Real Estate Investor Magazine South Africa June 2013 | Page 59

USA

BY SCOTT PICKEN

Investing In The USA For Income

M

Where should you be buying now?

ost people think that buying a
propert y is about the propert y,
but we believe it is 20% about
buying the right property and 80% about the
management solution, so that you can execute
on the opportunity and make a real return!
The biggest lesson I learnt from the
Global Financial Crisis is those, from the
biggest funds to the individual investors,
who focus on capital growth came short
and those who focused on income, not
only survived, but actually thrived.
Income is the life blood of any investment
and it is why it is so critical to have done
a thorough due diligence on the demand
and the partners on the ground.

Metro

Atlanta doesn’t have as good a yield, but it has
capital growth and equally good partners.

cash flow from renting such a property is $719
per month. Divide a year’s worth of cash flow
by the purchase price of the house and you get
The research, based on the Wall Street Journal
an annual yield of 9.59%, the eighth-best in the
(4th April 2013), reveal the best places to invest
country. That’s 2 to 4 percentage points higher
in USA for Income.
than what most large institutional investors,
including Blackstone Group LP B X
10 Top Markets For Buying Single-Family Rentals
+0.88% and Colony Capital LLC, have
projected in the way of returns for their
Madium
Average
Estimated
Cash
Cash
Sales
Rent
Monthly
Purchase
Purchase
single-family rental portfolios.
Price
3-Bedroom Mortgage
Cash Flow Cup Rate
3-Bedroom
Home

Home

Payment

Memphis, TN

$72, 605

$1, 047

$277

$628

10.38%

Saginaw, MI

$63, 240

$907

$242

$544

10.32%

Toledo, OH

$67, 617

$963

$258

$578

10.26%

Ocala, FL

$75, 357

$1, 070

$288

$642

10.23%

Las Vegas, NV

$115, 000

$1, 575

$439

$945

9.86%

Palm Bay, FL

$91, 950

$1, 248

$351

$749

9.77%

One shortcoming in Realt yTrac’s
research on this subject, however, is that
it doesn’t examine how much supply
is available to investors in the markets
it rates for landlord profitability. Over
the last year, investors have gravitated
towards markets with lots of supply
and a legacy of foreclosure problems,
because they know they can easily
generate prof its if they buy at a low
enough prices. But what if the inventory
drops or there are large price increases?

9.70%
The other massive lesson we have
learnt over the years is that the most
Jacksonville, FL
$90, 000
$1, 198
$344
$719
9.59%
successful and sustainable model for
Deltona, FL
$94, 000
$1, 225
$359
$735
9.39%
investment is where you are dealing
Springfield, MO
$75, 102
$969
$287
$581
9.29%
with one company, who provides a full
solution. You see you don’t want an
agent selling you a property and telling you
Where can you make the most money as a
The answer, says RealtyTrac vice president
the expected returns and then they hand you
rental-housing landlord? Not California,
Daren Blomquist, is that the rental cap rate
over to their “mate” the management agent
according to a st udy released today by
calculation helps individual investors who are
once the property has transferred and then
foreclosure-tracking firm RealtyTrac.
buying homes one or a few at a time, rather
you are told there is no way that those returns
than large institutional investors looking to
can be achieved. This is why it is critical to
Using a formula that calculates cash purchase
buy hundreds or thousands of discounted
deal with a company, which provides the full
capitalisation rates—or the annual net cash
homes in a single market.
solution – sourcing, renovation, management
flow an investor can get from a rental property
and maintenance. If this happens then they
if it is purchased with cash—Realt yTrac
“We created the report with our customers in
are accountable throughout the transaction to
found that Memphis, Tenn.; Saginaw, Mich.;
mind-the mom-and-pop, individual investors,”
ensure that the returns are achievable.
Toledo, Ohio; and Ocala, Fla. were the most
Blomquist says. “The folks I’ve talked to who are
prof itable places to rent out single-family
acquiring these in bulk or in larger quantities
Our most sustainable income models in
homes. Each of these markets has an annual
are saying that because foreclosures are starting
the USA at the moment are in Memphis
cash purchase cap rate of more than 10%.
to dry up, more and more they’re buying homes
and Atlanta. On three buying trips to USA
off the MLS,” he added, referring to multipleeveryone has agreed that the Memphis team
The calculation goes something like this:
listing services, the local databases of homes for
– who offer a full solution – are the most
the median price for a three-bedroom home
sale used by realtors.
professional they have seen in USA. It is no
in Jacksonville, Fla., is $90,000, according to
surprise we are investing there heavily, as
RealtyTrac’s numbers. The average rent on a
RESOURCES
the research below shows it is the best rental
three bedroom is $1,198. After setting aside
market in USA and we have the best partners.
money for taxes, fees and maintenance, the
IPS Invest
Atlanta, GA

www.reimag.co.za

$84, 000

$1, 132

$321

$679

June 2013 SA Real Estate Investor

57