benefits I love to write aboutbut I dont invest in them. Why? There are a several reasons I dont invest in those other niches of commercial real estate and focus on multifamily. The one reason I will write about in this article is technology. I dont think anyone can argue that technology is changing the economy, peoples lives, and the world as a whole faster than it ever has. It happens to be changing things so fast that predicting where it will take us has become more of a crystal ball reading and less of a data analysis. Lets take look at how technology will affect commercial real estate in the years to come. The success of investment real estate, as with most businesses, can be boiled down to supply and demand. Economics 101, right? We all know this stuff. How badly do your tenants want to rent a property like yours, and how many options do they have to choose from? Well, technology is taking supply and demand for the commercial real estate niches and shaking things up. Lets look at few undeniable truths technology has given us and what they mean forcommercial real estate. 4 Ways Technology is Shaking Up Commercial Real Estate1. Demand for workspace is shrinking as people work from home more than ever. Technology has made it easier to work from home than ever, with tools like Think Email, Skype, Go to Meeting, Podio, and others facilitatingvirtual collaboration. According to a Gallup survey of 15,000 adults released last year, 43 percent of employed Americans spend at least some time working remotely. The survey also reported those working remotely four to five days a week grew by nearly the same amount, rising to 31 percent from 24 percent. Related: 4 Ways New Technology is Changing How Real Estate Investors Communicate The reason we see this swing is because working from home causesemployee satisfaction and productivity to go up and employer costs to go down. Many surveys show employees are willing to forgo 15-20 percent in compensation for the flexibility and convenience of working from home. Combine all this with that fact that the growing tech industry leads the pack in allowing employees towork from home, and it appears that the trend is likely to pick up pace in comingyears. This all results in a steady trend of more and more employees working from home. Because of this, the demand for office space will continue to decrease as less is needed to accommodate this new trend. I am not saying office space will disappear, but demand will go down, and when demand falls, both pricing and valuation of the asset will fall. 2. Demand for retail space is shrinking as people shop online more than ever. Tenyears ago, if someone told you that you could order your groceries online and have them at your doorstep one hour later or that Amazon would be delivering packages to your doorstep with a drone, youwould have thought it was crazy talk. Today, eightin 10Americans shoponline, according to anew study from Pew Research. Thats 79 percent of U.S. consumers. Leading the pack in online retailers in recent years, Amazon has made a major impact on how we purchase everything from groceries to lawn mowers. Amazon sells just about everything you can think of. Other major companies, like Wayfair, follow behind Amazon. Even Walmart has made huge push to online shopping recently. I believe of all the undeniable truths that this is the one that will change commercial real estate the most. Brick and mortar real estate serving retail isand will continue to be replaced by massive fulfillment centers out in the middle of nowhere. Again, to be clear, I am not saying all strip centers in the world will be boarded up and no longer used, but with such a massive push towards online buying and the savings thatgives to companies, I have no doubt that demand for this asset class will decline due to this change in technology. 3. Demand for commercial real estate will be displaced because it is simpler for businesses to sourcefrom overseas. Imentioned how technology continues to improve communications and purchasing. Those two things also open the door for businesses to conduct their business overseas to achieve the most competitive pricing. Now even the smallest of businesses can quickly and easily source manufacturing or simple purchasing from overseas vendors. The most rapid changes I see that technology has opened up for businesses is the ability to not only order things overseas but also hire people to work virtually. Now with a few clicks and calls, a small business owner can hire someone in India, the Philippines, or anywhere elsein the world. The Intelligent Virtual Assistant Marketis expectedto rise from $627.7M in 2015 to a massive $7.9B by 2024. The market is forecasted to expand at an astounding 32.8% CAGR. As this trend grows, it pushes the need for types of real estate that service these jobs out of the country. For the most part, this meansindustrial spaces for manufacturing and offices will be displacedto serve virtual assistants. 4. Demand for multifamily will increase as people change jobs/careers at a faster pace than ever. With the world changing so quickly, people are changing as well. The Millennial generation is known to job hop, creatingtransient employees. They bounce around the country and stay in jobs for a significantly shorter period of time than previous generations. The data supports this. Arecent Gallup report on the Millennial generationreveals that 21 percent of Millennials say theyve changed jobs within the past year, which is more than three times the number of non-Millennials. Jobs and net migration of population are changing, and the younger generation is adapting to that. I believe these changes are being driven by technology. Related: 5 Ways the Real Estate Industry Will Completely Transform Over the Next Decade Fiftyyears ago, if you lived in Ohio, there was no good way for you to hear about job opportunities in Texas. Even if you did somehow find out about them, you would have to pay a fortune for long distance phone calls, and youd have to send in your resume via snail mail and hope to hear back. If by some good luck you did get the job, you would be forced to move to a new state and say goodbye to your family. Now we can jump on the computer and search for the best fitting/paying opportunities all over the country, apply for them, and interview with them, all without ever leaving ourhome state. If the need to move out of state arises,we can simply text, FaceTime, or Skype to stay in touch with friends. Put simply, moving jobs and transient lifestylesjust arentas unachievable as they used tobe, which has lead toan increase in this way of living. This lifestyle results in decreased demand for home ownership. Today, only 63 percent of people own homes, a 50-year low. Some of this is a result of affordability, and some of it is a result of lifestyle. Regardless, people are renting more and more. This increases demand for residential rental property, specifically multifamily. The undeniable truth is that people work from home now more than ever, and that continues to climb. More people shop from home, and that continues to climb. And more than ever people dont want to or cannot afford to own the very home they are working and shopping from. The demand for the commercial real estate asset classes are being shaken by change, and that change is a result of technology. Were republishing this article to help out our newer readers. What do you think is going to happen with commercial real estate in the next decade? Do you agree with this assessment? Leave your thoughts below! https://www.biggerpockets.com/renewsblog/technology-changes-real-estate |
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