Want to know the #1 question I get asked?
I'll tell you. It's...
"Why in the WORLD do you buy houses in Indianapolis?"
Believe me, I understand why that question pops up all the time. Living in the San Francisco Bay Area and buying property over 2,000 miles away from home isn't the typical investing strategy. On the surface, it probably seems crazy. And, maybe it is.
BUT, I'm sold on the city of Indianapolis. And aparently, many of you agree with me as well...having lost out on 4 deals this past week! Ahhhh the frustration!
Anyways, I wrote an article for Roofstock: 10 Reasons I'll Buy More Rental Properties in Indianapolis.
Check it out, give it a read, and let me know what you think about Indianapolis!
After you read that article, take a look at the Indianapolis market overview below!
Use my referral link below and GET $500 INSTANTLY applied to your Roofstock account!
closed on My First Property.
It was a day full of excitement, optimism, uncertainty, and progress. It was Chapter 1, Step 1, of my long-term financial plan. It was my first taste of "passive income." And it was the first puzzle piece to building a life full of travelling, family, friends, #vanlife, and personal projects.
512 days later...I've officially turned the page on this chapter in my real estate journey. I closed a deal last week and sold My First Property.
The past 512 days were full of crazy ups, downs, surprises, and wins. I was immersed in the greatest real estate educational course I could have ever asked for. It was a million times better than sitting around reading blogs, articles, interviews, and not taking action. And a billion times better than any guru course I could have taken. It wasn't easy, but I'm forever grateful I took a leap and decided to Jump In.
So, let's get to the recap now that things have settled:
In October of 2016, I decided to work with a turnkey company. Their job was to assist me in all aspects of acquiring, renovating, renting, and managing rental property. After a couple weeks of receiving property leads, I put one under contract and closed on it in December of 2016. I paid for it in cash to protect myself against a monthly mortgage payment, to avoid paying interest, and to drastically improve my monthly cash flow. If the numbers all worked out, I would be getting a 13% annual return. What's not to like about that??
Things were looking good! Renovation started! But, then there were numerous delays. Communication was more than frustrating with my property management company. Red flag, after red flag kept popping up, but I didn't take the indicators serious enough. I was focused on getting the property rented, cash flowing, and bringing in "passive income" for a Financially Independent future.
More renovation delays came. Little progress was made, but with my demands I finally was able to kick the contractors into gear. Finally, the rehab phase was over and a huge weight was lifted off my shoulders.
Then, I flew out to Indianapolis for a quick weekend trip. Early on, I honestly didn't have plans to fly out to Indy. I really wasn't concerned about seeing the property first-hand, but I am now grateful I pulled the trigger on that move. Why? Because I met my property manager, contractor, and most importantly, I met connections FOR THE FUTURE.
I left Indianapolis confident. My property was officially on the market for rent and by the end of March, four weeks later, I GOT A SIGNED LEASE!
Even though the renovation and leasing of the property took weeks longer than expected, at the end of the day, I was happy with my vision actually coming to fruition. I purchased a property. I had it renovated. And I got a signed 12-month lease for $750/month. I was well on my way to building a large real estate portfolio.
I received my first rental payment while vacationing with friends in Vietnam. I was ecstatic. This was the definition of "passive income," right? Getting income deposited into my bank account while ON VACATION? Wow.
Things were smooth. Literally, not much happened for 11 straight months, except the routine rental payments deposited into my account. I did a 1 year recap, where I broke down all income and expenses, and the numbers looked great!
I got a tip online from someone that my property was vacant. So, I sent a third party property management company out there to investigate. Sure enough, the only person living in my house, was a squatter in the garage.
Frustrated? Hell yeah. But, I had to tackle this head on, take control, and move forward. I put together a plan. I secured the property by installing new locks. I evaluated the damage and repairs needed (which came out to $16,000!!!). Ultimately, after a detailed evaluation, I decided to SELL My First Property.
I didn't feel it would be worth it to pour more money into this low-priced asset. I pessimistically foresaw years of capital expenses piling up. I saw flaky tenants living paycheck-to-paycheck and unable to keep up with rent. Yes, the numbers on paper looked great for these low-priced investments, but by growing my knowledge in real estate every day, I knew I had to focus on a better class of property. This is where the greatest gift of My First Property came in to play. It gave me the chance to re-evaluate my investing strategy and adjust for the better. I had to let this one go.
