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Today, I will cover rental properties for a brand-new first time real estate investor. A real estate investor who is just getting into purchasing rental properties.
The first thing you will do is try to determine what rents are your particular real estate market. There are plenty of tools you can use like Rentometer, Zillow, or Craigslist and see what market rents are. Determine what current landlords are asking, and see what the condition of the property is. If the condition of your rental property is far better or if your rental property has more square footage, then you can charge more for rent. Then you need to start marketing and get a person into your unit. Do you want to list on the MLS? Not a bad option because what you're going to get on the MLS is you're going to have real estate agents go through, take people through that are vetted. Since they are already vetted, you will generally have a little higher-level candidate with a real estate agent. By using a real estate agent, you're going to give way either a full month's rent or a half a month's rent as commission. Depending on what it is, what the cost is, what you're offering there, but it is a good way to get a good solid tenant. The other way to market a vacant rental property is to list it yourself on Zillow, Craigslist, and FaceBook Marketplace. With Zillow, I generally find that I'm getting a little better, higher quality tenant, and I've been getting a lot of millennials lately. They've been very good payers. It seems they want to be mobile. They don't want to own right now, a lot of them. So especially the younger ones in their twenties. They're looking to stay mobile and they're renting and they're generally great payers and very good tenants that take care of the place overall. What costs should you put on your tenant? What duties should you put on your tenant? I'm going to break it up here between a multi-unit property and a single family. Let's start with single family. If you're looking at a single family, you want to put lawnmowing onto them. Maybe you provide them with a lawn mower. Unless you know somebody there in that neighborhood, that's willing to do it very inexpensively for you and you can incorporate that in your rent. You could do that, but otherwise put lawn mowing on the tenants, as well as snow removal. If you're in an area that gets snow, you want to put that kind of maintenance on tenants. Tenants most likely will not want to manage a flower bed. If you have flower beds you may have to maintain the flowers and mulch. You will have to clean the gutters out because that's something no tenant is going to want to get up on a roof and do gutters. That's something you want to do annually, or really depending on where you are and how many trees you have around. Water, sewer, put that on tenants. You could find out what your average charges are per month, and what I do is I let them know what the average cost is per month for water, sewer, and trash. Some boroughs or townships do water, sewer and trash, all in one billing cycle. You want to put these utilities on tenants because otherwise some will use a lot of water and not be careful with it. Same goes for the heating and cooling bill. I know there are instances when there is shared heat in a multiunit, but break that up. Make tenants pay for the heat because there have been tenants that will have the window wide open in the winter with the heat on. Then you are using a lot of oil or gas. And you don't want to run into that. And for your single-family properties have then tenants pay. Generally you're easily able to put those utility costs on tenants. What I like to do, I like to give tenants a spreadsheet or word document that explains what your rent is. Here's what your average utilities costs are and here are your responsibilities. Make them sign that as part of your lease and send it to them via DocuSign. Because if the tenants are not doing their job (following the lease), then you've got something to go back to them with. And the tenants can't say they didn't know because they signed this document. Multi-unit rental properties. I own a few multi-unit rental properties and you are going to be responsible for doing yard maintenance. You're going to be responsible for doing the snow removal and those kinds of things, whether it's a two unit, or a three, four, or five or 12 unit building like I'm renovating right now. All those costs are going to end up being on the landlord. You can build those cost in and any amenities that you add, like onsite laundry in the units. The 12-unit apartment building, we're renovating, we're are putting onsite laundry in each unit. So now we can charge a little bit more for rent compared to if we don't have that. In a multiunit apartment building, many of multi-family properties have shared laundry where it is coin operated. If you have onsite laundry or another amenity, you can justify increasing your rent a little bit accordingly, and it's going to help you rent that property a lot easier as well. Water, sewer, etc, you could divide that up. If you have 12 units, if they're all two bedrooms or three bedrooms, it's very easy to do and you just divide it up and average it and put those costs on them as much as possible. On a 12-unit building, I'm probably going to have to incur that expense and just incorporate that into my rental cost analysis. If you have separate meters, tenants in multi-family can be responsible for gas and electric. You want to put all those utilities in the tenant’s name and you want to make sure you let the utility company know that you are the owner of the building and tenants will responsible for paying the utilities. When the tenants move out, ask it to automatically transfers into your name. So the utility company does not shut it off. Then you don't have to make that phone call and get them to come back out there and turn the electric on or off again. I've been there done that. You don't want to deal with it. It's just a waste of your time. That's basically how you're going to determine what you have tenants pay for and what you pay for. You want to maximize your profits as much as possible and you want to make it desirable so tenants will stay there for as long as possible. One little difference between the multiunit and single-family properties, for single family people generally stay longer in single-family than a multi-unit building. That is something to think about as well. Although the cashflow isn't going to as good as multi-family and the maintenance is much higher. Both are great investments for long-term buy and hold. I hope you guys got a lot out of this. To learn visit our YT Channel https://youtu.be/DufeaDffnLg
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I will discuss what is a good rental property? For me, a good rental property is, a property that I can purchase for $50,000 and I know the After Repair Value (ARV) is $150,000 or greater. My property renovations are $25,000. My objective is can I pull all my cash out when I refinance? If so then the rental property is a keeper. Because I'm into the property for nothing. It's very important though that it must generate cash flow. If it doesn't bring a positive cash flow in, then it does not help you as much.
