Bend Real Estate Investment Archives - Page 2 of 5

Pros and Cons of Single Family Rental Properties

Fidelity Investments research consultant Peter Lynch famously coined the phrase, “Invest in what you know.” For most real estate investors, especially those just getting started, what they know is single family homes. Although there may be a level of comfort with single family properties it is still a good idea to weigh the pros and cons before making an investment. Here is our list of the pros and cons of investing in single family properties.

Pros:

Purchase price is lower than multi-family properties. For those who don’t have piles of cash lying around, a single family property can offer an entry point with a relatively small down payment that leaves some cash for reserves.
Easier to finance. Single family properties can be financed with a conventional 30-year fixed-rate mortgage for those borrowers that qualify.
Less tenant turnover. Single family tenants often have more stability in their lives. They are usually settled in their careers, like the community they live in and aren’t likely to decide to move on a whim.
Usually no expenses for utilities and yard maintenance. Separately metered utilities allow single family tenants to be directly billed for what they use. Part of the deal for tenants who rent a house is taking care of the yard that comes with it.
Cheaper to diversify. If you own more than one single family home you can diversity to different parts of town and between lower and higher end homes. Much in the same way you might diversify your stock portfolio between technology and financial companies.
Bigger pool of buyers when it comes time to sell. This is a big argument in favor of single family properties if there is a chance you might need to cash out. While houses are not nearly as liquid as stocks it is much easier to sell a house than a multi-family property. There are more potential buyers (investors and owner occupants) and the sales price is not determined by how much money the property makes.

Cons:

Cost per unit is usually higher. Think of it like the difference between buying a 12-pack of your favorite soda and buying 12 cans individually. The cost per can will almost always be less buying a 12-pack.
Financing won’t always be a breeze. After you own four homes conventional financing is out and most banks won’t lend on more than 10 homes. At that point you will either need to purchase with cash or find a portfolio lender.
Vacancies can be painful. When you have a vacancy in a single family property there are no other tenants to help cover your mortgage payment. This makes maintaining cash reserves vital.
The house and yard may not be kept to your standards. Most tenants aren’t the neat freaks and master gardeners we would love them to be. If the house is in a neighborhood with an HOA be sure to lay out what is expected of the tenants or you will likely be hearing from the HOA more often than you’d care to.
Fewer economies of scale. The likelihood of an investor finding 10 single family houses built the same year with the same floor plan, heating system, plumbing and fixtures is virtually zero. With a 10 unit apartment complex all the light fixtures, toilets, countertops, paint colors and appliances are the same which can make repairs and upgrades less expensive.
More miles on your car. Owning multiple single family properties can mean spending more time in the car driving across town from one unit to another.

Is a Fixer Upper Right for You?

Whether you are a handy home owner looking to “buy up” at a discount, an investor looking for a flip or rental, or a first time home buyer looking for an affordable house you can make your own, a house that needs some repairs can present you with a good opportunity to create equity.

It sounds pretty simple, find a house that needs some help, buy it and fix it up. However, if you aren’t careful it can be quite easy to lose money on a fixer upper. Here are some things you should consider when shopping for a fixer upper.

Get an inspection: It is one thing to be handy with a hammer and saw but quite another to be able to properly inspect a home. Many problems in a house may be obvious: plumbing leaks, failing windows, and a leaky roof for example but it is the ones that aren’t so obvious that can be the most costly to fix. Mold, termites in the walls, water not being properly directed around the foundation and siding that no one knows how to fix or replace (we’ve had this happen) are not always so obvious. We always recommend a professional inspection, even for experienced buyers.

Get bids from a licensed contractor for all repairs: Unless you have been buying and fixing homes for a long time, the best way to know how much a repair will cost is to ask a contractor. Then add ten percent. This will give you a worst case scenario of how much it will cost to fix your home. If you can’t afford to pay someone to complete all the repairs (even if you are planning on doing all the repairs yourself) then it might be a good idea to move on to the next fixer upper. Think of it as an insurance policy. You never know when a timber might fall on your head or a spider might bite you while crawling under the house and if you can’t complete the house you could end up in a really bad place financially.

Calculate the time to completion and be realistic about your ability:

The goal on any fixer upper is to keep cash expenditures to a minimum. For most, the easiest way to do that is to do the repairs yourself. The trick is to know your limitations and not over estimate your ability. Time is of the essence whether you are trying to get the house on the market, get it rented or just ready to move in. Be sure to carefully consider whether or not you have the time to get the repairs done yourself because often there is a surprise hidden behind those walls that can set back your timeline.

