Investment Strategies - Tools to use to maximize Real Estate Investments
We concentrate on long-term investment strategies for our investors and we believe these homes make 5 to 7 year investments. We also focus on single-family homes because they make the most liquid, conservative and profitable real estate investments. Multi-unit residential property and commercial property require significantly more cash to acquire. Town-homes and condominiums are expensive because of the high monthly association fees, and the rental market is not as good as single-family homes.
We are currently focused on buying distressed properties such as single family, multi-family and foreclosures, and we filter through hundreds of homes for sale seeking only exceptional deals.
We evaluate opportunities based on several factors including location, price, repair estimates, neighberhood, and schools. We condider a good deal one that will have an excellent ratio of price to total investment.
Investment strategy example
Investors are interested in homes that create positive cash flow and that have excellent upside appreciation. However, considering the volatility of the current market, investors are focused more on cash-flow in order to mitigate risk.
Cash Flow:
We use Monthly Rent Ratio to determine the viability of an investment in terms of cash flow. Monthly Rent Ratio is calculated as follow:
Gross Monthly Rent / Total Investment
Where Total Investment = Purchase Price + Total Repair. For example, a home is purchases for $180,000 and requires $30,000 of repairs. The home rents for $2,000 per month and the monthly rent ratio is:
$2800 / $210,000 = 1.33%
RPIG believes that in today's market a good investment property will generate a minimum monthly rent ratio of 1.15% or better.
Appreciation:
RPIG believes that the market must eventually return to at least replacement costs once the surplus of foreclosure homes are absorbed into the market. RPIG cannot speculate how long this will take. However, RPIG uses a very conservative price per square foot estimate of $75 to estimate the potential upside appreciation for an investment. For example, if the home in the example above is 1,300 sq feet, the replacement costs would be:
$75 x 2,000= $150,000
Potential appreciation in this example would be $50,000 ($150,000 - $55,000). RPIG believes that in today's market a good investment property will create minimum appreciation potential of $95,000
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