With my property listed, it sat on the market for over three weeks. In Bay Area terms (which I'm familiar with), that was an eternity. Those 25 days were brutal. Absolutely terrible. I questioned my strategies, my intentions, and MY DREAMS.
Offers came in here and there in the beginning, but none of the buyers were willing to negotiate up to an acceptable amount. Then things went quiet for awhile. Crickets. I even began to forget that I was actually selling a property.
BOOM. Out of nowhere, I got another offer. It was like sitting on a lake and fishing for hours, then finally feeling a little tug on the line. I had to pull this one in.
Back and forth, back and forth, the negotiations teetered from one side to the other. Eventually, we agreed on a price that allowed me to not just break even, but bring in a small return on investment. We closed within a few weeks as it was an all cash purchase, and now I'm focused on the next move: managing My Second Property and purchasing My Third Property.
So, what did these past 512 crazy days amount to? I'll tell you - they amounted to the greatest chapter in my life.
1. Over the past 16 months, I got a 3% return on my investment, which is better than any savings account I could have parked my money in. That's a huge win in my book considering the challenges I ran into over the past few months.
2. I re-adjusted my investing strategy in Indianapolis. I now only target houses in the $75k-$100k range that rent for over 1% per month. Higher rents = a better class of tenant.
3. I purchased My Second Property, which is a much stronger investment than My First Property. I bought it for $86,000 and it's currently rented to a quality tenant for $995/month in a B class neighborhood.
4. I now completely understand the importance of having a top notch and trustworthy property management company. Having vetted multiple companies, I can now teach you how to hire one.
5. I met some of my best friends through putting myself out there and networking. We all connected online because of our similar mindsets and passion for real estate. Your net worth is your network.
6. I started this blog and truly believe I can bring amazing value to Jump In Nation. I talk to investors daily and love it. I publicly posted my phone number on this site...so seriously....you can call or text and I'll get back to you
My life has transformed because I decided to Jump In to real estate. I wouldn't trade this adventure for anything.
If you haven't already, read the complete story of acquiring, renovating, renting, and selling My First Property HERE.
If you have any questions, leave them in the comments section below or shoot me a message. Seriously, love you all!
So, it's time to buy a rental property. You're probably feeling good, you're juiced up, and you're excited because with every property acquired you see yourself getting closer to your financial dreams. But, great deals aren't always easy to come by.
You have to be quick, concise, and really KNOW YOUR NUMBERS!
This post will teach you how to quickly analyze buy-and-hold investment property, so you can ultimately determine if you've got a good buy or a bad one.
THE FIRST STEP? Download my free Rental Property Calculator HERE.
Now that you have my FREE rental property calculator, take a SUPER quick look at these three indicators of a good investment:
1. Does it meet the 1% rule?
There's a good chance that if you can get at least 1% of the purchase price in monthly rent, you've got a cash-flowing property. For example: if you purchase a property for $100,000 it should rent for at least $1,000 per month to cash flow.
2. Can you get it for UNDER market value?
Take a look at what properties are selling for in the area and what properties have sold for in the past 6 months. You can gather this info on Zillow, Trulia, or through your agent. That should give you a rough estimate of what the property is worth. Now, can you negotiate the purchase price down and acquire it for under market value? If yes, you've got yourself some built in equity and value!
3. Is it in a good neighborhood?
Stay away from war zones! Don't buy in crime stricken neighborhoods. The financial numbers on paper might look great for that crack house on the corner, but believe me, you'll run into more issues than you can handle. I love the crime map overlay on Trulia. That's where I usually go first to scout out neighborhood safety.
If the answer is YES to all three questions, you're well on your way to finding a great investment property. Time to dig a little deeper!
We need to understand all the expenses that go in to owning the property. Typically, they'll look like this:
Take these amounts and subtract them from your expected rental income. Whatever is left over is "cash flow" baby! If you have NOTHING left over, or even worse, the expenses are more than expected rent, that's a pretty clear sign this property will not work out from a cash flow standpoint. Here's a breakdown of each expense and how to calculate them:
This first expense might look intimidating to calculate, but it's really not. I use www.Bankrate.com for a quick mortgage check. Enter the amount you wish to borrow (which is purchase price minus your down payment), enter the interest rate, and enter how many years the loan will be. Bingo! There's your estimated monthly mortgage payment.