Determine if you are creating value and/or equity: It’s great to make a house attractive with stainless steel appliances, granite counter tops, and tile bath surrounds but if you aren’t creating something that people will want to rent or buy at a price that allows you to make money then you better be planning on living there for a long time. Your real estate agent and/or property manager are great resources to help you determine how much value your improvements will add and how they will affect rentability.

Buying a house that needs some work is a great opportunity to make some money whether you are an investor or not. Just be sure to take your time and do your homework because it can also be an easy way to lose a lot of money.

Real Estate Investing: The Best College Town to Invest in Now

When most people think of Bend, Oregon real estate they likely think of vacation homes. Bend is, after all, one of the premiere vacation destinations in the state of Oregon. What many real estate investors may not be considering is that Bend is set to have a four year university by 2015. That makes now a great time to buy rental properties in Bend.

Think for a minute about the college town or towns you are familiar with. Is real estate more expensive in those college towns than neighboring cities? You bet it is. Did the real estate in that town hold its value better than that of surrounding towns during the Great Recession? Yep. Did real estate values in that town rebound faster than neighboring towns after the Great Recession? Yes, again.

There are some great real estate investment plays that can be set up before OSU Cascades officially becomes a four year university in 2015. Before everyone else thinks, “Why didn’t I do that?” There are currently just over 1100 students attending OSU Cascades. That number is expected to grow to 2000 over the next four years (2017) and 5000 students by 2025.

Rental properties for professors: If the number of students will double in the next two years it follows that the number of teachers will also. Those people don’t already live here and many of them will prefer to rent for economic and professional reasons. Single family homes and townhomes on the west side of town would be the target rental properties for this group.
Rental properties for students: The freshman class of 2015 is expected to be fairly small (100 students) and live in the “living and learning center” on campus. Students from most of Central Oregon will be exempt from having to live in campus housing. That leaves an expected 1400 juniors, seniors, grad students and local freshmen in need of housing. Multi-family properties near campus and single family homes at least two miles from campus will be most attractive to this group.
Rental properties for University employees: There will also be numerous jobs created in the private sector as a result of the expanding campus. Not all of these jobs will be filled from the local pool of employable talent which will create even more demand for residential rentals. This group of potential tenants will likely be willing to consider single family properties from Deschutes River Woods all the way to Redmond and 2 to 4 unit properties in Bend.

We believe the current real estate market in Bend presents an exceptional opportunity for investors. No one is really thinking in terms of Bend as a college town yet. However, the time will come and when it does the market conditions that exist now will likely be long gone. Interest rates are still incredibly low for the time being but are expected to rise over the next few years. Prices are still low enough that cash flowing properties can still be found. And finally, while there is buyer demand for properties around the future campus of OSU Cascades (see map below) that demand is nothing like it will be in two years.

One market condition that doesn’t show any signs of changing soon is the demand for rentals. Bend has an incredibly low vacancy rate and the competition among tenants for a good rental is red hot. We have had three vacancies in Bend in the last two months and none of those properties went even one day between tenants without rent being paid. NOW is the time to buy rental properties in Bend, Oregon!

Millennials, The American Dream And Real Estate Investors

Real estate investors have a huge opportunity to make money on the fading American Dream of home ownership. There are approximately 80 million members of Generation Y and they are less interested in home ownership than any generation before them.

Survey after survey suggests that these uncertain economic times, in which many Millennials have reached adulthood, are shaping their views on debt and home ownership. Despite being the best educated generation (63% have bachelors degrees) Millennials are also the least employed (17% unemployment). Sadly, that education has saddled them with huge amounts of student loan debt and few prospects for paying it off.

Generation Y has a hard time seeing beyond the debt and therefore is primarily focused on getting rid of it. The thought of adding a mortgage payment to that pile of debt only pushes them further away from the thought of owning a home. The residence that is attractive to Millennials comes with built-in amenities and a landlord to take care of repairs and maintenance.

Investors, they are calling your names and their numbers are growing daily with no end in sight. Now is the time to take advantage of the real estate market and the demand for rentals. Interest rates are still at historically low levels and in most markets home prices are still well below the highs. In Bend, Oregon home prices are 28 percent below the peak of May 2007.

