Small Cities Can Be Profitable Investment Centers

When you think about investing in real estate, your first thought might be buying a duplex or apartment building in a big city. Or, perhaps you want to buy a fixer-upper in an area that’s experiencing a revitalization. However, don’t overlook small towns as a place to invest your dollars and build a residual income that pays year after year.

Here are a few benefits small towns offer from an investment standpoint over big cities.

1. Get Into the Market Cheaper

Homes in large cities tend to cost quite a bit more than homes of a similar size and condition in small towns. In one survey of the 10 most expensive cities, the average cost of a home was $587,090. On the other hand, the most affordable smaller towns had a median home price of only $98,385. For those just getting into real estate investment, the lower price point is attractive.

2. Scope out the Attractions

That said, not all small towns are equal. When looking for an investment property, pay attention to what the town has to offer. Is there some development that’s attractive to both younger and older generations?

There’s something to be said for investing in a friendly small city that would attract a lot of potential renters. Those within commuting distance of urban centersmay see an uptick in growth. A renewed focus on small business creates a mix of unique bars, breweries, upscale dining and casual restaurants. 

For your part, choose a small town where new businesses are on the uprise. Is there enough to attract a variety of renters? 21% of renters are under 30, a sizeable demographic increasingly likely to desire a balance of community attractions and low-cost standards of living — thanks to a growing student loan debt burden. 

3. Gauge the Future

The trick to finding profitable investment opportunities is seeking out areas that are not yet revitalized, but trending toward that. That isn’t an easy thing to gauge. It requires knowledge of markets in the area and studying trends carefully.

Some things you'll want to look for include a 90-minute-or-less commute to a big city, cell reception, high-speed Internet availability and a minimum increase of 7 percent young people moving into the area in the last five years.

4. Reduce Competition

In a big city with few rentals and multiple investors, you may struggle to enter into the real estate market. Before you can purchase a property, someone else snatches it out from under you. In a small town, the competition isn’t as fierce. Instead of getting into a bidding war, you’ll likely make an offer and have the seller accept before anyone else expresses an interest in the property. 

That allows you to jump right into the investment market without spending months trying to secure a property. Because the entry point is lower, you free up working capital, and you may be able to secure several rental properties in a small town and rent them out in the time it would take you to locate a single property in a big city.

Consider Going Small

For many other reasons, renting in a small city is ideal. Even though you’ll get higher rental rates in a large urban region, a small-town investment center may be just what you need to get started or expand your real estate investments. Look at the towns surrounding the nearest big city that are within an hour or so drive and expand your investment possibilities. You’ll likely discover many additional investment opportunities you otherwise wouldn’t have considered.

Holly Welles is the editor behind The Estate Update, where she shares real estate tips and ideas for home fixes. She’s passionate about staying on top of recent market trends despite her impractical love for the oldest houses in town. 

The Number One Way to Create Residual Income

In our society, most of us make a living by spending 40+ hours per week at a job. And in terms of retirement, many of us rely heavily on an employer-sponsored 401k. There’s nothing wrong with having a job or a 401k, but these are just means to make money—they’re not an avenue to wealth building or financial freedom. Luckily, there’s a better way. Today we’re going to discuss how you can begin creating residual income for your family, without commuting or spending hours working overtime at your day job.  

I’m not here to talk about quick fixes or get rich quick schemes. If you want to build something that lasts, you’ll have to play the long game. For our family, it took a few years to reach our goal. (You can hear our entire story in this playlist!)

Buying Performing Assets

We’ve found that the best way to build residual income is by purchasing performing assets.  A performing asset is anything you own that puts money in your pocket on a regular basis. Ideally, your performing assets should be as reliable and steady as your regular paychecks. 

There are many different examples of performing assets. Think businesses, private notes, or investments. These are all great ways to increase your net worth without putting in the work. It’s all about flipping the paradigm, and start asking yourself how you can make your money work for you (instead of you working for your money!)

The Best Type of Performing Asset 

In our wealth building journey, we’ve found that there’s one type of performing asset that has skyrocketed our passive income—investment properties. Rental real estate is so powerful for many reasons. If you purchase your rental properties in the right markets, you can count on consistently having renters. 

This means there are people living in your rental units paying you every month! If there are individuals and families who need to rent, why shouldn’t you put yourself in the position to receive those rent checks? Additionally, if you happen to have a loan on that property, the tenant is paying off your debt! And in an ideal situation, there’s still money left over for you. 

