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Six things you need to know before investing in rental properties
Six things you need to know before investing in rental properties
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Amid the uncertainty created by the Coronavirus pandemic, many investors are looking for the lowest risk strategy which can still bring a reasonable return. Even in these tough times, rental properties remain one of the best investments as people always need a place to live. With the poor performance of the stock market, more and more investors might turn to investing in rental properties. To help out beginners in the real estate business, this article looks at the six things which everyone needs to know before purchasing an investment property.
Q4 2019 hedge fund letters, conferences and more
1. Investing in Rental Properties Comes with Many Benefits
First and foremost, a beginner real estate investor should know that income properties offer a myriad of advantages over other investment strategies. One of the most important benefits is the fact that you can make money both in the short term (through rental income) and the long run (through real estate appreciation). As soon as you buy a rental property and repair it, you can start renting it out to make money month after month. Moreover, over time home values increase in all markets due to the limited supply of land as well as population growth. This means that once you decide to sell your property in a few decades, the increase in its value will exceed the inflation rate over the period for which you held it.
Another major advantage of rental properties is that they are one of the safest investing strategies. Real estate is a tangible asset, so it is virtually impossible to lose your entire investment. Despite temporary slowdowns and even crashes, the US housing market is bound to recover due to the constant need of people for homes.
Importantly, investing in real estate requires relatively little previous experience and knowledge. That’s why it is easy to succeed even as a beginner. With the help of real estate investment tools and a good agent, you can buy profitable rental properties in the top locations.
2. Location Is Crucial
This leads us to the second thing which every real estate investor needs to know. Even if you are not related to the real estate industry at the moment, you must have heard that location location location are the three most important factors there. When investing in rental properties, the local market will determine the property price you have to pay, the closing fees, the monthly mortgage payments, the other recurring costs such as property tax and home insurance, and the rental income you can make. This means that location is the key determinant of your cash flow (the difference between the monthly or annual rental income and rental expenses) and your return on investment.
With regards to cash flow, you should always aim for positive cash flow properties. While some investors buy negative cash flow properties with the hope to have a turn in luck soon, this is not a safe strategy, especially for beginners. Having positive cash flow is the only way to make sure that you are making money rather than losing money from rental properties.
In terms of return on investment, the good rate of return varies depending on which metric you use. Many real estate investors focus on the capitalization rate due to the relative ease of calculating it and comparing the profitability of different properties for sale. A good cap rate is between 8% and 12%. In terms of cash on cash return, investors should aim for about 10% or more.
3. The Options Are Unlimited
One more thing which you should know about investing in rental properties is that this is one of the most diverse strategies. Related to the previous point, you can buy an income property in any city or town. While some markets are generally more profitable than others, buying a positive cash flow rental property is possible in nearly every location, as long as you conduct diligent market analysis and property search. Furthermore, the possibility to invest in different neighborhoods adds further diversity, even within the same market.
Depending on their budget, location, and preferences, investors can choose from single family homes, townhouses, apartments, condos, multi family homes, and other property types to find the rental property most suitable for them. Even in terms of rental strategy, you can decide to rent out your property on a monthly basis (as a traditional, long-term rental property) or on a daily basis (as an Airbnb, short-term rental). As you see, opportunities are endless with rental property investments.
4. Working with an Agent Makes Sense
Another fact which beginner investors should keep in mind is that hiring a real estate agent is generally a good idea. Many first-time investors and homebuyers are hesitant to work with an agent because they don’t want to inflate their cost. However, in the US housing market the agent’s fees are covered by the property seller and not the property buyer. This means that hiring an agent will cost you nothing when buying rental properties.
Meanwhile, as a real estate professional, a good agent can help you out a lot. He/she can advise you on the best location in the local real estate market for investing in an income property as well as on the optimal property type and rental strategy. In addition, real estate agents have access to the Multiple Listing Service (MLS), which regular people don’t. That’s where most properties for sale get listed, so it’s crucially important for investors to gain access to these listings. What’s more, agents are excellent negotiators who will be able to get you the best possible price for your new investment property.
