Mark Ferguson
The more properties you buy and the sooner you get started, the easier it gets. In my models, I project a passive income of $250,000 to $350,000 a year if you can buy three rentals a year for 10 years. Not everyone can buy three rental properties a year, but not everyone needs $250,000 a year to live off. It is possible to buy three properties a year for ten years if you are smart with your money, use techniques to buy properties with little money down, and use your cash flow to buy more properties. This can be very difficult to accomplish for many people, but it is possible with hard work, a budget, and being willing to act fast. Even if you can only afford only one property a year for ten years, you can bring in $75,000 to $100,000 a year in passive income from those rentals. (Location 210)
When I stopped letting society tell me what I should invest in, how much money I should be happy making, and what things should make me happy I became a much happier person. I started making incredible goals, pushing myself farther, and achieving more. (Location 232)
It is very common for a rental property to produce a profit, but thanks to depreciation, show a loss on your taxes. (Location 399)
I have purchased 16 rental properties so far and I am making over 15 percent cash-on-cash returns on all of them. (Location 484)
My super aggressive goal is to own 100 rental properties by 2023. I created this goal back in 2013 and I am a couple of years into it. With my 16 rentals to date, I am a little behind on my projections, but I still have confidence I will get there. (Location 487)
I usually buy my properties for about $100,000 and put 20 percent down. I make repairs on the homes that can range from $5,000 to $15,000. On some houses, I am able to get the seller to pay for some of my closing costs. I am a real estate agent, so I also get to save a commission on many homes that I purchase. For the most part, I am able to get about $500 a month cash flow on my rental properties with financing in place. Depending on what market you are in, how much rents are, and what property taxes are, you may be able to make more or less money than I do on my rentals. (Location 497)
Buy below market value. I buy all my properties below market value, which allows me to walk into each deal with at least a 20 percent equity position. What does that mean? If I buy a home for $100,000 and make $10,000 in repairs, I want my total investment to be 80 percent or less of what the home is worth. With that equity gain and putting 20 percent down, my loan-to-value ratios are usually 60 percent or less. (Location 509)
The key to any successful real estate strategy is to purchase properties below market value. It is relatively easy to purchase homes actively for sale on MLS for market value. The difficult part is finding the great deal, acting fast, and getting it under contract. Finding motivated sellers that do not have their homes listed on MLS is a great way to find deals, but takes a lot of work and patience as well. (Location 710)
Hiring help is a great way to increase time and usually increases your results as well. Whenever I hire a new assistant, I delegate tasks I do not like doing. I am happier and get more done when I am not working on tasks I do not like doing. I also have more time to focus on the tasks I do like doing or the tasks that make me more money. A great piece of advice I recently heard is never to work below your income. If you are worth $100 an hour, do not do tasks you can hire out at $20 an hour. Focus on things that make you that $100 an hour or more and let someone else do the less important work. (Location 727)
A good rental property for me may not be a good rental property for you. I use many fundamentals to judge rentals that can help you decide what a good investment is. The main things I look at when I judge a rental property are: Did I buy it below market value and by how much? How much does it cash flow each month? What are my cash-on-cash returns? What do the future prospects look like for the market in which I am buying? (Location 750)
The 50 percent rule states that the expenses on a rental property will be 50 percent of the rents. The 50 percent rule does not account for any mortgage expenses. This rule is widely used on many online forums and by many investors, but I do not think it is something that should be used by all landlords on every property. (Location 847)
home prices in Southern California from aboutinflation.com. (Location 1010)
It really is a personal decision on how high of returns a person needs to justify spending much cash on a rental property. I like to see $500 a month in cash flow on my properties, which I purchased for $80,000 to $140,000. If you are buying less or more expensive properties, your cash flow requirements may be different. (Location 1086)
I like to see over 15 percent cash-on-cash returns, but I love to see closer to 20 percent. Some people would be happy with 15, 10, or even 5 percent returns on their cash. (Location 1089)
The cash-on-cash return is calculated by determining the cash flow or rental income on a property and dividing it by the initial cash invested into that property. If you spend $25,000 on down payment, closing costs, and repairs on a rental property and get $5,000 in cash flow, your cash-on-cash return would be 20 percent. (Location 1112)
I like to start calculating the cash-on-cash return once I have paid all expenses and the home has been rented. (Location 1119)
I like to calculate my cash-on-cash return on my rental properties and I consider the other benefits a bonus. (Location 1122)
How do you determine how much cash flow and what kind of returns you need? When you are trying to figure out how much return you need on your properties, here are a few things to consider. What is your end goal? Do you want to retire in ten years? Do you want to pay for your children’s college? Do you want to build an empire? Do you want to be able to make more than you would in the stock market? Your end goal will help you determine how much in cash you need each month. Once you know how much money you want every month from your rentals, you have to figure out how soon you need to get there. Is it five years, ten years or longer? How much money will you have to invest in rentals? The less money you have and the higher your goals are, the more cash flow you will need. After you consider all of these factors, you can start to build your own plan for how many properties you want and how much each property will need to make. (Location 1124)