Why Residual Income Matters

The amazing thing about passive income is that it allows you to spend your time more intentionally. Instead of working behind your desk to finance your life, you can instead make money while doing the things you enjoy! Whether that means extra vacations with your family or dedicating more time to your passions, passive income through rental real estate can make it happen! 

You might be thinking that this idea sounds a bit overwhelming, and that’s okay. The good news is, you don’t have to build it all in one day. Oftentimes, the hardest part is simply getting started. Once you purchase that first property, it becomes easier to start snowballing your performing assets until you have enough to meet your needs. I like to remind people that all millionaire investors started with one property. 

Getting Started on Your Wealth Building Journey

We believe that the best way to get started is to set a clear goal. That way, you have some sort of roadmap to follow, and an idea that motivates you! Some people set an arbitrary goal, but we like specifics! 

That’s why we created the Freedom Cheat Sheet. It’s a free PDF we designed to help you calculate your expenses, and then determine how many performing assets you would need to be financially free. Claim your download here! Once you’ve calculated your own unique Freedom Number, we’d love to hear it! Drop your Freedom Number in the comment section below.

Setting the Commitment and Staying Focused

If you’re anything like me, you might easily get distracted by other passive income ideas and methods for wealth building. But trying many different things isn’t a helpful strategy. The best way to build wealth is to pick one thing and stick with it consistently!

That’s why it’s so important to set wealth building as your ultimate goal. There’s nothing wrong with having ideas, but if you’re working on multiple projects, it can be difficult to truly be excellent at any of them.

What is truly powerful is to intentionally focus your inspiration on your ultimate goal. Take your Freedom Number, and write it down. Put it on your desk, your mirror, your refrigerator, your vision board, or all of the above! Do whatever it takes to commit to your goal, and to stay laser focused. 

Envisioning the End Goal

An effective way to stay focused is to imagine the type of lifestyle you would live if you had performing assets to support you. Would you spend more time with your children or grandchildren? Would you have more time to dedicate to your hobbies and passion projects? 

If you can take a moment to imagine the lifestyle you want, it can really help you propel toward your dreams. While the Freedom Number is helpful, thinking about your motive to build passive income is even more helpful. 

Like any goal, if you have a strong motivator in place, you’ll be much more likely to reach success. When you’re clear about your purpose, it becomes easier to make your dreams a reality! 

Nine Steps to Your First Rental Property 

If you’ve read this far, you’ve likely decided that real estate investing is for you. We’ve put together a video that contains a nine-step strategy you can execute in order to purchase your first rental property. 

The Ultimate Guide to Passive Income contains the tried-and-true method you can use to guide you through the entire process, from finding the right rental property to growing your portfolio. The video is intended to arm you with all the information you need to become a successful real estate investor. Watch the video here.

From Bad Credit and Foreclosures to Financial Freedom: Our Real Estate Story

On the podcast, we’ve shared many details about our family's personal investment strategy. We've discussed how we’ve attained financing, and dissected deals we’ve considered. However, we’ve never really shared our past, including how we got to where we are--until recently. 

In this series, Natali and I sat down to recount our entire story, including how we eventually reached financial freedom via real estate investing. You'll learn our struggles, triumphs, plus exactly how we expanded our portfolio and ultimately purchased fifty rental properties in a few short years.

Part 1: How Clayton Went Through Foreclosure and Destroyed His Credit - In the first part of this series, Natali and I sat down to share my real estate failures in-depth. I discussed my history, personal challenges, and the lessons I learned through the process. I'll shared the details about how an investment went belly up, and how I ended up with my bank accounts frozen. You'll learn how I wrecked my credit, and the important lessons I learned along the way. 

Part 2: Why Natali Made a Big Mistake Buying an A Class Property - On this episode, Natali took us back to her childhood and early career. She explained her family’s background in real estate investing, and the mistakes she made with her first rental property. You'll learn about the complications that arise from A class rentals, and the importance of investing in landlord friendly states.

Part 3: Hitting Rock Bottom - This episode is about our family’s history—including how we hit rock bottom, financially. We opened up about losing our jobs, and how we finally decided to start implementing change and living life on our own terms. You’ll learn about the resources that helped us, and the major paradigm shifts that occurred.

Part 4: How to Build a Real Estate Investing Plan - On this episode, Natali and I are explained in detail how we began successfully purchasing rental real estate. We shared the details of our first investments, and talk about our fears and hesitations at the time. We elaborated on how our balance sheet has drastically changed in just five years, and why single-family homes work so well in our business.