Sites like Zillow, Trulia, and others show historical data on property tax history, however, the most reliable source I count on is the local county website. For example: I invest in Indianapolis and use the Marion County property taxes site. Always verify using the county website!
Finding the cost of insurance will require you to call a few agents. I recommend getting three quotes from different insurance providers and analyze how the rates compare. Once you start getting familiar with your market you'll better understand the general costs depending on square footage and specific neighborhoods.
Property Management Fees
Property managers typically charge 6% - 10% of monthly gross rent and a one-time fee when a new tenant moves in. I would also recommend interviewing multiple companies and reading this complete guide on how to hire a property manager.
This is the amount in rent you expect to lose during a vacancy. As a little cash flow "buffer," it's comforting to save some of your monthly rental income for an unexpected vacancy, or if there's a vacancy during the turn-over of a unit once a renter leaves. I usually build in 5% of gross monthly rent for this category.
This is one of the toughest expense categories to determine. Random repairs can come up in bunches, or you could go months, even years, without major maintenance needed. Be conservative when you're new to investing and save anywhere from 10% - 20% every month for repair expenses.
Home Owner's Association Dues
These expenses are not applicable for all properties. They're typically a monthly fee charged by an association for providing value to a condo or town home community. Some HOA's come with pools, community rooms, gyms, or other amenities. A quick call is all that's needed to find details on this expense category and how much it'll put you back per month.
Now, we'll cover the income side of the things, which for a single-family homes, is usually just one category. RENT.
In order to determine what your property will rent for it's best to gather data from several different sources and average them out. I recommend taking a look at these four resources:
1. www.Rentometer.com - great website for comparing your rent with other local properties. Simply enter the property address, number of bedrooms, and see what the low, median, and high rents are in your area.
2. Reach out to property managers - email or call local property managers and have them assess your property. Their job is to understand the rental market and they should be able to give you accurate data.
3. Craigslist - scour Craigslist and see what similar properties are renting for in the area of your targeted investment. If you want to take it a step further, you can even post a fake ad on Craigslist for your potential rental property and see what kind of feedback you receive. For example: if you list a property for $1,000 and get crickets, you probably won't be able to receive that amount in monthly rent. You'll have to update your projections to a lower rent amount.
4. Zillow or Trulia - I tend to NOT rely on these for monthly rental estimates, but it's always a good tactic to at least take a look.
So there you have it...it really isn't quantum physics. These are the typical expenses and income categories you can expect from single-family rental property. Subtract your expenses from your income and you've got your cash-flow number. I personally will never buy a property that doesn't "cash flow," but everyone has their own investment criteria. So, have a strategy and stay firm with it.
Need help analyzing a deal? I'd love to help! Shoot me a message and let's chat!
Now, before I conclude this post, I have a challenge for you: start analyzing 5 properties per day. Just do it! Get in the hang of looking up expenses and estimating rents.
ALSO - read this post on the nuts and bolts of calculating Return on Investment (ROI). I'll literally show you the exact formulas and equations needed to calculate ROI.
Best of luck!
I'll get straight to it. This post has nothing to do with real estate. But, it's #FinanceFriday and I want to spread the knowledge I wish I had in 2014. Over the last four years of my life, I spent over $31,000 and learned a ton when it comes to understanding the HUGEEEEE difference between a performing asset and a depreciating one.
In March of 2014, I was sitting on top of the world. I remember driving across the Richmond Bridge on a clear afternoon, stereo blasting, sunroof open, and a 300 horsepower engine purring beneath me.
I just bought a BMW 335i 2-door coupe. It was glorious. It was fast. It was sexy. And wow, it was A HUGE step up from my 1995 Toyota Camry (in hindsight, damn I miss that car).
Little did I know, I just made the worst financial decision of my life.
Let's break it down.
Clearly, I poured a ton of money into this car. All while only driving 12,000 over those 4 years (avg 3,000 per year). So basically, I traded a downpayment on a house (remember, I invest in the Midwest) for a car I barely used.
Fast forward to March of 2018.
I officially paid off my car (YAY for no car payments!!!).
And then I sold it IMMEDIATELY.
Breaking down the simple math:
Car acquisition and expenses: $31,604.58
Sold For: $7,000
Net Loss: $24,604.58
THAT. IS. PAINFUL. TO. LOOK. AT.
Especially when I already had a paid off 1995 Toyota Camry I bought for $3,500.
