From its very first episode, Downton Abbey, the British drama that chronicles the life of the Crawley family and their servants in the early 20th century, has taught its viewers many important financial lessons: how to diversify investments (after the Earl of Grantham squandered much of his American wife’s dowry on an investment in a Canadian railway filing for bankruptcy); the importance of having a last will and testament in place (after the Earl’s heir apparent went down with the Titanic and died without one); and, this past season—a subject near and dear to our hearts here at HomeUnion®—the benefits of single-family rental (SFR) investments.
When Mrs. Patmore, the Crawley family’s cook, inherits some money, she decides to invest it. Her plan—a very modern take on investing—is to buy a cottage nearby and then rent it out while she’s still working to help her afford to retire.
This is sound investment advice today as well with traditional fixed-income offerings generating paltry returns, even by 1920’s standards. Of course, nowadays, you don’t need to buy in your town. You can do it in safe, high-yielding markets anywhere in the country. And you don’t need to become a landlord either.
Companies like ours are using technology, data and industry experts to overcome the limitations of property investment in an analog world. We’re providing an online marketplace to help smaller, more nimble investors, a la Mrs. Patmore, build their nest eggs with SFRs by doing all the legwork for them so they can use the latest digital technology to find and buy investment properties that generate cash flow and offer returns in the high-single digits (without leverage) and the mid-double digits, using mortgages.
But for those who want to try and do it on their own, where do you begin?
Choosing the Best Location
Before buying a property, research the area. (Hint: Avoid abbeys—they’re expensive to buy, require large staffs to run and tend to be drafty.) Seriously, expensive properties tend to generate proportionally lower rents (and therefore lower cash flows) than more modestly priced homes. This is one of the reasons why savvy investors in high cost areas on both coasts are beginning to look to Middle America to find the most attractive investments.
Not sure what criteria makes for the best investments? Sites like ours combine proprietary algorithms with the knowledge of local real estate experts to help you determine if a property is in an economically viable location. In fact, you can search our site for properties that will fit your investment goals using standard investment criteria, such as income, balances and growth.
Funding Your Investment
No inheritance or dowry? No problem. You can turn to cash, self-directed IRAs or even financing (via traditional mortgage or asset-based loan). Each affects your return on investment differently. If you choose a mortgage, you’ll have the additional costs of appraisals and inspections; mortgage insurance if putting less than 20% down; and closing and legal fees. But that type of leverage often boosts returns.
Tracking Your Investment
So you found and purchased the perfect SFR investment property… Now what? First, there’s the day-to-day management, such as maintenance and repairs that will need to be completed in a timely and efficient manner for your tenant. This may be difficult to do if you have a full-time job or zero handyman skills. And if that’s the case, as it is for many of our investors, you can take advantage of our Asset Management Services and have all the day-to-day tasks handled for you. Then, there’s the on-going paperwork and expenses, including taxes, insurance and homeowner association fees. And what if your tenant leaves abruptly or refuses to pay rent? How does all of this affect your bottom line?
Our clients are easily able to login to their accounts to view their investment activity and see their expenses, estimated appreciation and revenue all in one place. But if you’re doing this on your own, you can certainly maintain an excel sheet or hire an accountant to help you keep track (just be sure to add your accountant as investment expense).
While some things have changed since the early 20th century, others haven’t. In Downton Abbey, Mrs. Patmore’s wise investment inspired her co-workers, the butler Mr. Carson and the housekeeper Mrs. Hughes, to purchase an investment property of their own. SFRs are on the upward trend again because they’re great investments that can diversify your portfolio and bring about great returns. And the best part: Anyone—from the Earl of Grantham to Mrs. Patmore—can take advantage.