Part 5: How to Scale from 1 to 50 Houses - We wrapped up the series discussing how we expanded our portfolio, and ultimately purchased fifty rental properties in a few short years. In this episode, you'll hear Natali and I discuss all of the strategies we used to grow our real estate portfolio. We talked about the multiple ways to access cash, the importance of the balance sheet, and reaching our Freedom Number. 

Part 6: High Level Ninja Tricks for Real Estate Investors - We thought we were wrapping up this series about how we reached financial freedom and became full-time real estate investors. But then we realized it would be a huge disservice to you to leave the impression that after we reached our Freedom Number, everything was rainbows and unicorns. Real estate is passive to an extent, but there are a lot of systems we’ve had to put in place in order to make our business run smoothly. On this bonus episode, Natali and I sat down to talk about all of the intricacies of running a real estate business. We discussed finding the right legal and tax teams, our experience with setting up trusts, and other high level investing tips and tricks!

Finding Your Freedom Number

The Freedom Cheat Sheet is a PDF I created a few years ago when I started on my journey toward financial freedom. This document helped us set a goal, and in turn totally change our financial situation. We've been sharing the Freedom Cheat Sheet ever since. 

Over the past few months, Natali and I sat down to revisit and fine-tune the Freedom Cheat Sheet, and we're proud to bring you the new and improved download! 

Here's a little backstory: the Freedom Cheat Sheet was born out of my own frustration. It seemed that nearly every dime went toward paying off liabilities, and we could never quite save any money. Despite my high-paying broadcasting career, we struggled to pay our mortgage payment.

I knew something had to change. At this point, we already owned two rental properties. So we sat down and calculated exactly how many rental properties we would need to cover our expenses and be financially free. Thus, the Freedom Cheat Sheet was born!

Here’s how it works:
Know your numbers. Open up your bank statements and take a look over the last six months of your expenses. Account for all of your bills and payments, entertainment costs, and groceries. Try to be as accurate as possible, and come up with a monthly average. Then you’re going to pad that number by 10%. The idea here is that if only your basic needs are met, you’re not technically free. You want to be able to take vacations, or not worry if an unexpected expense occurs.

Next you’re going to determine how many rental properties you would need to reach that number. An average rental property in America’s best rental markets rents for $700 per month. However, you as the investor don’t get to keep the full $700. We use a conservative formula that sets aside 40% for expenses, repairs, and vacancies. That leaves you with $420 per rental property. Then you simply divide the number you calculated earlier by $420 to determine how many rental properties it would take for you to be financially free. 

Ready to plan your way to financial freedom?

2018 Housing Demand: What It Means for Real Estate Investors

According to a recent article in the Wall Street Journal, some cities and employers are seeing adverse effects of a booming economy. Because of low employment rates throughout the US, we're now noticing a trend of labor and housing shortages. But what does this economic shift mean for you as an investor? 

The article suggests that the US is currently in a new shortage--labor. Because of this, many employers have had to incentivize workers to move to their cities. And while you might think that's not totally unheard of, it actually is in markets like Columbus, Ohio or Portland, Maine. 

In conjunction with the labor shortage comes another effect. In these markets, we're also seeing a lack of housing. There's a demand for new construction, but very few properties are available. In many of these markets, people have had no choice but to rent.

As a real estate investor, this is good news. It means there's no shortage of renters, which in turn lowers vacancy rates. In the majority of my rental markets, my vacancy rate is close to zero. It's a great time to be a real estate investor, as long as you're purchasing in the right markets. 

You can hear more about the labor shortage on episode 330 of the Investing in Real Estate Podcast!

Additionally, we have an entire playlist on our YouTube channel dedicated to keeping up with the economy! Be sure to subscribe! 

Regions with the Riskiest Climates for Real Estate

When you’re figuring out where to make real estate investments, numerous factors likely cross your mind. They include the current state of the property market and its likely progression, crime levels and the cost of living. However, there’s another crucial aspect not to overlook: climate.

You don’t need to steer clear of areas with risky climates. However, it’s important to know about weather-related trends so you can plan and protect your property.

Parts of North and South Dakota Are Extremely Cold

If you’re eyeing a property investment in North or South Dakota, those two states are so cold, they often barely get above 0 degrees Fahrenheit during the chilliest months. The climate could put your investment property at risk for burst pipes and other problems caused by extreme cold, and the snow that often comes with it.

