The 50 percent rule states that you can count on 50 percent of the income that the property generates to go toward repairs and holding costs other than those associated with debt or the mortgage. has become my go-to tool when it comes to getting a rough idea of what I can expect for rent on any property I’m evaluating. Usually accompanied by some form of distress or a motivated seller, hot leads are worth much, much more than cold leads. DTI is a simple equation that compares how much money you are obligated to spend every month to cover your debts with how much money you are bringing in. I reached out to Joshua, told him exactly what I was looking for, and let him know how great I thought his business was. If the work runs past this deadline, contractor will be assessed a 5 percent penalty for the first week. Consider going two-tone. When it comes to real estate, few websites or programs can compete with Zillow, the easiest, most convenient, and most useful way to kick-start this process. Institutions like Chase, Wells Fargo, and U.S. Bank are very well known and have strong brand recognition, but it’s also for that reason that they don’t always offer the best rates or terms. Many contractors often have accounts where they are registered, like Lowe’s and Home Depot. A good property manager will help you find and screen tenants, execute matters of daily operation, collect rent, and oversee any maintenance and repairs. Instead, they turn to lower-cost … Once we have an agreed on a contract, my next step is to share with the contractor that I am a real estate investor and there will be professional pictures taken of the project once completed. If they point out things I had missed, I learn from that, and it is better for my own education. Each member contributes their advice, experience, and analytical skills, and you use that data to evaluate the deal. This doesn’t mean that you need to give up on your dream. As my agent or wholesaler walks the house while recording it with a smartphone, I have him or her audibly point out the features of the home I should take notice of, the areas I may miss, and the problem areas I will want to note for later. In Long-Distance Real Estate Investing, Robert shares every tip, trick, and system, so you can avoid making mistakes and shorten your learning curve. If the answer I get is the easy, noncreative, easiest-for-the-property-manager-but-most-expensive-for-me type, I am going to look for a way to end the interview and move on. On a house with a rent of $1,000 a month, they make $70. For many of us who have done this for a while, we remember the initial temptation to buy in less-than-reputable neighborhoods because the deal just looked so good. Zillow provides us a list of the high-producing agents in the area with all the things I would want to see if I were looking for an agent there. One thing you do not want to do is upgrade your property so that it’s nicer than the surrounding homes. Now, what I’m looking for in the answer is for the company to show me some form of initiative to save me money. Lastly, you’ll want to ask your agent how he or she plans to find you potential properties. Adding bedrooms in the right situation can turn a good deal into a home run, and experienced investors know this. Since you will be far away, you’ll run the risk of having a business partner who is actively cheating you. The simplest way to determine whether adding a bedroom is a good idea is to ask your agent or a reliable team member whether four-bedroom houses are worth much more than three-bedroom ones, or whether three-bedroom houses are worth more than two-, and so on. Many cities limit the number of new homes that can be built per year. A 70 percent LTV would be a good goal to aim. Price-to-rent ratios are very quick and simple units of measurement that indicate how much a property costs to buy versus how much rent it is likely to produce. In general, the more bedrooms (that are usable) your property has, the more money it will be worth. When you include only enough money to pay for the first phase, the contractor knows you’re going to be checking his or her work and will be performing it under the mind-set that someone is going to be checking it. How to Invest in Real Estate: The Ultimate Beginner's Guide to Getting Started by Brandon Turner, Joshua Dorkin. So we broke down the steps it takes to successfully partake in long distance real estate investing. I don’t care as long as the rent covers my expenses. #Realestateinvesting #longdistancerealestateinvesting #financialfreedomWelcome to the Dream Investment Adventure by Bigger Pockets & Mynd Management! Use this easy-access technology to find out exactly what kind of property taxes you’ll be paying before you buy the house. A roof is a common one. The value you bring to this situation is your ability to buy their house before they are foreclosed on. Whenever I’m considering choosing a new property manager, I always ask whether he or she is willing to make electronic deposits into my checking account. Hello. To use this rule of thumb, simply take the expected rent (in this case, $1,000), cut it in half ($500), and then subtract your mortgage payment. These accounts offer them a discount as high as 10 percent sometimes. Knowing what kinds of jobs are moving into your area helps you determine what types of tenants are too. Grow your real estate investing … I pay my property managers an average of 7 percent. Investing in many backyards is a great idea, meant to help you grow wealth strategically. A tile shower is the nicest option you’ll have in a rental. Some of my very first mentors told me to always buy the smallest house on the block or the ugliest house in the best