We are often encouraged to think outside the box. Innovative thinking can often bring long-term returns but, in real estate, at certain times in the market cycle, there is a place that brings consistent and timely returns. You can think of it as the “box.” Economist call it the “fat part of the curve.” In real estate it is the “sweet spot” where most of the buyers are, where properties sell the fastest, and your margins can be the greatest. In the current market cycle, it is where you need to be, and it is where Cogo Capital is putting our focus to maximize your profit.
There are five simple criteria for a deal to fit the “box.” Cogo Capital is laser-focused on helping you fund deals that fit these criteria:
1. Sale Price: At or Below the FHA Cap
The Federal Housing Administration has a maximum loan amount in each real estate market. The vast majority of home buyers (and every buyer seeking an FHA loan) is looking for a home under this capped amount. If you are selling a home, it is where you want to be, because it has the greatest potential for a quick sale. FHA loans bring home ownership into reach for first-time home buyers who might have a hard time getting approved with conventional lenders. This increases your ability to sell your property faster, and broadens your ability to attract more potential buyers.
It is also important, because homes above the FHA cap are statistically more likely to experience drastic fluctuations in value, and can be more susceptible to local and overall market depreciation. Homes under the FHA CAP realm tend to be more resilient to these influences in the current market.
2. & 3. Property Types: One to Four Units and 2800 Square Feet or Less.
Single family and small multi-family real estate is your best bet when there is market uncertainty. Small unit properties mitigate the risk you find in large multi-unit properties. The old adage “don’t put all your eggs in one basket” is increasingly true in the current evolving market. This is important. When you invest within these parameters, you can attract a larger segment of the market, including FHA buyers. This increases your ability to appeal to more people in more demographics,
Fix and Flippers will find that rehab costs and extended work schedules can balloon in bigger properties. As property size increases so does the risk that a property will turn into a “money pit”, with time in rehab and then time on market creating a huge drain on resources and a killer of profit margins.
4. Property Features: No More Than 5 Bedrooms and 3 Baths
Millennials and Boomers are the two segments expected to dominate the market in the next five years. Both of these segments are looking at smaller homes: Millennials because they’re just starting out; Boomers because they’re downsizing. Millennials are seeking different set of features in real estate, focusing more on neighborhood than amenities. The day of the “McMansion” has past. Boomers and even Gen Xers are unloading their sprawling empty nests and finding few buyers.
5. Property Size: Less than 1/2 Acre
Land price is a fickle thing. It is harder to asses value. Also acreage is often the first feature to forgo for buyers seeking to economize. Both Boomers and Millennials are looking for smaller acreage: Boomers because they’re getting older and Millennials because they’re just starting out. Aging Boomers dread the upkeep and expense of acreage. The Millennial generation is seeking community and great swaths of land make that a more distant goal. All of this makes these grand estates harder to sell.
Investing Made Simple
Our slogan at Cogo Capital’s is “investing made simple.” Keeping property in the “box” keeps it simple while giving you the best chance to make money in real estate.
To see the preferred loan criteria at Cogo Capital and find the FHA Cap in your market click graphic below: