Broadly, the following are categories of real estate investment and related strategies:
1. Land Development
2. Residential real estate of new homebuilding and selling.
3. Commercial real estate development, selling, leasing, and commercial property management.
4. Multifamily residential property development, selling ownerships as condominiums, leasing apartments, and management.
5. Sale and purchase of any type of existing real estate.
There are tons of literature and strategies in the market on how to own and invest in real estate for profit. Depending on how big or small an investor you happen to be, it is important and significant to learn that your cash and effort converted to real estate that does not return the profit as you the investor thought it would, or the circumstances changed beyond your control, it could be an aggravating experience. If you hear someone boasting that he/she got a great deal, well; someone else lost in the deal.
For investing in residential real estate; your insight, hunch, intuition feelings, and success stories of your friends may influence you, but crunching numbers and having a real estate professional with his/her team to assist you will be a big help.
Since we are residential real estate brokers, we are restricting ourselves here on the subject of investments for ownership in residential non-multifamily properties like single-family and townhomes. You may be one of the following types of investors in residential real estate:
- You are a rich foreigner who wants to park money in the United States, either as safe haven, or investment for returns.
- You are a rich American who is always on the lookout for how to reduce taxes. Real estate provides cash depreciation write-offs. For them, holding real estate is a safe-havens.
- You are a savvy rich investor who puts money with Real Estate Investment Trust cropping up to gamble in buying-holding-cashflows-and-selling when the time is ripe. You get your share of gains.
- You have inherited real estate and you have no choice but to make profitable use of your portfolio.
- You are a mild investor with a good steady income who aspires to make profits out of real estate investments by parking spare money in residential investment properties as rental properties.
- You are a mild homeowner who aspires to retire comfortably, raise the standard of living for the family, and leave income-generating residential assets in the estate.
We will suggest risk-averse strategies for the last two types of aspiring investors in residential properties.
Read on more!
This investment model assumes that you are young, and have a reasonably progressive job that will improve over time, have bought a home for yourself, and you aspire to build investment wealth in rental residential properties.
The premises of this investment model are that:
- You can pay off a loan over your home property in 15 years by increasing monthly payments to
reduce payoff period. - At end of the first 15 years period, you have fully paid off your home loan, and it becomes your financial
asset to open a line of credit with your bank by placing your home as collateral. - You have established good relations with your bank disclosing your intent to the bank that you
plan to invest in rental residential properties and will place the rental properties with the bank
as collateral with prior bank approval to purchase and finance. - You will open a business account in the same bank where rental checks will be deposited, and
mortgage payments will be paid out for loan payoff in 15 years.
This model is shown in an Excel spreadsheet we have worked out for the homeowners who believe in
savings for the future for a comfortable retirement phase of life and a legacy of assets for the family for
higher take-off points.
Long-term rental of residential property typically refers to a duration of the lease of 12 months. It could be
less or more than this duration. For purpose of analysis for investing in residential rental properties, we have applied the following criteria in
the town we are:
- Size: 1500 – 3,500 SF
- Age: 5 to 15 years
- Type: Single-family and townhomes
- Rentals Range: $2,000 – $3,500 / month
- Return-to-Price: 6.0% – 8.0% / year
The rental potential of the property depends upon the location of the property, the facilities associated with
it, HOA fees, furnished or unfurnished, proximity to marketplaces, and school district, etc. Rental property and its tenant have their own sensitivities to give the best of their potential performance. Sensitivities of Long -Term Rental Properties are:
- A qualified and apparently reliable tenant who pays rent electronically without reminder.
- Maintenance of property-related complaints.
- Property insurance that covers tenants of rental property.
- Change of the tenant when it is due.
- Security features in the property to protect the property and the tenant.
- Homeowners Association (HOA) often has some restrictions for the landlords to adhere to.
- Written approval of the HOA is often required to lease out the property to ensure the tenants are well
informed of the by-laws of the Association.
We can provide you full service from the acquisition of rental property to its management.
We have put together an analysis of rental properties in the form of an Excel spreadsheet. This template will provide you with an analytical approach to evaluate the potential of rental properties in the context of your financial status:
Short-term rental of residential property typically refers to a duration of renting of typically 1 day to
weeks.
For purpose of analysis for investing in Short Term Rental residential properties, we have applied the following criteria in the town we are:
- The property is in the permitted Short Term Rental zone of the County.
- Size: 1500 – 3,500 SF
- Age: 5 to 15 years
- Type: Single-family and townhomes
- Short Term Rentals Range: $150 – $250 / night.
- Return-to-Price: 10% – 14% /year, ignoring ROI due to investment leverage.
Short Term Rental potential of the property depends upon the location of the property, the facilities
associated with it, HOA fees, how well furnished, how many sleep, proximity to marketplaces and
the concentration of centers of recreation and entertainment etc.
A Short-Term Rental property has a high degree of sensitivity in competing with hotels, motels, hotel
condos, and resorts to give the best of its potential occupancy and rental performance.
Sensitivities of Short-Term Rental Properties
- The bookings of the property are done online through vacation rentals services available from
Airbnb.com, VRBO.com, AirDNA.com, and FurtureStay.com. - If a property has a pool to add to the recreational value.
- A number of bedrooms, baths, and sleeping beds.
- How well the property is furnished to provide the comfort of the expected vacation level.
- Turn-over of tenants at the high expected standard.
