So, you are considering purchasing investment property.… Let’s talk about that! The first question to ask is, “What type of investment property do you have in mind?”, second, “Are you looking for a short- or long-term investment?”, and third, “How involved do you want to be in managing a property, if your investment goal is long-term?” Let me explain.…
Let’s start with considerations for a long-term investment property. Typically, investors are interested in purchasing homes as traditional rental properties, meaning that you would accept 12-month minimum leases, or as short-term rentals like a vacation home or AirBnB, perhaps with some personal use in the mix too. For long-term rentals, we need to consider who your target audience will be and where those people want to live. For example, renting to hospital staff would benefit from easy access to one or more hospitals. If you are looking at family properties, then walkable neighborhoods and good schools would lead you to a location like St. Johns county. There is a high demand for homes in those school districts for families who may be building and need to rent until their homes are ready. Or families may be new to the area and want to rent first while they get their bearings, all the time sending their children to Grade A schools. Whatever the motivation, being able to rent and then buy in the same school catchment area can be very appealing. Townhome rentals in these same areas are also attractive where parents are no longer living together but want to be close to each other for school drop off, pick up, and time sharing.
Short-term rentals can also be lucrative, but typically require a larger investment because to be attractive, location is key. Also, startup and monthly costs are higher since, in addition to the typical home ownership expenses, furnishings, cleaning services, etc. add to the total. That’s not to say that there isn’t significant potential if an ideal short-term rental can be found in a location that creates year-round usability. In the world of investment properties, long-term or short-term rentals are at the lowest end of the scale for personal involvement. There are wonderful property management companies out there who provide a la carte services where they handle anything from sourcing rentals/ tenants, handling cleaning or repairs, collecting rent, and annual home reports to help with on-going maintenance. You just receive a monthly check for the balance after all service costs are paid allowing you to be involved as much or as little as you would like.
The next type of investment property I am going to discuss is ‘the flip’. This is where an investor purchases a property that is in distress with the anticipation that after renovation the property will sell quickly for a significant gain. The level of distress that an investor will take on will depend on how much risk they are prepared to take. Often, flips are homes in neighborhoods where a home needing TLC is an unusual occurrence, and sometimes they are in older neighborhoods where a high percent of the Medical Real Estate Investment Properties properties need renovation. The “flipper”, as this investor is fondly referred to, can do great good but sometimes they use their powers for the not so good! A ‘flipper’ renovates a home adding new appliances and upgraded finishes on flooring, counters, bathrooms, etc., making them more attractive to a buyer. Sadly, there are those that cut corners with the installations, plumbing, and electrical work using unlicensed labor ultimately causing financial pain for an uneducated buyer. If done right, a great flip will give a whole new lease on life to a home that needs a second chapter. This in turn brings buyers who will pay more for the renovations, pushing the price point of the neighborhood up and creating a win/win! If you are considering being a “flipper” I believe you need to either be handy yourself or have a trusted team of licensed professionals who are ready to work on the project with you.
The last type of investment proposition that I would like to discuss today is a completely “hands-off” investment. Let me explain how this works. The investment company purchases homes. They renovate them completely to a certain level and they sell the renovated home to you. Once you purchase the home, they will guarantee you a tenant for a specific period of time, one or two years typically, and a specified amount of rent. They handle the property management side of things from soup to nuts so that you have zero involvement and each month they send you a check for the rent that they have collected minus their fees. At the end of the two-year commitment, you still own the home which they have managed as your agent. At that point you can either sell it or you can continue to rent it, either through them or via alternate means. This is the easiest type of investment program and is totally hands off, and yet you own a renovated home and still have income. The short-term return is potentially not as great, but it provides an easy entry for a first-time investor.
As I said at the beginning of this article, the type of investment property you decide upon really will depend on the amount of time that you would personally like to invest, and, of course, the amount of money. As with all things that I write about, if you would like more information on this or any other topics, please do not hesitate to reach out to me. I am always happy to help!
Joanie Heighes is a Real Estate Advisor with Engel & Volkers Jacksonville, with over 18 years of real estate experience. Joanie is currently ranked #8 in Jacksonville by the Jacksonville Business Journal out of over 10,000 Realtors.
As always, if you have questions or suggestions for future articles, please feel free to reach out – 904-540-3319
Joanie Heighes Real Estate Advisor
Certified Nocatee Agent | Certified e-Town Agent