Many investors assume multifamily properties are the better investment, because they are built to produce income for property owners. I invest in single-family homes because they give me great returns, are easy to find, and easy to manage. However, many successful investors also invest in multifamily properties. I believe the better investment depends on what you are looking for and what you can buy in your market. (Location 1141)
I try to buy properties at 70 to 80 percent of market value. Usually, the properties are cheap because they need work or have very motivated sellers. Not only do I make money as soon as I close, because I bought the property below market, but I usually add value through repairs or improvements as well. (Location 1147)
The CAP rate on multifamily homes in Colorado is around five percent. It is hard to make money with a CAP rate that low. The CAP rate on the single-family homes that I buy below market value is around eight percent, sometimes higher. I do not know for sure why the CAP rate is so high on multifamily in Colorado. I would guess it is because we have a booming economy, great market appreciation, and large institutional investors are buying multifamily properties with cash. (Location 1161)
What are the advantages of single-family homes? I think single-family rentals are easier to manage than larger complexes. With a single-family rental I do not have to pay any utilities, the tenants pay them all. In multifamily properties, the property owner is usually responsible for the water and sometimes electric and gas as well. Many tenants feel a single-family rental is their own home, not just an apartment or place to live. They usually take good care of the property and even fix and repair items themselves. They also tend to stay longer and renew their leases year after year. (Location 1169)
Single-family homes are usually less expensive to buy than large complexes with multiple units. The large complexes bring in more rent, but because of that, they are much more expensive to buy (at least in my area). The down payment, repairs, and maintenance are usually less with a single-family home than with multifamily properties. It is usually much easier to get started investing in single-family homes than larger multifamily complexes. (Location 1174)
If you buy multifamily properties, you will have more units under one roof, which some investors think is an advantage. Usually you will bring in more rent per square foot with multifamily properties, which means the maintenance may be less over time. I think you have to couple this with the fact that rents are usually lower for multifamily and in my experience the tenants do not take as good of care as an apartment as they would a single-family house. (Location 1188)
When you buy a single-family home as an owner-occupant you cannot rent the home for a year (because you are living in it), which can make it harder to buy multiple properties. When you buy a multifamily property as an owner-occupant (which is legal as long as it is 2-4 units), you can live in one unit and collect rents on the other units right away. When you house hack you can buy a rental property and start collecting rent right away. This helps you build a rental history sooner and be able to qualify for more rentals sooner than if you bought a single-family home. Most banks will not let you use rents collected as income until they show up on your taxes. This makes it very difficult to qualify for new loans when you already own a rental property, but do not have a long rental history. (Location 1202)
I am going to keep buying single-family homes because I can get better deals, I can manage them more easily, they appreciate more, and they require less cash to purchase. In some areas, it may make more sense to buy multifamily housing, depending on what the returns are. This is where you have to do your research and strategize which would be the better investment. (Location 1232)
I prefer single-family rental properties that are slightly below the median sales price in my area. (Location 1370)
Why are returns different for different priced rentals? Rental properties that cost $50,000 will have vastly different returns than properties that cost $200,000. The returns vary due to obvious factors such as higher rent, but also due to different levels of maintenance and turnover. Typically, the lower priced rental will have more maintenance and more turnover, as well as lower appreciation over time. There are exceptions to this rule, which can be seen in my market. (Location 1380)
Many times the rent-to-value ratio on lower priced rental properties is better than on more expensive rental properties. That high rent-to-price ratio is what makes low-priced rental properties attractive to buyers, even with more maintenance and turnover. Why is the rent-to-value ratio higher on less expensive rentals? Rental rates are determined by the supply and demand for rentals properties in a given market. Rental rates are not determined by housing prices or the cost to build houses. The lowest rental rates are usually in large apartment buildings. If there is a shortage of apartment buildings in a given market, you will usually see rental rates increase. Eventually when rental rates get high enough, new apartment buildings pop up very quickly to meet the demand, because investors see the need for more units and they will make money if they build more. However, no matter how many apartments are for rent, there will always be people who want to rent single-family homes. When there is a shortage of single-family homes for rent, builders usually do not build more homes to meet that demand, especially at the low-end of the market. Builders simply cannot build cheap enough in most markets to make new construction rental properties a viable business. Builders target owner-occupant buyers when they build new homes. When there is a shortage of single-family rental properties in an area the rent rates will increase, but unlike apartment buildings, new construction does not ease the supply shortage. Most markets with low-priced rental properties are found in the Midwest and you may see properties sell for $30,000 that can be rented for $600 to $700 a month. $700 rent on a $30,000 house is a great margin when you consider my properties rent for $1,200 to $1,500 a month. The rent-to-value ratio may be higher on low-priced rentals, but that does not mean the cash flow is higher. The expenses on a lower priced rental are most likely going to be a higher percentage of the value of the property. Here is an example of how an investor might figure the costs on a higher versus lower priced rental property. These numbers were generated from my cash flow calculator. I am using these numbers based on a higher priced rental property I could buy in my area and a lower priced rental that could be bought as a turnkey rental property in another state. (Location 1388)
