The Smart Way to Choose Investment Properties
Veteran Investor Has Four-Month Long Tenant Waiting List
With everyone from news outlets to Morgan Stanley telling investors that rental real estate investment is one of the smartest assets to add to their portfolio right now, there is increased interest from consumers about becoming a landlord.
Due to their low pricing, distressed and bank-owned properties in particular look attractive to real estate investors.
However, for a foreclosed property to become a positive, cash-flowing real estate investment theres more to it than buying a property at a great price. In fact, price is not even the most important criteria to a successful real estate investment property.
According to James McClelland, CEO and president of MACK Companies, at the heart of every successful real estate investment is a great tenant.
This might seem counterintuitive to the novice real estate investor, but when we look for places to invest in properties we always begin with the tenant in mind, said McClelland. A real estate investment works when you have steady, dependable income. And the best way to get that is by having excellent tenants.
McClellands Tinley Park, Ill.-based company is the nations premier provider of single-family, turn-key investment properties and the largest owner of single-family investment properties in the Midwest. The company has grown to that status by adhering to a strict AAA+ investment strategy ” A properties in A locations with A tenants create positive returns.
For more than 14 years, MACK Companies has specialized in redeveloping distressed single-family properties in Class A neighborhoods within Chicagos south and southwestern suburbs, then leasing the homes to A-quality tenants after a rigorous screening process.
Currently, MACK Companies has a tenant waiting list more than four months long. To achieve that same rental demand for your investment property, McClelland suggested the following:
Invest in great areas
McClelland said there are a couple key factors to determine if your future rental property is in a great area that would attract excellent tenants.
Look for real estate investment properties near strong, vibrant downtown commercial corridors. If the nearby businesses are thriving, youre in great shape. If the businesses are boarded up or the majority of the businesses are vacant, then think twice before investing in the property.
What is the infrastructure of the community? A-quality tenants want clean and vibrant parks, highly-rated medical facilities and well-funded police and fire departments.
Good schools. Even if your tenant doesnt have school-age children, living in a community with good schools enhances property values and makes tenants feel better.
Whether your property is near a train line or interstate, it has to have access to transportation.
A high ratio of owner occupants to rentals. If youre going to own an investment property in a community you want it surrounded by people who own their homes, not other renters, said McClelland. More than half of our business is property management, he said. We have dozens of people on staff dedicated to maintaining rental homes ” from pruning bushes to fixing drain spouts ” but not all landlords are like us. Its much easier to depend on owner occupants to keep their properties up than other landlords.
For investors who are looking to purchase a real estate investment property from a macroeconomic perspective, McClelland suggested they focus on metro areas with a diverse economy.
If you want a property that can produce a steady and predictable income, whats better — Chicago or a metro area like Las Vegas or Detroit? asked McClelland. We love Chicago because it has such a diverse economy. It was rated the No. 1 Most Diverse Large Metro Economy by Moodys last year. To us, that means the areas 4,000,000-plus jobs and our tenants livelihoods arent beholden to the success of one or two industries, like in Las Vegas or Detroit.”
Invest in great properties
Real estate investors who arent familiar with construction codes, village permitting processes or general contracting can easily pick the wrong foreclosed property to purchase.
This is where novice investors will benefit from bringing in a professional who can assess how much work needs to be done to a house to make an A-quality˜ tenant want to live there, said McClelland. A lot of distressed inventory on the market has been vacant for a long time. The price might sound like a bargain, but if the house is damaged or you have structural issues that need to be fixed then that price may not be so attractive anymore.
MACK Companies typically invests $50,000 into redeveloping the homes it purchases to bring them up to new-construction standards. The best tenants are long-term tenants, said McClelland. And the best long-term tenants tend to be families. Thats why well renovate a home from top to bottom, including everything from a new roof and mechanicals to flooring and appliances. We want properties that a family would be proud to call home.
As such, McClelland said investors should consider the following before purchasing a distressed property as a real estate investment:
Size. Because MACK thinks the best tenants are families, the firm primarily invests in single-family homes with three or more bedrooms, 1½ baths, two nice-sized living areas, a good yard space and a two-car garage. (The typical MACK tenant is a family of five who lives in their home for 4.8 years.)
Services. MACK prefers to invest in homes with city water and sewer services as opposed to well and septic. McClelland noted investors should also make sure water and sewer lines are open and not damaged prior to purchase.
Structural integrity. Investing in a property with foundation issues or structural roofing damage can be extraordinarily costly and is not advised for the novice investor.
Location/Village relationships. Realize that each village treats redevelopment and housing inspections differently. Many villages embrace turning an REO property into a redeveloped rental property because it helps everyone in the neighborhood and improves their community, said McClelland. But some villages utilize the permit process as a revenue source for the village with inordinate fees, onerous reporting and over-improvements. If you buy a real estate investment in one of those villages, the costs will quickly add up and eat into your profits.
About MACK Companies:
MACK Companies purchases, redevelops and leases a new home every three days. The firm currently manages approximately 570 single-family rentals, of which it owns 370 of those properties. It manages the other 200 single-family homes for real estate investors who purchased the homes through MACKs Real Estate Cash-Flow & Appreciation Program (RECAP). For more information on MACK Companies and its RECAP program, which eliminates the hassles and risks for investors of buying and redeveloping distressed real estate investment property, finding qualified renters and performing day-to-day management, visit the firms new website, http://www.MACKcompanies.net. And for Android smart phone users, make sure to download the MACK Companies app, which lets users directly contact MACK; view current inventory, an image gallery and videos; read MACKs blog; learn about its strategy; join the mailing list; register; access the partner log-in site; view social media pages; and use tools such as Google map to view listed properties.
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