Where should I invest in real estate?
I recently had a Client who has $200,000 in equity in her house. She asked me 2 huge questions.
1. Where should I invest my $200,000?
2. What is the best Strategy?
She and her Husband have 10 years until retirement. They don’t want to waste these next 10 years just sitting on equity. They want to leverage that equity to make even more money. They are interesting because not many people think about their primary residence as an income source. Most people feed their primary residence money. Most don’t think/believe that your primary residence could feed them money.
This particular couple wants to invest in real estate, believing that it would be the safest play. I don’t disagree. We could have a huge discussion about stocks, precious metals, bitcoin, CDs, etc. All of which I know almost nothing about. For the purposes of this blog, I want to keep it simple and keep it on real estate. In a good economy or bad, people still need to live in real estate, operated a business out of real estate. Most people understand real estate because they are familiar with it.
So for this article, lets discuss “Where should I invest?”. I think there are 3 basic markets across the Country.
Hyper Market: The hyper market is one where the buyer appreciation is greater than 5%.
Stable Market: The stable market is one where the buyer appreciation is between 2% and 5%.
Flat Market: The flat market is one where the buyer appreciation is lower than 2%.
What do I mean by buyer appreciation? There are 2 kinds of real estate appreciation. First is “forced appreciation” where you take a hammer and paint and forcibly fix up the house making it more valuable. i.e. forcing the appreciation to be greater. The other is the “buyer behavior” that naturally pushes the appreciation up. Right now in Phoenix where I live, the Californians are buying and bidding up prices. This is buyer appreciation.
In the hyper market, you would want to engage in fix and flips to get both the forced appreciation and the buyer appreciation that is occurring over the time period between when you bought the house and when you sell the fixed-up house. In a way, you are double dipping. According to Norada Real Estate;
“appreciation of 9.14%, which puts Phoenix in the top 10% nationally for real estate appreciation. During the latest twelve months, Phoenix's appreciation rate, at 8.24%, which is higher than appreciation rates in 95.43% of the cities and towns in the nation.” Nov 1, 2020.
So if you had $200,000 you would be smart to fix and flip homes in a hyper market. Phoenix is just one example. There are many others.
In a stable market where appreciation is more modest between 2% and 5%, this is where you would want to hold your rentals. The idea; you would buy at a much lower price and achieve greater cash flow while having modest appreciation. Again, a double dip. Beware of the eviction rules before purchasing.
In the flat market under 2% appreciation, you would make offers near 50% of the after repair value (ARV) in order to wholesale them to local investor. Each of these markets should play a role in your investing decisions. Obviously, you would need some training as to how to pull this off.
Check out the accompanying video where I show you how to chose the City that meets your investment criteria. Feel free to reach out to me with questions.
Buyers get: Sellers get:
FREE Home Inspection 5k Flat Fee Full Service Listing
FREE Termite Inspection FREE Home Inspection
FREE Home Warranty FREE
Termite Inspection
Best,
Geoff Nowlin, Phoenix
Realtor
480-466-3737
nowlin.geoff@gmail.com
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