Institutional investors with large rental portfolios have been receding from the market, making way for more small investors to find buying opportunities. You may see more everyday home buyers showing an interest in investment purchases, and they’ll need your guidance to learn how to look at their real estate choices from a different perspective. Oliver Somoza, CEO of real estate development firm Turnkey Property Pro, offers three tips to help your clients transition to investor—rather than home buyer—mode.
- Keep your clients focused on the numbers. Make sure your clients understand that the purpose of buying an investment property is to make money. Therefore, they shouldn’t base their decision on what they like personally. Emotion should never be part of an investment purchase. Rather, your clients should choose a property with financial gain in mind. So, you shouldn’t encourage them to focus on neighborhoods they like but on areas with opportunities in which the numbers make the most sense for them. This is especially true with residential rental properties. Always advise your clients to choose a property with positive cash flow after expenses.
- Help clients find properties they can improve. Your clients should buy a property they can renovate, which will add value and improve their bottom lines. Distressed properties are usually a good choice because they can be bought cheaply, and improvements will boost rental value. Help your clients focus on properties where the purchase price and renovation costs remain below the highest comparable sales in the area. This will enable your clients to refinance down the road, pull most—if not all—of their money out of the deal, and repeat the process to grow their portfolio.
- Look for opportunities in up-and-coming neighborhoods. To avoid competition with cash-rich institutional investors, advise your clients to look less established neighborhoods where prices are lower. Rather than buying property in the hottest market, investing in “B”- or “C”-grade properties allows a beginner investor to quickly build their portfolio. Low purchase prices and the potential for swift appreciation are two major factors that can turn average buyers into investors.