Last month I discussed the enormous population growth in Tippecanoe County, Indiana. Doubling our population in 15 years means that we are booming metropolis! For residential real estate investors, this is good news! It means that more people are moving to the area, and these people will need somewhere to live. In the United States 65% of people own their own home. In Tippecanoe County, according to the census, 54.4% of people own their home, and in West Lafayette it’s 34.6% because of Purdue and the large student population. With interest rates being so low, rental rates on the rise, and affordable properties everywhere, it is a great time to invest in the Midwest.
The hardest deal an investor will ever do is the first one. There is so much uncertainty and unchartered territory, that to take the leap is slightly unnerving. I began investing in real estate 6 years ago. My husband and I bought a $35,000 turd of a foreclosure that needed a new roof, paint, windows, and a slew of other maintenance items. I knew nothing of construction at the time, but I thought that for $35,000, I could make it work. I learned a ton on that first deal. Most importantly, I learned that I needed a team of professionals to help me. A team consists of a realtor, home inspector, mortgage lender, general contractor, licensed electrician and plumber, and property management company. This team is essential to the success of building a real estate investing business and an investor is only as good as his/her team.
Let me emphasize the importance of a property management company. Once I purchase a property and fix it up into something I would live in, I turn it over to my management company. My management company advertises the property, screens potential tenants, and rents the property. They collect rent, field tenants’ phone calls, and fix anything that may go wrong on the property. My management company charges 10% of the collected rent. This fee is a tax write off. This fee means that I don’t live in fear of getting calls from tenants in the middle of the night. This fee means that if the washing machine breaks, it will get fixed immediately. Because of my property management company, I get a monthly check in my mailbox and have very few headaches (regarding my investments, don’t ask me about my kids). As a realtor, I have sat at closing tables multiple times where investors are selling their investment properties. Frequently I hear, “It just got to be too much work”. The owners no longer want to self-manage them and they either don’t think to hire or want to hire a property management company. If they did use a property management company, they probably wouldn’t be selling.
Experts agree that an investor should put their money into areas that are experiencing growth. Last year I had the opportunity to purchase a fourplex in a town in the next county over. Although the property was fully occupied, and a steal of a deal, I decided to pass because the population in the community was decreasing and there weren’t many employers in the area.
I also read that the Midwest is a better place to invest than on the coasts. The housing market on the coasts are extremely volatile and right now, they are so high priced that it is cost prohibitive. I can’t make the numbers work on a $1 million duplex in Boston. The Midwest housing market is relatively stable, by comparison. There is still fluctuation, just not by the enormous percentages that we have historically seen on the coasts. Also, the cost of housing in the Midwest is still affordable. The average home price in our county is in the low $200s, but you can still purchase a house for under $100,000 here. We have many investors that live out of state, but are investing their money here. I have a few out of town investors that purchase properties, sight unseen.
If you want to discuss building your team for your real estate empire, give me a call. Real estate investing is my passion and my favorite topic of conversation. I love to learn and share my knowledge.