"Anybody can buy a house. It takes a smart investor to learn how to take a property and get every ounce of value out of it, that he or she can."
The goal is to buy income property that will make you more money each month, than it costs to own.
Crunch the numbers: add up the costs and subtract it from the anticipated rent. Rent should be higher than expenses.
The value of the property is determined by the income it brings in.
If you do NOT want to be a landlord, but are committed to real estate investing, switch to house flipping. OR hire a management company.
You are looking for a healthy economy, a town or area likely to grow in desirability, increasing housing demand, and appeal to tenants. Without any of these, the market conditions don't matter. You want to own property that most people are willing to rent.
Buyer Due Diligence: crime, school value, walk score, determine typical rental limits. Avoid high crime areas, high drug areas, high vacancy rates, and expenses incurred when tenants don't take pride in their home.
in a 2020 survey
Here are the results:
·65 experienced investors answered
· 55 of them chose answers ranging from "Always" to "Usually"
· 10 of them indicated "Rarely" or "Occasionally"
· That means 85% of these experienced investors have had many or most of their projects go over budget!!!
If you're just starting out, you might take this to heart when estimating your rehab costs. Add a contingency line to your budget, 20% if you're new to this.
Get the help you need.
A properties are usually built within the last 10 years. Many white collar workers live here. They are either renters by choice, or this is their last stop before buying a house. Your biggest competition is the single family home market.
B properties were built within the last 20 years. Tenants are a mix of white collar and blue collar workers. This is where you'll start to see a little deferred maintenance on the property if it has not been taken care of properly.
C properties were built within the last 30 years. Units are filled mostly with blue -collar and tenants with section 8 or other housing assistance. Contrary to popular belief, subsidized tenants can be a great population for your rental units. Most of these people will never buy a house and will rent your units for life. If you treat them like the gold they are, they'll stay with you and provide you with cash flow for many years to come.
D properties are in a lousy area, avoid it. You can make money, but it is not FUN.
The seller must prove the income.
Home Inspector at the buyers expense. After the report is completed, identify immediate repairs, estimate of costs, and check zoning requirements. Make plans to walk every single unit, to identify and allocate resources to common problems. Negotiate real expenses that the seller didn't tell you about, like replacing a roof, a bad boiler, dry rot in the walls. Ideally the seller can return that money after close, as a repair allowance, so that your financing will be funding the repair.
Request Title Search and delivery of property free of liens and outstanding taxes. Review accuracy, easements or right of ways. Review zoning, wetlands maps and flood maps.
new fixtures and appliances
exterior as needed
4 month remodel
moving or opening up walls means being subject to today's builiding codes.
adding windows and doors
floor plans or elevations
fire separation between units
soft costs and development time
work with the contractor, designer, and town
Look for 60K profit
turn LR and DR into a great room
add central A/C
Reface fire place
reconfigure main bedroom with ensuite bath and walk in closet
all new lighting
slider to the deck
fire seperation between units
with firm pricing
Flipping is a great business, but be prepared to pay taxes on capital gains or consider 1039 exchange or buy and hold.
Remember the number of Americans 65 and older, is expected to double by 2050.
10-20% of income from rents, in a seperate bank account toward building maintenance.
Buy at 80K add 20K and rent for $1000
Buy at 100K rent for $1200
Buy at 150K add 20K and rent for $1700
After that, it gets harder to get $2000 per month for a 250K home.
After that, it is tough unless you buy a 6 unit for 500K put 100K in and rent each for $1000.
As of this writing, The IRS will allow you to write off the value of any 27.5 years.
This depreciation counts as negative income, but it's only negative on since the costs of keeping a property in good condition can be paid for out of the rental income.
Thus the appreciation losses wipe out he positive cash flow from the property an remove any tax obligation. Unfortunately, due to the TAX of 1986, only active investors can take advantage of this.
Create Wealth Fast.
The goal is to get in, get it sold, and get out.
This house should sell significantly more than the expense associated with acquiring and rehabbing the property.
Three to Six months are usually required to complete this cycle.
You then have the option to sell for a nice fat check or create mailbox money .
Create Wealth Slow.
Buy a Single family house, at a great price, and collect small payments over time.
Risk: If you lose your tenant you have lost 100 percent of your cash flow.
Create Wealth with Investors
Buy an apartment building, at a great price, and collect small payments over time.
Each unit is treated like a business with a separate LLC, accounts, property manager, and maintenance staff.
small 2-4 units
medium 5-60 units
large 60-1000 units
Create Wealth without Timeline Stress
Buy a house as your primary residence to rehab, live in it for 2 years and fix it up, and sell. Because it is your primary residence, there are capital gains benefits.
Create Wealth with an owner occupied building, and then buy and move to another owner occupied building.
Live in one unit
and let the other units
contribute rent payments
to pay your mortgage.
Verify zoning and legal property type
with the town.
An in-law apartment is not a legal rental.
You are responsible for property taxes, property insurance, trash removal, snow removal, yard maintenance, normal wear and tear, house systems, needed repairs and updates, ...and utilities, unless they are separately metered.
Create Wealth and Have Personal Access
People will pay a higher price
by the night or week.
It is more challenging to have
and manage turnover and cleaning costs. Short term rental laws and taxes apply.
Defer Capital Gains
Create cash flow
Continued Building Maintenance
Property Management Costs
Common Area Utilities
Depreciation and Interest
aim for $100-200 profit, per unit, per month.
what ROI do you need 15%, 12% or 7%?
What would it take for you to be financially free and your bills to be covered? If you want a passive income of $6000 per month you need 30 units. 30 x $200 Profit= $6000 per month. If you want passive income of 2400 per month, you need 12 units. 12 X 200 Profit= $2400 per month.