What you need to know about buying an investment property
Thinking about purchasing an investment property but don’t know where to start? As a Realtor in the Hampton Roads area of Virginia, I’ve helped many clients purchase an investment property! This is part four of my investor series. My goal of this series is to help my family and friends realize that investing in real estate is easier than you may think.
In my previous posts, I covered setting up an LLC to protect your investments, establishing a business bank account and structure your accounts to efficiently manage your business finances and in my third post, I covered how to finance your investment property.
Now I am covering the different investment types and how to pick which is right for you!
Long term rentals
Long term rentals are kept by the investor for many years. These properties typically have year to year leases with their tenants. The income is steady and typically increases every year to keep up with market value and inflation. Rent can easily be determined by a realtor or a property management company. Finding comparable rental data is difficult if you do not have access to your area’s multiple listing system (MLS) because once a property has been rented, the price it offically rented for is not provided to third party sites. If you want to get general idea for price range, you can check comparable available rentals on websites such as Zillow.com and Realtor.com. If you want access to the most up to date information, your best bet is always the MLS! For Virginia, click here. If you need access in another area, contact me for more information!
Typically, annual rentals are not furnished and the tenant handles everyday upkeep such as mowing the lawn and paying the utilities. This is completely different for short term rentals.
Short term
Short term rentals are growing in popularity thanks to platforms such as Airbnb and furnished finer.com. A short term rentals can range from days, weeks and months. There has been such a high demand for short term rentals from careers that require a lot of travel and relocation. Many short term rental customers are traveling nurses, military families and vacationers. The benefit of short term rentals is that rent is typically more than the annual rental’s monthly rate. Thanks to Tiktok and Instagram, customers seeking short term rentals that are creative alternatives to hotels. These homes are fully furnished and the owner of the home pays the utilities, maintains the lawn and has the home cleaned after every stay.
Some qualities in an Airbnb that help increase rent are:
1- Trendy design and furniture
2- Waterfront or water views
3- Pools
4-Themes
5- Close proximity to local tourist attractions
To find the general price range for a potential Airbnb I use this site, Datta.Rabu.com. It compiles comparable Airbnb data in the area of the subject property and generates projected revenue by month based on future bookings from Airbnb’s site. It’s super helpful! FurnishedFinder is also another great site to advertise your short term rental as well as check for other short term rental comparable in the area.
Fix and Flip
A fix and flip is when you purchase a home below market value and perform the necessary updates and or repairs to bring it to market value. With a fix and flip, time is of the essence. Every month the owner has the home, the more expenses they have for mortgage, taxes and utilities. Once the home has been improved, the home will be put up for sale. When purchasing a home to flip you will want to first check the comparable home sales in the area to see what the ARV is. ARV stands for after repair value. When you have that figure, you will then calculate this formula:
ARV x .70 – repairs = max purchase price
Example:
You find a home for sale for $250,000, after contacting your realtor, they give you and ARV of $375,000.
You will then calculate:
$375,000 * .70 = $262,500 – $25,000 (repairs*) = $237,500 max purchase price. Keep in mind you will need to account for 6% for realtor resell fees as well as about 3% in the instance a buyer requests closing costs assistance.
*Repair values will vary. It is important to check with a reputable contractor in your area for an estimate of charges and recommendations for work that needs to be completed.
Deciding on which investment type is for you will require research to determine how how much the subjected property will bring in as well as how much work you are comfortable with putting into the home and the investment! If you have any questions or want feedback on what investment type you should do, I’m always happy to help!
This wraps up my 4 part series on investing! Next month I will be launching my first time home buyers series! So be sure to follow along.
If you have any questions about buying or selling please contact me today!