What I am looking for personally, on a single family, at least $200 bottom line net positive cashflow. In other words, if my mortgage, taxes, insurance, utilities and maintenance is $1,100 a month, I needed the rental property to rent for at least $1,300 per month. Now there are exceptions and I'll give you an example. I have a few properties, the only rentals I want now are where I can pull cash out, where I will be net cash neutral. In other words, I don't have anything into the rental property. If I had nothing into the rental property, or if I've pulled cash out (refinance), I don't mind if the rental property brings me in only $100 per month. Because I've already taken my profits out. An example. I purchased a rental property in Souderton, Pennsylvania this past year. I was able to refinance and pull out about $25,000 cash out of the rental property. This is non-taxable, a great benefits of real estate investing. The non-taxable income of $25,000 and put $10,000 or $15,000 into another rental property. And now you've got your down money again for the next rental property. To find and fund another rental property deal. Then maybe that deal generates another $100 or $200 or $300 per month cash flow. You're increasing your wealth through real estate investing. You're taking your profits, rolling them and putting it into another investment property. That's what I personally look for in a rental property. If I have cash sunk into a property or an accidental rental and I have had a couple of those, which I'm selling in this real estate market now. Because I want to take the cash out. I have $20,00 in the one and I have $25,000 in another. These rental properties don't generate cashflow. I want that money out of these properties so I could put it into something that's even more profitable for me. That's one of the objectives I have personally for my rental property philosophy. When you have a great real estate market like this, it's a great time to sell below average rental properties and get your cash out of them and move on to the next real estate investment property. If you're new to real estate investing, try to do that as often as possible. Try to get in there, where you're into a rental property for next to nothing. Then you're just building cashflow. Have a separate account. Your extra cash flow goes into a separate account. Try not to use that for income unless you have to. Otherwise put the cash flow into the separate account, save it for renovations or repairs or your next investment property. That's my advice on how to pick up a rental property. To learn more https://youtu.be/AZi0bJHMNLI What is Transactional Funding?
Transactional funding is a short-term loan that is borrowed and paid back quickly, usually within the same day, and sometimes as long as a week. Access to this kind of short-term financing allows real estate wholesalers to buy and resell properties quickly without using any of their own money. Transactional funding is almost exclusively used to wholesale properties through the double close method. It gives real estate investors the cash they need to buy a property from a home seller and allows the real estate investor to resell it for a profit in a separate transaction. Why Would a Real Estate Wholesaler Used Transactional Funding? Real Estate transactional funding serves as a replacement for when assigning contacts isn’t permitted. Such as wholesaling bank REO properties or if you do not want to disclose how much profit you are making to the seller and buyer. When it’s not possible to assign a contract or if you choose not too, investors may then turn to transactional lending to complete a wholesale deal. As a result, transactional lending enables investors to conduct legal back-to-back closings in a matter of days, if not hours. This is how Paul and I have wholesaled REO properties in 44 states. While transactional funding has proven invaluable to seasoned wholesalers, there’s one caveat: transactional funding for real estate wholesale deals usually requires an end buyer to be lined up prior to receiving funds. A transactional lender will typically require borrowers to have already found a subsequent buyer for the property. If you know the wholesale property is a deal but don’t have a buyer lined up or if you are selling to a conventional loan buyer and they won’t be ready for another month then you want to close with a non-transactional loan. Such as a private lender or hard money lender and not a transactional lender. How Does Transactional Funding Work? Transactional funding is only used when there is an established end buyer in place. This end buyer should be ready to buy the subject property from the real estate wholesaler immediately after the wholesaler purchases the property from the original seller, and the sale proceeds from the end buyer are used to pay back the transactional funding loan. Transactional funding can be used with any type of real estate, provided the closing agent is willing to facilitate both transactions and the lender can verify all the important details before dispersing the funds. Here’s how transactional funding works:
For example: If a real estate wholesaler gets a property under contract at $100,000 and then finds an end-buyer that will purchase the property for $120,000. The wholesaler reaches out to a transactional lender and the transactional will review the deal. If all is OK, the transactional lender will lend $100,000 plus closing costs for the wholesaler to purchase the property. Then the same day or next day, the end-buyer purchases purchase the property for $120,000. The transactional lender will receive $100,000 plus their fee. The wholesaler will receive $20,000 minus closing costs minus transactional lender fee. Benefits of Using Transactional Funding
Limitations of Transactional Funding
How Much Does Transactional Funding Cost? The cost of transactional funding can vary from lender to lender. Most lenders will charge somewhere in the neighborhood of 1% to 3% of the loan amount. To put things into perspective, a $100,000 loan could end up costing wholesalers anywhere from $1,000 to $3,000. The fees associated with a transactional funding loan can vary based on the loan amount, the length of the term, and how risky the lender perceives the deal to be. It can cost more if the term extends longer or other risks come into the picture. It ultimately depends on what the lender and borrower negotiate. A transactional lender typically expects to be repaid within 1 to 3 days (sometimes up to a full week), although there are some lenders who offer extended transactional loans for longer. For example, when I have done transactional lending for people that I know, I have charged a flat fee or a percentage plus 12% annualized interest. If an investor borrows $150,000, the cost of the loan would be $3,000 plus $49.50 per day in interest. For more on transactional funding check out our video https://youtu.be/kCbwtS3VKw4 Hello, everyone. Paul here from REO auction Academy. I was going over great articles, really good data from Redfin. Home prices increased 13% last year. Really high number and pending sales increased 38%. New listings were up 7% and total active listings were down 32%. When you have that few listings, home prices will increase because it is basic macroeconomics (limited supply = increase in price). Pretty simple.
