In part one, Dollabuzz showed you the key risks when it comes to investing in real estate. We also showed you how to vaule a property to so you can make money investing in real estate. In part two, we cover the importance of location.
Welcome back, Dollabuzz readers. Glad you’re here! If you read Part One of this series, you should have a pretty good idea of how to value a property. The next step is to locate the right property. “How to Invest in Residential Real Estate (Part Two)” covers selecting the location, location, location of your investment.
The location of your real estate is critical when investing in (RRE). Location determines the type of tenant you attract and the value of your investment. In this post, we discuss how “smart money,” the local job market, and affordability is determined based on the location of your investment.
Today We Cover The Keys To Location Which Are:
- Following the smart money
- The local job market and,
- Affordability and profitabilty
Follow the Smart Money
My business partner and I wanted a house in Downtown Lansing because we believe this area has upside potential. Dollabuzz is not the only one who thinks this. “Smart money” was planning to invest hundreds of millions in Lansing. At Dollabuzz, we follow the smart money and realized developers planned to invest in hotels, apartments, retail, and restaurants right in that same area.
According to the Gilespie Group website, “ongoing revitalization projects, delicious cuisine, and diverse nightlife make Lansing the perfect setting.” This sounds like a Dollabuzz upside, and we had to get in on this action.
Look at the Job Market
As we noted, the smart money was investing in Lansing. In addition, Downtown Lansing is home to Lansing Community College, Davenport University, and Cooley Law School. Furthermore, the State of Michigan offices, Sparrow Health System, and Accident Fund are located in Downtown Lansing. These learning institutions and well-paying jobs are perfect for attracting our ideal tenant. But wait… who is the ideal Dollabuzz tenant?
For Dollabuzz, our ideal tenants are young professionals. Nothing against college kids or families – we would rent to them as well. In fact, it’s against the law to discriminate against tenants. But every business has their target customer, and our target is the young professional. Downtown Lansing has the jobs, educational opportunities, and nightlife that young professionals tend to be looking for.
Affordability and Profitability
Many investors look to invest in East Lansing, since it’s objectively a very desirable place to live. However, the cost to rent in East Lansing is expensive. A quick internet search shows the average rent for a two-bedroom apartment in East Lansing is $956. By the same token, the median home price in East Lansing is $200,000. For us, investing in East Lansing just wouldn’t be profitable.
Downtown Lansing was our target location. However, we discovered quickly that there was a shortage of nice and affordable houses for sale. As a result, we struggled to find a viable investment property in Downtown Lansing. So now what? Give up? I don’t think so!
Invest Near Downtown
The trend for young professionals is to live near the city, their job, and the local nightlife. The logical conclusion is to find a house that would attract our ideal tenant. However, as we just discussed for East Lansing and Downtown Lansing, those options were not available to us. At this point, we determined that our solution was to look just outside of Downtown Lansing.
We located a house within walking distance of Downtown Lansing and a five-minute drive from East Lansing. Prior to investing, we drove around the area numerous time to get a feel for the neighborhood. We noticed a few people walking toward Downtown Lansing carrying their laptops, which indicated they were heading towards either work or school. With a walkability score of 56, this area is the second-most walkable zip code in Lansing and appeared to offer solid investment potential.
Looks Can Be Deceiving: “Look Real Close Cuz Strobelights Lie”
So we found our house. Yeah, she looked rough – no doubt about it. However, we saw the potential this property offered. The open floor plan, good-sized kitchen, deck(!), and detached garage provided a solid investment foundation. New siding, vinyl flooring, and fresh paint are relatively simple and inexpensive cosmetic fixes. The key to this investment property is its location and the tenants it would attract.
Prior and Current Tenants
The first tenants we had were a young couple. She was going to grad school at Michigan State University and he worked 10 miles away. They wanted a nice house close to East Lansing and the highway. This house fit their needs perfectly! Now, our current tenants wanted to live near Downtown Lansing because there’s plenty to do and the house is near Lansing Community College. In my opinion, it appears we struck location gold – and that’s how you Dollabuzz!
Listen Money Matters and Roofstock.com
At Dollabuzz, we’re always on the lookout for interesting and informative books, blogs, and whatever else we think will help our readers get their money right. A few months ago, I came across Listen Money Matters. I liked what I read and subscribed to their emails. A few weeks ago, I received an email blog about investing in residential real estate through Roofstock.com. Strangely enough, I’d never heard of Roofstock, but I was intrigued.
RAISE THE ROOF!
What I like about Roofstock is the ability to invest in RRE in a different part of the country. Roofstock does A LOT of the work for you and makes investing in RRE as simple as possible. Consequently, I was very excited to learn about Roofstock. I’ve been trying to figure out how to invest in RRE in another part of the county, and Roofstock will allow me to do just that.
If you want to learn more, I strongly encourage you to read Andrew Fiebert’s review of Roofstock.com over at Listen Money Matters, which discusses his experience investing through Roofstock. It’s truly a great read. I read it twice and will use Roofstock if I have trouble finding a good property on my own from now on.
Be on the lookout for Part Three! See you then.