Want to invest in a single-family house, but your local market stinks? And you've always been told to buy nearby so you can manage the property yourself?
You could invest in rentals in some far-off -- but really hot -- location, but who in the world wants to deal with the hassle of being a landlord? Especially in a place you can't get to at a moment's notice.
A relatively new online real estate investment platform called HomeUnion solves these problems. Based in Irvine, California, it provides all the services necessary for individuals to invest remotely in single-family rentals.
HomeUnion's "cradle-to-grave," turnkey service spans the life of the investment, from finding decent properties in respectable neighborhoods that will offer an acceptable return, to advising you on buying the place, finding tenants, managing the property and even selling when the time comes.
HomeUnion "offers two major value propositions," says its CEO, Don Ganguly.
First, it allows investors to put their money in the places that offer the best deals in terms of return on capital. Typical returns run 6 percent to 8 percent for cash investments, after expenses, and 8 to 17.5 for leveraged -- or mortgaged -- investments (again, after expenses).
And that's just cash flow. Appreciation, while possible, is not figured into those figures, according to Ganguly. That's "way better than you can get with other fixed-income investments," he points out.
The company analyzes dozens of factors to identify markets where investments make sense, including housing prices, rental rates, vacancies, trends, employment and population growth. It also relies on input from local experts with a more intimate knowledge of a particular market.
Once the proprietary analytics are completed, it "puts boots on the ground" in the best places to identify and vet individual properties, according to Ganguly. It is currently putting money to work in 15 locations, including Austin, Chicago, Dallas and Houston, and will soon announce its entry into five more places. The goal is 25 markets by year's end.
Typically, the company looks for properties in the $80,000-$100,000 range in nice neighborhoods. It particularly disdains expensive communities where rents don't pencil out. The goal is to find houses in places where the monthly rent is about 1 percent of the cost of the house -- for instance, a $100,000 house that generates $1,000 in rent.
Next, HomeUnion puts together a management team to operate the house on the investor's behalf. The team makes sure the house is in showing condition, finds and vets tenant candidates, takes care of leases, collects the rent and is on-call during occupancy should a problem occur.
In other words, all the things you'd have to do to manage the property, but can't do from afar.
Management fees run between 7 percent and 10 percent of the monthly rent, or about what you'd pay if you dealt directly with managers.
On top of that, HomeUnion charges a 1 percent asset-management fee that covers, among other things, handling the logistics of money transfers, contract negotiations with vendors and managing expenses.
Ganguly stresses that his young company is not a listing site. Rather, it is a platform to help investors identify and purchase single-family homes to rent. It is "hands-free investing for individuals to invest remotely," he says.
Another thing HomeUnion is not is a flipping service, in which you buy and sell within six months. On the contrary, says Ganguly, "we're looking for folks who are looking for stable incomes for at least three to five years."
Of course, if you buy a place using HomeUnion's platform, you can hold it as long as you like or sell whenever you desire. That's completely up to each individual investor.
Realize, though, that while investing in single-family rental houses is more stable than the stock market, rentals are not exactly liquid assets.
There's also no guarantee on your returns. "We're buying a lot of data" in searching for strong markets, says the CEO, "but nothing is without risk."
Currently, the company has maybe a thousand clients who run the gamut from retired individuals to young folks who see rentals as a good way to generate income. But Ganguly says that if the platform attracts the interest of just 100,000 of the 8-10 million people who earn enough to dabble in the rental market, "we'll be in pretty good shape."
"For the past two years, we have been plotting our real estate investment management program in a limited number of markets, and fine-tuning our models and asset-management practices so investors can find and buy properties based upon their own preferences, without having to become hands-on landlords," says Ganguly.
"We can now offer individual investors the efficiency and simplicity enjoyed by institutional investors."