No one is sure how long Generation Y will prefer renting over owning. Some think the preference shift is permanent while others think once the economy comes back around so will the Millennials. Regardless of if or when it happens, Preferred Residential is bullish on single family homes for most real estate investors.

A single family home offers some advantages over multi-family complexes that could be accentuated by the current real estate market.

Cost of entry: Houses are generally lower priced than multi-family rentals and financing is cheaper and easier to come by.
Ease of sale: The number of potential buyers for a house will always be larger than for a duplex or apartment building.
Appreciation: Appreciation for apartments is largely based on how well they are run and how much money they make. House prices are based on demand. Let’s say in five years the economic tide has shifted and Millennials decide they are ready to buy a home. If you bought well in 2013 not only will your property have had positive cash flow for 60 months, the rising demand from home buyers will add a nice bump to whatever appreciation was gained over that period.
Rising Rents: Even if Generation Y decides to keep renting, adding more renters to the pool every day will continue upward pressure on rent prices.

More interesting facts about Millennials

Property Management: Bend Rental Market Still Strong

The Bend, Oregon rental market continues to show signs of strength as we head into the winter months. The good news for real estate investors is it looks like this strength will continue well into next year and beyond.

Over the last month and a half Preferred Residential has had four vacancies. Three of those were single family homes and one was a duplex. All of them rented within a week of becoming available and none of them sat vacant for more than five days. Not only did we not have trouble renting them we were able to raise the rent an average of 15 percent. It should be noted that part of what accounted for the large increase in rent was that the previous tenants had lived in the houses for more than two years and the owners had been content to leave the rents as they were.

The way the Bend real estate market was looking back in the spring it appeared prices were headed to a level that would make it tougher for real estate investors to add new properties to their portfolios. As of this writing that doesn’t seem to have happened. We have two clients who have made purchases recently with minimum required down payments. One purchase was a four-plex and the other was a single family home. Both properties produced positive cash flow right out the box.

Even if home prices do continue to rise, the Bend real estate market should continue to be a good place to be invested for the foreseeable future. A recent survey by Credit.com found that 28 percent of Americans said the American Dream is to retire financially secure at age 65 and 23 percent defined it as being debt free. Only 18 percent of those surveyed said they thought the American Dream to own a home. Owning a home no longer has the same lure that it once did.

Let’s consider that for a minute, owning a home is not the top priority for more than 51% of Americans. This should be music to the ears of real estate investors. Now is a great time to be invested in Bend, Oregon real estate. If sentiment changes and owning a home once again becomes the American Dream the strong rental market may soften but you will have made money on your rental over that time period and the influx of buyers will mean higher prices if you decide to sell. Call Preferred Residential today to discuss your Bend real estate investment options.

Here are some more reasons illustrating why Bend is a great place to invest in real estate.

Mistakes to Avoid When Purchasing an Investment Property

You have determined why you are investing in real estate and what type of property can best help you reach your goals. Now it is time to take the next step toward making money – purchase an investment property. Hold on though, while this is an exciting step it will also play a huge role in whether or not you make any money. Take your time and avoid these potentially costly mistakes.

Not doing your homework: Whether you are buying a property as a rental or to flip you should know as much as you can about it before you buy it. How is the neighborhood? You aren’t going to live there but someone else is going to have to want to live there if you hope to make any money.

What condition is the house in? You may think it is a good idea to save $500 and inspect the home yourself but we think a professional inspection is worth every penny. A professional home inspector looks at houses every day and can find problems that even the most experienced investor can miss.

What are the costs associated with buying this property? From financing to closing to repairs make sure you know how much money it will take to get the property ready to sell or rent. Even if you plan on doing some of the work yourself, get bids from contractors for everything and include those bids in your cost estimate.

Failing to question the numbers: A popular quote in real estate investing is, “You don’t make money when you sell a home, you make money when you buy it.” That means you should check and double check every number you see while doing your homework. Look at the comparable sales your real estate agent gave you closely. Make sure they support the value of your purchase and, if you are flipping the property, the price you hope to get when you sell the house. Check your partner’s math and have them check yours. Find similar properties for rent on CraigsList and make sure the rents you see there are in line with what you hope to get.

Treating real estate investing like a hobby: Investing in real estate may be something you do on the side from your “day job” but you have a lot of money at stake and if you treat it like a hobby then your return on investment will reflect that. A hobby is something you do for pleasure and while real estate investing can be rewarding, pleasure is not a word that is often associated with rentals or flipping houses. The best investors know exactly how each day a house goes unsold or sits vacant will affect their bottom line. You should too.

