An Expert Look at the Naples Real Estate Investment Process
Tax advantages, excellent returns, diversification, and more – there are numerous benefits of investing in real estate. After seeing so many people leverage real estate to build their wealth, it’s natural to want in on the action. Whether you’re just starting out with investing, are beginning to break into the Naples market, or already have a massive portfolio under your belt, it’s crucial to understand the real estate investment process.
And who better to guide you through that process than fellow savvy investors? At Naples Relocation Experts, we feel confident in our ability to assist with Naples real estate investing because we are real estate investors. We have the track record to prove it. (To learn more, check out our blog about our investment properties.) From identifying investment goals and finding the best deal to securing contractors and beyond, we strive to help our clients achieve the same success we have.
Below, our team offers our expert insights on the real estate investment process in Naples, Florida.
What types of real estate can I invest in?
Before we discuss the process, you need to first understand the types of real estate investments available. Real estate investments can generally be broken down into three different categories: spec houses, home renovations, and property rentals.
1. Spec Houses
A spec house (short for speculative house) is a new home that a builder constructs on the idea that it will easily sell for a profit. The goal is to build these houses to be move-in ready and as appealing to home buyers as possible. They’re perfect for individuals and families that want a newly built house, but don’t want to wait or go through the building process themselves. They can also be referred to as inventory homes, showcase homes, or feature homes.
With spec houses, investors have full control of the building process. You should conduct local market research ahead of time to find out what buyers are looking for. Then, incorporate those features into the property to ensure value.
It’s important to remember that building a spec house means relying on the completion of construction. According to the US Census Bureau, the average new home building process takes approximately seven to eight months. You can also encounter construction delays due to weather or permitting. Spec house investors need to be patient through the construction and selling periods of the real estate investment process before seeing any return on their investment.
2. Home Renovations
Another investment option is to purchase a home, restore it, and resell – also referred to as “house flipping.” The level of renovation can range from basic upgrades to elevating curb appeal to highly involved passion projects. The most important thing is to ensure that the upgrades you’re making to the home are increasing the value. When it comes time to sell, you want to not only recoup any investments you’ve made, but turn a considerable profit.
House flipping can offer quick profits while providing a better understanding of buyer needs and developing your real estate network. However, as with spec houses, you can experience delays in construction or unanticipated expenses.
For home renovations, the timeline depends on the amount of remodeling taking place. Basic projects can take weeks, while more comprehensive remodels can take months. It’s important to consider how quickly you want to flip the home and how much you’re prepared to invest before choosing a property to renovate.
3. Property Rentals
Property rentals have a much more straightforward real estate investment process. Investors purchase a property and then rent the property for vacation, short-term, or long-term rentals through a lease or other rental agreement. The investor (referred to as the landlord) remains the owner of the home and the renter (tenant) occupies the property in exchange for rent payments.
With rentals, investors begin to see returns much faster than with spec houses or home renovations. Although, it will still take time to recover their full investment and begin making a profit. Owning a rental property also offers tax benefits, long-term income potential, and other advantages.
Property rentals do come with ongoing maintenance and other expenses. As a landlord, investors are still responsible for minor and major repairs, rises in taxes or insurance premiums, property upkeep, and more. You will also have to manage tenant complaints, collect rent, and find and vet new renters as needed. A lot of investors choose to hire property managers to handle these day-to-day tasks, but that requires an additional expense.
What is the real estate investment process?
Depending on the type of real estate you’re investing in (spec homes, home renovations, or property rentals), the process is going to vary. However, it generally involves the following to secure the property:
- Education & Research: Educate yourself on real estate fundamentals and how the economy affects the real estate market. Conduct focused research on the niche market you’re choosing to invest in.
- Set Goals & Expectations: Use your research and your own financial goals to set realistic investment goals and expectations. Ensure that you can clearly communicate these goals and have the ability to achieve them.
- Build Partnerships: It’s important to source experts and build connections. We highly recommend partnering with a local real estate agent to benefit from their established network and expertise. Always do your due diligence when vetting potential partners!
- Get Pre-Approved for a Mortgage: Research multiple different lenders, prepare all necessary documentation, and get pre-approved before looking for a property.
- Create a Budget: Review your savings, income, and expenses to determine how much you can afford to invest. Your budget should cover the down payment, purchase price, closing costs, and any other expenses needed for the investment property.
- Find the Best Deal: Your agent should be able to help you identify the best investment property to meet your criteria and investment goals.
- Perform Investment Property Analysis: After finding a property, conduct a detailed investment property analysis to determine costs and expected profitability before making the purchase.
