NUTS & BOLTS THE BIG PICTURE
STRATEGIES: REITs STR I : FLIPPING
Access Granted SMALL INVESTORS NOW CAN PLAY ALONGSIDE THE ‘BIG KIDS’ IN PROVIDING TURNKEY PROPERTIES NATIONWIDE. NOTESCHOOL’S TURNKEY FLIPPING ACADEMY SHOWS HOW.
by Eddie Speed
EDITOR’S NOTE: For a more detailed look at NoteSchool’s Turnkey Flipping Academy and how small investors can get involved in offering these type properties on a national scale, plan to attend the author’s presentation at Think Realty’s National Conference and Expo in Dallas on April 29, 2017.
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MARKET INEFFICIENCIES These three inefficiencies combine to create the perfect storm for turnkey rental investment property:
arge real estate investment firms have been riding a large wave of
investment sources indicate that this trend will likely continue into the fore- seeable future: • 25 percent of investors chose real estate as the best investment for the next 10 years • Since 2010 renters increased from 37 million to over 43 million • Investors shifted fromWest Coast rental properties to rental properties in the Southeast and Midwest • Markets with the highest cap rates on single-family rentals (SFR) are in the Southeast and Midwest These investors did not have the time, expertise or the inclination to purchase properties, renovate them and load them with a tenant. Rather, they preferred to buy a rental property that was already rented and had management in place. Large investment companies recognized three market inefficiencies that led them directly to specific types of properties in specific geographical areas. Once they iden- tified the opportunity, these firms created the solutions to the inefficiencies. Their pioneering efforts in this area have attracted individual investors worldwide.
opportunity and profit margins by provid- ing turnkey rental investment properties to out-of-town investors. We recognized that small investors failed to pursue this opportunity because they didn’t have all of the necessary components. This inefficiency led us to create the solutions that will help investors purchasing from two to 100 prop- erties a year provide turnkey solutions with the efficiency and scalability of the large investment firms. THEDEMAND For the past several years, traditional stock, bond and mutual fund investors have been seeking alternative investments for their discretionary and retirement funds. A high percentage of these investors turned their focus toward rental property; more specifically, turnkey rental property. Investors prefer turnkey properties because all of the hard work has al- ready been done. The property has been renovated to rent-ready condition, and a qualified tenant is already occupying the property. With property management already in place, these investors can focus simply on the numbers and purchase properties nationwide. Data from numerous real estate and
NO. 1 LACK OF FINANCING
NO. 2 LOWER PRICE BAND PROPERTIES NO. 3 WHOLESALE VERSUS RETAIL PRICING Dodd-Frank rules and regulations have made it, difficult if not impossible, for some buyers to obtain financing. Although new, more recent changes with FHA and Fannie Mae have started to enable potential home- owners to once again qualify for financing, a survey by Bankrate.com indicated that 45 percent of non-homeowners say that finances keep them from buying. Lack of financing hit the lower price band property buyers particularly hard because it costs lenders more money to create a loan than they could profit on it. By limiting the profit to 3 percent to 5 percent of the loan origination caused many lenders to simply stop lending on properties that are worth less than $60,000. That has resulted in lower homeownership opportunities for consum- ers in this segment of the market. Another inefficiency is that smaller
34 | think realty magazine march :: april 2017
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