5. There Are Many Tools to Help You
Technology has advanced incredibly in the real estate industry in the past few years. As a result, buying and managing rental properties has become easier than ever before. When purchasing an income property, you no longer need to spend three months on research and analysis. Mashvisor, a real estate investment app, can help you find a lucrative opportunity in 15 minutes. Tools such as Rentometer allow you to set the optimal rental rate for your newly purchased property and keep it at a competitive rate in the local market. Onerent provides high-tech rental property management services. With the advancement of big data, predictive analytics, and AI, the real estate investing business has become fully accessible even for beginners with no previous knowledge and experience.
6. Analysis Is the Key to Success
The last thing that you should know before you can start investing in rental properties with a high return on investment is that real estate analysis is a must. There are a few different types of analysis which you need to conduct in order to succeed as a real estate investor. First, you have to research a few markets to locate the optimal place for buying an income property in line with your budget and expected return. Next, you need to perform an analysis on the market you have selected to identify the best property type, the optimal rental strategy, and the top neighborhoods. Last but not least, you should analyze properties for sale within your budget to choose positive cash flow ones.
Very few experienced investors are able to buy properties based on a gut feeling. The success of the majority of real estate investors depends on the depth of the analysis which they have conducted.
Making profitable real estate investment decisions is possible even for beginners. As long as you keep these six things in mind when buying rental properties, you have all the requisites you need to succeed in the business.
The post Six things you need to know before investing in rental properties appeared first on ValueWalk.
Uncategorized
February Employment Situation
By Paul Gomme and Peter Rupert The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000…
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By Paul Gomme and Peter Rupert
The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000 average over the previous 12 months. The payroll data for January and December were revised down by a total of 167,000. The private sector added 223,000 new jobs, the largest gain since May of last year.
Temporary help services employment continues a steep decline after a sharp post-pandemic rise.
Average hours of work increased from 34.2 to 34.3. The increase, along with the 223,000 private employment increase led to a hefty increase in total hours of 5.6% at an annualized rate, also the largest increase since May of last year.
The establishment report, once again, beat “expectations;” the WSJ survey of economists was 198,000. Other than the downward revisions, mentioned above, another bit of negative news was a smallish increase in wage growth, from $34.52 to $34.57.
The household survey shows that the labor force increased 150,000, a drop in employment of 184,000 and an increase in the number of unemployed persons of 334,000. The labor force participation rate held steady at 62.5, the employment to population ratio decreased from 60.2 to 60.1 and the unemployment rate increased from 3.66 to 3.86. Remember that the unemployment rate is the number of unemployed relative to the labor force (the number employed plus the number unemployed). Consequently, the unemployment rate can go up if the number of unemployed rises holding fixed the labor force, or if the labor force shrinks holding the number unemployed unchanged. An increase in the unemployment rate is not necessarily a bad thing: it may reflect a strong labor market drawing “marginally attached” individuals from outside the labor force. Indeed, there was a 96,000 decline in those workers.
Earlier in the week, the BLS announced JOLTS (Job Openings and Labor Turnover Survey) data for January. There isn’t much to report here as the job openings changed little at 8.9 million, the number of hires and total separations were little changed at 5.7 million and 5.3 million, respectively.
As has been the case for the last couple of years, the number of job openings remains higher than the number of unemployed persons.
Also earlier in the week the BLS announced that productivity increased 3.2% in the 4th quarter with output rising 3.5% and hours of work rising 0.3%.
The bottom line is that the labor market continues its surprisingly (to some) strong performance, once again proving stronger than many had expected. This strength makes it difficult to justify any interest rate cuts soon, particularly given the recent inflation spike.
unemployment pandemic unemploymentUncategorized
Mortgage rates fall as labor market normalizes
Jobless claims show an expanding economy. We will only be in a recession once jobless claims exceed 323,000 on a four-week moving average.
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Everyone was waiting to see if this week’s jobs report would send mortgage rates higher, which is what happened last month. Instead, the 10-year yield had a muted response after the headline number beat estimates, but we have negative job revisions from previous months. The Federal Reserve’s fear of wage growth spiraling out of control hasn’t materialized for over two years now and the unemployment rate ticked up to 3.9%. For now, we can say the labor market isn’t tight anymore, but it’s also not breaking.
The key labor data line in this expansion is the weekly jobless claims report. Jobless claims show an expanding economy that has not lost jobs yet. We will only be in a recession once jobless claims exceed 323,000 on a four-week moving average.
