Latest / Cash Flow for Life / Chapter 15: Let’s Go Find a Property
Transcript
- 00;00;00;06 - 00;00;28;06 Chapter 15. Let's go find a property. This is the transition you've been waiting for and progressing towards throughout this book, and with our mentorship and training, you want to go out and actually locate a property, evaluate it for rental opportunity and cash flow, and get to the point of making an offer. Let's work our way through this with a real city example that we just pulled out of a hat. 00;00;28;09 - 00;00;52;12 Dallas, Texas rental property purchase. Actually, we just threw a dart at a map and we hit low in center. There's no other reason for using Dallas, Texas other than it's a random example, but it's a good place to start for this exercise as anywhere. We're not going to get into neighborhood selection because we're from all different places across the United States and Canada and around the world reading this book. 00;00;52;18 - 00;01;27;07 So we'll just keep this numbers in comparison that assumes similar neighborhoods in and around Dallas, Texas. Rental research. What are homes renting for? If you are doing research on your own, there are a number of websites you can use to look for rental homes by area. In addition to a standard Google search, you can use government websites such as HUD gov in the US, see in Canada and private websites such as Zillow and trulia.com. 00;01;27;09 - 00;01;53;12 There are websites coming out every single month and almost every single day that do these things. So see what works for you. You can also use our favorite source of research information your realtor. We entered some criteria to narrow down the results. Here is our search. Minimum two bedrooms. Single family homes. Rent between 1000 and $1500 a yard. 00;01;53;17 - 00;02;23;05 Size not indicated a dishwasher, air conditioning. Washer and dryer. It was a very productive search with more than 170 homes in the results for this narrow rental price range. Next, we went through those to get some similarly sized homes with three bedrooms and two baths. Here are five homes we found that compare well. Let's recap these, all of which are three bedroom, two bath homes. 00;02;23;07 - 00;03;14;15 Home one 1662ft² for $1,150 a month. Home number two 1832ft² for $1,495 per month. Home number three 1610ft² for $1,250 per month. Home number for 1860ft² for $1,275 per month, and home number five, 1755ft² for $1,395 per month. We'd add all of the square footage numbers together and all of the rent figures, and then divide each by the total of five. 00;03;14;17 - 00;03;49;05 Rental amounts. Total divided by total square feet equals rental per square foot. $6,565 divided by 8719ft² equals an average of $0.75 per square foot. This is a simple calculation to help us get a feel for how single family homes are renting in the area. Of course, we're also going to do thorough market research and determine several other things, including the following demographic trends. 00;03;49;08 - 00;04;10;10 Who is moving in and out of the area? Employment trends. Are jobs coming or going? Which neighborhoods have rent competition and which don't? Neighborhoods with fewer available rentals. How neighborhoods look and feel based on drive bys. 00;04;10;13 - 00;04;34;19 We now know how much we can rent a home for on average, assuming it's in normal condition and it's not too fancy or too plain. We're going to act like a tenant and call or even go see properties to get a very detailed look at what amenities are drawing the higher rents. It could be different areas, features, or simply proximity to greenbelts or employment. 00;04;34;21 - 00;04;57;00 We won't know if we don't do the research. If you're talking to landlords, ask questions such as how is it going with your rental? Is it hard to keep your tenants in? How long has it been vacant? Are you flexible on the rent and any other questions you can think of? Now, it might seem a little weird asking your landlord these questions, and, you know, it kind of is. 00;04;57;08 - 00;05;21;08 But this is your business. This is you getting your market research. And I promise these questions will give you so much information. If there are several comparable rentals in a neighborhood, check them out to see what makes a difference in the rents they're charging. It could just be what they need to cover their payments, but it could also indicate which features are valued in the area. 00;05;21;10 - 00;05;48;01 If corner lots or cul de sac lots command higher rents. You want to know this. If you're comparing two homes for purchase that are very much alike in features and price, and one is a cul de sac that may be the best choice. Finding a home to buy. We've discussed using a real estate agent to keep you supplied with automated reports of new listings and sold properties, so you'll be watching those already. 00;05;48;03 - 00;06;10;17 However, we don't have those right now for Dallas, so we're going to go to the internet and search for Dallas homes that we can purchase for our cash flow goals. The property search. We found a site with all of the Dallas area listings and began our search. Now, at this point, we must make some basic assumptions that may not fit your situation. 