As humans, we like things orderly, and it’s in our nature to look at all the important things and rank them. But life is generally more complicated than that, and “the best” is often subjective and subject to any number of different factors. That’s as true for the world of real estate as anywhere else. In short, the best place for investing in real estate is determined by your own situation, your unique ambitions, and your interests. In short, everyone’s best country for real estate investment is different.
That means that you should be asking yourself some important questions when it comes to deciding where you’d like to invest your money. You’ll want to begin with the practical considerations of what resources you have available to you. Finances are a big factor here. The Georgian market, for instance, won’t pay sizable returns on investments that aren’t in the six figures, but less developed countries could see a better return with a smaller investment. Just keep in mind that these regional markets are always shifting, so staying abreast of shifts in the market and assessing your finances is of critical importance.
It’s also important to consider that while less developed countries than the U.S. can result in more generous profits, the onus will be on you to do more of the heavy lifting. That means that you need to consider your education level within the industry and how much time and effort you’re willing to devote towards your investments. These will serve as a major determinant factor in your ideal country for investment. Frontier markets can make you a lot with relatively little cash upfront, but you’ll be working that much harder to get yourself set up.
And while frontier markets may be great in the long term, you’ll want to consider whether yield of appreciation is more important to you. Investors with more money to spare and less need for cash upfront will find the best results in economies like Georgia that are likely to see substantive increases in property value over the course of years or decades. Those just looking for some quick monthly income could look as close as Rust Belt states in The U.S. where they can easily earn between 20 and 40% yield.
It would be insincere to make a list of the best investment markets, both because these change regularly and because they’re highly circumstantial. What works for you is going to be decided by your situation, and that means undertaking a level of personal research to track down the market that meets your needs.
Investing in real estate can be a lucrative experience, but it doesn’t come without its share of risks. Before you invest your savings in any real estate venture, it’s important to do enough research to help you feel confident that the risk is small compared to the potential gains. Even then, employing certain tactics, such as those listed here, can help you determine if you’re taking a good risk.
Follow the 1% Rule
The 1% rule states that you should be able to rent the property out for 1% of the purchase price. Following this rule means that you can expect to generate a positive cash flow, which will make the investment profitable and worthwhile. If you can’t reasonably expect tenants to pay rent equivalent to 1% of the property’s value, you’re better off looking for a more promising investment.
Ignore the Media Hype
There are a number of television shows that push the idea that you’ll make a fortune off every investment. Instead of buying into that, concentrate on turning a profit
. Even a small profit is better than nothing. The best way to do this is to buy the worst property in a good neighborhood and fix it up as cheaply as possible. Go for the less expensive countertops and appliances. After all, these items are easily replaced.
Calculate the Cap Rate
This is an equation investors use to determine the profitability of any investment. It compares the purchase price to the potential income. The cap rate helps you determine if you will be able to earn back your investment within one year of owning the property. If not, this would be considered a bad or high-risk investment.
Look at the Listing
If there’s a noticeable lack of photos and information in the listing, you can expect to do more work on the property. That doesn’t necessarily mean it’s a bad risk, if you’re willing to do the work. In many cases, these types of properties are priced to sell and the seller just wants to get rid of it. This is an opportunity to save money on the purchase price and maximize your investment, although the location of the property should still be considered.
There are many more strategies for identifying the risk of investment properties. As you become more experienced, you’ll develop your own ability to identify good and bad risks. Even when you estimate something to be a good risk, you may still misjudge the opportunity. Mistakes will happen, but perseverance will help you turn those bad investments into profitable learning experiences.
With its sprawling natural wilderness set next to cities booming with high-tech business ventures, West Coast cities are increasingly viewed as a real estate entrepreneur’s dream come true when it comes to outstanding investment opportunities. Here are just four great cities with amazing potential for investors looking for properties that will provide healthy profits and rising value in the years to come.
1. Portland, Oregon
Smaller and more approachable than its sibling cities Seattle and San Francisco, Portland still has a booming real estate market thanks to its quality of life and its setting as the headquarters for industry titans like Nike and Intel. Portland is especially popular for young people, who have moved to the city in droves for its vicinity to natural wonders such as Mt. Hood and the Oregon coast and its numerous bookstores, coffee shops, and fine dining restaurants.
2. San Francisco, California
With its proximity to Silicon Valley and Stanford University, San Francisco is a powerhouse location for the tech world, with tech billionaires driving a market for great real estate opportunities and wonderful standards of living. With its beautiful views and charming hillside apartment buildings, San Francisco should be at the top of any real estate investor’s list for high-value opportunities.
3. Seattle, Washington
The birthplace of Microsoft and Starbucks, Seattle truly has it all for savvy real estate investors: A large professional class eager to move to the city for its stunning natural wonders and high culture, and a real estate market that is set to continue its astounding arc in value as companies like Amazon move to the city for its tech-friendly culture and high standard of living.
4. Napa, California
When most people think of Napa Valley, they think of sprawling vineyards and Michelin-starred restaurants. The high quality of life in Napa, the largest city in the region, is driving a booming real estate market that provides incredible deals for entrepreneurs aiming to rent out properties. The added bonus of owning property one of the most beautiful regions in America is also a big plus for investors!
