Why Real Estate?
Real estate is undeniably one of the best vehicles available to build wealth and generate cash flow. It’s a simple business, but it can get complicated. For this reason, it’s important to have the right partners to help guide you.
At PassiveRental.com, we know real estate investing well, and fortunately for you, we know many of the top rental providers and operators in America. We share our knowledge and resources with you to help you achieve your financial objectives.
In this guide, we’ll share why investing in real estate makes sense, and how you can either get started or ramp up your business right away.
Contrary to the way it’s sometimes presented, real estate investing is a “get rich slow” process. It’s also not sexy … but it can be effective.
“Our favorite hold period is forever” – Warren Buffett
Why Single-Family Homes?
Of course, there are many ways to invest in real estate. Single-family homes tend to be one of the safest, and one of the most liquid ways to invest. Unlike commercial properties or large multi-family buildings, it’s easier to ‘prune’ parts of your portfolio that aren’t working. There will likely be a point in your life where you’ll want to start selling off assets, and there’s no easier way to sell off small portions of your investment than single-family homes.
Additionally, most investments are valued based on the supply and demand of investors, which can swing wildly over time. When investing in single-family homes, your investment is generally more stable, as its value is tied to what a potential owner occupant would pay to buy the home to live in.
Since the downturn in the real estate market from 2007-2010, some dynamics have changed for the benefit of single-family investors that is likely not going to change again anytime soon:
1. There are Less Home Owners in America
Home ownership in America is lower than at any point in the last 20 years. This of course means that there are more rental households now than at any point in the last 20 years.
Despite the fact that lending for first-time home buyers has gotten ‘easy’ again, most believe that many Americans have determined that home ownership may not be all that it’s cracked up to be. Sometimes, it’s just better to rent. For many, the “American Dream” has been redefined as “flexibility” vs. “home ownership”.
We should point out that the statistics in the chart above tells us that over 35% of the households in America are rental properties. One-in-three homes are owned by a real estate investor – to give some perspective of the importance of real estate investors in America.
“True individual freedom cannot exist without economic security and independence” – Franklin D. Roosevelt
2. Rents are Up Sharply
Increased demand for rental properties has pushed rental rates up in nearly every market across the country.
These are nationwide statistics, and can vary by market, but rents are generally up nearly everywhere, and there appears to be no downturn in sight. In fact, real estate is often touted as the greatest hedge to inflation.
In fact, we wholeheartedly believe this when you consider two important factors:
1. Investors often use long-term financing for rental properties to leverage their purchasing power, and current rates are largely offset by inflation (surely, inflation in rents!).
2. We advocate buying rental properties in markets that have very attractive rent-to-value ratios where the primary goal is cash flow (vs. speculative, unrealistic appreciation).
Benefits of Rental Investing:
There are many benefits to owning rental properties. At PassiveRental.com, we believe it all starts with cash flow. You buy rentals for the cash flow, which should be able to stand on its own … the rest is icing on the cake!
Here are the primary benefits to you:
Cash Flow – It’s important to select the right property and market, but the purpose of your investments should be to generate cash flow. Most use lenders to fund their deals, and using financial leverage, with the right property, should generate enough income to cover all expenses and can flow nicely.
Tax Benefits – There are tremendous tax benefits to investing in real estate, such as depreciation. Those benefits are unique to your situation, so please discuss with your own tax advisor. Tax Benefits – There are tremendous tax benefits to investing in real estate, such as depreciation. Those benefits are unique to your situation, so please discuss with your own tax advisor.
Equity – This is where the “grow rich slow” part comes in. While you’re sleeping, tenants in your rental properties are paying down your debt on each investment. In conjunction with appreciation over time, your equity is growing.
Appreciation – As real estate investors ourselves, our first goal is stability and capital preservation. We don’t believe in investing in speculative markets with unsustainable increases in value, and many of the ‘hottest’ real estate markets in the country are not the best markets to own rental properties in. We like markets that are tried, true and stable (even if a little ‘boring’). However, even these markets have appreciated attractively over time, especially when considering financial leverage used.
How to Choose the Right Market
The word “passive” is used a lot when discussing rental properties. Truth is, a significant number of rental property owners manage their own properties. We don’t advocate this at all if you are not skilled. Actively managing your own properties in many ways defeats the purpose of investing at all.
When you begin to consider all the things a property manager must do to run a successful operation, there’s almost no chance you could ever be as efficient. Our operating partners generally manage very large portfolios (several hundred properties or more), allowing them an efficiency level that you’d be hard pressed to match. Even if you could, who wants to manage tenants and toilets?
“Be an investor, not a landlord” – PassiveRental.com
We also believe in diversification. You may be limiting yourself by only buying properties in your backyard. In fact, depending on where you live, there may not be an opportunity to buy cash flowing rental properties at all (especially if you live on the West or East Coasts).