- Make an Offer: Work with your real estate agent to put together an offer and submit it to the property seller.
- Conduct a Property Appraisal & Inspection: Get an appraisal to secure financing, and hire a property inspector to confirm the condition and value.
- Renegotiate & Close the Deal: If needed, have your agent renegotiate the purchase price following the inspection. Then, you’re ready to close the deal!
What makes a real estate investment successful?
In our opinion, the most important metric in determining the success of a real estate investment is cash-on-cash return. This measures the annual return the investor made on the property in relation to the amount of mortgage paid during the same year. As cash-on-cash return only measures the return on the actual cash invested, it provides a more accurate analysis of the investment’s performance.
For example, say you purchase a $2 million dollar lot, invest $3 million in the build, and your actual cash spend is $500,000. If you don’t use bank financing and sell that home for $8 million, you have a roughly $2.5 million profit (not accounting for additional miscellaneous costs). A $2.5 million profit on the $5 million invested is a 50% cash-on-cash return. If you go to a bank that finances 70%, you can use less cash, which means you have more cash available for other investment options, and you’re getting a better cash-on-cash return.
Real estate agents might also focus on internal rate of return (IRR) or compound annual growth rate (CAGR). IRR is the annual rate of growth that an investment is expected to generate. CAGR is the mean annual growth rate of an investment over a specified period of time longer than one year.
What do I need before contacting a real estate agent?
A successful real estate endeavor is all about setting and communicating expectations. In order for any real estate professional to achieve your goals, they need to know what those goals are – which means you need to know.
The most important thing to know is your investment threshold. What type of budget are you working with? What percentage return on investment (ROI) are you looking for? How soon do you want to see that return? This kind of information will determine which loans you’ll want to pursue, which areas you should invest in, the types of investment properties you should consider, and more.
You should also know the level of involvement you want to have in the real estate investment process. Do you want full control to choose the architect, contractor, and designer? Would you prefer a close collaboration or to essentially function as a silent partner? Once you’ve determined what you want, you’ll be ready to choose a real estate professional that can help you meet those needs.
If you’re a beginner to real estate investing or the Naples area, it’s never too early to start asking questions. Give Naples Relocation Experts a call at (239) 269-7685! We’re happy to provide basic information on how to get started and what questions you need to be asking. We help promising investors understand and achieve the best opportunities available to them.
What’s the benefit of using a local real estate agent to find investments?
When you partner with seasoned realtors, you get more than just their expertise and local knowledge. You also benefit from their network, reputation, and exclusive opportunities. They know the area, its communities, and the people working within it better than anyone else. Some of the best real estate investments are sold before the property even hits the open market. By utilizing the connections of your realtor, you’ll gain access to those pre-market deals not yet available to the general public.
Partnering with a local realtor is essential to a truly successful real estate investment process. No two investments have exactly the same requirements – even within the same city. Whether you’re building a home in Golden Gate Estates or in Naples Park, the process for the two communities is different. For example, your price point and location will dictate the best contractor to use. A local real estate agent will be familiar with the area and understand those nuances.
Also, if you find yourself in a competitive situation, having an established relationship with an agent lends you more credibility and trust. Regardless of whether you’re new to the area or have been investing in it for years, partnerships can make or break an investment opportunity. Agents are more likely to make a deal with someone they know versus a single person who’s just fishing with an offer.
If you want to find the best deal and successfully close on it, your best chance is to do it with an experienced team rallied behind you.
What makes Naples Relocation Experts unique for real estate investors?
We view our relationships with our clients as a partnership. As Drew Josephson, Founder of Naples Relocation Experts, puts it: “The people who have helped us grow our business, we’re going to help them grow their business.”
Some real estate agents are there to help you find the best deal, and then step away the moment it’s closed. As investors ourselves, we’re able to add more value to the real estate investment process. We strive to build long-term relationships with our clients that go beyond simply securing the investment. Whether you’re dealing with a spec home, renovation, or rental property, we offer our own first-hand experience and connections to help you successfully navigate the investment to its full potential.
We also customize our approach based on the needs and knowledge of each client. For individuals that are new to real estate investing or to the area, we can lead the way with foundational education and by providing much-needed recommendations or introductions. For example, we help investors get surveys completed and find trusted architects and contractors. For more seasoned investors with their own contacts, we take the backseat. We offer insight on more complex situations and provide second opinions when needed.
If you’re interested in making money in real estate in or around Naples, Florida, contact Naples Relocation Experts today. We’re here to answer your questions, locate the best deal for you, and guide you through every step of the real estate investment process. Happy investing!