00;06;10;19 - 00;06;33;16 The good news is that we found a lot of homes available in the area that were priced between 100,000 and $150,000 in this example. Right now, the market is great for our purposes. Now, homes will be different prices everywhere across North America and around the world. This is simply an example you're going to put in the prices that match your research. 00;06;33;18 - 00;06;58;27 For our example situation, we're going to assume that you have a 20% down payment. Don't fret if you don't have this much, because there are plenty of home choices and some would just be in your price range. We have to use an example. So here's what we're going to use for our investor buyer capabilities and desires. The investor has up to $40,000 cash to invest in the home. 00;06;59;00 - 00;07;31;01 Using the rental information we previously obtained and calculated. We want to rent out the home for around $0.75 per square foot and realize nice cash flow. We're assuming certain numbers for taxes and insurance that were recommended at the website where we did our search. We can always check these with a realtor or another professional. We're also buying ready to rent homes and that doesn't need repair or substantial work, just minor touch ups and make ready repairs. 00;07;31;03 - 00;07;39;10 There were plenty of homes to choose from, but let's settle on a couple of them to see the potential for us. 00;07;39;12 - 00;08;11;19 In terms of characteristics, the homes we found fall right in line with the rental homes we studied earlier when gathering data. This is good. They are comparables. Let's see how these could rent out using our calculation. Square feet times $0.75 per square foot equals the potential rental price. Home one 1574ft² times $0.75 per square foot equals $1,181 per month. 00;08;11;22 - 00;08;40;24 Home two 1678ft². Times $0.75 per square foot equals $1,259 per month. Both are listed at $140,000. We're going to assume that these are very similar homes in the same area, and that their condition and other amenities are similar as well. This is for our example. In real life, you'll want to make adjustments for these variances. Jumping right to home two. 00;08;40;29 - 00;09;10;06 Due to the higher rent potential, we'll run some numbers before we decide to go out and look at the home first. Remember asking prices. Just that. Asking stats from our real estate agent and a good CMA show that the home isn't overpriced, but we should be able to get it for about 132,500. We want to put 20% down and get a 30 year mortgage at an interest rate of 5.5%. 00;09;10;09 - 00;09;37;04 The amount of the loan is $106,000. The down payment required is $26,500. Payment with taxes and insurance will be $825 per month. Gross rental cash flow is $1,259 per month. -$825 per month equals $434 per month. 00;09;37;07 - 00;10;16;10 Let's be conservative and assume other costs of $54 per month for repairs and miscellaneous expenses, leaving a monthly cash flow of $380 per month. Now let's run some other numbers. $380 per month in cash flow times 12 months equals $4,560 of annual cash flow. The net cash flow of $4,560, divided by the cash invested of $26,500, gives us the ROI of 17.2% on the cash flow. 00;10;16;13 - 00;10;41;13 Let's make it clear that there were several dozen lower priced homes with the same features and amenities, and there were also many examples that were higher priced. However, we didn't want to use an unrealistic example. In fact, it's very probable that a home could have been located and purchased for around $110,000 with 1500ft² of space in this example. 00;10;41;16 - 00;11;07;22 Do you have tenants? You should. Before you make decisions and offers on properties, you should be looking for tenants. Those are your customers. That is who pays you advertising for the area, as well as other techniques we mentioned earlier, should give you a list of potential tenants who want to live in the area of the homes you're considering, and they'll want the features and amenities as well. 00;11;07;24 - 00;11;13;10 When supply meets demand, lifetime cash flow results. 00;11;13;12 - 00;11;38;00 In our book Quick Start to Cash Flow. We have a full chapter dedicated on how to build your tenant list and how to match them with the proper rental property. You could get that book at com. It's a companion book to this book. It's called Quickstart to Cash Flow Action. Steps one. Do rental research based on your financial abilities and goals right now. 00;11;38;03 - 00;12;05;16 In other words, don't look for $2,000 a month rental homes when your ability to buy dictates a home in types and sizes. Renting for $1,000 per month. Start searching the MLS and foreclosure listings and other websites for homes that are within the basic price range and features that you've determined to be rentable. Narrowed down the possibilities to 3 or 4 homes and run the numbers. 00;12;05;18 - 00;12;21;27 Practice practice, practice. What's next? We're going to take you through a home purchase transaction. From the initial offer through to the closing, it's going to be a thorough explanation of what's going to happen and what to watch out for.