How to Find Real Estate Investment Deals
Real estate investing is a powerful tool. And it’s not just a matter of personal wealth and well-being; investing through the principles of New Localism can help improve entire communities, and impact investing can help everyone in the neighborhood come out on top. More than anything, though, investing in real estate can unlock generational wealth with the power to eliminate years of poverty and pave the way for prosperity.
And while it’s powerful, it all starts from the same place: Knowing how to find great real estate investment deals.
To help, we’ve put together some of our best recommendations for new and experienced investors interested in consistently spotting great investment opportunities.
4 Ways to Find Real Estate Investment Deals
Great real estate deals come from educating yourself on some of the best practices. Here’s what you should pay attention to:
1. Look for low-cost, high-ROI properties.
There are a few ways to predict potential ROI. Three of the most common:
The 1% Rule - The 1% Rule in real estate basically says the monthly rent of a home must be at least 1% of the total purchase price for the property to be profitable.
So, if a home costs $120,000, you would aim to charge at least $1,200 a month to reliably cover your loans, insurance, and maintenance while still turning a profit.
Of course, there are certain variables that could interfere with profitability. An unexpected maintenance project, for example, could take a large chunk out of your annual revenue—and potentially even push you into the red.
The 2% Rule - The 2% Rule in real estate is just like the 1% Rule, but it says you should charge at least 2% of the total purchase price to cover the monthly rent. On a $120,000 house, that would mean placing the rent at $2,400 per month.
That sort of jump may seem unreasonable, and it may even make it seem like these homes are impossible to find, but they’re out there.
One common thread: These homes tend to be on the less expensive side. For example: For a home to bring in $800 a month at 2%, the home would need to cost $40,000. This is a rarity in many US real estate markets, but it’s not unheard of. Plus, $800 for a rental in a city like Pittsburgh is often considered extremely reasonable!
The 70% Rule - Unlike the 1% Rule and the 2% Rule, the 70% Rule doesn’t focus on monthly income. Instead, the 70% Rule says an investor should pay no more than 70% of the after-repair value of the home, minus the estimated cost of repairs.
To help illustrate, let’s look at an example. If you project a home could be worth $175,000 and you estimate it will require $50,000 in repairs, the maximum purchase price (according to the 70% rule) would be $72,500.
Here’s how that breaks down:
$175,000 ARV x 70% = $122,500
$122,500 - $50,000 in repairs = $72,500
In this case, the most you would want to pay for the home would be $72,500. If you can purchase it for that or less, it could be a good investment!
2. Buy in areas projected for growth.
You’ve heard the “buy low, sell high” maxim in investing, right? It applies to real estate investment deals as well: Buy property as inexpensively as possible, then rent or sell for as much as possible. “As much as possible” is as dependent on location as it is the quality of the house—if not more so.
We’ve seen this happen all over Pittsburgh: Neighborhoods like Lawrenceville, which once suffered from dismal housing and poor economic conditions, have seen property values soar alongside the neighborhood’s rise. Even in the last five years, the effect has been dramatic: In October of 2017, the median home price in Lawrenceville was just under $250,000. In May of 2022, that number was nearly $400,000. Not bad for property owners in Lawrenceville!
By paying attention to where cities, companies, and organizations plan to invest in parks, storefronts, and other important infrastructure, you can predict where home values will appreciate quickly in the coming years.
Of course, part of this is understanding which cities and regions are currently good for investing. Be sure to stay on top of the latest trends!
3. Invest in Areas Where Homes Are In Demand (Or Will Be In Demand)
When we’re working with investors who are interested in renting their properties, we pay close attention to the local rental vacancy rate.
The rental vacancy rate is essentially a percentage of the homes and apartments available for rent that are currently unoccupied.
In Pittsburgh, for reference, this number typically hovers around 3%, which is quite good even when compared to other major cities that are great for investors.
That vacancy rate is a quick indication of:
How much demand is in the neighborhood
How much competition there is among renters
How hard you’ll have to work to find a renter for your home
So, for example, if you buy a home in a neighborhood with a 0.5% vacancy rate, that generally means there is strong demand among renters for suitable housing in that area. If you buy a home in a neighborhood with a 10% vacancy rate, like you might find in areas of Detroit and similar cities, that’s a good indication that there is less demand for housing in that area—and you may struggle to get it filled.
That percentage may also start to give you an indication of how aggressive you can be in your pricing. If you see a 0.5% vacancy rate, you know that level of competition among renters means you may be able to see an additional return each month.
But if you have a 10% (or higher) vacancy rate, you may need to cut prices or invest in marketing strategies to get your property filled!
As a reminder: Pay close attention to recommendation No. 2 when considering vacancy rate and current demand. A neighborhood with a 15% vacancy rate could potentially lead to a few relatively low-cost opportunities—if the neighborhood is projected for an upswing and you have the financial stability to wait. Holding onto a property for a year or more could ultimately work in your favor if the market conditions shift and create renewed demand for housing in your neighborhood.
4. Look for off-market deals.
Not every real estate opportunity is going to be listed on Zillow or even the MLS.
Depending on your location, there are likely dozens of off-market deals available at any given time.
That’s one reason networking is so important! We’ve found great deals in Facebook groups, our churches, Craigslist, and simple networking events.
The opportunities are out there; you just need to stay alert!
Get Expert Guidance On Finding Great Real Estate Deals
As a full-service brokerage, our team has years of experience investing in real estate and finding great deals.
We understand the nuances involved in making sure you set yourself up for a prosperous future. Contact us to learn more!