Recognizing a great rental property is not easy! It takes hard work to research your market, decide what properties are best, and what properties fit your lifestyle. I have chosen single-family rentals and it has worked great for me, but we are all different. (Location 1494)
The cost for a property manager on vacation rentals is 30 to 50 percent of the rents! (Location 1535)
I own single-family rentals that take very little management. The tenants tend to stay for long periods, I repair the houses after I buy them so little maintenance is needed. We occasionally have problems, but for the most part our tenants pay on time and take good care of the properties. The tenants pay all the utilities and are on long-term leases. (Location 1546)
.Do you want to tie up $400,000 plus in a vacation rental that you use a couple times a year. That much money would make me over $7,000 a month in rental income, because I can use that money with financing and still make money each month. That $7,000 a month would more than pay for a couple of vacations a year in some nice places! Not to mention, it is not easy to get financing in another country, or even another state. (Location 1608)
I prefer residential real estate and I think most investors are better off with residential rental properties as well. I invest in residential properties, because there are more of them, it is easier to buy them below market, and I am more familiar with residential than commercial. However, if an investor is well versed in commercial and willing to work hard, you can make a lot of money with commercial real estate as well. (Location 1626)
Valuing residential properties based off the sales of other residential properties is called the sales comparison approach. Commercial properties are rarely valued using the comparison approach, because there are much fewer commercial properties and it is hard to find similar properties that have sold recently. Most commercial properties are valued using the income approach, which is much more complicated than the sales comparison approach. (Location 1645)
I do not use cap rate on my investment properties, because it does not factor financing costs. I prefer to use the cash-on-cash return on my properties, but the cap rate can still give you a basic idea of a property's returns. (Location 1657)
I think the cash flow or cash-on-cash returns are more important, because the cash flow tells you exactly how much money you are going to make, including expenses and debt service. (Location 1688)
How do you know what neighborhood to buy rentals in? When you buy rental properties, the neighborhood the property is located in is extremely important. Different neighborhoods can charge different amounts of rent, need different levels of maintenance, and have different turnover rates. (Location 1757)
Why can you not trust a real estate agent to tell you about good neighborhoods? A real estate agent may seem like the first choice for determining a good neighborhood. However, I am a real estate agent and it is illegal for me to tell my clients or anyone that a neighborhood is good or bad; it is considered steering. It is illegal for me to recommend neighborhoods because my opinion of what a good neighborhood is may be different from someone else’s. If people used my judgement to determine a good neighborhood, they would all buy houses in the same neighborhoods. If everyone bought houses in the same neighborhoods, it would push up values in some neighborhoods and lower values in other neighborhoods. (Location 1766)
Since a good neighborhood is relative to what buyers are looking for, it is up to each buyer to figure out what a good neighborhood is to them. A buyer needs to figure out what they want in a neighborhood first. Neighborhood characteristics that a buyer should consider are: Crime rates School ratings Home prices Age of homes Size of homes Size of the town Proximity to large population areas Local economy HOAs Type of homes (multifamily or single-family) Tax rates Many more characteristics will affect values and rent rates in a neighborhood. If you want to buy rental properties, the returns you get are going to be determined in large part to how well you research and judge neighborhoods. Remember you are not judging a neighborhood on whether you would live there, but on whether the property located there would be a good investment. (Location 1777)
How can an investor decide what neighborhood is best to buy rental properties in? The first thing an investor must do is to determine what type of rental property and neighborhood they want. This is one of the hardest parts of investing in real estate. Since every market is different, there is no set formula for a great rental property; it boils down to the numbers. You may get higher rent-to-value ratios on low priced homes, but you might have more turnover and maintenance on those homes. You might have less maintenance and turnover on high priced rentals, but the cash flow may not be as high. I personally like to find a happy medium with good cash flow and low maintenance and turnover. Once an investor knows what type of neighborhood they want to invest in, here are some tips for determining if a neighborhood meets your expectations. Call the local police department. Many times the local police will tell you what the crime rates are and even tell you what neighborhoods have high crime. Drive through neighborhoods on the weekends and in the evening. Driving through neighborhoods will give you an idea of the upkeep of houses and traffic. Check websites that give neighborhood information statistics such as City Data. Ask friends or people you know who live in the town in which you want to invest. If you do not know anyone in that town, try to meet some people! People who are not real estate agents can give you their opinion and much more information on neighborhoods. Talk to people in the neighborhoods in which you want to invest. When you are driving around looking at houses and you see someone doing yard work or walking their dog, ask them what they think of the neighborhood. It is not easy to determine what the best neighborhoods are in which to invest. Each investor’s idea of the perfect neighborhood will be different based on their expectations on returns, willingness to make repairs, familiarity with a location, and much more. If you do not know a town or neighborhood well, make sure you do your due diligence before you buy. (Location 1790)