It's like when tickle me Elmo comes out and they limit the supply. People are paying ridiculous prices to get these things. It's the same with housing. People still want to move. They want to move out of the city. They're still scared about the whole pandemic. So, because of that, they're willing to spend more on housing. They're going to do it, especially with the record, low interest rates. I think we are going to see this through at least a first quarter of 2021, potentially into the second quarter. I don't know whether we see a plateau or decrease in home prices after that. Really mortgage rates are a big dependency on that. If we have more the moratorium on foreclosures lifted and more foreclosure start to come into play, which will increase the house inventory and then stabilized home pricing. The home pricing can't be stabilized because there's more housing demand (pent up demand) and not enough housing inventory. And that's why we're seeing these housing numbers. 38% of homes went under contract and had an accepted offer in the first two weeks. That is a seller’s housing market. This is well above the 25% rate during the same period a year ago. About a year ago, we were learning about COVID. It is different times. And again, I think that's going to continue. But it's crazy to see what has happened with the home pricing. The current medium home price is now $319,000. That is a staggering number. Median homes are affordable only because of interest rates being historically low. Historic low rates make your monthly payment more affordable, which means people pay more. But the second that mortgage interest rates start to increase, the fed is going to try to make sure that interest rates don’t increase, but when interest rates do increase home prices are going to come back down. They could fall rather quickly if there was any kind of a major increase in an interest rate. And again, I don't think there will be, I think it would be more minor. I don't think you'll have to deal with that, but just seeing what's going on with home prices right now and values, I just want to reiterate if you're thinking about selling, Do it now. Whether it's your primary residence, you want to move and you got an opportunity to move. Now's a good time to do it. If you have rental properties, I'm going to be selling some of my rental properties because the real estate market is what it is. I'm going to be able to get good pricing for my rental properties. I’ll take that home price appreciation, use the cash from the proceeds of the home sale, and put it into the next asset. It can be cryptos or more investment properties in a better area, or stash the cash and be ready for the crash. That's our motto here at REO Auction Academy. We are stashing the cash right now and preparing for the housing crash. A big part of what I'm doing personally, and this isn't financial advice to anybody. But a big part of what I am doing is I'm holding a lot of my cash in cryptocurrencies. The significant increase in cryptocurrencies recently has really helped. I will continue to monitor and if I need to reallocate my money from cryptocurrencies into a stable coin or put it into the dollar and go back and forth finding the right asset class to go into. But to recap I am waiting for the end of the year and maybe into 2022 for the increase in housing inventory and the decrease in housing prices. We will see, I cannot tell you when that will be, because I now the Biden would like to have more stimulus, more money in a market, more inflation. You will see everything start to go up in price. The federal reserve wants some inflation. This is something that the Fed is trying to do. We'll see what ends up happening, but that could end up prolonging this bull market run here in real estate. Personally, we are probably putting our house on to the market here in the spring and don't know where we're going yet. We're looking at potentially your low-income tax states. Whether it is Texas, Wyoming, Tennessee, Florida, who knows, I don't really like the weather in Florida. We need to figure out exactly where we want to be the whole family and the best spot for us to base. With your job, if you can transfer to another location, that is something to look into at this point. If you can go to a place where there is a lower cost of living and lower income taxes, why not move there and put more money in your pocket? Hopefully you guys got some good information from this. Thank you. See this video for more on this article https://youtu.be/iichAA7lNOQ |
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