Real estate investors must be growing accustomed to Canadian markets plateauing and yielding diminishing returns, and the solution may involve our vastly more populous neighbour to the south.
Norada Real Estate Investments, a firm founded by Calgary-born Marco Santarelli, now a resident of Orange County, California, could best be described as a gateway to myriad U.S. markets that are carefully selected for their key fundamentals, like diverse employment sectors and robust population growth projections. Arguably the largest nationwide provider of U.S. investment properties, Norada provides both the turnkey properties and handles their management.
The company offers its investor-clients turnkey properties, both refurbished and new construction, ranging from the single-family detached submarket to multi-family residential, like duplexes, triplexes and fourplexes. Norada is presently in about 20-25 positive cash flow-producing, emergent markets wherein turnkey properties—that is, properties ready to be tenanted immediately—promise considerable equity growth, but that also have buy-in prices no higher than market value, if even that high.
“A city with 100,000-500,000 people is ideal,” Santarelli told CREW. “For example, we’ve been in, not Atlanta proper but metropolitan Atlanta, on and off, for probably 15 years. It’s been a very popular market and still is.
“Most of our clients purchase in B+ and A- neighbourhoods, which are mid- to upper-middle income areas. That, to me, is the sweet spot and the middle of the bell curve, and where the biggest bang for the buck exists because you get quality properties and quality tenants. As long as you’re in a growing market, which are cities we operate in, you’ll have great short- and long-term success.”
Norada doesn’t charge its clients for the services it offers, including consultations with its investment counsellors that involve determining investment goals, mapping pathways to achieving them, and building real estate investment portfolios. The company provides individual clients with comprehensive plans about the geographical markets and submarkets that make sense for them.
“It always starts with what we call a ‘strategy session’—that first call that can last an hour or more,” said Santarelli. “They probably range in 30-60 minutes, based on how much the investor understands and how seasoned they are or aren’t. The first hour lays a lot of groundwork and answers a lot of their questions.”
Naturally, Norada avoids the so-called “24-hour cities,” like New York City, San Francisco, Los Angeles and Chicago proper, because—much like Canadian investors have come to learn about Toronto and Vancouver—investment properties in those cities don’t carry themselves. While the aforementioned cities still offer superlative equity after a number of years, Norada operates in markets that proffer both immediate positive cash flow and, down the line, considerable appreciation.
“The reality is that the bulk of properties we choose for our investor clients in the single-family home submarket range from US$100,000-200,000, and sometimes as low as US$80,000. These homes range from about 1,000 to 2,000 sq. ft, have three bedrooms, and an average of two bathrooms.
“Jacksonville, Memphis, Indianapolis or Greater Chicago’s metro area, that’s where your rent-to-value ratio, as I like calling it, will be closer to 1%, which is perfect,” said Santarelli. “It could be 0.8% or 0.9%, but a $100,000 three-bedroom single-family home would rent for roughly $1,000 a month, while a $200,000 single-family home will rent for roughly $1,700 a month gross. In lower priced markets, your cash-on-cash return could have double-digit cash flow.”
Santarelli stressed the importance of deep market analysis and alluded to Detroit, which investors often mistake as being ripe for a boom. Not so, says Santarelli.
“Detroit is not a market we operate in, and we wouldn’t touch it for decades. You can buy properties there for $10,000-30,000, but you’re dealing with a problematic demographic of tenants with very low income and transient job situations.”
Written by Canadian Real Estate Wealth.
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Canadian Real Estate Wealth