From the Fed: In the week ended March 2, initial claims for unemployment insurance benefits were flat, at 217,000. The four-week moving average declined slightly by 750, to 212,250
Below is an explanation of how we got here with the labor market, which all started during COVID-19.
1. I wrote the COVID-19 recovery model on April 7, 2020, and retired it on Dec. 9, 2020. By that time, the upfront recovery phase was done, and I needed to model out when we would get the jobs lost back.
2. Early in the labor market recovery, when we saw weaker job reports, I doubled and tripled down on my assertion that job openings would get to 10 million in this recovery. Job openings rose as high as to 12 million and are currently over 9 million. Even with the massive miss on a job report in May 2021, I didn’t waver.
Currently, the jobs openings, quit percentage and hires data are below pre-COVID-19 levels, which means the labor market isn’t as tight as it once was, and this is why the employment cost index has been slowing data to move along the quits percentage.
3. I wrote that we should get back all the jobs lost to COVID-19 by September of 2022. At the time this would be a speedy labor market recovery, and it happened on schedule, too
Total employment data
4. This is the key one for right now: If COVID-19 hadn’t happened, we would have between 157 million and 159 million jobs today, which would have been in line with the job growth rate in February 2020. Today, we are at 157,808,000. This is important because job growth should be cooling down now. We are more in line with where the labor market should be when averaging 140K-165K monthly. So for now, the fact that we aren’t trending between 140K-165K means we still have a bit more recovery kick left before we get down to those levels.
From BLS: Total nonfarm payroll employment rose by 275,000 in February, and the unemployment rate increased to 3.9 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, in government, in food services and drinking places, in social assistance, and in transportation and warehousing.
Here are the jobs that were created and lost in the previous month:
In this jobs report, the unemployment rate for education levels looks like this:
- Less than a high school diploma: 6.1%
- High school graduate and no college: 4.2%
- Some college or associate degree: 3.1%
- Bachelor’s degree or higher: 2.2%
Today’s report has continued the trend of the labor data beating my expectations, only because I am looking for the jobs data to slow down to a level of 140K-165K, which hasn’t happened yet. I wouldn’t categorize the labor market as being tight anymore because of the quits ratio and the hires data in the job openings report. This also shows itself in the employment cost index as well. These are key data lines for the Fed and the reason we are going to see three rate cuts this year.
recession unemployment covid-19 fed federal reserve mortgage rates recession recovery unemploymentUncategorized
Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month
Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month
Last month we though that the January…
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Last month we though that the January jobs report was the "most ridiculous in recent history" but, boy, were we wrong because this morning the Biden department of goalseeked propaganda (aka BLS) published the February jobs report, and holy crap was that something else. Even Goebbels would blush.
What happened? Let's take a closer look.
On the surface, it was (almost) another blockbuster jobs report, certainly one which nobody expected, or rather just one bank out of 76 expected. Starting at the top, the BLS reported that in February the US unexpectedly added 275K jobs, with just one research analyst (from Dai-Ichi Research) expecting a higher number.
Some context: after last month's record 4-sigma beat, today's print was "only" 3 sigma higher than estimates. Needless to say, two multiple sigma beats in a row used to only happen in the USSR... and now in the US, apparently.
Before we go any further, a quick note on what last month we said was "the most ridiculous jobs report in recent history": it appears the BLS read our comments and decided to stop beclowing itself. It did that by slashing last month's ridiculous print by over a third, and revising what was originally reported as a massive 353K beat to just 229K, a 124K revision, which was the biggest one-month negative revision in two years!
Of course, that does not mean that this month's jobs print won't be revised lower: it will be, and not just that month but every other month until the November election because that's the only tool left in the Biden admin's box: pretend the economic and jobs are strong, then revise them sharply lower the next month, something we pointed out first last summer and which has not failed to disappoint once.
In the past month the Biden department of goalseeking stuff higher before revising it lower, has revised the following data sharply lower:
— zerohedge (@zerohedge) August 30, 2023
- Jobs
- JOLTS
- New Home sales
- Housing Starts and Permits
- Industrial Production
- PCE and core PCE
To be fair, not every aspect of the jobs report was stellar (after all, the BLS had to give it some vague credibility). Take the unemployment rate, after flatlining between 3.4% and 3.8% for two years - and thus denying expectations from Sahm's Rule that a recession may have already started - in February the unemployment rate unexpectedly jumped to 3.9%, the highest since February 2022 (with Black unemployment spiking by 0.3% to 5.6%, an indicator which the Biden admin will quickly slam as widespread economic racism or something).