neighborhood. Some buyers make up their minds to buy the home as soon as they see the master bathroom. Owner to retain final rights of approval for quality of work completed.”, CREATE ACCOUNTABILITY THROUGH ADVERTISING. “Full scope of work to be finished and approved by owner in [however many] weeks. A nationally recognized authority on real estate, he is the co-host of the BiggerPockets Podcast and the author of two bestselling books— Long-Distance Real Estate Investing and Buy, Rehab, Rent, … A good economy is typically correlated with strong housing demand, which is great for your business. When it comes to what to put in your e-mail, there are a few main topics you need to cover. Now that you have invested the … The number one thing you can do in your financial life to help make sure you can always get financing is to maintain a very healthy DTI ratio. Traditionally, this has been a real estate agent. As a rule, you always want to be looking to add as much value, for as low a price, as possible. Curious about the vacancy periods for a two-bedroom unit in an area? You can ask your local realtor to give you some referrals to help you get started. There is also one big disadvantage: They are stinking busy. Share in the comments below! One of my all-time favorite apps is called Mortgage Calculator Plus. Long distance real estate investing has become a popular option for those who want to enjoy the benefits of investing in real estate, but don’t necessarily live in the most desirable market. There is a level of risk in real estate investing. The contractor won’t mind taking thirty seconds to show off his or her handiwork. You will be surprised by how much you learn at this stage. Although it sounds risky, it often makes for the most … As each subsequent payment is made, more and more starts to go toward the principal. I can already hear the wheels turning in your head: “This list of best cities for real estate investing is great and all, but I don’t live in any of these cities. Another way to add value by tearing down a wall is to look for a way to add space to an area that could use it by taking space away from an area where the space isn’t important. Attend a FREE real estate class to learn how to invest in rental properties, as well as strategies to maximize your cash flow and achieve financial freedom. This model has become increasingly popular in areas with high corporate rental demand. Compare that with the $685 a month the property is making me now. Consider all the input you have received from all the contractors regarding why you believe the scope of work they provided is appropriate, and choose the one you agree with. Some banks want to hold the loan long term and continue to collect the payments from you. By asking your property manager what upgrades tenants are paying more for, what level of materials are expected, and what your competition is offering, you can pass that information along to your contractor to make sure you get a finished product that tenants will want. It rarely makes sense to upgrade an item that is still working and has life left in it. This is a great read for investors who live in an area that's not particularly suited for investing, or for those looking to widen their real estate … The first thing you should do is start asking around to see who has a good property manager they can recommend. Upgraded countertop materials like granite and quartz have become much cheaper over the years and in many areas are now downright affordable. With some due diligence and vigilance, you can successfully take advantage of more favorable economic conditions, even when they’re not in your own backyard. The main questions I’ll want answers for are: I want to know how it will handle a maintenance request from a tenant. Once you’ve done a little research to compile a list of the top-producing agents in your area of interest, you want to do a quick Google search of the agents’ names for their websites. People do not sell their home under market value unless there is some compelling reason for them to do so. It's a collection of fascinating finds from my week, usually about psychology, technology, health, philosophy, and whatever else catches my interest. How will maintenance/repair calls be handled? The stronger this metric is, the easier it will be for you to buy properties that will cash-flow positively. They can help you scout deals, negotiate deals, take photographs and even oversee construction projects. There are hundreds of markets out there, so it can be difficult to narrow it down to just one. I usually pose this question with an example like a tenant who has called in to complain about the hot water not working in the shower. In addition, there will be good movement within the market as younger families expand and have shifts in housing needs. When reaching out to different banks, credit unions, and mortgage brokers, you want to spell out very specifically what your situation is, what unique challenges you possess, and what kind of loan you are expecting. I don’t want to buy in a high-crime area. You should also explain how he or she will be paid and what your expectations are regarding the level of communication you expect and the way you would like the work to be proved to be done (pictures, video, apps you’ll use, and so on). HELOCs are low-interest lines of credit secured by the equity in your property. If you want to save even more money, ask your contractors whether they have an account at the store you’re buying your materials from. If you do this right, you can get a yes or a no before ever filling out the loan app. Running a long distance real estate investing might seem like a big challenge, and it certainly can be at times. As