Creative Ways to Pull Deals out of Thin Air in a Seller’s Market
Most investors have found it much more difficult to fill their pipelines with deals from typical motivated seller leads than they have in the past. The market became “white hot” recently, and the most motivated sellers can sell their house quickly for cash at nearly full retail prices. The successful investor knows it’s time to create their own deals where others wouldn’t typically see them.
The old saying “You make your money when you buy, not when you sell” still holds true. Here are some suggestions for making the most of what you can get, or even better, what you already have.
Rent by the Bed in College Towns
As America reopens, high schoolers and college students resume their education. Many high school juniors and seniors missed important milestones, like prom, graduation, senior pranks, and all the fun of senior year. The college experience is more important now than ever before.
Enrollment was down in 2020, but in an interview with NPR, Heidi Aldes (the dean of enrollment at Minneapolis Community & Technical College) says, “We are climbing back.”
According to Forbes, graduate level enrollment is increasing rapidly. The shocking and unplanned job losses that countless people faced during the pandemic have resulted in many hoping to go back to school for a higher paying position and better job security.
As both graduate and undergraduate students return to scholarly life, they will need a place to stay. Rent is usually high in college towns, and rents are higher than ever in 2021. If you own or acquire a property that is located in a college town, consider renting by the bed instead of by the unit.
The “individual lease” comes with its own set of benefits and downfalls. A traditional lease for five students sharing a house would have them all on one contract. If one of them dropped out or could no longer afford the rent, then the other four students would be forced to assume responsibility for that student’s portion of the rent.
This could be disastrous when renting to people who may not even know each other. Renting per tenant instead would make each student responsible for only their share. If you have four tenants who pay early and keep the place in great shape but one party animal who cannot make the rent, you only have to evict the one problem tenant. Your other four tenants remain unaffected.
The main obvious positive of renting by the room is a higher total monthly rent versus renting the property to one party. If a three-bedroom house in a typical family neighborhood rents for $1,500, you can rent that same three-bedroom house to individuals for about $700 each.
Students and transient workers often will take this type of rental instead of a one-bedroom studio for a bit more per month as they get more use of common spaces, have more room, and perhaps live in a better location. The math is obvious to many — it’s more convenient for each person to pay their own rent for their own room and not have to find roommates to pay the monthly rent together.
Another positive of renting to students is that rent is often covered by the parents or financial aid. In those scenarios, you are likely to be paid on time or even in advance. Another benefit is that these renters will not be as likely as other demographics to nitpick or want everything to be perfect. If the paint is an ugly color or the countertops are unfashionable, a college student is not inclined to care or have time to worry about pressing you to remodel.
A potential downside is, of course, damage. For that reason, you will have to include in your lease things you would not ordinarily think to put in there. If you can think of it, include it. Go online and ask other college town landlords for their crazy stories and factor them in. Make sure you are covered. Consult with an attorney if you have any doubts.
At the bare minimum, your lease should include potential damages, noise levels, and maximum occupancy. Prohibiting fireworks, fire hazards, and weapons is often a good idea when renting to undergraduates. A way to potentially offset some risk is by adding parents as cosigners for students under 21.
Look into discounting rent for an older student who will act as a resident advisor to keep things orderly. Always consider compatibility when renting by the bed as the end goal is to have a harmonious community of tenants who work together to keep the property nice and ideally return for many semesters.
Speak with campus administration about posting flyers for your rental on campus. Laundromats, coffee shops, and libraries will get your flyer high visibility. Don’t forget to post on social media and in the college/neighborhood forums. You are bound to have a steady stream of inquiries and prospective tenants, even in the summertime.
Many students who have come a long way opt not to go home for the summer, and some students prefer to move in over the summer to get settled in before school. If you find that summer is a dry spell for you, you can always use that time to do repairs or even rent out short term.
Utilize Short-Term Rentals
If you live in an area that has a high demand for short-term rentals, you have a cornucopia of possibilities to consider. Your prospective tenants range from families that are caught in between home ownership to vacationers and tourists. You could rent your units for six-month terms or even shorter. You can also rent month to month.
If you are in a high-tourist region, you could potentially host tourists on vacation and charge per night or per week. Using sites like Airbnb can make short-term renting easy, even for a beginner. Airbnb reports that they are expecting travel to increase post-pandemic with a greater emphasis on connecting with family rather than visiting landmarks.
