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Invest In Real Estate Gainesville FL
Why You Should Consider Investment Property
There are many benefits to owning property, and most people buy because they are interested in building wealth. Since real estate is tangible it affords owners a sense of stability. The advantages and most common reasons are:
It takes planning, patience, and persistence. Don’t expect to make millions of dollars in your first year. Instead, plan on creating a portfolio that will steadily increase each year, enabling you to meet your financial goals. If you want to know how to invest in real estate continue reading.
Increase Wealth and Assets
Real estate is an asset that offers a steady income stream. Leasing out a property you own is one of the most common methods of building wealth. Savvy investors understand the that you make money on the purchase. There are many options available for investing. It comes down to your goals, finances, and time.
Buying right is when you purchase at a price that will make you money regardless if it is a long or short term plan. While timing the local market is essential, you should also study it. Make sure it accommodates your interests and goals.
If you are looking for answers to your investment questions or additional information on how to buy a property in the Gainesville FL and Alachua County areas, please use the table of contents below to quickly navigate to the area of your interest.
We offer our clients a variety of services:
Real Estate Investing for Beginners
Before purchasing, research the niche you are interested in. Consider your financial goals, lifestyle, and needs. Define an investment strategy to determine income, profit, process, finance options and expenses. Establish the time you will commit to the process and your financing options prior to starting. Here is a list of the most common investment options to consider:
Raw land can be improved upon, leased, developed, and rented to create cash flow or sold for a profit.
Mobile Homes & Parks
Mobile homes are a less expensive investment option with lower out of pocket costs to purchase.
Single-family homes can be rented, purchased, flipped, or held onto for appreciation and sold at a later date.
Multi-family houses are made up of 2 to 4 units in one building called duplexes, triplexes or quadplexes.
Small Apartment Communities
These have between 5 and 50 units and evaluated based upon the income they produce for the owner(s).
Large Apartment Communities
Consist of 50 or more units and subject to commercial lending practices.
Real Estate Investment Trusts
Made up of a group of investors who pool their funds together to make a significant investment purchase such as shopping malls, large apartment complexes, skyscrapers, or single-family homes in bulk.
Commercial Real Estate
Involves a property that is leased to a business, typically large spaces such as supermarkets, office buildings, or big-box megastores.
Condos & Town Homes
Singular units in a building. Each provides individual ownership but may be subject to restrictions.
Popular Real Estate Strategies for Investing
There are many ways to make money in real estate. It depends on how much time and effort you want to put into it. The most popular options are to buy and hold rental property and or fix and flip houses.
Both of these choices are lucrative. The more investments you own, the more opportunity you have to increase your bottom line. In both of these options, you can have minimal involvement or be fully engaged.
Sometimes getting started is the hard part. If you are just beginning, there is a lot of research, planning, and evaluation to do. The overwhelming information can often cause paralysis by analysis over concerns of repairs, costs, purchase price, timing, losing money, or making a mistake. Just remember, you do not need to be an expert. Get help from experienced people to assist you. Start by having a plan and understanding what you are trying to accomplish.
Buying Rental Property in Gainesville FL
By owning investment rentals, you can generate a passive income that is nearly tax-free. They will work for you even when you are sleeping. It is possible to generate enough income to cover your expenses and have the freedom to do what you enjoy, instead of spending all of your time at work. Many landlords start with one property and build a portfolio over time. While it is not a get rich quick opportunity, if done right it will replace your income and even become retirement revenue.
Your Rental Strategy
The buy and hold strategy means an investor buys and owns property for a long period of time while renting it out. The goal is to have positive cash flow and long term appreciation. The mortgage and expenses are paid for by the tenant, and the owner receives the difference monthly. A great way to decrease the principle balance on the loan (if you have one) while increasing equity. A win, win!
This option helps create wealth over time while also providing for a monthly income. The home can be sold for a later date for a financial gain. It is possible to earn returns at 10 to 20 percent or more. It depends on how you purchased the property, the location, demand, and the market. To maintain the provided benefits that buying and holding affords, make sure to manage the asset appropriately.
The following are long-term strategies to buy and hold:
Turnkey are move-in-ready properties that usually have tenants and property management in place.
