Greg Used Strategic Funding for His First Investment Property Deal

Although Greg is new to real estate investing, he presents himself with the confidence of a seasoned investor when completing his first investment property deal. Eager to take advantage of his local market, which happens to be a booming for real estate, his only regret is waiting this long to get started. Outside of his…

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Are these people holding you back?

As much as you might like to think so, you are NOT a one-man show. There’s a whole slew of players who are absolutely critical to your investing success. Combined, they form your team. And if there’s one thing I know for sure, it’s that YOU ARE ONLY AS GOOD AS YOUR TEAM.

But it’s not so much that a good team will pave your “road to riches” with gold. The real issue is that a bad team will install a big fat blockade! Below are some real-life examples of people on my “investing team” who have held me back. They can hold you back too if you let them …

Bad Closing Agent

If you have a bad closing agent, he will 1) often repeat his favorite phrase, which is “Oh, we can’t do that,” 2) postpone your closing because he hasn’t assembled the closing docs yet, 3) mess up the closing disclosure by putting expenses on your side that should be on the other party’s (for some reason, the error always goes against you!), and 4) include fees that an investor-friendly closing agent would have waived.

Bad General Contractor

If you have a bad general contractor, he will 1) start on your rehab three weeks late, 2) break the mirror while fixing the sink, 3) start at 10 AM and end at 3 PM – if you’re even that lucky, 4) have only one or two people working on your house at a time, 5) turn a three-week rehab into a three-month rehab, 6) dispose of his cigarette butts in your front flower bed, and 7) run off with your money (assuming you’re naive enough to prepay).

Bad Property Manager

If you have a bad property manager, he will 1) put his home or work phone number on the sign, which he doesn’t answer on evenings or weekends (or callers get a busy signal), 2) let the grass and weeds grow tall while the property is advertised for rent, 3) accept security deposits from tenants over a two or three month period (BIG NO NO!), 4) give under-qualified tenants the “lucky break” they’ve been needing.

Bad Accountant

This one’s easy: If you have a bad accountant, he will 1) file your taxes about a year after the deadline, 2) fail to advise you on other deductions you could be taking, 3) wait one to two weeks before returning your phone calls or emails, 4) send you a huge bill that includes fees for filing extensions that were HIS fault.

I could go on. But it hurts too much. It hurts because I used to have all of the WRONG people on my team.  And I’ve suffered all of the above consequences … and many more! But one by one, I replaced these people. And investing is easier than it’s ever been. It’s true. There IS a light at the end of the tunnel.

If you’ve wound up tired and frustrated with your investing, stop for a second and ask yourself: Is the problem with me or my team? Often, it’s the team. If it is, start re-assembling your team the right way. Do it by asking other active investors who they use and if they’re satisfied.

You’ll find active investors at real estate investing meetings, on the MyHouseDeals property listings, and by searching for something like “We Buy Houses Market Area” on Google. Ask around enough, and you’ll have a powerful team assembled in no time.

Hard Money Lender

But there is one teammate you don’t have to ask around for. And incidentally, they are what I consider to be the most important part of your team – The “cleanup hitter,” so to speak. This teammate is the hard money lender who will provide the actual CASH to fund your deals. Now you see why this is important? I thought you would!

When you upgrade to Premium, you’ll get immediate access to a Rolodex of Hard Money Lenders in the Market Area area. The lenders in this guide will lend you money to make the deal, and sometimes they will even fund the entire repair amount. This is what the gurus call No Money Down financing.

It’s like having a hand-full of rich uncles in your back pocket. And these rich uncles can close a loan in days, not weeks or months. And best of all, they are less concerned about your credit or income. They’re much more interested in whether you’re buying at a discount.

Take the first step in assembling a solid investing team by getting your hands on this powerful lender guide. And always remember, behind every great investor is an even greater team. So be smart and make it a good one!

Click here to upgrade to Premium now and let these guys fund your next deal.

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Never Overbid on Investment Properties Again! Follow These 3 Methods

Are you afraid to overbid on an investment property? This detailed article explains how investors calculate the quality of the investment they make in a property, which helps determine what they can pay. We will begin with rental properties, and stay tuned next week to hear about flip properties.

Evaluating a Rental Property

There are two main ways of calculating the quality of the return on investment for a rental investment property. The first involves using the cap rate to determine if the ROI is in the range you need to make the deal worth it. The second is calculating your monthly cash flow. We will start with the cap rate.