Tourist seasons are not as cut and dry after the pandemic. People have realized that they can work or study from anywhere. You will likely see people taking trips and retreats in the middle of the school year now that technology can be used to accomplish what was once limited to traditional establishments. This has also resulted in vacationers seeking longer stays. For many, there is no longer a great rush to get back to the office.
A report by AirDNA states: “It seems that longer-term stays weren’t just a flash in the pan. Not only have stays of eight-plus days not returned to pre-pandemic levels; they’ve been steadily rising since the summer. Longer-term stays now account for twice as many trips as they did in 2019. Heading into 2021, hosts relying solely on short, pricy weekend stays will likely need to readjust.”
Renting in the short term gives you freedom and flexibility. You can increase the rent whenever you like. You can charge more than in a typical yearlong lease. You can make repairs on your own terms without needing to give anyone notice to clear out. If you don’t like the tenant that is currently in your rental, it won’t be a problem for long.
To encourage longer stays, consider providing household necessities like a washer and dryer and a full kitchen. Be sure that your location is zoned for short-term rentals as this can be problematic, especially if neighbors complain.
Get Familiar with the Zoning Laws
No matter what kind of a rental you have, it is important to know your zoning laws and city ordinances. Familiarize yourself with these laws before you ever get started. You do not want to be in the position of having a quality tenant that is one month into their six-month lease only to find out that you are breaking the law by having them there.
Every area will differ in what it allows and bans. On-street parking and vehicle count are important in some areas where parking is scarce. For some areas, multifamily rentals are not allowed and in others short-term rentals are strictly prohibited. Your neighbors may need to agree on allowing short-term rentals, and the city may request that there be a contact person for complaints.
Some cities require a certain amount of spacing between short-term rentals to avoid the creation of a tourist district. Contact your local government or go to your county website to become familiar with these requirements and keep up with any changes or updates to the laws.
Buy Land with Storage Unit Potential
In 2021, there is an urgency to downsize and live a more minimalist lifestyle. Many people are moving into smaller spaces, leaving cities, and reconfiguring their lives. The pandemic increased deaths, job losses, divorces, and relocations. All these unfortunate circumstances can require a person to seek storage services.
On a more pleasant note, gurus like Marie Kondo have boosted the popularity of a simpler lifestyle with less clutter. Statistics show that despite an economic downturn, owners of storage units did not suffer — in fact, the demand for storage is increasing. Many people are now looking for land sales with the intention of cashing in on this opportunity.
Partner with a Builder
When buying land with the intention to build, many investors partner with a builder. Construction growth has also declined over the past year. Builder-investor partnerships are predicted to become a major trend over the course of this year, according to Forbes.com.
Combining your talents with a builder on your next project could be an amazing strategy. Partnerships between builders and investors can take on many different variations, but no matter what your partnership looks like, protect yourself with an LLC and a formal partnership agreement that both your real estate attorneys have reviewed.
Convert a Single-Family Home to a Multifamily
Of all the jobs lost in the past year, it was the low-income jobs that were hardest hit. Many families lost their homes and had to seek temporary housing or stay with relatives.
There is now a new wave of prospective tenants seeking places to rent. Converting a single-family home into a multifamily home is a lucrative option right now. Many houses can be remodeled into duplexes or even quadplexes.
According to those who have done this kind of remodel, the plumbing is the most expensive part of the operation. Hire a quality contractor with a history of getting jobs done under budget.
Check your zoning ordinances before making any kind of plans. You don’t want to find out part way through your project that your city does not allow duplexes in your neighborhood or that the additional wing you are building violates code. Those who do their due diligence and plan carefully will be able to pay their mortgage with one unit and collect passive income from the others.
Make the Best of What You Already Have
Rather than purchasing in a seller’s market, you could spend your time, money, and energy on improving the rentals you already have. You could make improvements around your own home or a home you hope to sell someday.
Use this time to go over your records and analyze what is working and what has not been working. Evict tenants who have not been paying (according to the laws of your state, of course). Add on amenities. Go over your business model with a fine-tooth comb and consult with your attorney on your leases, local ordinances, accounting, and business structure.
If you do not own a home and you are planning on buying your very first investment property, use this time to research. Online real estate investing forums, books, YouTube videos, and the Education Section on PropertyOnion.com all provide endless knowledge on how to make the best possible deal when it is once again time to buy.