Vacation Rental are short term rentals with monthly or weekly terms.
Multi-family properties consist of 2-4 units rented out for income.
Apartment buildings have 5+ units and have higher income potential.
Commercial real estate are buildings used for business purposes such as an office, warehouse, hotel, or retail store.
Each of the above strategies allow for depreciation and deductions. There are significant tax advantages, passive income, and appreciation from a future sale.
How This Remodel Pays for Itself and Brings in 75% More Revenue!
With the renovation completed, we are able to rent the property for $600 more a month!
A very nice increase in revenue for our homeowner!
We are not just any property management company! We have a vested interest in helping you increase your wealth!
How to Determine a Good Rental Property?
You may have heard the term "buying right," and it cannot be understated! The most common mistake made by investors is buying bad deals because they do not understand property evaluation. Assess each property you are considering for rent potential, income earnings, debt service, and expenses. Expenses include but are not limited to repairs, maintenance, monthly or yearly fees such as HOAs and assessments, marketing costs, and management fees.
Location is essential, and understanding the rental market is critical. Determining the properties with the highest rental demand is a good start. If there is an existing lease that can be carried over is a bonus, as long as the current income provides a profit in the minimum rate of return needed.
The first step is to evaluate what you are interested in to determine the rate of return. Many investors calculate the rental yield to determine if the property is a good investment. It assesses the potential income and cash flow of an investment property by:
Another method is the cash on cash return as a simple way to measure performance.
Always buy an investment where you will make money going in by taking advantage of the market before prices increase or picking up the property for less than fair market value. This is not always the case; in some areas, the cost to rent far exceeds purchasing and carrying a mortgage.
Know the average rate of appreciation for your real estate market and identify areas that generate the best returns. Once the evaluation process is completed and satisfactory to you, move into the next step, and make the purchase.
Available Financing Options
An investment loan typically requires at least a 10-30% down payment. Some sellers offer financing, and the terms vary from owner to owner. It is smart to shop different lenders to find an option that works for you. Keep in mind; your credit score will factor into the amount requested and interest rate.
How Much of a Deposit is Required?
Down payment specifications can vary depending upon the loan you choose, contract terms, and if you are buying from a new home builder. The standard requirement is usually 20%. However, if you are purchasing new construction, some builders only require 5% down and may even offer in house financing. Make sure you disclose how you are purchasing the property as there may be specific terms that prevent you from using your investment how you intended.
How to Buy with No Money Down
It is possible to purchase an investment with no money down. Here are some of the most commonly used options:
Retirement accounts can be used to purchase real estate such as a self-directed IRA.
What is a Good CAP Rate for Single Family Homes?
This really depends on each individual investor. Generally, the cap rates most investors desire is between 8-12%. Choosing the rate depends on your strategy.
Rental Property Calculator
View the formulas below to help you evaluate real estate.
What is a Capitalization Rate (CAP Rate)?
The cap rate determines how profitable the real estate investment is based on the annual return without financing. This is calculated by dividing the net operating income (NOI) by the value of the property.
Gross Income minus expenses and then divide by the purchase price.
Purchase Price = $240,000
Gross Income = $26,400
Property Management = $1200
Maintenance = $450
Taxes = $2100
Insurance = $800
NOI = $26,400 - ($1200 + 450 + 2100 + 800) = $21,850
$21,850 / $240,000 = .091
Multiply by 100
.091 x 100 = 9.1%
CAP Rate = 9.1%
How do you Calculate Gross Rental Yield?
This formula provides you the gross rate of return on rental income. You add the total yearly rental income and divide it by the property value then multiply it by 100.
Annual rental income = 12 months of rent
Property value = purchase or market value
Gross rental yield = (Annual rental income / Property value) x 100
Purchase price $240,000
Monthly rent = $2200
$2200 x 12 months = $26,400
$26,400 / $240,000 = .11
Gross Rent Yield = 11%
How do you Calculate Net Rental Yield?
For a more accurate prediction of the annual rental return, the costs and expenses associated with the property need to be included. Calculate the total yearly rental income and deduct all expenses, then divide the answer by the total cost of the property and multiply the answer by 100.