Doing it all on your own: Smart investors know what they do well and what they should outsource. Hanging 1000 square feet of sheet rock yourself may save you money today but you will likely lose money tomorrow and the next day and the next day because your house still isn’t ready to be listed for sale or rent. The same can be said for managing the property yourself. Sure you don’t have to pay the property management company 8 – 12% of the rent each month but is the money you save really worth it when you have to evict a tenant who knows landlord tenant law better than you? Peace of mind that comes with not having to deal with every little thing that arises can be priceless.

Investing in real estate isn’t for everyone but with careful due diligence and planning it can be rewarding for anyone. Fortunately, you aren’t the first person to invest in real estate and many others before you have made mistakes that you can learn from.

Real Estate Investing: The First Property

So you have some extra cash and have decided you want to invest in real estate. Before you take the plunge and buy that first investment property you should consider what you hope to accomplish by investing in real estate. Is it to make a quick buck? To save for a future event? Or just diversify your portfolio? Knowing “why” before you buy will help you determine the right type of property at the right price and the amount of cash needed up front.

Long term appreciation: Some investors will buy a rental house because they already have a diversified portfolio or they just aren’t comfortable with stocks and bonds. These real estate investors generally don’t need additional monthly income and they certainly don’t want the ordinary income tax that comes with it. They are looking for the value of their investment to rise for as long as they hold it.

Monthly income: Investing in real estate for monthly income requires one of two things: That you buy at a steep discount or with a large amount of cash. The key here is, if you are going to have a monthly mortgage payment it needs to be low enough to allow you to charge a fair rent for the property and still receive the desired monthly income. Buyers in this scenario should also avoid buying properties that will require a lot of maintenance. It’s one thing to get a good deal but another to have your monthly profits eaten up by repairs.

College for the kids: There are two ways we see clients buy real estate to help with college expenses for their children. The most common is to buy a house, rent it out then sell it about a year before the child starts college. Those investing in real estate for this purpose should have at least five years to hold the property before they need to sell in order to maximize appreciation and minimize the impact of transaction costs.

The second “college” investment strategy is to buy a rental house for your kid to live in while they are in school. The goal here is to avoid paying rent to someone else and hope you see some decent appreciation over the four years (or so) that you hold the house. A potential bonus would be renting out any extra bedrooms to help cover the mortgage or utilities.

Quick profit: Quick is relative when it comes to real estate and profit is anything but guaranteed. Everybody has to start somewhere but unless you have been directly involved in real estate and/or construction we don’t recommend flipping houses as a place to start your real estate investment career.

Quit your day job: This is a great goal to have and we have a number of clients whose “day job” is real estate investing. Just don’t expect that you will be able to quit your job after buying your first investment property.

Being a successful real estate investor involves a plan and a lot of hard work. Before you make the jump into real estate investing make sure you have a clear idea of what you are trying to accomplish. We can help you lay out a plan to make it happen.

Is it Time to Hire a Property Management Company?

Owning rental properties is a great way to make money but it can also be a great way to run yourself into the ground. Especially if managing your properties isn’t your only job. If you own rentals in Bend, here are a few indicators that might mean it is time to find a good property management company.

Screening Tenants Feels like a Crap Shoot: Anyone can call references but if you aren’t careful and don’t do a little homework first, how do you know that the person on the other end of the line is who you think they are? There are a lot of unscrupulous tenants out there who love to see houses for rent by owner. Why? Because they figure you probably don’t run a background check so you won’t see that they have an eviction on their record. You won’t see that they are in collections with every utility company in town. And so you won’t see their felony conviction for fraud.

Maintenance Requests Got You Down: Maybe it isn’t even that you don’t have the time to deal with them but that you don’t want to deal with them. Real estate investors don’t buy long term because they like to fix a frozen pipe in the middle of winter. They buy rentals to make money and spending time dealing with even small maintenance requests generally isn’t the most cost effective use of an investor’s time.

Missing Economies of Scale: One rental property isn’t too tough to deal with but as you keep adding properties things like a tenant ledger, job costing for each rental, advertising, showings and just answering the phone can become a royal pain. You invested in rentals to make money not be a CPA, marketing genius, contractor and answering service.