Now, I get it. Some people actually need a car whether it's for their work commute, to load up on groceries, or to drive the kids down to soccer practice, etc. but, I'm still going to beg you to listen to me:
If you require a car, buy something affordable that's within your needs. Most importantly, pay for it in cash and don't pay that damn interest. Toss ego aside. Don't think about how people will perceive you with a "less sexy," but more affordable/economical/functional car.
If you want to improve your financial outlook and future, these are the types of decisions you'll have to make. It's all for the long-term.
So, if you're looking for a car, or you're reading this post with a nice Mercedes in the driveway, it's time to evaluate your situation. Here are some amazing tips (from the help of Mr. Money Mustache) that'll help you find and be efficient with your next car:
1. Don't borrow money to buy a car
According to Mr. Money Mustache, around 73% of new cars in the US are financed. YIKES. Here's the problem with that: after years of owning the car, it's very likely it'll be worth less than you owe due to depreciation. That's clearly the definition of a terrible financial situation to be in.
Also, who likes paying interest? No one. Who likes paying a monthly bill that cuts into your cash flow? No one. Be smart and pick up a car in cash for $3k-$6k that'll last you years and allow you to have a higher savings rate.
2. Buy a car that suits your needs the MOST
Your car should be optimized to fit YOUR NEEDS, while burning the minimal amount of gas. If 90% of your drives include you and one passenger...there's NO NEED for a 7-seater SUV. If you live in the middle of an urban city, don't even think about getting that full-sized pickup truck.
3. Cars aren't for that quick 1/2 mile trip to the store
Every time you start up your car, put it in drive, and head to the store 2 minutes down the road, you're really helping out depreciation. Depreciation REALLY loves every time you press that gas pedal. Next time, consider walking, or hopping on your bike for those quick trips. Everything counts!
4. You don't look ridiculous driving that small car, but you do look ridiculous paying for that oversized car every month.
Screw your insecurities, say "bye bye" to your concerns about style. Here's a great quote from MMM, "Your job is to pick the (car) that enhances your life the most, and unless you are already financially independent, you'll get a lot more enhancement from getting some cash in your 'stash than you will from having 20" wheels and three rows of leather seating."
5. Cars cost you money PER MILE
Because a lot of people aren't thinking long-term, folks assume that since their car is just sitting in the driveway, they should be used with reckless abandon. WRONG! Bottom line: the more you drive, the more you're burning gas, oil, tires, the engine, and YOUR CASH! Become aware of your car use, and minimize it!
Best used cars under $10,000 according to US News and World Report
1. 2010 Toyota Prius
2. 2009 Honda Fit
3. 2011 Honda Civic
4. 2013 Honda Fit
5. 2012 Honda Civic
6. 2012 Honda Fit
7. 2011 Toyota Prius
8. 2012 Scion xB
9. 2009 Scion tC
10. 2009 Scion xB
11. 2009 Toyota Prius
I'm beginning to see a theme...
With that, I'll leave you a few articles from Mr. Money Mustache about cars that are sure to leave you with some value and entertainment. Leave a comment below! What's been your WORST financial decision EVER?
How to Come Out Way Ahead When Buying a Used Car
Curing Your Clown Like Car Habit
New Cars and Auto Financing: Stupid or Sensible?
Peace and happy investing!
After unexpectedly discovering My First Property as being vacant without ANY notice from my property manager, I put in motion a plan to turn around this investment ASAP.
My immediate priorities were:
1. Formalize agreement to have new property manager take over My First Property - DONE 3/26/18
2. Re-key front door, side door, and secure garage - DONE 3/28/18
3. Assess repairs needed and prepare scope of work - DONE 3/28/18
4. Evaluate repairs, budget, and After Repair Value - DONE 3/28/18
5. Decide to rent (preferred) or sell My First Property - DONE
As you can see...#5 is kind of a big deal. And judging by the title of this post, I think you know what I decided.
I'm selling My First Property.
But, before we dig into all of the details of that last statement, let's rewind a little.
I had to be patient. And confident in my decisions. After interviewing multiple property management companies in Indianapolis, I officially terminated my previous company. The key here: I didn't fire my old company until I hired a new one. Like they say, don't quit your job until you have another one lined up.
With a new property manager (PM) in place, we focused on securing the asset. Vacant properties can attract squatters, and sure enough, I'm pretty sure I had one in my garage.