- Availability of community parking spaces of the HOA and street parking.
- Proximity to places of recreation and entertainment.
- Hospitality services of Short-Term Rental agent.
- Insurance of property and tenants.
- Security features in the property to protect the property and the tenant.
- Zoning boundaries and restrictions of local county government for such properties.
- Bylaws of Homeowners Associations or Condominium Associations impose restrictions on
the usage of the property. - Typically, there are common facilities and security features as part of the Homeowners Association
for vacationers, thus having much higher HOA monthly fees.
We can provide you full service from the acquisition of rental property to its management.
We have put together an analysis of some sample rental properties taken from MLS in the form of an
Excel spreadsheet. This template assumes financing of the property by 85% loan and revenue potential
for its rate and occupancy. You may change the values of variables of financing and revenue for an
analysis to evaluate the potential of rental properties. This template also gives a reduction in federal taxes
due to the non-cash depreciation of rental property.
If you are an aspiring investor in residential rental properties, domestic or international, Orlando Metropolitan, Florida is a destination city for this promising marketplace. Due to very high tourist traffic year-round, nearly 70 million a year, there are impeccable supporting services for residential ownership and rental properties, so much so that non-of-them are ever in the local news. As an investor, you fall into one of these categories:
- You are all cash buyer and have plenty of money to park in residential real estate.
- You are a mid-level investor whose strategy is to pick up mid-level investment financing and
have plans to go slow in acquiring properties. - You are a low-level investor who wants maximum leverage of financing and has plans for
multiple acquisitions of properties.
If you are planning to raise a loan to finance a purchase, it is important that you work with an experienced
a loan officer who specializes in investment property loans to step you through the types of loans available, and their underwriting criteria.
You have presumably settled in your mind which strategy of income generation is more suitable for you, Long-Term Rental or Short-Term Rental and you have browsed over the downloaded Excel spreadsheet template in the preceding topics.
We are here to give you full service in accomplishing your goals of acquiring residential rental properties and their management. The buying process of buying an investment property is described under the tab BUYERS.
Unlike buying a home for yourself by your living style criteria, investment in residential properties addresses the demand areas for tenants of certain paying potential of rents. Over-investment and under-investment can both lead to disappointments. It is important to set out with the end in mind.
If you looking for rental properties for short-term rental investment, you have narrowed it down to geographic areas where the county zoning is specific to short-term rentals. The HOAs of these developments impose standards and local restrictions that the residents of these properties are transients who will complement the demand of the businesses around by providing living accommodations. The developers of these Short-Term Rental subdivisions within Planned Urban Developments zones often create attractive community facilities, security arrangements, shuttle bus pickups, trash pickups, and neighborhood markets such that the vacationers are well served. The investors in such residential communities expect a higher return on their investment due to inherent risks of occupancy and nightly rentals. The HOA fees are about 6 to 8 times more than they are for non-short Term Rental zones. You either will have to manage your own properties using online booking arrangements or engage a property management and booking professional company.
If you are looking for rental properties for Long Term Rental investment, your choice is much larger over the town. Virtually, all parts of the town have to be having renters. You are pretty much in a mode to “set it up and forget it”. Your expectation is that the property takes care of itself if it is highly leveraged and you hold it for its appreciation and tax write-offs.
Besides the complexities of finding the right property at the right price in the right area, you do need the expertise of an experienced real estate agent who is insightful of financials of investment in properties giving expected returns keeping the investor’s goal in focus, whether long-term or short-term rentals.
We are here to give you full service in accomplishing your goals of acquiring residential rental properties and their management.
If you are an all-cash buyer investor, you move the purchase contract to the Escrow Agent you select for settlement of the transaction. You must be mindful of the fact that you are moving a huge chunk of money from your bank to the Escrow Agent. It may be preferable for you to carry the cashier’s check yourself to the closing table, and take the transfer of title documents in exchange. However, if you are a distant buyer, you may transfer your funds to a local bank or preferably a branch of your bank, and have the bank
engage a local Escrow Company to do a settlement for a fee. Bank does report a trail of money to the IRS with a summary of transaction papers.
If you are engaging a lender to give you a loan for the transaction, it may be better to let the bank take control to engage an escrow company to do the settlement for a fee.
If you plan to invest in multiple properties, develop your relationship with the bank to open a business account for deposits and disbursements besides escrow services for the transactions. Your bank should be able to extend you a line of credit and refinance the properties that you bring to its table as collateral.
For an investor, your bank and your real estate agent are your partners in your business who can take you far!
Besides local investors, we presume that there will always be many out-of-state and international investors who will choose Orlando metropolitan area for investments in residential properties. Your real estate agent can play a perfect intermediary to facilitate your investment interests to acquire rental properties.
As soon as you have a Purchase Contract in hand, there are a number of time-bound tasks, called Contingencies of the Contract that need to be completed to move the contract for closing and settlement. Typically, these tasks are:
- Home Inspection
- Pest inspection
- Coordination with HOA
- Property and rental Insurance
- Walk Through Before Closing
- Coordination with the selected bank and Escrow Agent
All these tasks, including a virtual walk-through before closing on the property on the day of closing can best
be done remotely through your real estate agent.
However, if you plan to furnish your property for renting it out, it is always very desirable if you plan to come into the town and take control of closing and furnishing.
We will be very pleased to help you in town to make your stay and shopping to furnish your property a pleasant experience, and to rent out your property.
