I recently bought a home via hybrid turnkey in Birmingham and have been doing a bit of research on various markets for a while now.
I offer the following humble perspective at this time (I am not a pro)
1. The most important thing to evaluate (cash flow is not even a factor for this decision) is what would the retail price be if you were to put the home on mls to sell it. Go crazy tracking recently sold homes, how long current homes are in market and the trends (are folks dropping price to be able to sell the home). Ultimately the primary decision factor should be keyed around your ability to exit the investment more than how good of a deal it is to get in. If you are paying retail price to buy with zero equity and you have acquired a illiquid asset in your portfolio be prepared for a decent sized loss.
2. Area you are buying - demographics, family income levels and rent to family income ratios, crime levels, school ratings. Over a 10 year period, I would guess a B area would have better returns than a C/D area unless you are counting on C areas gentrifying or getting better with large investments and younger population moving in. I know many folks make great money on C/D areas but leave it to the pros, for turnkey you are looking for a piece of mind for out of state investments and decent returns. Another factor to look at is the ratio of owner to rental homes. If you see a area where investors need to sell to another investor to exit, remember that you are counting on another newbie investor to bail you out as the pro investor wont get in until he gets it at the right price.
3. Most people who are looking to sell you something have a incentive to market the product as the best investment opportunity for you. Ultimately it is your hard earned money. Look at the flyers claiming out sized investment returns with a grain of salt. Often they over state the annual appreciation rates to factor in for projected equity and under state the maintenance and vacancy related costs and the one off large capex items you will eventually get. Do your own #s, be conservative, assume 50% of your rent over the long run will be gone.
4. The only reason I am going buy and hold out of state is that I can buy a lot more properties with a fixed set of cash. I have a decent sized crowd investing portfolio of 175K and been getting an avg cash on cash returns of 13%. The incentive with going on my own is the potential to leverage the investment through debt and decrease the reinvestment risk. Eventually the crowd funding investment returns will flatten as the opportunities for out sized returns in flips with fast moving markets starts to taper down.
5. The next most important thing is the research on rental market. How long houses are taking to rent. What is the rental trend. If someone is saying you will get 850$ pm but you are seeing a lot more postings for similar homes at 750$, dont expect to get higher rent. A reliable PM who cares about your home and value of your investment is mandatory before you jump in.
6. View on expected capex - big ticket items like roof, hvac that will kill all of your positive cashflow. All you need is one big item every 2 years to zero out all your positive cash.
Nevertheless, real estate is great- you have tax benefits, opportunity for someone to help pay your mortgage and lets you use debt to your benefit. Diversify where you buy and eventually you will have more winners than losers.
Cheers