an investor, you are almost always targeting situations that indicate some form of distress. Much better bet is asking contractors for phone numbers of former clients. Don’t settle on one backyard. If property managers are willing to take on a war zone property, they are likely not doing very well financially and are desperate for business. If the job runs longer than a week over schedule, contractor will be assessed an additional 5 percent penalty. This app allows me to enter a mortgage amount, interest rate, and amortization and quickly see exactly what my mortgage will be. So are frozen pipes. The goal of a good buy-and-hold investor is to get a great house for a great price and collect small payments for a long time. As your loan balance has dropped but your home’s value has increased, you’ll find yourself with a LTV ratio much more attractive to banks than it was before. In addition, if you ever need to sell a property, you’ll already have the appropriate professional at your service. The pictures will be top quality and highly detailed. Today, long-distance real estate investing isn’t nearly as risky. I have found these to be extremely useful institutions when it comes to working with investors like myself. Click here to listen to a podcast based on these book notes. The first step is to pick your ideal market by conducting your research, such as comparing indicators and benchmarks. It is a common misperception in real estate investing that you should buy only where you live. Another helpful tool is Trulia’s crime Heat Maps, which put together a map to provide a quick visual portrayal of crime that is easy to interpret and universally understood (plus they’re free). I also told Joshua if he was too busy to be taking on new clients, I would love if he could refer me to someone he trusted. What experience they have managing rentals personally, how many doors their company manages, how long they have been in business, and what they feel their company’s strengths are. I just ask my rep to start on the sidewalk in front of the property, start the video, and walk the exterior of the home before entering. They can provide the research and negotiation that you can’t do from afar (taking pictures, overseeing walkthroughs, bidding at auctions, scouting for sale signs), while you can be the overarching authority that runs the numbers, analyzes and makes the final call. Here are some examples of things I’ve found that people who are operating in difficult markets fail to consider while continuing to invest in their present market: A 1031 like-kind exchange is a way to sell an asset and move the gains into a new asset without paying taxes on them. Some contractors have become experts in keeping costs low and finding ways to save you money. If learning the process of rehab is like climbing a steep mountain, it makes sense to follow the path of those who have gone before you. The next way is by using the search bar at the top of the page and typing in “property manager [name of city you are looking for].” One of my favorite ways to use this site is to do a search like this, click on the person’s icon who made the request, and send a message asking whether he or she found a property manager and, if so, how the person is liking the experience. They will be heavily advertised through multiple media. This is a trick known by real estate investors for a very, very long time. Be sure to ask your agent about the biggest housing expenses in the area you are investing in. Remember to remind your contractor that you’ll need a closet made and a window possibly added, as well as wall, and a door frame and a door installed. I also use my free Keller Williams home search app to find the price of nearby homes or search for homes available in specific areas I’m interested in. I don’t want to buy in an area with low-ranking schools either. These good jobs keep their employees and want them to be promoted and stay with the company. While most people understand the popular acronym to stand for “research and development,” I have to give credit to my good friend Andrew for sharing his version with me—rip off and duplicate. In some areas, there is a much higher “pride of ownership” when it comes to the tenant base. Not a bad return for $77.06 a month, right? The return on my equity is 3.6 percent. The Millionaire Real Estate Investor by Gary Keller. If you’re expecting to borrow $50,000 at 4 percent interest on a thirty-year loan to buy a property, you know your mortgage payment will be $238.71 monthly. The best real estate investors will invest in areas where demand is growing, not just in what is geographically close. Click to register for our FREE online real estate class! In addition to mortgage brokers, there are also credit unions and savings and loan institutions. While debt itself makes up only half of your DTI, it’s still important to work to keep your debt obligations as low as possible. While video can give you more of a bird’s-eye view, pictures allow you to really get an up-close and intimate view of the work itself. There are many reasons why these agents will benefit your business. Interest rates are often based on a direct relationship to the LTV. This starts to add up when doing $10,000 to $13,000 renovation projects. Don’t chase rents; chase information, chase desirability, chase equity. Another metric you’ll want to follow closely as a real estate investor is employment trends. These are the people with their fingers on the pulse of what is popular and contacts at the stores that have the items you will be wanting to purchase. Though many investors really like this rule, I am not a fan because it’s too general. While number of sales is definitely not the most