How do you buy real estate below market value? One of the keys to my investment strategy is to buy houses below market value. This is not easy to do and you cannot just call up a real estate agent and ask them to find you awesome deals from the MLS that day. It takes patience, hard work, the ability to act fast, and nerves to buy houses below market. If you learn how to buy right, it is a lot of fun and you will make a lot of money. I have bought every house I have owned, except for the first one, below market value. I bought my first house when I was 22, back in 2002. I bought the house for $188,000 and ended up putting at least $10,000 of materials into the home and a lot of sweat equity over seven years. In 2009, I managed to sell the home for $190,000. Talk about a huge disappointment! I learned that I could not depend on the market to increase to make money in real estate. I had to buy below market value and force equity into the property. For my next house, I bought a foreclosure from the Public Trustee. We bought this house for $220,000 by borrowing money from my sister and father-in-law (I had to pay cash at the sale). I was then able to refinance the property and pay them back in full. My wife and I lived in that house for three years, and thanks to getting an… (Location 1810)
Almost every lender will want less than a 75 percent loan-to-value ratio on an investment property refinance. (Location 1838)
When you find sold and active comps that are similar to your subject, your work is not done. You then have to decide if you need to make adjustments for the differences between the comparables and the property you are valuing. (Location 1878)
REO (Real Estate Owned) is a bank term for properties they have gotten back through foreclosure. REO properties are usually listed in the MLS (Multiple Listing Service) by an REO listing agent. I am a REO listing agent myself, and I can tell you that each bank handles their REOs very differently. Some banks repair homes before they list them and others do not do a thing. Some banks are willing to negotiate quite a bit on their prices and others will hardly budge. REOs can be a great way to buy real estate below market value. If you have paid attention to the real estate market in the last two years, you understand that REOs are getting harder and harder to find. There are some great deals on REOs, but usually the deals are on homes that need many repairs. If you find a great deal on a REO, do not be surprised if you find yourself in a highest and best situation. Many banks ask for highest and best when they receive more than one offer on a property. There is a ton of competition for REO properties right now and multiple offers are not rare. Highest and best gives every buyer who made an offer a chance to raise his or her offer and hope it is good enough to get the property. In many highest and best situations, the winning offer is higher than the actual asking price. If you find yourself in a highest and best situation, I always suggest bidding the maximum price that will make the deal work for you. To make your offer more appealing to the seller, consider removing your inspection contingency or paying cash if possible. Many banks prefer a cash offer from an investor and sometimes they actually prefer an owner-occupant buyer. Sellers like Fannie Mae, Freddie Mac, and Wells Fargo only allow offers from owner-occupant buyers at the beginning of the listing period. This can be frustrating for investors looking for a good deal, but there is no way around their owner-occupant restrictions. It is against the law to pretend to be an owner-occupant when you will not be occupying the property. You need a real estate agent to buy almost any REO property. Buyers see vacant REO properties and think that if they can just talk to the bank, the bank will sell it to them well below market value. The truth is that the banks have strict guidelines for how they sell houses and they almost never sell them without putting them in the MLS system. (Location 1893)
HUD homes have a unique online bidding system located at HudHomeStore.com. All bids have to be entered by a licensed agent and are sealed; buyers cannot see what the other buyers are bidding. (Location 1917)
The first thing to know about finding a real estate agent is the difference between an agent and a Realtor. In most states, an agent has to complete state licensing requirements and hang their license with a broker or be their own broker. A Realtor has to do those things and belong to the National Association of Realtors (NAR) as well. NAR has specific requirements for a Realtor; they have to belong to local boards and they have to follow a strict code of ethics. I usually suggest people looking for a Realtor because of the code of ethics they work with. (Location 1966)
When looking for an investor-friendly agent, make sure they are competent After you find an agent who answers their phone, you still have a lot of work to do. You have to make sure they know what they are doing; test their knowledge by asking simple questions about the types of homes you are looking to buy. 1. Have you sold many REO properties? 2. Have you sold HUD homes? Does your office have an NAID number? 3. How do you suggest buyers handle multiple offer situations? 4. How do short sales work? 5. If I were to sell one of my houses, how would you market it? You should already know the answers to most of these questions, but you want to know if your agent knows. (Location 1986)
Many realtors do not have a clue about real estate investing; acting fast for you is much more important. (Location 2015)
Realtors must carry a lot of insurance. I carry Errors and Omissions (E&O), general liability, and umbrella insurance policies. Realtors have to pay for license fees, MLS fees, office expenses, and office space. Most Realtors do not keep their entire commission; they pay a percentage to their broker. In turn, the broker pays for staff, advertising, and other expenses. Commission splits can range from 50/50 to 90/10 depending on what the office pays for and the number of transactions the Realtor closes. Realtors get no benefits! They pay all their health insurance costs, have no matching 401ks, or any of the other benefits of a corporate job. (Location 2041)