Tip: If you are looking for rental properties in your area, try creating a free account on our site. Many deals include a rental value in their description.

Method 1: Cap Rate

The cap rate is the ratio of net rental income compared to the purchase price of the property.

To calculate your estimated gross rental income earnings, total up your rental income for the entire year, and subtract 5% for potential vacancies.

(Rental Income x 12) – (Rental Income x 12 x 0.05) = Gross Rental Income Earnings

Next, add together all your expenses throughout the year.

• Insurance – Contact your insurance agent to run over the specifics of the property and get a quote for the coverage you need.
• Property Taxes – The property taxes are going to be different from what the former/current seller is paying since the property will not be owner-occupied. Contact the local county assessor to find out what the property taxes will be for the rental.
• Utilities – You may decide to have your tenant pay most of the utilities, but make it very clear in your agreement with them what they are responsible for. Many landlords choose to absorb the fees and to account for the costs via the rent. Utilities can include water, gas, electricity, pest control. We recommend NOT absorbing fees such as electricity into the rent, as research shows costs are lower when tenants are directly responsible.
• Maintenance – We suggest accounting for maintenance by estimating 5% of your gross income.
• Mortgage or Other Lender Fees – If you do not pay for the investment property in cash, be sure to calculate the monthly mortgage amount and another other fees and costs.
• HOA Fees – You can find out what the HOA fees are by contacting the former/current seller, but be aware that the fees could change. Investigate beyond the current fees to determine whether the fees are scheduled to rise or if an assessment is coming. (Source).
• Property Management – If you plan to hire a property manager, be sure to include this monthly fee in your costs as well. Many property managers charge around 10% of the rental price. (For example, if the property rents for $1,500 per month, the property manager would receive around $150).

Lastly, to calculate your cap rate, divide your net operating expenses by the purchase rate.

Example:

Annual gross rental income: Let’s say you buy a rental property that rents for $1,000/month. Multiply $1,000 by 12 to get the annual gross income. That equals $12,000 per year in gross rental income. Then, subtract 5% for potential vacancies, and the new total comes to $11,400. This is what you should use for your projected actual gross income.

Gross Rental Income: $1,000 x 12 = $12,000

Potential Vacancies: 12,000 x 0.05 = $600

Projected Gross Income: $12,000 – $600 = $11,400

Operating expenses: Let’s use arbitrary numbers for this example, but you can find many of these estimations on real estate websites that include properties in your market area (Zillow.com, for example). For this example, let’s say the taxes and insurance are $200/month, the utilities are paid by the tenant, maintenance is estimated to be $600/year, and there is no HOA fee or property management. Add it all up, and you end up with $3,000 in operating expenses for the year. This example also assumes the buyer paid in CASH, so no mortgage or loan amount was factored into the calculation.

Operating expenses: ($200 x 12) + 600 = $3,000

Net operating income: The gross rental income minus the operating expenses comes to $8,400, which is the net operating income in this investment property example.

Net Operating Income: $11,400 – $3,000 = $8,400

Cap rate: Lastly, to calculate your cap rate, divide the net operating income by the purchase price. If the house costs $100,000 in this example, then the cap rate is 6.7%.

Cap Rate: $8,400 / 100,000 = 8.4%

What is a good cap rate for a rental investment property?

It depends on the house. For a newer house in a decent neighborhood that does not require major repairs, maintenance or other risks, 4%-10% is a reasonable return rate. (Source.)

However, in a higher risk property, a rate of closer to 20% might be more reasonable.

Other considerations:

The example above assumed the property was paid for in cash. If you borrow from a lender, be sure to include the fees involved when calculating your operating expenses for the initial loan and recurring mortgage.

The example above also did not mention 1) rising rental rates and 2) property value appreciation. If you’re in it for the long haul, your investment property WILL appreciate, and the rents will rise with appreciation (if you’re in a good market). While you cannot include these estimations in your initial calculations, it’s good to keep in mind that there is great potential for the cap rate to improve as the property gains equity.

For these reasons, cash flow is often a more popular way for investors to calculate what they are willing to pay for a rental investment property.

Method 2: Cash Flow

Most rental property investors are more likely to make a buying decision by looking at monthly cash flow of their investment.

