What is the better investment within the current market?
Do you ever find yourself wondering what the best investment is based on the current market and how long the current market will make that investment profitable? Most real estate investors typically have two main investments to choose from; fix and flip or buy, fix and rent. Through my position as president of IRC Enterprises (www.IRCEnterprises.com), I have the benefit of running companies that help investors in both of these markets from Portland down to Eugene. My general advice is to always have a balanced investment portfolio, but the right timing can make you much larger profit margins, as well as save you from taking unneeded losses.
The fix and flip market has been very profitable for the savvy investors over the last few years. Our clients have typically seen 20 to 50 percent ROIs, but those margins are being squeezed. It has notably helped, though that Oregon has become a redemption rights state. This has kept most of the large, national investment companies out of Oregon, leaving plenty of deals for local investors to take on without too much competition. While other markets around the nation are tightening up and Oregon continues to be one of the top places to live, this will start changing. We’ve also had the benefit of very low inventory on the retail sales market, which has helped keep the retail sales prices high enough to support fix and flip investments.
Currently there are still deals to be had as a fix and flip investor, but they are getting much harder to find unless you are willing to lower your profit expectations. In my best professional opinion, this will continue for no more than one to two years, and two may be stretching it. This is why we have been suggesting that our investors start looking for properties that they can buy and hold as rentals.
As most long-term successful investors will tell you, you must be willing to be flexible and adjust your investment strategy along with market demand. Ideally, you will adjust before the market so that you can stay ahead of the game. I would suggest that all investors slowly add to their rental property portfolio over time as it will create a great, passive income stream. If you want your primary long-term focus to be on the fix and flip market, then there is a way to work rental properties into the ongoing strategy.
Everyone is aware of the current rental market and how much rent has increased over the last couple of years. Most likely, rent will start to plateau within the next year or so, but it’s very unlikely that they’ll decrease. If you have ever wanted to start building a rental portfolio, now is the time to do so. Lending rates are still very low and rents are at an all-time high. This mix will make a lot of properties’ cash flow much better than in typical markets. Within our property management company, we see clients purchasing single family homes and walking into $300 – $500 per month net profits, even after paying our management fee. If you are unfamiliar with rental properties, this is unheard of. Typically, if you break-even, you are doing well as you end up profitable after the tax write-offs and appreciation of property value.
If you don’t like the idea of maintaining a rental portfolio for the long term and want to stick to fix and flip deals, you should consider it as a way to get through the times when the market squeezes the profits out of them. What I mean by this is that you can start holding some of your single family home deals as rentals. If you buy them and fix them up with cash, you should look at refinancing them into traditional financing and get your money back. Next, rent them out for a monthly profit as a holding strategy. The reason I only suggest using single family home rentals for this strategy is for the ease at which you can liquidate them in the future when the fix and flip market comes back. You are able to sell these to anyone, not just investors.
If you start taking on this strategy now, you’ll be able to pay higher dollar amounts on the wholesale market than the fix and flip investors you are competing with, almost guaranteeing that you will win at auction when you bid. You also get to profit off the monthly income and then profit again when you sell them in the future due to normal market appreciation.
The main takeaway is that as an investor, the best strategy you can have is a fluid one. Don’t get stuck in one form of investing. You should always be a student of the market, willing to adjust your investment strategy based on current and upcoming market changes. There really is a way to make a profit in all market types, it’s just a matter of recognizing the proper opportunity and seizing it when the time is right.
President – IRC Enterprises
President – Portland Area Rental Owners Association
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