If you plan to buy more than one or two rental properties per year, get your real estate license! If you do nothing else with your license except buy your own rental properties, it will save you thousands of dollars in commissions a year. (Location 2099)
How can you become a real estate agent? You must take pre-licensing classes and pass a test in most states to get your real estate license. My assistant got his license through Real Estate Express, which has a great licensing program in all 50 states. Real Estate Express has some of the cheapest prices I have seen, although I have not researched every real estate school. (Location 2155)
I buy many properties to fix and flip and hold as rental properties and 90 percent of my purchases are from the MLS. Even though prices are higher and competition is fierce, there are deals on the MLS. There are many ways to buy houses below market value, but this section will focus on the MLS because that is where I have had the best results. I am going to discuss what strategies I use and how you can get great deals on the MLS as well. (Location 2167)
Rental property number five was a fair market sale. It needed a lot of work and was a great deal. I bought it for $88,000 and two and a half years later, it is worth $170,000. (Location 2185)
Rental properties nine and ten were fair market sales that were underpriced; I was able to purchase them well below market value. I purchased rental property nine for $130,000 and with only $3,000 of work, it is now worth $180,000. I purchased rental property ten for $99,000 and with a minimal amount of work, it is now worth $150,000. If a real estate agent is not paying attention to market price increases, if a house needs some work, or if the sellers simply want to sell their house quickly, it could mean opportunity for investors. (Location 2192)
Being a real estate agent gives me a huge advantage when submitting offers quickly. I check MLS many times a day. As soon as I see a great deal, I look at the house as soon as possible. If I like the house, I have my assistant write up an offer and send it to me with DocuSign, which allows me to sign the contract electronically on my phone and send an offer to the seller almost immediately. By being an agent, having an assistant, and using DocuSign, I can send an offer less than an hour after a home is listed. Acting quickly is one of the most important things you can do when buying off the MLS. Many REO sellers will not accept an offer right away, but many short sales and fair market sales will. Most banks, when selling their REOs, have a five day period or longer before they will review offers. HUD and some banks have owner-occupied periods when a home is first listed, where only owner-occupants can make offers. (Location 2198)
No matter what you do, it takes longer to submit an offer if you are not an agent. One way to speed things up is to ask your agent to set up property alerts for you. In my MLS, I can set up alerts to send an email as soon as specific properties that meet my given criteria are listed. I set these alerts so I will not miss a great deal on the MLS. I was able to buy my last fix and flip thanks to a property alert that told me a home was back on the market. Investors can use sites such as Zillow and Realtor.com, but their listings are not always updated quickly. Zillow also has many listings on their… (Location 2206)
If you find a great deal, do not be cheap! Do not try to lowball an already great deal; it may cost you the deal. If there are multiple offers, do not try to make a few extra bucks. Offer the most you are able to while still make your desired profit. You do not want to stretch your limits when you make an offer; it does not make sense to buy a home that will not make you money. You do not want to try to steal a home either, if it will cost you the deal. I may try to offer a little less than I want to pay if I think I can get my offer in before any others. If the home is an amazing deal, I offer full price or sometimes even above full price in hopes that the seller will sign my offer before any other offers come in. In a multiple offer situation, I do not pay attention to the list… (Location 2212)
Make your offer more appealing to a seller by using cash or few contingencies I am an experienced investor and I am in a great place to be able to offer cash on a property if necessary. I also have a great portfolio lender that does not require an appraisal on loans under $100,000. Most sellers want quick and easy closings, so a cash offer is usually the most enticing to them. If you have to use financing, use as few contingencies as you can. I am able to remove the appraisal contingency on most of my financed offers and I will even remove my inspection contingency in some cases. On my last three deals, I removed my inspection contingency and I know that helped get my offer accepted. This is risky for someone who does not know what to look for in a house, but if you are getting a good enough deal and know what to look for in a house, it may be a good strategy to use. A cash offer with no inspection contingency is a great offer for most sellers. (Location 2224)
I rarely if ever, submit an extremely low offer. I have never submitted an offer that was 50 percent or less than list price. When I submit a low offer, it is usually about 70 to 80 percent of list price. Offers lower than 70 percent of list price usually offends the seller and even a 70 percent offer might offend them. I do not submit low offers on every house on the MLS, but I select listings that I think will be more likely to negotiate. When I make my first offer, I do not offer the most I can pay for the home. I leave some room for negotiation, because the seller is most likely not going to accept my low offer. I recently bought a flip listed for $109,900. This was a good price, although not for a flip because of the work needed. Seven days after the home was listed, the seller lowered the price to $104,900. I noticed in the comments that the home needed TLC, was dirty because previous tenants had just moved out, and would not qualify for financing. This was music to my ears! I knew the seller was motivated, because they would not spend even $150 to clean the house. I offered $80,000 with no inspection and cash closing in 20 days. The seller countered at $85,000, which I happily accepted. Many times the seller will want to negotiate at least a little so they feel like they got the most money they could out of the house. (Location 2277)