First, Calculate total property costs:
Total Cost of property = Purchase price + Costs
Purchase Price - $240,000
Closing Costs = $7800
Renovation Costs $12,000
Other Fees & Costs = $430
Total Cost of Property = $260,230
2. Then Calculate Gross Rental Yield (see above)
3. Then Calculate Yearly Costs
Costs are the yearly expenses for the property.
Yearly Costs = $1400
Annual Rent = $26,400
$26,400 - $1400 = $25,000
Divide Answer by Total Cost of Property
$25,000 / $260,230 = .096
Multiply by 100
.096 x 100 = 9.6
Net Rental Yield = 9.6%
Cash on Cash Return
This is the actual return you will get at the end of the year on your rental after all expenses are paid out such as mortgage, taxes, fees, insurance, HOA, etc.
It is the easiest way to compare various properties.
Cash-on-cash = annual pre-tax cash flow / total cash invested
If you put $80,000 into purchasing real estate and the annual pre-tax cash flow is $10,000, then your return is 12.5%.
10,000 / 80,000 = 0.125
Cash on Cash Return = 12.5%
Interested in Purchasing Investment Property?
If you are looking to buy an investment property in the Gainesville FL and Alachua County areas please call or text us at 352-478-8029 or complete the contact form below and we will get in touch with you! Use our expertise to help you make the best investment choices for growing your wealth.
Flipping Houses In Gainesville FL
This is one of the most popular investments for real estate. You may see experts on tv or signs and advertisements around town wanting to buy homes for cash. While there is no magic bullet to getting rich quick, you can supplement or even replace your income. Having a solid plan includes every step from evaluating property through resale.
These types of investments are "do it yourself", require contractors or a little of both. It depends on your time, finances, and skill on how involved you decide to get.
Investors improve communities by updating available housing and increasing neighborhood aesthetics. It is a direct impact on the lives of people living there.
What is a Fix and Flip?
The old add-age "buy low and sell high" still stands today. Purchasing, fixing, and reselling a home for profit is a retail model known as flipping. It seems like a pretty simple concept, but many investors look to make cash quick. Not planning for enough time to renovate and sell can end up costing you. There is quite a bit that goes into this investment strategy, and it is essential to do your homework.
A common type of real estate to buy renovate and put back onto the market are single family homes. Sometimes condos and town homes are the hot flips of the season. Market factors influence these decisions. It may be an up and coming area with depressed properties or that diamond in the rough.
How to Get Started Flipping Houses
The first steps to getting started are to get your financing in place. You do not want to buy until you have determined how you will pay for it, the risk and the return. Get to know the local market by looking at the monthly, quarterly, and yearly trend reports.
Is the region growing? How is the demand for housing? What do the average days on the market show? The data from these reports help you with your buy, rehab, market, and sales strategy.
What is the 70 Percent Rule?
The 70% rule is a quick property evaluation formula. It is a way to determine the purchase price for a property to make money. An investor pays 70 percent of the After Repair Value (ARV) of a property after repairs.
For example, a home is listed for $100,000 in fair condition. It needs $20,000 invested to flip it. The after repair value for a comparable move-in ready home is $175,000. In order for this home to qualify as a good candidate the AVR must come above $120,000.
70% of market value is $122,500
175,000 x .7 = $122,500
For the property to meet the 70% rule, the investor needs to make an offer at or less than $122,500. There are often unforeseeable circumstances that are costly. It is smart to add a little cushion to maintain enough funds for unexpected costs.
This Fixer Upper Netted our Investor a Huge Profit!
See our Before and After Video! The home sold quickly after we put it up for sale! The owner gained an eighty-five percent increase in value! See the purchase and sale breakdown below:
The home was purchased for $80,000
$22,000 was spent on upgrades and repairs
A total of $102,000 for purchase and light renovation
It SOLD for $148,500
$46,500 in Net PROFIT!
Using the Investor's 70 percent rule, we use the sold price as market value in this scenario
70% of $148,500 (Market Value) = $103,940
This means in order for this deal to work we could not pay more than $103,940 in order to meet the Investor's Rule
Our all in for purchase and renovation came to $102,000. We ended up $1,940 in the positive!
What are the Most Important Things to Know?
Numbers are the most important factors when working with fixer uppers. Make sure you are able to answer each of these questions.
