Rental Nation: How To Get The Most Bang For Your Investment Buck
While the economy is indeed strengthening, investing in real estate is a game of nuance, know-how and, of course, numbers.
You watch HGTV religiously, you’ve seen every episode off Flip or Flop and you’ve been thinking about quitting your job for the last 6 months. What to do? Become a property investor, of course! It can’t be that hard: all you need is some builder’s grade kitchen cabinets and magnolia paint—and with the median price on existing homes expected to increase by 6% in 2016—you’ll be on to a sure thing. Buy ’em low, sell em’ high. Right?
Well, it turns out, buying houses—not to mention renovating and reselling them—is both a costly and complex endeavor. And, while the economy is indeed strengthening, investing in real estate is a game of nuance, know-how and, of course, numbers.
A cheap purchase doesn’t automatically equal a strong sale return. With the discrepancy between affordable housing inventory and the numbers of priced-out first-time buyers, quick and dirty sales aren’t necessarily the smartest way to achieve a solid return on investment (ROI). And unless you have hundreds of thousands of dollars just burning a hole in your wallet, as a small-scale investor, ROI is your holy grail.
Luckily for fledgling real estate moguls, HomeUnion and Realtor.com have identified the strongest markets to invest in if you’re on a budget, and the results might prove surprising. Covering both price appreciation and rental returns, the report features few large metropoles. If you want to be smart with your money, look beyond cash-sucking cities and head to lower-cost areas with both strong sales and rental markets.
Take Florida, for example. Despite its aura of retirement communities and Disney World hysteria, Florida is currently hotter than Michael Phelps’ freestyle. Jacksonville, Tampa and Orlando top the charts when it comes to price appreciation, netting between 3.6 – 4.4% sale returns. Chicago will get you a 4.2% ROI, while Minneapolis, placing 10th, offers 3.4%.
However, when turning to rental returns, the percentages dramatically shoot up. Returns on first-year rents see Cleveland, OH netting an impressive 11.1%, while Columbia, SC and Birmingham, AL come in at 9.7% and 8.5% respectively. Those are numbers you can’t argue with.
Is buying to rent the way forward for small-scale real estate investors? Well, it seems that more Americans are indeed accepting renting as a way of life, and even if the economy tanks, people still need affordable places to live. Either as a result of being priced out of buying, or based on a desire to simply not be tied down, renting regularly frees up disposable income for tenants and permits a degree of mobility and freedom. In fact, 9 million more people are renting in 2016 than in 2005, and a huge 37% of Americans are now renters.
This type of investment is proving particularly popular with Millennials, who while keen to get on the property ladder, don’t possess enough resources to buy properties in the cities they live in. Renting a cheap studio in East Harlem while your investment property in Cleveland pays for itself is a smart move.
Sure, being a landlord doesn’t sound sexy. Fixing toilets and chasing late rent may not quite fit into your Ted Turner mogul dream, but it could make you some healthy cash. After all, that’s what investing is all about.
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