This week, CoreVest headed to CREFC Miami for our first conference of the year. CREFC…
Three weeks into summer and the residential real estate market is heating up. Whether you’re a renter looking for a new home or a keen real estate investor making most of the seasonality, the summer months bring a real estate market ripe with opportunity. Now that school is out, families are more seriously considering relocating. Without the added stress of school schedules, uprooting a family seems more feasible.
That being said, homeownership is no day at the beach (even if you’re lucky enough to live on one). Prospective buyers should have a clear understanding of their priorities and goals: needs, wants, capabilities…etc. Those new to real estate investing may make the mistake of sourcing and selecting investment properties much like they would a personal residence. Fundamentally, the two processes may be the same, but—as any seasoned investor will tell you—the priorities and objectives are very different. A “dream home” and a “dream rental” are not the same. Single family rental investors should focus more on steady rent growth and low vacancy/turnover and less on Italian marble and beach access. Wants-versus-needs should be top of mind and clearly defined before dropping into a wave of residential real estate investment. Don’t get burned; know your SFRs and wear your SPF.
The Dream Rental: In our dynamic and increasingly competitive market, it is important to have a strong understanding of investment fundamentals when qualifying prospective rental properties. As appealing as luxury fixtures and upgrades can be, prospective investors and future/current landlords need to remain level headed and focused on the potential long term performance and sustainability of the investment. Before suiting up and paddling out into the rental market, consider the following:
Appeal to the Majority: Target assets in markets with stable local industries and economic drivers where there is a strong demand for rentals. Understand the demographics of the neighborhood(s) and select neutral properties (in terms of size, layout, furnishings, and style) that will appeal to the widest audience. Presumably, clean, well-maintained assets appeal to a much wider audience than gold-leaf and Grecian columns.
Durability: If and when renovating investment assets, invest in durable materials that will stand the test of time and tenant turnover. Rentals need to be virtually bulletproof, yet practical. Consider manufactured wood or laminate floors over costly hardwood or stain-friendly carpet.
Scale & Value: Don’t limit yourself to just your backyard. It is important to understand the relative value of your investment(s) as compared to neighboring markets. As a Southern California resident and real estate investor, I know firsthand the temptation to purchase expensive assets in local markets out of convenience… or maybe fear of the unknown (e.g. a $600k Santa Monica condo which rents for $3,200/month). When in reality, your investment dollars can often be of greater value in affordable, higher yielding markets. Smart investors are looking to maximize their ROIs, which could mean opting to purchase several less expensive assets in targeted, high-preforming markets. Utilizing the previous example, a $600k Santa Monica condo could translate into a higher yielding portfolio of SFRs in neighboring Riverside County.
Scale and value should be a serious consideration when contemplating direct real estate investment. That being said, invest where you are comfortable and have access to resources necessary to keep assets well-maintained and leased. Depending on your real estate aspirations, the utilization of third party servicers—like property management companies, real estate brokerages, and private lenders—can also serve as valuable tools for building and managing a growing rental portfolio.
Investment Financing: Unlike when purchasing a traditional “owner-occupied” or personal residence, financing options for residential real estate investments extend beyond the traditional 15 or 30 year fixed mortgages offered by your local bank. There are several government programs via Fannie Mae and Freddie Mac and private lenders (like CoreVest) in the space specializing in investment property and portfolio finance. Business-minded investors are also quick to utilize other finance programs—like bridge or acquisition financing—often unavailable to traditional, personal residences.
Return on Investment: Indisputably, all real estate investors are seeking meaningful returns; via a combination of market appreciation and rent growth. Again, asset selection and location is fundamental to the sustainability and profitability of a residential investment or portfolio. As direct real estate investment requires a significant capital contribution, remain focused: consider present, short-term, and long-term goals. Smart and strategic real estate investing can yield sizable and consistent returns when properly managed.
As the weather and the market continue to heat up in the coming months, position yourself for a long ride, free from wipe-outs. When expanding a rental portfolio, remember to carefully consider all your opportunities, prioritizing potential for growth and appreciation. Limiting emotional influence lends to smoother conditions and more sustainable investments.
CoreVest is a leading provider of financing solutions to residential real estate investors. We provide attractive long-term debt products for stabilized rental portfolios as well as credit lines for new acquisitions. For more information about how CoreVest can help grow your rental and rehab business, please call 844.223.2231 or submit our contact form.