We re-keyed the front and side doors. Also, placed a new lock on the garage. My PM then assessed the whole property for repair and maintenance needs.
I requested a FULL EVALUATION of the property. As in, I wanted to know everything and anything that could use some work, repairs, or renovation. For $299, this Scope of Work was a necessary step in evaluating next steps to get this property turned around.
Here are some big ticket items summarized in the Scope of Work I received:
Take a look at the actual Scope of Work BELOW:
$16,741 for a complete renovation? WOW. Crazy. Insane. Again, this quote was for a COMPLETE renovation, but HOLY CR@P! I was not expecting this.
With the assumption that My First Property could still be rented for $750/month, taking into account the money I'd invested, and the 11 months of rental income I saved, I determined my maximum renovation budget would be $7,000.
What were my renovation priorities with that type of budget?
Roof/Soffitt/Facia Repair: $2,200
New Bathroom: $2,139
Dumpster labor/load: $612
At the same time, I had to evaluate all options:
1. Renovate the place, rent it, and hold.
2. Renovate the place and sell it.
3. Sell it "as is"
I already had my renovation budget, so working with my realtor, we determined After Repair Value (ARV) and current value.
Now the toughest decision...
Put more money into this investment, turn it around, and save it? Or take the past year an a half as a learning experience, cash out, and allocate my resources toward my next investment?
Well, My First Property is now listed for sale. Why? Because I'm ready to take what I learned and apply it for the future. I made mistakes, but am better prepared now than I ever have been. What was the biggest downfall here? Working with a bad property management company. They were non-communicative. Never checked up on the property. And were not a good partner to work with. I did not vet, interview, or truly know the operation they were running before blindly deciding to work with them. I will never make that mistake again.
Can this property still cash flow? Of course! Is it a good investment for someone? Yes, with great property management and a few thousand bucks in repairs. On paper, the numbers are still amazing. It's selling for under $50,000 and was renting for $750/month. Water heater, furnace, electrical panel, and PEX piping all replaced in January of 2017. The property across the street is valued at $90k+ and its neighbors are at $60k+. It's two blocks from a new YMCA, two blocks from three charter schools, and right down the street from a new grocery store.
Check out the Zillow Listing HERE.
Questions? Comments? Interest? Let me know!
And feel free to email me at: JumpInRealEstateNow@gmail.com
In 2016 I purchased My First Property with the help of a turnkey company. They assisted in acquisition, renovation, and pushed me to work with their preferred property management company. Boy, was I stupid in blindly working with their property manager without vetting them. And YES, it ended up biting me in the ass!
My property became unexpectedly vacant without any notice and there was a squatter in my garage. How do you guarantee no return on your investment? Own a vacant property that’s managed poorly.
So, I got right to work in finding a NEW property manager. If you’re looking for a property manager, don’t take this process lightly. Here’s my step-by-step guide:
A. Get Property Management Company Leads
There are multiple ways to figure out who the best property managers in town are. Here are three resources to target your next property manager:
B. Scour their Websites
To better vet your property management company leads, take a look at their website. Is it well maintained? Are they transparent with their fee structure? Is it easy for you AND tenants to contact them? Can tenants pay online? Is it a mom and pop shop? Or a massive national company?
C. Interview your Top Leads
Now, it’s time to give them a call or meet them in person! DO NOT SKIP THIS STEP! You must truly vet and interview each company. Your property manager essentially runs your real estate business day-to-day, so understand the importance, and make the right hire! Here are a number of questions that helped me select my new property manager:
1. What are the various services that you offer to your clients?
Know exactly how this company plans to market, inspect, lease, manage, maintain, and maybe even sell your property.
2. How many rental units do you manage?
Too few units and they could be inexperienced or losing clients. Too many, and you might get lost in the shuffle. I think 200-600 units is the sweet spot.
3. How do you determine rent amount?
Rent = cash flow. Not sure much needs to be said here, but determining the appropriate rent amount is crucial to your investment. Your PM needs to be an expert in the rental market.
4. Are you currently an active real estate investor in your market?
Is the property manager an investor who understands the mentality of a landlord? If so, that’s an added bonus in my book. And honestly, probably should be a requirement.
5. Under what conditions can I cancel my management contract?
Understand exactly how you can get out of a contract if needed.
6. What are the management fees and/or pricing options when the property is being rented?
Pretty self-explanatory. You MUST understand all costs and expenses when investing in real estate.
