4 Great Ways to Invest in Nashville Real Estate in 2017
It has been well-documented by both local and national press outlets that Nashville is a great city for real estate investing. To learn more about why Nashville is such a great city for real estate investing, we encourage interested investors to read our earlier blog post on the subject, “Nashville Ranked One of 2017’s Best Cities for Real Estate Investing.” For those who are looking for ways to enter the thriving real estate market—and who would like to know more about the many ways to invest in Nashville real estate—this post will provide the answers and insights you’re looking for.
Flipping Real Estate in a Hot Market
Investing in real estate is much more than finding the perfect house to call a home. For those willing to take on a high level of risk for the potential of a massive return, house flipping is a strong option. While flipping can be risky, it can also be tremendously rewarding.
For the best return on investment, look for a house that is structurally sound and would benefit from quick and easy repairs and a few high-reward cosmetic fixes. Keep your eye open for real bargains, they’re still out there! When it comes to flipping, the less work you have to do to bring the property up to buyer standards, the better. Transitional neighborhoods, where property values are on the upswing but have not yet peaked, are ideal candidates for flipping. Or, look for the sore thumb on a block full of well-maintained and upscale residences and then make your move. Be wary of “super-hot” markets, as the tide may already be going out.
If you find a property that needs substantial work, consult with several contractors to get a better idea of the property’s actual cost. Get several estimates and don’t forget to factor in ongoing mortgage payments, taxes, insurance, utilities, legal fees, and closing costs. Generally speaking, the longer you hold onto a property, the less impressive your ROI will be.
A real estate investor experienced in flipping properties on the East Coast suggests that potential flippers begin by conducting a careful analysis of similar, nearby properties to determine the ultimate sale price of the renovated home. Once you have a realistic number, subtract repair, operational, buying, and selling costs and your desired profit margin. This will allow you to determine how much you should offer for the property (Kiplinger).
Whether you’re an experienced investor or a first-time flipper, be sure to surround yourself with a great team of advisors including trusted contractors, real estate attorneys, and realtors. You may also want to consider finding a group of industry thought leaders and professionals through organizations like Real Estate Investors of Nashville. REIN is a nonprofit that supports real estate investors through networking and educational opportunities.
Become a Landlord
If flipping feels a little too risky, developing an alternative revenue stream through real estate and rental properties is another great option. According to the Wall Street Journal, home ownership rates recently fell to the lowest level in more than 50 years. The data, provided by the US Census bureau, can be attributed to several factors, including a tight credit market and a shift toward renting. Furthermore, “First-time buyers have been struggling to find affordable properties as low mortgage rates and an improving job market spur competition for a tight supply of listings. Home prices rose 5.2 percent in May from a year earlier, according to the S&P CoreLogic Case-Shiller index of values in 20 cities released this week (Bloomberg).”
That’s all good news for landlords. As a landlord, be prepared to pay the mortgage, taxes, insurance, and costs of maintaining the property. Savvy landlords charge enough rent to cover costs and make a reasonable profit. Once the mortgage has been paid off, an even higher percentage of rental income is pure profit. For the greatest potential for profit, be ready to put a lot of money down upfront to keep mortgage costs low and look for a property in an area that commands high rents. Potential landlords should be prepared for high initial costs as well as for the responsibility of finding and keeping great tenants.
As an added incentive for becoming a landlord, however, the United States Census Bureau reported that “Median home values adjusted for inflation nearly quadrupled over the 60-year period since the first housing census in 1940. The median value of single-family homes in the United States rose from $30,600 in 1940 to $119,600 in 2000, after adjusting for inflation. Median home value increased in each decade of this 60-year period, rising fastest (43 percent) in the 1970s and slowest (8.2 percent) in the 1980s.” Not only can landlords enjoy a dependable income, but the odds are very good that over the course of ownership, property values will improve.
Consider a Real Estate Investment Trust (REIT)
If you’re looking for a less hands-on approach to investing, a REIT is a great way to get involved in real estate without having to worry about hands-on management or knowing a ton about the industry. There are a few different types REITs including equity, mortgage, and a hybrid of the two. Typically, REITS offer a higher returns as you’re profiting from the interest others are paying on real estate investments.
According to Investopedia, “A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges like a stock. REITs provide investors with an extremely liquid stake in real estate. They receive special tax considerations and typically offer high dividend yields. All REITs must have at least 100 shareholders, no five of whom can hold more than 50% of shares between them. At least 75% of a REIT's assets must be invested in real estate, cash or U.S. Treasuries; 75% of gross income must be derived from real estate. REITs are required by law to maintain dividend payout ratios of at least 90%, making them a favorite for income-seeking investors. ”
Investors should be aware that there are a few drawbacks to REITs including market fluctuations, the possibility of rising interest rates making other forms of investing more attractive, high property taxes cutting into potential profits, and the high tax rate due on earned dividends.
Invest with a Capital Management Firm
For investors looking for large-scale investments, impressive returns, and who would like to make an impact on the communities in which they live or invest, then partnering with a capital management firm and a trustworthy real estate investment portfolio manager is a winning combination.
Accredited investors searching for excellent risk-adjusted returns can enjoy the peace of mind and stability that partnering with a capital management group offers. Capital management groups such as Canopy South invest in a diverse blend of residential and commercial properties and mixed-use developments to help investors achieve maximum returns.
Investors can typically expect to enjoy anywhere from 8-12% net annual return from a fund managed by a highly-experienced real estate investment professional. Investments typically include new construction projects, mixed-use developments, promissory notes, apartments complexes, residential investment opportunities, and more. This offers investors a profitable balance of equity and income
Real estate equity and portfolio management differs vastly from the work of fund or bond managers, which relies on a deep knowledge of the stock market. Qualified private equity fund managers are intimately familiar with local real estate markets and national trends and are able to quickly identify trends and opportunities for their investors.
Investopedia states that “Unlike equity managers, who research companies and manage the probabilities that they can execute their articulated strategies, real estate managers must help define and execute on property-level opportunities. So, real estate asset management, unlike traditional asset management, requires experienced individuals who can optimize the value of properties through superior transaction and management execution”
Private equity real estate portfolio managers help ensure the success of their funds and investments by performing careful asset allocation and conscientious asset selection and by being experts in real estate.
If you’re looking for a private equity firm that’s focused on real estate and is equally committed to both its clients and the communities in which it invests, look no further than Canopy South.
Canopy South Capital Management, LLC provides information related to the real estate market and local real estate climate to help promote informed investment decisions. For more information about investing in real estate, asset management, or private equity investments, visit our website at Canopy South Capital Management, LLC or call us at 615-432-2728.