In order to calculate your monthly cash flow, simply add up all your monthly expenses and subtract the total from the rental amount.

In this example, let’s use a property from MyHouseDeals, 5602 Lakefield Dr., and include a monthly mortgage of $500/month (ARV is estimated to be $75,000). If taxes and insurance are $150/month, utilities are paid by the tenant and estimated repairs are $600, or $50/month, then your cash flow is:

Monthly Costs: Mortgage ($500) + Taxes/Insurance ($150) + Maintenance ($50) = $700

Monthly Cash Flow: Rent Price ($1,000) – Costs ($700) = $300

Let’s perform one more example. This house has an ARV of $100,000. The interest rate is 5%, making the monthly mortgage $737. The insurance and taxes add up to be about $225 per month. The rental prices in the area are closer to $1,300, so we will use these numbers below.

Monthly Costs: Mortgage ($737) + Taxes/Insurance ($225) + Maintenance ($65) = $1,027

Monthly Cash Flow: Rent Price ($1,300) – Costs ($1,027) = $273

Some investors accept as low as $100 cash flow, so it’s up to you to determine what an acceptable monthly cash flow is. If the property is expected to appreciate and there are no major problems with the house, $100 cash flow could work great.

Method 3: Stay Tuned Next Week!

Hopefully the information above provides an introduction into evaluating the offer price of a rental investment property. Next week, in Part 2 of this post, we will talk in detail about pricing flips.

If you have follow-up questions, or if you think we left something out, comment below! Not only will we include the update in the post, but we will also give you a shout out (unless you prefer to keep your genius brain private).

To start practicing these calculations in your own market, click here now to view rental investment properties in your area!

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Sold after only 10 Days on the market, David’s rehab netted him a 38K profit

With a long standing interest in real estate investing and a desire to grow his net worth, David took the plunge to become an investor and he hasn’t looked back. To get started, he joined local real estate clubs and attended seminars. David has been now been an active investor for about a year. He has done one deal and is currently working on two others. He relies on MyHouseDeals to identify properties that fit specific parameters in a desired location.

David recently found a fix and flip deal. After the repairs were completed, this property was back on the market for 10 days before it sold for the full asking price, netting David $38K.

David sums up the real estate investing business by saying “If you’re not networking, you’re not working.” Following this motto, he actively connects with others in the industry to help grow his business. And the strategy is paying off: David recently hired a contractor who was recommended by a private money lender.

As David continues growing his business, he always does his homework. This ranges from pulling his own comparables to carefully vetting contractors. At the end of the day, David knows that he needs to continue buying houses and choosing good contractors to stay relevant in the real estate investing game.

Head over to our success stories to listen to this interview, including…

• The tool David uses to negotiate cheaper funding from hard money lenders
• What you should look for on a job site when vetting contractors
• What factors you should consider when pulling comps for a property

NOTE: Since David is a Premium Elite member, he received a FULL refund of his upfront membership fee for simply doing a deal! Find out more about our Premium Elite membership here.

Check out David’s story below.

Tell Us About Yourself…

What inspired you to invest in real estate?

I’ve always been interested in real estate. I do not have an investing or real estate background. I got into this fairly recently, just over a year ago and I’ve always been interested in building my net worth and my generational income so I decided that real investing was the vehicle. I talked to a few other people and they strongly suggested I get into real estate investing. So, I thought I’d jump in with both feet.

How long have you been an investor and how have you personally built up your real estate investing education?

I have been in it just over one year and attended numerous seminars, local real estate investor events, and networked with a wide variety of other real estate investors.

Can you name any of those seminars that you attended? Are you a member of any local real estate investing clubs?

Yes, I am a member of the Atlanta Real Estate Investment Group. There are several here in the Metro area and I’m a member of a couple of different ones. Also, one summer I attended the Fortune Builders Real Estate seminar. Networking is critical. You need to network for all aspects of real estate investing, whether it’s for leads, buyers, real estate agents, brokers, or contractors. The list is never ending of how and why you need to network. And the networking is probably number two behind marketing. Networking is critical.

What are your favorite features of MyHouseDeals.com and how do you use the site as a resource?

I love the variety within MyHouseDeals. There are houses available all over the Metro area with different price points and different levels of rehab needed. No matter what sort of project or property I’m looking for, I can find it. There are many listings and there is plenty of opportunity for a wide variety of investors on MyHouseDeals.com.