7. Are there fees when the property has no tenants?
Some property management companies charge a monthly fee even if the place is VACANT. I only work with property managers that get their fee on COLLECTED RENT.
8. What miscellaneous fees could I be charged for the management of my property?
Again, pretty self-explanatory. You MUST understand all costs and expenses when investing in real estate.
9. Do I have to sell my property with you if I want to list it?
Some property managers will require you to sell your property with them. Be clear on this agreement before hiring them.
10. Do you offer direct deposit for your owners?
This should be a 100% yes.
11. How do you collect rent from tenants?
Understand how rent is collected. If your property manager isn’t having tenants pay online that will slow down the speed in which you get paid and makes it easier for tenants to miss payment. Also, from a tenant’s perspective, an easy way to make a rent payment is just a major benefit.
12. Do you conduct property inspections? And, if you do, what charge is associated with
Routine inspections are key in owning rental property. You’ll want to catch issues before they spiral out of control. You should be saving some of your cash flow for repairs every month so it's encouraged you actually use some of it responsibly for long-term sustainability. Don't wait for your gutters to fall off before putting money into them...clean them once every 6 months!
13. Do you offer eviction warranty (also called a “screening guarantee”)?
Some companies offer this warranty that will save you in an eviction process. But, needing this is completely up to what you’re comfortable with.
14. What steps do you take to market properties?
Your property manager should be advertising through multiple channels.
15. How long are your properties typically vacant?
2-4 weeks should be the average time needed to get your property rented. Any longer and your rent may be too high or your property manager is not effectively marketing it.
16. What are your income and screening requirements for applicants?
There should be a standard policy on tenant income requirements.
17. What control do I have over the tenant lease agreement?
Your property manager should allow you some input in the lease agreement. A big one for me is regarding pets: I typically have a no pet policy.
18. Do you mark-up maintenance and repairs?
Understand if your property management company makes a profit anytime maintenance is performed. This will factor into your overall return on investment.
19. How often will I get updates on my portfolio?
You should be able to get updates on your portfolio as often as you want. After all, it is your property.
PRINTABLE VERSION OF THESE QUESTIONS
D. Make a Decision and Hire
Now that you’ve found property manager leads, vetted them, and interviewed them, it’s time to make a decision. Weigh their fees, experience, number of properties, customer service, and your gut. Who do you want to work with? And most importantly, who do you trust?
If you have multiple properties, hire multiple property managers to oversee portions of your portfolio. For example: I have two properties and two different property managers.
This limits risk as you’re not relying on one PM to manage your whole portfolio. But, the greatest benefit is you can go through a little “test run” with each PM and see how they are different. This will help you determine the best PM for your long-term goals.
Hopefully this helps you in selecting the best Property Manager out there! If you have any questions, leave a comment below, shoot me an email, or send me a tweet!
Well, it's officially been a year since I closed on my first rental property. By now, you should know the full story (which is still ongoing...), so let's get to the bottom line...how much money have I made? How much have I lost? Was it worth it??
Here's a quick snapshot of the numbers
All in all, I'd say it's been a pretty successful year on paper. If you take my Total Rent Collected ($750 x 9 months) MINUS my Total Expenses (*which includes a trip to Indianapolis to visit my property*), I've got a pretty nice cash flow of $313 per month (EVEN with a 3 month vacancy for renovation).
Here's a general breakdown of my expenses over the past 12 months:
It's definitely not all rainbows and butterflies! These numbers on paper look good, but the property is now officially vacant, to my surprise! I'm working through a plan right now to get it back up and running.
Has the last year been a piece of cake? Heck to the NO. At times, it's been the complete opposite of stress-free. There were many moments of being nervous, scared, and uncertain. Long-distance communication started off rough initially with my property management team, and it still continues. Meaning...it might be time to make a switch. SOON. But, it's forced me to be proactive, hold people accountable, and build a new network of individuals locally and in Indianapolis.
I've met so many great people throughout the past year and a number of them have become some of my best friends. A bunch of us are going to a go cart track in a few weeks to hang out, laugh, have a good time...oh yeah, and chat real estate.
A few of the biggest takeaways from my first year in real estate:
BUILD A REAL ESTATE NETWORK. Meet as many people as you can that are in the industry, regardless of their age or experience. Attend Real Estate Investing meetings, or better yet, pick your favorite bar and host your own (I did!). Pick up the phone, send emails, and talk with complete strangers you meet online. My first mentor was a random guy in Dubai who just wanted to Skype (what's up Morgan!). Utilize one of the most valuable online real estate resources: BiggerPockets.
