We all know that investing in single family homes is lucrative. But, do we all know what it takes to find the best real estate investment opportunities?
Everybody is talking about single family homes and how they make for the best real estate investments. However, some beginner investors tend to think that ANY single family home makes for a good real estate deal. What they don’t know is that, in reality, there is much more to the process than just going through investment properties and choosing what you like. So, if you are a beginner real estate investor and you’ve decided that investing in single family homes is the way to go, here is how to spot the most lucrative investment properties for sale:
#1. Single Family Rental Market Analysis
Before you look into single family homes for sale, you should look into the location you are interested in and the real estate market in that specific location. Therefore, when we say single family rental market analysis, we mean that you need to research the following:
Start with a Familiar Location
Although we would suggest that all single family home investors try out-of-state investments, we would not recommend that if you are just about to start investing in single family homes. As lucrative as it is, long distance real estate investing is not always a good idea for a beginner investor as it requires a higher level of real estate education and expertise. So, start by looking into your neighborhood, city or even state.
Now, keep in mind, that if your local housing market doesn’t have positive trends for the following factors, you will have to learn how to invest in real estate out of state. Visit our real estate investment blog and learn how to find investment property for sale out of state.
When investing in single family homes, look into the appreciation rate in that location. Even though single family homes are known for fast property appreciation, it does not mean that it’s true for all single family properties. Location and the real estate market play a significant role in determining the appreciation rate. If you are looking into an area that barely has employers or proper infrastructure, you might be looking at the worst real estate investment of your life. Therefore, whatever location you look into, make sure it is showing signs of further expansion and economic growth at the very least. This way you know for sure that the rental demand will go up, and thus the net operating income of the investment property leading to higher and faster capital growth.
Investing in rental properties is all about rental demand. So, for that, you will need to look into the location in terms of the percentage of rental properties as well as the percentage of vacancies in comparison to occupancies of rental properties. So, if a particular area is known to have a high population of homeowners, then chances are slim that you’ll survive the investment. Also, if you look into a location and the rental vacancy rates exceed the occupancy rate, you might want to turn around and find another place to invest in real estate.
This is why real estate market analysis is useful when investing in single family homes; through predictive analytics, you can learn about the future trends of a specific market. Be it mortgage rates or specific investment strategies, you can anticipate the direction of the market ahead of time. So, make sure you “take a look into the future” before buying a single family home.
Property Type in Demand
Finally, when it comes to the real estate market, make sure it supports a single family investment. In other words, find out if single family homes are easily rented out in that market. So, basically, look for the most common types of tenants and types of rental properties in that location.
#2. Single Family Property Analysis
Now that you are done looking into the location, you should move on to the rental property itself. So, the most profitable investments will pass this test right here- the single family property analysis.
Successfully investing in single family homes is all about the rate of return which means you have to calculate the amount of money you will make in return on your investment. There are two ways to do that: 1) the cap rate analysis, and 2) the cash on cash return analysis. The first calculates the return in relation to the overall property price. The latter, on the other hand, calculates the same rate but in relation to the amount of cash invested.
However, for both measures, you will have to make sure you are investing in positive cash flow investment properties. This means that your rental property must show indications of a profit margin.
For help with single family property analysis, turn to Mashvisor’s tools. Investing in single family homes is our specialty! Click here to sign up and try out our investment property calculator. If you are not sure about investing in single family homes, schedule a demo and talk to our team of real estate experts to help you make up your mind and find the best investment opportunities in the market!
#3. Assistance Is Key
Finally, as we have seen, investing in single family homes may not be as easy as you thought. Sometimes, doing it alone won’t do you any good especially if you are just getting started in real estate. Therefore, a final tip to find great real estate investment opportunities is to use some help. First of all, as a beginner investor, hire a real estate agent who works in the location you are interested in. A local agent knows the area inside out. Therefore, he/she will be of great help in finding the right real estate opportunities for you.
Second, go ahead and put the latest real estate technology to work. All the above analyses are possible and way faster to perform if you use the investment property calculator. Not only does it perform a real estate market analysis and a property analysis but it also conducts a comparative market analysis. In essence, it means that the calculator will find other similar investment properties that are near yours and compare them in terms of value and rate of returns. Through this type of analysis, you’ll be able to determine if investing in single family homes is the right thing to do in a particular area. Using real estate investment tools is really the best way to spot great opportunities!