Tell Us About the Investment Deal…

How long did it take you from start to finish, from the moment you purchased the property to the moment that you put it back on the market?

It took a little longer than we projected because we had a small issue with the contractor and we needed to get another contractor to finish it up. I think it was about five and a half months total. We have closed on and sold the house. We are thrilled.

How much money did you spend on repairs for the property?

We spent $59,000 on rehab of the property.

How much did you purchase the deal for?

The purchase price was $33,000.

What types of repairs did this property need?

This property needed some additional structural work. It was on a crawl space and we needed to put a little more support under the floor. It did not have sufficient structural support for the county inspector so we had to add a couple of things. That took a little bit longer than we anticipated. We raised the ceilings. It was an older house and had fairly low ceilings and we thought that if we raised the ceiling it would create a much more dramatic effect, and it did. When people walked in the house they really were blown away by the look and the feel of the house.

How much did you end up selling the property for once you put it back on the market?

$130,000. We were able to get full asking price after ten days on the market!

How did you find good and reliable contractors?

There are a couple different ways to find contractors. In addition to just finding them you usually need to check them out. Go see them on properties they’re already working on, see what sort of job site they like to have where they are working. See if the contractors are smoking in the houses that they are working on or littering the area with trash. Little things like that let you know what sort of contractor you are dealing with. You are looking for a really professional contractor at all times. You can find a contractor anywhere. Anybody who swings a hammer says they are a contractor but you need to find really good, solid, professional ones who are going to take care of your property.

The contractors for this deal were referred by a private money lender who I know here in the Atlanta Metro area. He has a good friend who is a General Contractor and he recommended I talk to him. We hit it off and he did that property for us and he’s actually working on two more for us now.

Networking is critical. If you’re not networking, you’re not working.

Can you discuss the ARV for this deal?

I always do my own due diligence. I pull my own comparatives (comps). I don’t rely on anyone else to tell me what the ARV should be because what they tell me may be based on incorrect information. I don’t know where they get their numbers from. That is why I always do mine own comps. I based my comps for this property on the style of house, distance to my property, age of house, and the finishes in the house. There are a lot of different factors that go into generating the ARV. So, I always run my own. I don’t allow anyone else to give me what they think the number should be.

Where do you get from your comps from?

We use the MLS. I have a real estate agent who we work with and we are able to get total comps off the MLS.

How did you fund your first deal?

The first deal we did, we actually funded ourselves. We used the equity in our home. We wanted to prove to our future investment partners that we knew what we were doing, that we could be successful, and that we could have an outstanding finished product. We did it as a challenge to ourselves, to fund it ourselves and prove that we could be successful and we did. For our two current deals, we’ve used hard money lenders. These lenders are available out there. You just need to make sure you choose one that will work with your parameters, as well as theirs.

Do you use a portfolio for credibility now?

We do. We created a credibility packet for our future investors. We include our previous houses, before and after pics, details of our scope of work, and repairs that we did. We definitely put a credibility packet together for our future projects.

Does a credibility packet help to secure funding?

Absolutely. It shows a high level of professionalism. It shows that you need to be taken seriously and that you are really committed to the project and to the business. I think it’s very difficult to gain credibility with an investor if you just walk up to them and slap them on the back and say, “Hey, can I borrow $250,000?” You have to show them a little bit of why and with our credibility packet we can show them what the house looked like before and what it looked like during/after.

We can show them what we paid, the ARV, and we can show them the neighborhood. It shows that we made good choices when it comes to buying the house, we bought in the right neighborhood at the right price, we made good choices when it came to selecting our contractor, we made good choices on our finishes, and we made good choices on our selling price.

Will a credibility packet affect the interest rate for a loan?

Absolutely. I know some guys who are doing rehabs similar to us but they are paying 15% interest plus 4 points, which is crazy. When we approached our hard money lender for these two projects, we were able to reduce that because we had a very successful first rehab project and the future projects will be even more conducive for us to continue to do business with them.

What advice would you give to someone who is just beginning his/her real estate business?

Make sure you do your homework on your contractor. The contractor can really help make or break you. And secondly, don’t be afraid. Just grab your helmet and get in the game. There is a lot to learn and you’re probably going to make mistakes, but you need to be in the game to be successful. Make sure you keep on top of your contractor and buy some houses.

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