Not every offer I make is accepted. In fact, most houses I make offers on I do not end up buying. If you want to be a great real estate investor, you cannot be afraid to have your offer rejected or to see someone else get a deal you were hoping to buy. (Location 2287)
If I make a low offer, I can usually tell how motivated the seller is. If the seller rejects my offer or acts offended at my offer, I forget about the house and move on. It is not worth my time to negotiate back and forth if the seller is not coming close to my price. If the seller comes down significantly from their list price, I know I have a chance of getting something together. Sometimes we cannot get together on the price or they accept another offer. In those cases, I am always polite and ask their agent to let me know if anything happens or if the seller is interested in my offer later. Many times the first offer that was accepted falls apart because it was an owner-occupant who later realized… (Location 2292)
When I make offers, I do not ask for an inspection period. I have enough experience to know what major issues to look out for and what repairs a home needs. I would not suggest… (Location 2299)
If I make an offer without an inspection or financing contingency, the seller knows they will at least get my earnest money if I do not buy the home. This gives me an advantage and I have bought many houses at a lower price than other investors were offering, because I waved my inspection. Some buyers make an offer for more than they want to pay for the house with an inspection contingency.… (Location 2304)
I would always assume a house would need new flooring, paint, appliances, fixtures, and at least $5,000 in other repairs depending on the age of the home. (Location 2388)
Hudhomestore.com lists all HUD homes for sale that are not currently under contract. Once a HUD home has a bid accepted on it, it is taken off Hudhomestore.com and the status in MLS is changed to under contract. HUD homes are sold in an online auction format; all bids must be submitted online by a licensed real estate agent who is registered with HUD. (Location 2419)
Depending on house values in your area, 20 percent down is a lot of money. The houses I buy are usually right around $100,000, which equates to about $20,000 needed for the down payment. You also need to pay closing costs when purchasing an investment property, which consist of interest, insurance, recording fees, origination fees, tax certificates, appraisals and more. It is usually safe to assume closing costs will be at least three percent of the purchase price, although you can ask the seller to pay part or all of your closing costs. In some cases, I ask the seller to pay part of the closing costs in order to reduce the amount of cash I have into a property. Remember though that asking the seller to pay your closing costs may make your offer less attractive. You also may have to pay for an inspection, which can cost $250 to $500. (Location 2635)
As a general rule of thumb, I always add $5,000 for unknown costs on any rental or fix and flip that I buy. (Location 2650)
How much total money will you need to buy a rental property? Here is a breakdown of the costs I would normally have on a $100,000 rental property: Down payment $20,000 Closing costs $3,000 Repairs costs $10,000 Carrying costs $1,000 Total investment $34,000 (Location 2654)
have at least six months in reserves for all mortgages in an investors name before they will give them a loan. To figure how much cash you would need, add up all your mortgage payments, including your personal residence, and multiply by six. A bank will require all the minimal costs required on an investors mortgage to be accounted for when calculating reserves. Taxes and insurance will be counted when calculating the reserve requirement as well as the mortgage payment. (Location 2676)
One of the biggest issues investors run into is that they have to qualify for two houses if they have a loan on their personal residence. Because of this, it is very important not to buy the most expensive house for which you can qualify. You must have a low debt-to-income ratio to qualify for a new loan whether it is as an owner-occupant or as an investor. Maxing out your qualification on your personal residence makes it very difficult to qualify for a loan on an investment property, because it raises your debt-to-income ratio. (Location 2710)
Most banks require a higher credit score for investors looking to buy rental properties. After you have four mortgages, conventional lenders will require at least a 720 credit score from investors, while some owner-occupied loans may allow a credit score under 600. Do not expect to get a loan on an investment property with a credit score under 620. A common problem with buying rental properties is having a low enough debt-to-income ratio to qualify for a loan. Many times banks will not count rental income after you buy an investment property, which makes it even tougher. The rules regarding rental income vary by the bank and type of loan. My portfolio lender has less strict guidelines than a bank that is going by Fannie Mae guidelines. Many lenders do not count rental income until it shows up on your tax return. Some lenders will only count 75 percent of rental income and others are even stricter. (Location 2721)
When you have four mortgages in your name, it gets much more difficult to get loans. Fannie Mae requires 25 percent down and a 720 credit score and they do not allow a cash-out refinance. Therefore, it is important to find a portfolio lender who does not follow Fannie guidelines! My lender will still do 80 percent loan-to-value loans on more than ten mortgages and they allow a cash-out refinance on more than ten mortgages as well! (Location 2729)
How to lower debt-to-income ratios One of the most common problems people have qualifying for a personal house or investment property is a high debt-to-income (DTI) ratio. Most lenders want to see a debt-to-income ratio of 45 percent or lower. If your debt-to-income ratio is higher than this, it will be very hard to qualify for a loan. I have investors emailing me all the time and asking how to get around high DTIs. Even my portfolio lender who is very lenient with lending requirements will not loan to people with high debt-to-income ratios. The two options for reducing your debt-to-income ratio are to make more money or pay off debt. What is debt-to-income ratio and how is it calculated? The debt-to-income ratio is calculated by taking your monthly debt payments and dividing them by your gross income. If you have $2,000 of monthly debt and $5,000 of gross income, you would have a debt-to-income ratio of 40 percent ($2,000/$5,000 = 40 percent). (Location 2801)
