Sometimes there could be special deals in areas that are not that good and if the deals are attractive enough,
they can be bought. We have seen such cases during the recession, when nice new home construction in
good areas almost ground to a halt, and some bank foreclosures in any type of areas may have presented
compelling values. However at a time when there is a choice, it is advisable to choose good homes in good
locations.
It is also possible to go too high! Buying expensive large homes also can backfire for the landlord, as rents as
a percentage of the price tend to go down the more the price increases. Thus it is wise to buy good homes in
good areas within reason. In most large metro areas in the Sun Belt, as of the end of 2017, the price ranges
would most likely be $150K$225K. Buying too nice, too big, too much of a good thing, can backfire –
rents will be relatively lower, the pool of potential tenants smaller, and cash flow more tenuous.
Ideally you should buy in the sweet spot of quality but not “too fancy”.
Of course it is good to buy homes in good school districts, but some investors get
“paralysis of analysis” over dissecting every grade and review for every school
Where
and narrowing down their acceptable areas way too much. Here, too,
to invest
evaluating locations is not just science but an art as well. It is
in Single Family
important not to get bogged down in minutiae. I myself have
Rental Homes
learned to respect the opinion of the veteran brokers I work
in the United States
with. Their feel for the areas tells me more than a table
of scores. Some flexibility is important.
It is good to buy homes within easy reach of the freeway. Of course you don’t want to buy too close to a
freeway for noise and air pollution reasons. It is good to be close to shopping but not right on top of it,
close to schools but not touching the school, and the same for hospitals and other service centers.
We will touch upon the exact type of preferred houses in a future article, but in periods of “regular real
estate cycles”, such as the end of 2017, it is advised to buy brand new homes from developers.
Developers have great economies of scale, with their workers and equipment already in the field. They
can be coaxed into giving great concessions to the buyer, especially if the buyer wields strength in
numbers, as we in ICG do for our investors. Brand new homes come with a builder’s warranty. Brand
new homes include all brandnew components, such as AC, roof, water heater, even pipes in the
ground. The probability of major repairs for quite a significant time is very low for brand new houses.
Brand new homes are likely to have an uptodate floor plans that are attractive to tenants, and likely to
be more energy efficient than older homes, which tenants also appreciate.