Never stop learning, whether that's through podcasts, blogs, YouTube, books etc...you literally NEED to get in the habit of learning something new each and every day. Never stop growing.
Crunch the numbers. If you're planning to Jump In and use the buy and hold strategy, make sure you're cash-flowing right away. Just because you can get $1,000 per month in rent, doesn't mean you actually GET $1,000 in your pocket. Factor in property taxes, mortgage, insurance, property management, vacancy, maintenance, capital expenses. Do your homework and learn how to analyze property HERE!
Hire an amazing property manager. Your rental property is a business. You are the CEO. But, your property manager runs the day to day. Without great property management, your business will not succeed. Period. Interview multiple property management companies, talk to referrals, ask as many questions as you need answered, after all, you're trusting them with your investment and you money.
Luckily, I have a step-by-step guide on How to Hire Your Next Property Manager HERE.
Welp, it's been one heck of a year, I wouldn't trade it for anything, but I've got to go and acquire property #2...leave a comment below, shoot me an email, let me know how you're doing.
Peace. Happy Investing.
Real quick...if you haven't read Chapter I of "Why Real Estate?" I'd strongly recommend you go back for some context. You'll see the journey I took to arrive at real estate and why it's best for my long-term goals.
Now that you know I'm 100% ALL IN on real estate, let's talk about the amazing value this investment vehicle provides. Here are 11 great benefits of investing in real estate:
1. Consistent cash flow. This is the primary reason that got me hooked on buy-and-hold real estate. Don't get me wrong, this is by no means guaranteed. You need a lot going your way to achieve this, but with a great property manager (that finds great tenants and is quick on maintenance requests) and a property with sound infrastructure (limiting capital expenses), you'll watch the rent checks roll in every month.
2. Gain more leverage. Real estate is an investment where using the bank's money is a great option (but make sure to run your numbers!). The ability to make a down payment, leverage your capital, and increase your overall return on investment is amazing.
3. Tax-free Growth. Even if you buy a property with the purpose to hold it, long-run appreciation is realistic and you must consider a tax-deferred strategy. As an exit strategy, you can consider a 1031 exchange, charitable trust, or an installment sale to lesson your tax liability.
4. Tax free cash flow. Because of operating expenses, property taxes, insurance, mortgage interest deductions, and depreciation (even if the property gains value) your cash flow could be tax-free.
Don't forget that rental real estate is a business. This means that travel expenses to check on your properties and payments to family members who manage your properties can be deductible as well. Often, an investor will never pay taxes on their cash flow and can wait for capital gains on the sale of the property in the future.
5. Tax write-offs against your other income. Depending on your classification as an Active Investor or Real Estate Professional, an overage of tax deductions can be used against your other income. But, before you dig too far here, please, please, please discuss this with your tax professional before investing. They're the experts.
6. Rental real estate is a forced retirement plan. Americans are terrible savers. But, we're great at consuming (read: The Millionaire Next Door...seriously). I read that most of America doesn't have $1,000 in savings...YIKES! Well, here's your chance to start thinking long-term. Saving for a rental property and acquiring one takes a significant commitment and determination. Jumping In to real estate in the long-run could be the greatest decision you've ever made to build future cash flow and wealth.
7. You have control. In real estate, you choose the investment market, you select the neighborhood, you buy the property, you agree on an acquisition price, you decide on renovation specifics, you pick a property manager, whom selects your tenant. This is your company. You are the CEO. Responsibility is 100% on you and with that, comes complete control.
8. Appreciation. Not always guaranteed, but rental properties normally appreciate in value with inflation. Increased value = reinvestment in higher value properties after you sell. Or, a sale can provide an equity line of credit to use for other investments.
9. Inflation-proof investment. Rents usually increase with inflation, while mortgage payments on the property remain stable if you have a fixed loan. This increases cash flow, without the increased expense for holding the property! When inflation goes up, it can mean more renters (as mortgages become more expensive). More renters = more demand for your rental = ability to increase rents.
10. Paying down loans - Paying down loans frees up more investment resources to increase leverage. You have can use the increased equity in one property to free up funds and invest in others.