We’ve hand-selected nearly a dozen top markets for rental properties across the country, and continue to evaluate others for best fit. We look at stability of markets, rent-to-value rates, property tax impacts on investments, long-term potential for each market, and strength of the property manager and operators, to provide you with the best investment options.
If you agree that someone else should manage your properties, and that you should diversify your investments in multiple markets – we really should talk. We’ve done much of the homework for you!
Choosing a Neighborhood
When choosing a neighborhood, there are a lot of factors that should come into play. Schools, amenities, etc. are allimportant, but discussing those here is almost an academic exercise. We all know those things are important, and are aspects that you certainly should take into account. The single most important factor here is a strong property manager. They know the market better than you ever will, and their advice should be a very important factor in your buying decision. Heck, they’re going to have to manage it for you, and deal with issues on the front end!
“Real estate investing, even on a very small scale,“Real estate investing, even on a very small scale,remains a tried and true means of building an individual’s cash flow and wealth.” – Robert Kiyosaki
One consideration to think about is ‘class’ of neighborhood and property type. Again, it’s important to discuss this with your operator and make the best investment decision, but common classifications for properties are placed into buckets A, B, C, and D.
Class A – Higher priced properties relative to average in the area. The rent-to-value ratio is not as desirable for investors, and tenants may be more likely to complain about basic repairs, neighbor’s, etc.
Class B – A newer property that is less likely to need repairs and may attract a more stable tenant.
Class C – A bit older property that may need a little more maintenance, and may have a little more turnover. These properties may provide better cash flow.
Class D – Lower quality neighborhoods that are prone to more crime issues. The rent-to-value ratio may appear to be very good, but increased turnover and repairs needed could dramatically decrease your cash flow. The description above is, at best, a generalization, and each investment and tenant will be different. We can argue a justification for either class of property, but our general belief is that again, the quality of the property manager is critical here. A good property manager can easily handle either instance.
Once you’ve chosen a market to buy in and an operator to work with, next is to purchase a property. Our operators play the role of acquiring, rehabbing, and renting properties for clients, and while it isn’t always this simple … you essentially need to ‘place an order’.
One of the beauties of working with our operators is that you can often ramp up quickly. Whether you want to purchase 1 property or 10, they can help you achieve your goal in a very reasonable amount of time.
“How many millionaires do you know who have become wealthy by investing in savings accounts?” – Robert Allen
How to Fund Your Investments
There are many different funding options available for you, but each will be unique to you and your situation. In some instances, national lenders that provide government backed financing are your best option (certainly for your first 10 deals – with Fannie and Freddie funding), in other instances, the local operators have local community banking relationships to connect you with.
In other instances, there are some very powerful and little known ways to use your retirement accounts (self-directed accounts) to purchase or fund down payments with. If this makes sense, we can connect you with excellent resources.
In every instance, we have connections to help you get to where you’re going, including some of the most well respected lenders in America that focus purely on funding rental properties.
Without knowing your objectives, markets you’re interested in, and interest level in B vs. C class properties, we can’t share a deal that would be a potential fit … but for the purpose of an example, here’s a recent deal from one of our operators:
Of course, there are several scenarios that may fit your financial objectives better, such as paying down the mortgage quicker, putting more than 20% down, etc.
What’s holding you back?
Are you ready to get started?
“The Best Time to Start Buying Real Estate Is Yesterday” – Unknown
We’re powered by the FlipNerd.com platform, with over 50,000 investor subscribers. FlipNerd is an authority in the real estate investing industry, and we’re connected with hundreds of the most successful and well-known real estate investors in America.
PassiveRental.com was started from feedback from FlipNerd members – by understanding that many investors want a more passive model where they don’t have to go alone, and have much of the heavy lifting (deal acquisition, major rehabs, etc.) done for them.
We’re real estate investors too, and are continually seeking to find the best providers of rental properties, the best property managers, and the best lenders – so we can connect you with those that can best serve you, and those that truly understand what YOUR goals are.
The best part – you don’t pay us a dime for our services, and you will NEVER be ‘hard sold’. We simply share our knowledge and connect you with our experts.
What Should You Do Next?
Please contact us by:
1. Complete the contact form on www.PassiveRental.com
2. Calling (469)-535-7368
Contact us to help answer your questions, and discuss your goals.
The sooner you get started, the sooner you’ll start building equity and cash flow. If your goals are to replace your income, help secure the financial future of family members, or simply to diversify your investments, we’re here to help.
You deserve financial freedom!
Let PassiveRental.com help point you in the right direction!
PassiveRental.com does not make any earnings claims and we STRONGLY encourage ALL buyers to do their own due diligence and seek professional financial and tax advice before making any property investment.
PassiveRental.com connects people interested in purchasing turn key rental properties to turn key rental providers in the United States. This is a free service for buyers and we are compensated by a broker-to-broker referral fee from turnkey providers. PassiveRental.com and EP Management, Inc. is owned by Lindsay Hambright, a licensed real estate sales agent in Texas with Investable Realty and does not represent any party in this transaction. This is not a broker solicitation.