important factor to consider when looking for an agent, it is usually a great indicator that the agent works well with others. If you find yourself with a competitive advantage in an area where rentals don’t make sense, don’t give up! Because by law NODs must be made public, it isn’t very difficult to learn how to find when they’ve happened and send the sellers a note stating that you’d like to buy their home. In addition, since you won’t be there to monitor the execution of projects, you’re really going into the jobs blind and have no idea if the information provided to you is accurate or not. If you’re using a real estate agent (which most investors do), you can have a custom search for homes that meet your specific criteria sent directly to your e-mail inbox. Unless you can find out a unique reason as to why a certain market has a high vacancy rate that warrants further research, it’s best to skip to the next market on your list. However, there are some great market indicators that you can use to filter out any markets that might seem great at first, but might make for a bad investment decision. If the property manager isn’t looking for ways to actively save you money, you don’t want to hire that company. On my last project, the plumber charged me $60 to run the pipes over the shower because we had already ripped it out. You then have 180 days to close on one or more of the identified properties. Inside, you will: Understand where to buy and where to avoid. When you think about it, there are very few people who are more qualified to give you a great design idea than a good contractor. Because most months have more than twenty-eight days in them, this leads to your paying more per month. Matching them to your appliance color is easy and really makes the cabinets look great for very little extra money. A good proportion of younger people: When a good number of young people and younger families are represented in a certain market, it indicates that growth in that market is yet to come. This is a surefire way to waste your money and efforts. There are three factors that lead to buyers finding good deals. Put that name on the list you are compiling of agents you want to interview. Owning a rental property doesn’t do you any good if people don’t want to rent it. Another great perk to increased equity in your property is the ability to access the equity through a home equity line of credit (HELOC). With all of this in mind, your first step will be to contact the contractor via e-mail or by phone and explain the plans you have for the property. That is increased with long distance real estate investing. Ask your agent to send you a list of the comparable homes that have sold within a half mile of your property over the previous six months. When one contractor tells you it takes an hour to hang a door, and another tells you five hours, you’ll get a pretty clear idea of who is shooting straight with you. If I were to take my initial cash flow of $685 and move the $225,000 in equity into five different properties that each cash-flowed at 12 percent ($45,000 down on each), I would end up with the $2,250 a month I mentioned earlier. What’s interesting is that by the year 2015, almost every one of those same properties was worth more than it was in 2005. Once you’ve got an entire portfolio of properties, you will want to make sure that the LTV ratio is at a healthy level. Understanding different areas, emerging markets, and price-to-rent ratios is a crucial aspect to real estate investing well! A good property manager very familiar with the area is an excellent way to obtain reliable information to use in your decision making. Some of the best are: The point of this Upgrade Hack is you are taking an area without much inherent value (many of the spaces listed above are nice additions but not crucial) and replacing it with an area with massive value—an additional bedroom. Each contractor should get the list and instructions to please fill out a price for each of the items on it. It’s a useful book for getting your head around the idea of investing out of state, you can skim through a lot of it but there are some useful nuggets and heuristics. Once you’re at the point where you have a list of names, it’s time to start whittling it down. GIVE YOUR CONTRACTOR INCENTIVE AND MAXIMIZE YOUR RESULTS. Asking to have the materials delivered for free on a large order is likely to be accepted by the place you’re buying from and is a nice gesture to show your contractor you are looking out for him or her as well. All you really need to do is choose the contractor you are most comfortable with and begin the process of renegotiating the bid you received. That’s a lot of equity sitting there that is doing nothing for you. Upgrade Hacking occurs when you already have to replace an entire item (countertop, floor, shower, and so on) or make some form of change on your property that is going to cost you money. It allows you to record messages and label them to listen to later. They can help you scout deals, access listings on the MLS, and even give you a heads up regarding off-market deals. In addition to using the Internet to help you determine what a property will cost to own, use it to calculate rent. In many areas, I’m able to buy the granite for an entire kitchen for $1,200 to $2,500. We can do A, B, or C. A will be cheapest, C will be the most expensive and thorough, and B will be a healthy combination of the two.”. I would rather not make any money on my first deal, even lose money on my first deal, as long as I learned from it. Long distance real estate investing is investing in homes that aren’t in your local area, sometimes even invest in homes unseen. is an awesome tool.