What is the AVR?
What are the repair costs?
How much are the carrying costs?
What are the costs to buy and resell?
How much will the marketing plan cost?
What is the timeline of the project?
Are the contractors available to meet the project deadlines?
How do I Find Deals?
To identify if a property is a deal, first know the market in and out. Some areas carry more value based upon location. Analyze the projected growth and planning for a region. Look for distressed properties and or homes needing repair.
Finding a trusted real estate agent to partner with you is vital. They have access to tools and can provide you data reports you otherwise would have to buy. The Realtor® can place you on hot deal alerts, so you are one of the first to know when one hits the market.
How do I Get Funding to Flip a House?
One way to get into this type of investment strategy is to wholesale. This is done using other people's money. Here are the most common methods to obtain funding:
Should I buy investment real estate before my first home?
Why not do both? You can purchase your first home to live in and then when you are ready turn it into a rental. By doing so it will accomplish several things.
Is buying land a good option?
Vacant land is versatile and can be income producing. It is a risky investment if you do not have a plan for it. If you want a simple buy and hold investment, look for property in a projected growth area. Buy land within 15 to 30 miles of major urban or suburban growth centers. You can subdivide it, sell for roadways, build a new home community or commercial property. There are several options:
What is land development?
Land development is acquiring land to use for commercial, residential purposes by installing improvements. This includes but not limited to water supply, sewage lines, sewage disposal, gas, electric and fiber optic cables.
Wholesaling Real Estate
The wholesale process involves finding great real estate deals as the middle man. A middle man acts like more of a facillitator between the two parties. After executing a signed offer to get the sale, it is then contracted with another buyer. The wholesaler never actually closes or owns the piece of property. The selling of the contract is an assignment fee. This fee can range between $500 and $5,000 (or more depending on the size of the deal). It is an easy strategy with lower start-up costs.
Investors enjoy the benefits of this relationship too! It is common for an investor to become a partner. Sometimes wholesalers will end up purchasing the property for themselves and play both roles. Wholesaling is the most popular strategy taught by real estate gurus. It is not as easy as they make it sound.
The quick access to funds helps keep an even flow of properties through strategic marketing. Wholesalers must search for the best deals to keep up inventory to sell to others. This means they must have a well-designed marketing funnel. Otherwise, they would have a hard time attracting buyers for the properties they obtain. One of the most common marketing strategies used is the "we will buy your home for cash". You may have even gotten a letter or postcard in the mail a time or two.
Even though it is promoted as a zero out of pocket option, that is simply not true. There will be some out of pocket expenses. If persistent, you can fine-tune the skill necessary to create a good source of income.
Real Estate Terms
The income generated from owning and leasing a property. Positive cash flow is when there is net income after all expenses are paid.
Use other people’s money to purchase property and reduce the amount of personal capital needed to invest.
In simple terms, it is when the value of the property increases. When the market is at its highest, most investors sell to earn a maximum return.
The IRS allows you to write off the value of a property over 27.5 years. See tax benefits. It is the process used to deduct the costs of buying and improving a rental property. Rather than taking one significant deduction in the year purchased or improved the depreciation distributes the deduction across the useful life of the property. The exception is with owning land; it does not depreciate. Any costs incurred to clear, maintain, or landscaping is considered the cost of the land.
The IRS allows you to claim depreciation on your taxes. It counts as negative income on paper. The yearly property expenses are paid out of the revenue the property receives.
Hedge Against Inflation
When real estate values go up, often does the rental income does too. Owning rental property protects against both immediate and long-term inflation. The average annual real estate appreciation rate nationwide is between 3 and 6 percent. As the demand for real estate increases, rents are typically rise too. This means higher capital values and passes some of the inflationary pressure onto the tenants.
This is the amount of rent and fees collected monthly from the tenant. Expenses are the costs associated with the investment.
Examples are loan, utilities, taxes, insurance, management & holding costs, marketing, capital expenses, etc.
Annual NOI (Net Operating Income)
This is the net income after expenses. It is the annual revenue generated after income is collected, and operations plus costs are deducted. Financing and tax expenses are not included in this formula.
It is always a great to invest in real estate Gainesville FL. Just reach out to us and we will help you get started!