Statistics for burst pipe insurance claims indicate they could total an average of $18,000 per incident. However, prevention goes a long way. You can insulate pipes to reduce the likelihood of freezing and even ask tenants to leave cabinet doors under the sink ajar to promote the flow of warm air from the kitchen or bathroom to the pipes.

Beware of Ice Storms in Several Regions of the United States

Freezing rain can result in ice storms that make roads and sidewalks dangerous, temporarily halting travel. However, ice also weighs down power lines and tree branches, causing inconvenient electrical outages.

As an investor, be aware of the damage fallen trees could cause to your property. The Midwest and Northeast of the United States are the most likely regions to experience ice storms. However, they can also happen in the South.

If you invest in an area prone to ice storms in the winter, have a professional arborist check the property for trees at risk of falling or those too close to the home. It might be wise to have those cut down or trimmed before winter arrives in full force.

Prepare to Deal With Florida’s High Humidity and Rainfall Totals

Florida is a state where many people go to take lengthy vacations or even live temporarily to escape the coldest periods of the year. So, the Sunshine State is also a popular place for property investments, especially considering all the theme parks, beaches and golf courses to keep people entertained.

Data indicates Florida is the most humid state in the country. More specifically, Key West and Orlando are among the Floridian places with the highest year-round humidity.

Plus, despite being a place known for its sunny weather, Florida still gets more than 50 inches of rain per year on average in many areas.

In Florida, or any other place with a humid, damp climate, you’re at risk for mold growth. Although it’s a common problem in basements and bathrooms, mold can also appear on roofs, especially if the roof lacks sufficient drainage. The issues could compromise structural integrity and cause health problems for the people living in the home.

Promptly fixing any roof issues, as well as ensuring gutters direct rainfall away from the roof, are two excellent preventive measures. If the tenants mention mold issues inside or out, have those complaints investigated quickly. Mold can spread rapidly, making it necessary to find the causes as speedily as possible.

The Southwestern United States Can Get Extraordinarily Hot

Although extreme heat waves affect many areas of the United States, the Southwest region includes some of the hottest states in the nation. And, that heat doesn’t just make people and pets uncomfortable. It can wreak havoc on investment properties if you don’t anticipate the high temperatures and take steps to minimize the adverse effects they cause.

The potential damage includes foundation issues, buckling wood floors and cracked shingles that lead to roof leaks. As with other kinds of weather conditions, a proactive attitude could help you avoid circumstances that may hinder your investment payoffs.

If you’re concerned about excessive dryness around a home’s foundation, a sprinkler system could keep the conditions consistently moist. Moreover, because humidity and heat both damage wood floors, think about running a dehumidifier during the summer or any unusually hot periods.

Concerning your roof, perform a self-inspection at least twice a year. Also, if you notice any damage or aspects that look odd, get a professional to take a closer look — regardless of the temperature outside.

Preparation Is Essential

The information above reveals some of the most at-risk areas of the United States for weather that could harm your investment property. As mentioned earlier, there’s no need to avoid evaluating opportunities in those regions. Instead, recognize how adequate preparation helps you minimize stress and lost profits.

Holly Welles is the editor behind The Estate Update, where she shares real estate tips and ideas for home fixes. She’s passionate about staying on top of recent market trends despite her impractical love for the oldest houses in town.

Leveraging Your HELOC to Build Wealth

Do you own your primary residence? If so, there’s a helpful investing tool you might be overlooking. Smart investors know how to leverage, and this strategy can accelerate your real estate portfolio growth.

A home equity line of credit, or a HELOC is often referred to as a second mortgage. When you take out a HELOC, the bank allows you access to a sizeable amount of cash. A HELOC is a loan based on the amount of equity in your home.

For example, let’s say that your primary residence is worth $100,000, and the remaining balance on your mortgage is $50,000. In this scenario, you have $50,000 worth of equity.

You are able to get a loan on your equity, usually between 80-90% of value. In our scenario, 90% of $50,000 is $45,000! When you take out a HELOC, the bank gives you a checkbook and a debit card. These funds are yours to use as you please.

Traditionally, a HELOC is used by homeowners to make home improvements, but there are no limits. You could buy a car, or pay off your credit cards. We’ve even used a HELOC to pay down our primary mortgage! You can hear more about that in our new book! 

But what we’re talking about today is using a home equity line to purchase rental real estate. Think about our scenario above. $45,000 is just enough to purchase a cash-flowing property in a stable market, and ultimately be on your way to attaining financial freedom.