11. Property improvement for equity (forced appreciation) - Many investors intentionally purchase properties below market value, because they require renovation. If you're smart, a nice little rehab will increase the value of the property, resulting in an immediate increase in equity.
Now that you've read just a few of the greatest benefits of Real Estate, take a look at my in-depth journal of buying, renovating, and renting my first out-of-state property!
Why invest in Real Estate anyways? Why not just leave money in a safe savings account accruing a consistent (but, TINY) return? How about playing the stock market? Or giving it to Fidelity to let them do their thing?
Well, to completely understand the "why real estate?" question, we have to start from the beginning. Let's start with The Journey.
It all started in 2016, when I made a concentrated effort to invest in myself. I was stuck in the routine of waking up, heading to work, coming home, eating dinner, falling asleep, repeat, repeat, repeat. While I was getting great short-term work experience in my industry, I wanted to better myself, grow, and gain overall knowledge in areas such as business, finance, and long-term investing. Because knowledge is power.
What jump started everything? PODCASTS and BOOKS. Listening to podcasts at the gym instead of music became my norm. Reading books every night before sleep was part of my new routine.
My Favorite Business Podcasts
I started REALLY thinking long-term. Where did I want to see myself in 10 year? 20 years? 30 years? What's my ideal lifestyle? And the answers were really simple...I wanted (and still want):
How would I achieve those three long-term goals? It came down to finance and investing. I needed to:
Increase monthly income: in addition to my W-2 salary, I began working for Instacart as a side hustle. A couple times a week (after work and on weekends), I was a personal shopper and delivered groceries. I also made a conscious effort to purge my old junk/clothes and sell them on Craigslist. $20 here and $15 there add up and helped me acquire My First Property.
Reduce monthly expenses: for most of us, rent/mortgage is our biggest expense of the month. I was paying $1,300 a month in rent and needed to get that number down ASAP. SO, when my lease ended, I moved to a new apartment with 3 roommates for $800 a month. That's an additional $500 per month in my pocket! What else did I do? Common sense things...like brought lunch to work everyday instead of eating out. Also, bought a moped, which gets 90 miles per gallon, and limited my car driving. I could go a full month on one gallon of gas!
Diversify income streams: I had to find multiple ways to bring in income so I wasn't relying solely on my full-time 9-5 job. This was partially addressed with my Instacart side-hustle, but I needed to do more. So I started a travel website and produced content, which brings in revenue.
Take a look at yourself, and see where you can provide true VALUE to the world. Do people always ask you specific questions around certain topics? If they do, there's the foundation of your next business model.
Bring in reoccurring income while not having to work full-time: well, this was ambitious and the ultimate goal. And I'll admit, I was struggling to address it.
While I began to focus more on personal finance and long-term goals, I was frustrated every month. I'd get my pay check on the 1st, but watch half of it disappear straight to my landlord. However, through that frustration appeared the greatest gift. I saw the opportunity of real estate. My landlord was sitting back, relaxing, and collecting monthly checks, so why couldn't that be me? *BOOM* there was my answer to bringing in reoccurring income. I had to become a landlord.
One big problem: every property in my area (San Francisco) was well over $500,000. I didn't have that kind of money!! But, did that stop me? I had to get creative and think outside of the box. Three words: Always Keep Learning.
Jumping head-first in to Real Estate, I started soaking up real estate podcasts, blogs, books, and anything I could get my hands on. Through my educational journey, I learned that buying out-of-state, where properties were more affordable, was a realistic possibility.
I guess the rest is history. I jumped in, found a property in Indiana, renovated it, got it rented, and now collect monthly rental income. Read My First Property for an in-depth journal of buying, renovating, and renting my first out-of-state property, or continue to Part II below:
What's been your "Journey" into the world of Real Estate investing? We'd love to hear your story in the comments section below!
When it comes to financing a rental property, there are a TON of options (which we'll discuss more in the future). But, a couple common methods (and the two that I personally weighed when deciding to invest) were CASH vs. MORTGAGE. Now, if you can't afford to purchase a property in all cash, then that makes your decision a little easier, but if you can...that adds to an interesting decision. Here are my advantages and disadvantages of buying a property all Cash vs. getting a Mortgage.
Advantages of Cash
Disadvantages of Cash
Advantages of a Mortgage
Disadvantages of a Mortgage
So what's it going to be? Cash or Mortgage?
Weigh your options, think about the pros and cons, and decide what's best for your investing future. Share your strategies in the comments section below!