Choosing the Right Single Family Investment Property in an Appreciating Market

Single Family Investment PropertyAppreciating Market StrategyInvestment SelectionBuyingBuilding EquityIncome PropertiesMillennial NeighborhoodsBest Practices in Residential InvestingMaximize LeveragingCash out REFIS
Kristopher Franks
Kristopher Franks
Delivering the Bottom Line
Posted on : 10/06/2021

Finding the best single family residential property can be a daunting task. After all, these are good times, right? Money is flowing, credit is flowing, interest rates remain low, and the best properties often experience multiple offers. So how can investors still find a good investment property and put their capital to work? 

First of all, be aware of the zip codes and areas that have experienced the most appreciation already. Be aware of where the hottest markets are. For example, analyzing this map is a great way for you to get up to speed on DFW market. Finding the right real estate professional who is specialized in helping investors is essential. This person will spend the extra time needed to help locate a property that still has great income potential and is not topped out on price.

Be Flexible. In periods of high growth and a strong economy, you need to be loyal to the ‘deal’. Sometimes, the deal is not what you first sought out. For example, older neighborhoods close to downtown urban areas often find themselves in the state of transition. Due to the sales just starting to pick up in those older areas, there are often not enough comps to justify high values. Thus, the properties go for less money and stay on the market longer. Areas like these can quickly, within just a few years, turn into hot spots. Demographics can change fast as the search for affordable housing moves into these urban locations. Within a few years, your 120,000 purchase can be worth 160,000, and rents can rise just as rapidly. Above is a picture of a home that fits this model. It has been one of my best performers. Nobody saw the potential, and it was passed up by many investors. The return is well above 12%.

Don’t be afraid of a little fix up. Having the right real estate professional is again core here, as that person will likely set you up with the best vendors and manage that process for you. It is critical that the work be done right the first time. Don’t be penny wise and dollar foolish when fixing up your property for the first time.

Keep in mind that spending money on the house makes sense up to a certain point. All variables have to be right to justify the capital expenditures. There must be strong evidence that the area will rise in value and the ability to obtain good renters must already be present. 

If you have enough cash on hand, it may make sense to pay cash for the property and improvements and later complete a cash out REFI to regain your capital position.

Once you have a good 30 year fixed loan in place and your place is rented out to great tenants, sit back and don’t worry about this investment for years. Move on to the next project. Eventually, you’ll build a ton of equity, prices will rise, and you can re-visit another cash out REFI or 1031 exchange into a different asset class. 

This type of investing is ideal for anyone at least ten years away from retirement. The focus should be building equity. There are a multitude of safe, income producing real estate products out there for your golden years that will provide a competitive interest rate on your equity while giving you reliable mailbox money every month.