For these reasons, the West Coast is home to some of the hottest real estate markets in the world. For the right investor, the region presents unbelievable opportunities for growth and personal satisfaction in the foreseeable future. Combining high quality of life and an entrepreneurial spirit that fostered business geniuses like Bill Gates, Howard Schultz, and Steve Jobs, the West Coast truly has it all. For real estate entrepreneurs, that is business done right!
Television reality shows, like Flip This House, give a skewed impression of the reality of flipping a house. Unfortunately, many new investors jump right in, believing they will make those big paydays. They often end up disappointed and taking huge losses. While every house won’t sell for as much as reality television implies, there is still money to be made, if you act wisely.
How Much of a Profit Can You Really Expect?
It’s difficult to give an accurate estimate because the only way to measure this is by looking at all home sales. The sales in a given region within a specified time frame provide the general home sale price for properties in that area. For instance, ATTOM reports that housing sales averaged $65,520 in the second quarter of this year, but that number doesn’t differentiate between fix and flip investments and other residential sales.
When going directly to investors for information, it’s estimated that they make an average of $30,000 on each fix and flip. This is acknowledging that some investments may bring in less, while others may bring in more. It depends on the overall value of the home, the resources invested in its renovation, and the health of the market in that area.
How Can You Maximize Your Potential Profits?
While you may not be able to do much about the health of the market, you can act to affect the home’s value
by renovating wisely. The real trick is to spend as little as possible on repairing the property and getting it back on the market quickly. As a general rule, the more time you spend fixing up a property, the bigger the chance that something major will eat up your resources.
One thing to keep in mind is not to update features that won’t boost the home’s resale value. When a buyer is interested in the property, their lender will send an appraiser out to inspect the property. If the appraiser doesn’t agree with your estimate of the home’s value, you’ll likely lose money on those upgrades. It’s a good idea to consult a realtor, or a private appraiser, for insight into the upgrades you want to make.
Overall, you will want to keep upgrades simple and cost-effective. Bear in mind that major upgrades may not appeal to homebuyers, who will likely remodel to add their own style, anyway. Look for properties that can be made sale-ready with just some simple and relatively cheap improvements to maximize your return on investment.
If you want to be a better real estate investor, you have to overcome common challenges. The two biggest problems that real estate investors face is finding the property and then actually getting the funding to acquire it. However, it doesn’t have to be as hard as it used to be. Here is how technology is changing the way people solve these issues:
Finding properties is one of the biggest challenges that investors face. After all, the market value of an area is not set it stone. In order to understand if something will pay you back, you need to know the area.
You can now know about an area and what kind of demographics it has easier than before. First of all, with online maps, you can scout it on your laptop. Secondly, people on the ground can be hired to walk around and film with a drone to capture video so you can really get the feel for the location.
You can look into the local economies of locations that you are considering. See how their local businesses have been doing in recent months with sales. In addition, find out the employment rates to make sure there is an economy that is healthy enough to support the investment you are looking to make before just jumping in without the information.
The Need for Capital
You might have the best information in the world, but you still need funding to get that property. Therefore, raising capital has always been a burden to investors. Thanks to technology, there are new options, however.
Using public sites you can raise funds from investors, large and small, all around the world. This lets you act quickly on properties without breaking the bank. In addition, you might find properties that you didn’t otherwise think you could afford.
When it comes to real estate investing, it can be one of the most lucrative opportunities in the world. However, to make money with real estate, you need to find the property first. Then, you need to get the funding to purchase it. Technology has made these two things much easier than they ever were in the past. Therefore, you should look to utilize this technology in your own career to leverage the benefits contained.
While many people are rightly skeptical of going into debt, experienced real estate investors know that the judicious use of leverage
can dramatically boost their bottom line. Leverage is used by real estate investors to boost what is known as their internal rate of return. This is simply a reflection of the fact that the less capital one has invested, the higher their potential return on invested capital is.
How does leverage increase returns?
If a new real estate investor had $50,000 to put towards the purchase of a property, they would have a number of options on how to best invest that money, starting with whether or not they wanted to use mortgage financing or pay cash. Some people may opt for the latter option, deciding that the risk of taking on mortgage payments is beyond their tolerance levels.
However, for the astute investor, using mortgage financing can provide a much higher rate of return. In the case of buying a property for $50,000 in cash, if that property nets $5,000 per year of income, then the total rate of return on capital for the property will be 10 percent. However, if that same $50,000 is used on a down payment to buy a $200,000 property with the same 10 percent return on the purchase price, the return on capital for the second deal will be 40 percent! This is because the investor is earning $20,000 per year of income but has only invested $50,000 of their own capital.
It is important to understand that leverage works best, by far, when rents and property values are rising. Using leverage can still work in other markets, but investors need to have sufficient liquidity to cover downturns, such as high vacancy rates or declining overall property values. Generally speaking, investors should stay away from using leverage in markets with a negative macroeconomic outlook for the short to medium term. While these investments can still prove to be highly profitable over the long term, the short-term capital requirements can bankrupt smaller investors.
The best way to mitigate the risks of using leverage is to perform in-depth due diligence on the local macroeconomic trends. Study trends in property values, employment quality, and quantity and net migration trends. Try to avoid entering into leveraged real estate deals near market peaks.