Are you on track for a comfortable retirement?
If we’re being honest, for most Americans, the answer is “No.” Either we got a late start on our 401k, haven’t contributed enough, cashed out early, or never got around to starting one.
Well, as they say, it’s never too late. Pensions are typically a thing of the past, so it’s up to us to fund our own retirements. Having a 401k is essential, but Real Estate is traditionally the best avenue for the highest ROI (Return on Investment). Billionaire Andrew Carnegie once said, “90% of all millionaires become so through owning real estate.” Mr. Carnegie has long since passed away, but the strategy still rings true today, now more than ever.
So what does real estate investing look like?
Although property management CAN feel like rocket science (and at The Realty Medics, we certainly manage back-end operations like it is!), real estate INVESTING is not as complicated as people make it out to be. Don’t get bogged down with page-after-page of Excel spreadsheets reflecting ROI, cap rates, amortization schedules, net operating income, cash-flow, CapEx, gross rental yield, or a hundred other calculations. It’s mind-numbing and you’ll bore the hell out of everyone around you. If one facet changes, it will throw your entire calculation out of sync and keep you up at night. Not to say you shouldn’t do your due diligence, but don’t get carried away with all of the finite details.
The first step
Interview brokerages that serve as both Realtors® AND property managers. Check out their online reviews from Yelp, Google, the Better Business Bureau, and Angie’s List. Conduct your research on their websites and choose a few that you believe have your best interests in mind, then reach out. Hiring a real estate agent alone is fine, but their main focus is to sell you a property…it’s their livelihood. They may or may not know the rental market or what properties will turn out to be a good investment, whereas property managers must also deal with the repercussions of managing said property. It’s in a property manager’s best interest to find a quality investment property that will allow them to effectively manage the home while keeping you as a client for the long-term….it’s their livelihood. Property managers are keenly aware of the market, know rental values, understand what areas to avoid, and have a good sense of what will provide you with the best long-term investment value.
It’s in a property manager’s best interest to find a quality investment property that will allow them to effectively manage the home while keeping you as a client for the long-term….it’s their livelihood.
Look for a property in good condition, in a safe place, that’s priced appropriately. Sure, you should run your calculations, but don’t obsess over every line item. Conduct your purchase inspection to ensure no large ticket items are needed in the relatively near future such as the HVAC system, water heater, roof, structural issues, flooring, etc. Pay fair market price for the home because competition in Central Florida is very stiff and it’s not worth losing a good investment property over a couple thousand dollars. If you spend all your time looking for the absolutely perfect home, you’ll lose out on a lot of good options and eventually pay more due to market appreciation. Worse yet, you’ll get paralysis-by-analysis and never buy an investment property. Conduct your research and pull the trigger.
Where to look
Target a region of the U.S. that has a thriving rental market. By and large, southern states tend to do better. Not many people are looking to relocate to Minnesota, but warm weather climates typically see an influx of residents on an annual basis, because people want to be around the sunshine. If you look at the top rental markets in the U.S, you’ll see that Central Florida tops the list.
Did you know that 900 people move to Florida PER DAY?
Why Central Florida? The Florida sunshine will always attract people, and a lack of state income tax isn’t turning anyone away. With hundreds of golf courses, 19 theme parks, and easy access to the beaches on either coast, it’s not a bad place to live. Central Florida is a growing community with dozens of new-build communities cropping up, plenty of industry, a strong economy, low cost of living, an ever-growing Aerospace industry (SpaceX, Blue Origin) and home to a number of major corporations. Did you know that 900 people move to Florida PER DAY? Metro Orlando grew by 60,000 last year alone and the state of Florida experiences an increase of over 300,000 people per year. When people vacation in their own state, it’s hard to argue that it’s not a great place to live. While Rust Belt states are shrinking by the masses, Central Florida is a thriving community.
Cash-Flow is ideal, but not critical
The real value in an investment property is having a tenant pay down the mortgage on your behalf, while the home is simultaneously appreciating, because you’re gaining equity from two different avenues.
The goal of investing is to cover your expenses and turn a profit each month, but that’s not where the real value is. Don’t get me wrong, if you can accomplish this, then kudos to you. Even if your property didn’t make a dime, it can still be a great investment. The real value in an investment property is having a tenant pay down the mortgage on your behalf, while the home is simultaneously appreciating because you’re gaining equity from two different avenues.
Let’s say you purchase a $200,000 home with 20% down, with a mortgage payment of $1200/mo. You manage to connect with a rockstar property management company that charges 8% monthly management fees ($112/mo) and you rent the property for $1650/mo. Your cash-flow on the surface is $450/mo which is nice, but not life-changing. And of course, some funds will need to be put aside for upkeep and repairs. What happens over time, however, is that your tenants are consistently paying down that mortgage, and by the time you retire, the home is worth $400,000 or more, conservatively. From an initial investment of a few thousand dollars to potentially adding $400,000 in retirement income, it’s not too shabby.
Let’s push it further and say you refinance this house in a few years and take out enough to purchase a second investment property. Now you can effectively double that retirement income. Try it a 3rd or 4th time over the years and retirement isn’t such a scary proposition. Combine this with that 401k and Roth IRA you got around to starting, downsize your primary residence since the children have moved out, and you can essentially retire as a millionaire. Of course, investing in real estate is like most things–there will be hiccups along the way. You will have some repairs that come up, you have to account for vacancy periods, and some additional expenses, but you’ll get through it as you do everything else in life and will have the assets to comfortably retire one day.
Don’t bother self-managing the home. The difference in handling it yourself, versus trusting the professionals, can cost you thousands of dollars (in time or hard dollars)! Property managers are better equipped to effectively and efficiently manage your home with the highest and best technologies, the proper process and procedures, and a wealth of experience (again, The Realty Medics handle the rocket science of renting FOR YOU).
Property managers know the landlord-tenant laws and legalities surrounding the holding and disbursement of the security deposit. They are there to spare you any legal trouble. Oftentimes they can also obtain a higher rental amount and minimize the vacancy period by knowing the market, having the ability to run market comps, and post the property on far more listing sites than a self-managing landlord. And when it comes time to show the property and choose a tenant, they have the ability to show it more often to a higher number of interested parties and run extensive nationwide background checks, ultimately getting you the highest-caliber tenants.
Finally, property managers are not emotionally invested in the tenants like a self-managing landlord is. They hold the tenants to all terms and conditions of the lease agreement and exercise consequences when necessary. Landlords tend to feel sympathetic towards tenants, which leads to accepting late rents, forgiving late fees, making concessions and eventually being taken advantage of. Property managers provide peace of mind by handling the late-night phone calls, chasing down tenants, addressing maintenance issues, and giving you your time back. You already have one full-time job, you don’t want a second.
If you have any further questions about property management, don’t hesitate to give me a call, or check out our real estate investing services.
Jason is a licensed Realtor, focusing on Investor Sales, and the Business Development Manager at The Realty Medics. He works primarily with investors looking to fund their retirement or grow their investment portfolios. Prior experience includes sales in aerospace industry and corporate arena. Jason also began a non-profit organization while living in Arizona, and was involved with chapter in both the Phoenix and Scottsdale Chambers of Commerce.
The Realty Medics engineer property management peace of mind through rocket science renting.
What is “Rocket Science Renting”?
It’s keeping your life simple by letting The Realty Medics handle the complex work of property management. It’s feeling like your property is running smoothly on autopilot with no hiccups or glitches. It’s the kind of advanced technology that can only be designed by a former NASA engineer like our owner, Ben Sencenbaugh. It’s delivering maximum value and ROI for your investment.
In short, it’s total Property Management Peace of Mind.
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