Remember the days when, as a real estate investor, things would just slow down during the summer? Well, not this summer. How do I know? Just look at the market.
Let’s take rentals first. Hot, hot, hot does more than describe the temperature. It defines our rental market. Historically low vacancies combined with historically high rent rates. Many of you will have your leases expiring in the summer to take advantage of the traditionally highest rent rates coming in the June timeframe. Good for you. With the market the way it is, you should look at raising your rent rate. As I presented at May’s AZREIA meeting, one recent survey showed 88% of property managers are increasing rents. We have seen our rent rates increasing steadily for the last several years. If you haven’t raised your rent rate in a while, take your own local rent survey and see what your market is supporting. Also, consider smaller annual rent increases rather than a larger one every few years. It is easier for residents to financially adjust to smaller rises in their rent and it sets an expectation as to what will come. Better to limit the surprises.
Next, let’s look at fix and flip. If you’ve been coming to the meetings, you are seeing exceptional sales volume and growing gross margins. Volume is up around 30% and gross margins support really good returns. Here is a look at the gross margins (data from Cromford Public) comparing single family and condos/TH by price range in March.
Price Range Single Family Condo/TH
$100 – $200K $49,000 $32,000
$200 – $300K $70,000 $61,000
$300 – $400K $85,000 $89,000
$400 – $500K $124,000 $118,000
As you can see, there is room for good net margins if you manage your rehab and control your expenses. Important to note is that the median price point for single family fix and flips is $240,000 and has been growing since 2015. This rather rapid movement up the price scale is resulting in investors responding with more product in higher ranges and enjoying significantly higher gross margins. I am expecting the normal minor slide in price as we go into the fall, so be sure to calculate that into any flips you will have ready to resell at that time.
Our current market is also supplying excellent opportunity in seller financing transactions, infill, senior residential assisted living, industrial properties and much more.
Okay, let me save you the time sending me an email or calling me. Yes, I know, most of us invest in real estate to manage our time, work when we want or take all the time off we desire. So, many of you will take the summer off and let your investment continue to work for you or let someone else manage your investments. Great! For many successful investors with passive strategies you are living the dream.
This summer is one of continued opportunity in virtually every aspect of real estate investing. Whether you are active with fix and flips, self-managing your rentals, or enjoying a more passive strategy and the benefits it brings, I can’t think of a better way to enjoy a long, hot summer – making money from your investments and generating wealth.
by Alan Langston