If you want to buy rental properties, be careful when you buy a house for yourself. Many lenders will tell you how much you can qualify for, not how much you can afford. Buying the most expensive house you can afford, means you probably cannot buy investment properties. Try not to spend all you money on your personal residence; it makes it very hard to save money as well. (Location 2871)
A portfolio lender will finance more than four mortgages and possibly many more Local lenders that offer portfolio financing are another (my favorite) option for investors. It can take some research, time, and networking to find a portfolio lender, but they have much looser lending guidelines. Portfolio lenders use their own money to fund deals and do not have to adhere to Fannie Mae guidelines. (Location 2989)
There are many hard moneylenders out there. Many only loan in specific states, while some loan nationwide. The best way to find a hard moneylender is to search for one in your state on any search engine. I have listed some hard moneylenders below. Jordan Capital-48 states Fundrise-Crowd Funding Lima Capital (Location 3213)
The easiest way to get quick cash is with credit cards. You can get a cash advance or pay for repairs using your credit card. If you use a credit card to finance your down payment or repairs and cannot pay it off right away, do not pay the 17 percent interest rate. Try your best to get another card that will allow a balance transfer. Many times, you can transfer all of your balance and pay little to no interest for up to a year. Hopefully, that will give you enough time to pay off the card and not be stuck with a high interest rate eating all your profits. (Location 3375)
When I first started out it was easy to find houses that would produce 20 percent cash-on-cash return. Now I am lucky to find anything that will return 15 percent cash-on-cash. I have had to go from buying $80,000 to $100,000 homes, to buying $120,000 to $160,000 homes. Rents have gone up in that time, but they have not doubled. (Location 4741)
When buying from the MLS I have a huge advantage as a real estate agent. I can write contracts very quickly and get offers in before investors who are not agents can. (Location 4746)
Here are the issues I have with buying out-of-state. I would need time to research and visit an area, in addition to finding a good agent, contractor, and property manager. I am not a Realtor in another state and would not be paid a commission. I would not know the area as well; the farther away I am, the less I would be able keep track of my properties. I would have to find new financing, as my portfolio lender will not loan in most states. With all these negatives, I have previously thought it was not worth it to buy out of state. However, with our market continuing to increase it is harder and harder to find great rentals. (Location 4898)
have begun using different purchasing strategies that with any luck will show results later this year. Those techniques involve sending letters to absent owners and people who have inherited properties. (Location 4934)
In other areas of the country, we are seeing many factors that contribute to price increases. Hedge funds have become massive buyers of investment properties and in many urban areas such as Atlanta, Phoenix, Las Vegas, and Chicago they are buying up thousands of homes. Naturally, that kind of buying is going to drive up prices and decrease inventory. (Location 4941)
How to buy rental properties in another market Rising real estate prices have forced many real estate investors to consider investing in out-of-state rental properties. There are a couple of options for real estate investors when buying out-of-state. You can buy turnkey properties that are already repaired, rented, and managed or you can buy properties that are below market, get them repaired yourself, and find a property manager. Buying turnkey properties involve much less hassle and work, but the returns are not as good. When you find the great deals yourself and find a contractor and property manager the returns are usually much greater. (Location 4993)
In the past, I have not seriously considered investing in another market, because I was able to get good returns in Colorado. I did buy a turnkey rental in Ohio with my IRA last year as an experiment to see how it would work to invest in a turnkey. If I were to invest out-of-state again I would buy houses below market, get repairs done, and find a property manager myself. (Location 5006)
How do you start looking for rental property locations? I have a huge advantage when researching locations for rental properties. I run Invest Four More, which gives me access to thousands of people investing all over the country. I talk to many investors for my podcasts, in my coaching programs, and people who email me. I have a long list of areas across the country with much better cash flow than Colorado. Florida, upstate New York, the Midwest, Milwaukee, and many other places have much better rent-to-price ratios. There are steps you can take to narrow down your search criteria when looking for a new place to invest. Before you start looking out of your own state, increase the geographical area in which you search for rentals. It would be more appealing to have to drive only a couple of hours to find a good location to invest in, rather than looking three states away. You would probably be more familiar with the area better as well. If you cannot find a close geographical location, start looking in areas with which you are familiar. Did you grow up somewhere different from where you live now? Do you have friends or family in a different area of the country? The more familiar you are with an area, the easier it will be to learn the market and find good deals. If you have family or friends in an area, they can help you learn a market and keep an eye on your properties. If you cannot find a suitable location where you know someone, where would you like to spend time researching a market? I think you have to visit any area you want to invest in and it helps if you have a little fun while you do it. Check out publications for the best rental property locations. Many sites will show you the best rent-to-value ratios. Do not blindly accept the lists of the best places to invest. Many