And then there were average hourly earnings, which after surging 0.6% MoM in January (since revised to 0.5%) and spooking markets that wage growth is so hot, the Fed will have no choice but to delay cuts, in February the number tumbled to just 0.1%, the lowest in two years...
... for one simple reason: last month's average wage surge had nothing to do with actual wages, and everything to do with the BLS estimate of hours worked (which is the denominator in the average wage calculation) which last month tumbled to just 34.1 (we were led to believe) the lowest since the covid pandemic...
... but has since been revised higher while the February print rose even more, to 34.3, hence why the latest average wage data was once again a product not of wages going up, but of how long Americans worked in any weekly period, in this case higher from 34.1 to 34.3, an increase which has a major impact on the average calculation.
While the above data points were examples of some latent weakness in the latest report, perhaps meant to give it a sheen of veracity, it was everything else in the report that was a problem starting with the BLS's latest choice of seasonal adjustments (after last month's wholesale revision), which have gone from merely laughable to full clownshow, as the following comparison between the monthly change in BLS and ADP payrolls shows. The trend is clear: the Biden admin numbers are now clearly rising even as the impartial ADP (which directly logs employment numbers at the company level and is far more accurate), shows an accelerating slowdown.
But it's more than just the Biden admin hanging its "success" on seasonal adjustments: when one digs deeper inside the jobs report, all sorts of ugly things emerge... such as the growing unprecedented divergence between the Establishment (payrolls) survey and much more accurate Household (actual employment) survey. To wit, while in January the BLS claims 275K payrolls were added, the Household survey found that the number of actually employed workers dropped for the third straight month (and 4 in the past 5), this time by 184K (from 161.152K to 160.968K).
This means that while the Payrolls series hits new all time highs every month since December 2020 (when according to the BLS the US had its last month of payrolls losses), the level of Employment has not budged in the past year. Worse, as shown in the chart below, such a gaping divergence has opened between the two series in the past 4 years, that the number of Employed workers would need to soar by 9 million (!) to catch up to what Payrolls claims is the employment situation.
There's more: shifting from a quantitative to a qualitative assessment, reveals just how ugly the composition of "new jobs" has been. Consider this: the BLS reports that in February 2024, the US had 132.9 million full-time jobs and 27.9 million part-time jobs. Well, that's great... until you look back one year and find that in February 2023 the US had 133.2 million full-time jobs, or more than it does one year later! And yes, all the job growth since then has been in part-time jobs, which have increased by 921K since February 2023 (from 27.020 million to 27.941 million).
Here is a summary of the labor composition in the past year: all the new jobs have been part-time jobs!
But wait there's even more, because now that the primary season is over and we enter the heart of election season and political talking points will be thrown around left and right, especially in the context of the immigration crisis created intentionally by the Biden administration which is hoping to import millions of new Democratic voters (maybe the US can hold the presidential election in Honduras or Guatemala, after all it is their citizens that will be illegally casting the key votes in November), what we find is that in February, the number of native-born workers tumbled again, sliding by a massive 560K to just 129.807 million. Add to this the December data, and we get a near-record 2.4 million plunge in native-born workers in just the past 3 months (only the covid crash was worse)!
The offset? A record 1.2 million foreign-born (read immigrants, both legal and illegal but mostly illegal) workers added in February!
Said otherwise, not only has all job creation in the past 6 years has been exclusively for foreign-born workers...
... but there has been zero job-creation for native born workers since June 2018!
This is a huge issue - especially at a time of an illegal alien flood at the southwest border...
... and is about to become a huge political scandal, because once the inevitable recession finally hits, there will be millions of furious unemployed Americans demanding a more accurate explanation for what happened - i.e., the illegal immigration floodgates that were opened by the Biden admin.
Which is also why Biden's handlers will do everything in their power to insure there is no official recession before November... and why after the election is over, all economic hell will finally break loose. Until then, however, expect the jobs numbers to get even more ridiculous.
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