Can’t keep up with Landlord/Tenant Law: Your friend Bob might know the law…but then he might not. Are you sure you want to put your rental property in Bob’s hands? The law is not a stagnant thing. There are constant updates from the legislature and court cases that can change how a law is interpreted. Then there is the Fair Housing Act? Are you confident that you know how a simple question like, “Are you married?” can be used against you in a fair housing discrimination lawsuit? And what about that generic lease form you use? Do you know for a fact that it doesn’t contain an unenforceable lease clause in Oregon?

If any of the above describes you, put your mind and body at ease and give us a call. (541) 508-2930

Rental Houses and Dogs

I don’t know what it is about Bend, Oregon but the people who live here love their dogs. So much so that Bend was named 2012 Dog Town USA by Dog Fancy Magazine. That’s all well and good but what does that mean for Bend real estate investors?

It means, if you are thinking about buying a rental house in Bend or anywhere in Central Oregon, you should give serious consideration to the question of how you feel about dogs in your rental.

Many of the owners that we work for are apprehensive about allowing tenants with dogs and they have good reason to be. Dogs can scratch doors and hardwood floors, chew on trim or cabinets, make a carpet smelly and leave dead spots in a lawn. So why would anyone willingly put such an expensive investment as a house at risk of incurring that kind of damage?

Easier to rent. In our experience, there are significantly more tenants in Bend with dogs than there are without. Not allowing dogs in a rental automatically excludes a large number of prospective tenants before you even know anything about them. Reducing your pool of prospects by more than half can lead to longer vacancies which means less money in the owner’s pocket.

Higher rents. It may seem a little counter-intuitive but allowing dogs in rentals can actually allow an owner to charge more rent. Because there are so many dog owners in Bend there is increased demand for rentals that will allow dogs. Add to that demand from people without dogs and you start to see some competition for a quality rental in a good location.

That’s what deposits are for. In an ideal world each time a tenant moved out of a rental house it would be returned to the owner in perfect shape….but that seldom happens. Regardless of whether or not the last tenants had a dog life happens and some times so do bad tenants. Deposits exist to protect the owner and they also serve notice to tenants that there is money at stake if they don’t take care of the house. At Preferred Residential, we always ask for extra deposits if the tenant has a dog.

Property management safeguards. Preferred Residential takes a few extra steps to protect the homes in our rental program that do allow dogs. We screen the dogs as well as we can by having them come to our office and asking the tenants for references. After the first 90 days of tenancy we inspect the home to see how the tenant and dog are treating it. Based on that inspection we will either move to annual inspections or ask the tenant to make corrections and perform more frequent inspections as the situation warrants.

Dogs aren’t for everyone. We get that. We just want our rental owners to be able to make an informed decision instead of an emotional one.

New Approach to Flipping Houses

House flipping has a new business model: the model home. While it has been used almost exclusively by builders in new housing developments, the Baltimore Sun reports that real estate investors who buy, fix then sell distressed properties are beginning to incorporate model homes into their business plan.

At least three companies in Baltimore have decided that having a model home available for prospective buyers to walk through could have enough advantages to offset the cost of having to carry a finished home on their books for a year or more.

It is a sales model for house flipping that really hasn’t been tried before but appears to have advantages for both buyers and sellers. Most house flippers buy a house then fix it up hoping that buyers will like the choices they make. Having a model home allows buyers to get involved in the process and choose things like floor coverings, cabinets, counter tops and light fixtures. Buyers can also get a feel for the skills and quality of work they can expect from the seller instead of having to imagine what things might look like based on computer generated images. Buyers shouldn’t expect to save money on the purchase price but getting a house that is exactly the way they want it means they won’t have to spend money to change things after closing.

The Baltimore rehab companies in the linked story above are spending upwards of $400,000 on their model homes with the idea that the return on that investment will come in the form of faster sales and reduced carrying costs. It also should reassure potential buyers that they are not a fly-by-night rehab operation. Another benefit to the seller of having a model home is being able to eliminate the guesswork of trying to figure out what design elements will appeal to some buyer the seller hasn’t met yet. A model home could also create the opportunity for the seller to be able to pre-sell a home before rehab work has even begun.

This business model appears best suited for other large metropolitan areas where investors can find large numbers of similarly designed homes in need of repair. Would this work in Bend, Oregon? Maybe but in all likelihood the model house wouldn’t have the same (or even similar) layout as the house that was being sold and it might be on the other side of town. The other challenge would be finding enough houses to flip to create economies of scale. The companies in Baltimore plan on flipping 25 – 30 houses a year which is a number that could be tough to duplicate in Bend.