times these lists ignore things like cash flow (yes, some lists look at economic growth and completely ignore cash flow), taxes, and other factors that make a good rental property. How do you know if an area will be good for rental properties? Once you have found a few places to research you need to know if you can make money in those areas. You also need to know if the economy is stable. Some areas may have great numbers, but a decreasing population and a shaky economy. Is the population increasing or decreasing? A rising population is a good thing and is a major factor for economic growth. Have housing prices been increasing or decreasing? It is not the end of the world if housing prices are decreasing. It might mean opportunity. If housing prices are decreasing and population are decreasing, the area may be in trouble. If housing prices are increasing sharply it may be hard to get a good deal that cash flows. What risks are there in an area? Is the area susceptible to floods, natural disasters, economic downturns, or wild swings in housing prices? These risks can be overcome, but make sure you know what you are getting into. Houses close to the ocean or in flood… (Location 5028)
How to find a team for out-of-state investing It will be virtually impossible to buy, repair, and manage homes from another state by yourself. It will save you money in the end to use local professionals who know the market. You will need a great team to handle buying and renting a long-distance property for you. Real estate agents: A great real estate agent can help you find great deals and help you find the rest of your team. A key to getting great deals is being able to act quickly. You have to be able to trust your real estate agent enough to make an offer for you sight unseen. Investors do not have time to fly out to see a good deal or plan a trip and hope that a good deal pops up while they are in town. I sometimes have to wait months to find a great deal and if I waited three days or a week to make an offer, that deal would be gone. Property managers: You have to have a property manager who will look out for your rental and rent it for you. A bad property manager can cost thousands and thousands of dollars. A good property manager will make you thousands and thousands of dollars. A great Realtor should be able to help you find a good property manager as well as this book. Contractors: This is probably the trickiest part of building your team. Contractors can be great or horrible and can change from great to horrible very quickly. We are constantly hiring new contractors. You have to be able to depend on your team to help you find a great contractor. Realtors and property managers should know local contractors to whom they can refer you. You should not have to pay in advance for work done. Always keep in constant touch with your contractors. Always get a written bid from any contractor before they start any work. There are many different areas across the country with great cash flow to invest in. If you do not happen to live in one of those places, it does not mean you cannot invest in real estate. It may take more work to invest out-of-state, but it is not impossible. I think it will be fun exploring new markets and finding new places to invest. If you have questions about investing out of your area or questions about what areas are good, you can always send me an email at mark@investfourmore.com. (Location 5077)
Here are a few advantages of buying turnkey rentals: Easy to find: You can buy a turnkey property very quickly from a turnkey provider who has a stock of turnkey properties available for purchase. Turnkey companies can have a large inventory of turnkeys because the properties are providing cash flow and making them money while they own the properties. You do have to know the right turnkey companies to work with. Less work than a normal rental: Turnkey properties are already rented, managed, and repaired. You do not have to find contractors, property managers, or real estate agents. Provide cash flow from day one: The first day you buy a turnkey, it will have a tenant in place paying rent. You do not have to worry how long the repairs will take or how long it will take to get a tenant. Provide a great return: Most turnkey rentals provide returns from 10 to 15 percent. That return begins right away and takes little work to maintain, because a property manager takes care of the house for you. Provide diversification: Buying turnkey rentals in different markets of the country gives you diversification. Can be bought for cash: Many foreign investors have trouble buying properties, because they cannot get financing. Turnkey rentals can be as cheap as $30,000 making it easier to buy with cash. You can invest your retirement savings: You can invest a self-directed IRA or 401k into turnkey rentals. How can you find turnkey rental properties? There are many turnkey rental property providers throughout the United States. Some companies are local to specific markets such as Memphis, Ohio, Missouri, Florida, Texas, Chicago, and Wisconsin while other companies have properties all over the country. The properties vary in price, rents, financing options, and returns, but good turnkey properties will cash flow. Even with cash flow, I would advise investors to spend time researching the property manager and the area that they want to invest in before buying any turnkey property. (Location 5106)
Here are some proactive things you can do to prevent a disaster with a turnkey property. Always get references for any company with which you are going to do business. Ask the company for references from current customers and search online for any reviews of that particular company. Always check the value on the properties you are looking to buy. Find a local Realtor that can tell you what a home is worth in the area. Even if a home cash flows great, you should shy away from houses that are priced 10 or 20 percent above market value. Always check out the property manager that managing your rental property Check the history and record of accomplishment of a company. Check the BBB, see how long they have been in business, and ask how many deals they have done. Ask for the details on any home you want to buy. How old is the furnace, hot water heater, wiring, plumbing, etc. You want to make sure the major components are good and the company did not put lipstick on a pig to cover up faults. (Location 5165)
Saying I want a 1999 blue Lamborghini Diablo is specific and easy to picture! (Location 5252)