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The national shortage of housing inventory has certainly impacted the Ozarks, but there are opportunities for rehabbing older properties, plus homes and land are available in surrounding communities. And as more smaller homes hit the market nationally, listing prices are beginning to trend downward nationally and locally.
Trend reports at Realtor.com show selling activity is normalizing after the frenzied decade-plus highs of spring 2021, with listing prices beginning to trend downward. In July, the median list price of homes in Greene County was $255,000, up 11.4% from $228,950 in July 2020, according to the data. However, that’s a drop from its peak of $266,000 in May. This trend, while still strong for sellers, should benefit buyers – including first-time investors.
“If anyone has the ability to find real estate, rental real estate, especially when it comes to residential, there is no better time in my opinion to invest,” says Titus Williams, president of Prosperiti Partners LLC. “Right now is a very unique time. Everyone knows inflations are going to have to happen. There’s such a housing shortage you know you’re going to be able to increase your rental rates. And interest rates are at an all-time low. If you buy a piece of real estate today, it’s going to appreciate in value and appreciate in rental income.”
There are many benefits to investing in real estate, according to Williams, who started at age 25. Investment property is an inflationary hedge. By investing in rentals with tenants paying costs, the owner can earn a larger margin than the average 1% inflation by adjusting lease agreements on a much shorter frequency than leasing commercial buildings.
“Every time that term comes up, you have the ability to renegotiate the lease,” he says. “And when costs have increased, you have the ability to pass that on to your residents.”
Other potential benefits to investing include:
Appreciation of the asset for future profit.
The potential for passive income.
Reduction of taxable income through depreciation of the asset as a business expense for those who qualify as a real estate professional.
Investing in residential real estate also has challenges, requiring a team of trusted advisers including a real estate broker, management company and lender.
Real estate broker
A real estate broker can help identify a potential property, research costs and similar market-rate rentals. “From an investment property standpoint, you need to make sure that you’re buying it right,” Williams says. Ensure the expected rental income will provide enough return on investment to not only pay mortgage and expenses, he says, but also cover those times when the property may be vacant. Even if utilities would normally be paid by renters, it’s best to review the property’s average monthly costs. Most important, understand that “the market is the market” and it’s hard to go outside market rents, Williams says.
Management companies can also help provide information for the proforma, and they can provide expert assistance regarding ongoing management of the property once ready to lease.
“They understand the pitfalls of fair housing and they understand what it takes to get a tenant and do it in a way that is not going to get anyone in trouble. Because that’s what they have to do every day. They do it ethically and legally,” Williams says.
A budget and a proforma are vital to securing financing, says Blake Will, director of commercial lending at Central Bank of the Ozarks. The budget lists out what a project will cost.
“A proforma is where the investor tells me what they think the income is going to be and what the expenses are going to be,” he says.
Lenders may agree with the proforma, but they don’t always. New investors especially want the highest leverage they can get while putting down the least amount of money, Will says, meaning they may skimp on the budget and don’t plan for contingencies, such as overrun. Lenders also look at the expense ratio.
“If we don’t agree with it, we’ll make our own proforma,” he says. “I might do my research and, say, I’ve pulled 10 comps of comparable properties in that area, and the average rent per square foot is 96 cents, but their proforma says $1 a square foot.”
In those cases, Will says a loan may still be underwritten but with changes to the original proforma based on the lender’s research.
Williams says in some cases, asking the seller for financing can help a buyer make the down payment or fund repairs. Williams offers that to some of his buyers. He says be sure to get approval from the loan officer first. While arranging financing, he suggests asking the selected property management company for an onboarding checklist so the property will be in their system and ready to go quickly.
Investing takes diligence and attention, Williams says, but with a good tenant and a good property management company, single-family rentals have the ability to provide passive cash flow and an opportunity for appreciation.
This content is brought to you by Prosperiti Partners LLC.
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