There are times to invest in real estate expecting growth, and there are times for income. And today we are in a strange, and strong, market where you can have both. Prices and rents are skyrocketing due to a lack of supply. Investors are flooding the market, increasing the demand, but not all real estate investments are made the same and these are the best options for you in 2022.
Pre Construction Projects
Pre-construction projects are booming in most parts of the country. Here in Miami, where I’m based, every month we see the launch of a new project and know about another that is sold out.
This type of investment provides several benefits for the investor, such as:
easy payment schedule, as you make deposits as the construction evolves;
lower prices than move-in properties, since you’re anticipating the developer’s sales efforts and waiting to get in;
better appreciation potential, as most people cannot wait for construction to be done to purchase a property, once the project is ready to move in, higher demand for the residences may occur;
lower down payments, as some projects require as low as 10% of deposit during construction;
lower maintenance and repairs, taking into consideration a brand new construction has up to 10 years of warranty in some items; customization of the property, during the construction process.
Multifamily Properties
As many people are seen themselves without [good] options to purchase, many are renting properties new to their work, school, leisure neighborhoods. And just as prices of finished residences, the value of rents are through the roof.
Multifamily properties are better options for those looking to invest, both for rent and for flipping, than single-family homes. In this real estate structure, the investor:
Diversify her source of income having more tenants at the same property;
Reduces the vacancy risk, as if one tenant leaves, the other ones keep paying rents, and she still has income;
Have more financing options, as the banks and lenders add the income of the property to the clients in order to analyze the income;
Better control of the value of the property, as in a re-sale event the more money the property makes, the more it worths;
Have tax benefits, abating the depreciation from the taxable income;
Protection against recession, since the demand for rents, tends to increase in economic downfalls.
Single Family Homes (for short term rentals)
As I just said multifamily is better than single-family homes, when it comes to short-term rentals, in platforms such as Airbnb, VRBO, booking.com, etc., single-family homes can be a better option.
Before buying any property for this kind of operation, first, you must consult the local authorities about the legality of it. Some cities, such as Miami Beach, have a big restriction on individuals operating hotel-like operations from their residential properties.
Once that’s cleared out, you must select your property. The condo units (unless the ones are built specifically for it, as the project I did in Bay Harbor Islands) usually have several disadvantages for it: the condo association may not allow it, bureaucracy to register new guests, restriction to access common areas by non-residents, excessive HOA fees and extra charges the will reduce your return.
With single-family homes, everything can be easier. By automating the access of the property, the investor doesn’t even need to check-in or check-out the guest; he won’t have any restrictions to how many days the guest can stay in their property; fewer concerns with neighbors; and, most importantly, with fewer condo fees, more money is left at the investor’s bank account.
Luxury Homes (for fix and flip)
Fix and flip was a good investment option in the past, maybe 4 or 5 years ago. Now, it’s very hard to find a good deal that may be worth the investment of time and money.
Renovating properties is always high-risk, but not always high-return. During the purchase period, you may estimate a budget for your targeted property, but it’s only when you enter on it that you see the true work to be done. And not only that, at the end, if the buyer is using bank finance, they may require more renovations
However, due to the lack of supply, especially in the high-end and luxury homes, it might be a great option to fix and flip, for many reasons:
They are usually in better shape than the more affordable ones, reducing the amount of structural work to be done;
Less work, as sometimes is just a matter of updating the finishes of the house, without the need of fixing any damages;
Less dependency of buyer’s finance - 65% of purchases over $3MM in South Florida are made by cash buyers, making the process faster, smoother, and less risky;
More margins for errors - due to the fact that you are making more money on high-end and luxury homes, meaning, more dollars (different from more returns, in percentual terms), you may have more “room" for financial mistakes. As in a lower-priced home, your profit could be between $40-60k, in a luxury home, it will exceed $100k easily, therefore, if you have to something unexpected, is more likely to no bleed you to core and you still will make some money;
Building new luxury homes take time (12 months, minimum), and renovating could take as low as 2-4 months.
With such a high demand for this type of property, especially in areas like Florida and Texas, which are the primary destination of people moving out of their states, luxury rehabs can be a great investment.