Well Rounded Investor

My journey of becoming financial independence by 35 years old

Real Estate Investment for an Average Jane

 

Demand is still high amongst the millennials, with nearly 4 out of 10 Americans paying a landlord instead of owning a home, the number of rental houses is surging. If you’re still worry that nobody is going to rent from you, you could always buy a rental near a big football university and you’d always looking at a whole football statium-full of potential tenants. LOL ūüôā

Look! Homeownership is at the lowest since 1965 at 62.9%

So, if you decide to go for it, what are the thing ¬†you’re looking for?

The math behind a buy worthy rental property

 #1: The One Percent Rule

Only buy property that yields at least 1% or more of the purchase price.

Start with The One Percent Rule: Does the monthly rent equal one percent of the purchase price or more?

  • A $100,000 property¬†should rent for at least $1,000 per month
  • A $200,000 property should rent for at least $2,000 per month
  • A $300,000 property should rent for at least $3,000 per month

Most of my properties are renting higher than 1%. You can find the example here and here.

I bought the property for $285K, with renovations, taxes, insurance, and fees. The total costs is $310K. And I’m planning on making at least $4K/mo on 4 units. That is (4/310) * 100 = 1.29% Check.

The park front rental was $57K + $20K reno = $77K, renting for $1200 that’s 1.58%

 #2: Net Rate of Return 6.5% or more

It is Net or Gross of rent divided by the purchasing price.

  • A $100,000 property¬†should rent for at least $1,000 per month (net $700). So ($700 x 12)/$100,000 = 8.4%
  • A $100,000 property¬†should rent for at least $1,000 per month (net $700). So ($1400 x 12)/$200,000 = 8.4%
  • A $100,000 property¬†should rent for at least $1,000 per month (net $700). So ($2100 x 12)/$300,000 = 8.4%

In my case, I bought $77K house, net $700/mo.

Net rate of return: ($700 x 12)/$77,000 = 10.9%

 #3: Return of Capital (Cash).

If you’d only have $25K for $100K purchase price. And it rents for $1000 per month.

($1000 x 12)/$25000 = 48% . This is why people like Donald Trump is rich – leveraging.

**The reason, I use $25K down payment for $100K purchase price, because the bank requires investment property, you’ll need to put down $25%.

There, you have it! The math is DONE! and Done! Now you’d just go out to hunt for your property.

The key is *patient*. The second key is don’t rely on a realtor to do the searching for you. Search your own. I bought all four of my properties, base on my own search and research.

Three ways I use to get the market price for rent:

#1: I use zillow.com

Zillow has it good. I can filter the search to “Rent” from “Buy” and voila. I see 1 bedroom, 2 bedrooms, and 3 bedrooms in the same area are going for. And I only fix it to rentable unit, renters aren’t picky, there is no need for fancy faucet or stuff like that. Renters, they just need a functional, not leak kitchen faucet, etc. They would want to have a washer and dryer in the unit, so they don’t have to go to another place to do laundry, so I’d make sure to make those basic need. And because I didn’t use the nicest accessory, I can lower the price $300-600 than the top ends. So, my units will have an easier time to stay rented.

#2: Ask people who live in the area

There is nothing wrong with asking people how much they’re paying for rent. As long as you have good relationship with them. LOL ūüôā Or, in my case, I’d go eat at a restaurant nearby, compliment the food, ask to speak to a manager, found out my listing is 1/3 of the current market, that was why my restaurant space is rented within 1 week of me listing it.

#3: Ask your trusty realtor

I guess, the realtor will use their connection to find out for you. That’s probably the quicker way. And less costly (no need to eat at a restaurant nearby LOL:)

I had every intention to keep my $300K investment in stocks, but I was always on the look out for another rental. I search zillow.com (for residential, duplex) and loopnet.com (for commercial, 4-plex, mixed-uses, multi-units).

Things I’d always consider are

#1: Location

I’d like it close to my work (near downtown, university, and hospital). In my city, there are 15000 students, and the school doesn’t have housing for 15000 students, so I know some of the spilled over students would need private housing.

My hospital employs over 7000 employees, and not counting the contractors

My town has 1.5M people, and majority of businesses are in downtown.

So if I build my real estate empire around this area, there will be more chance for it to stay filled.

#2: Always buy Low

Yes, the real estate market is red hot right now, but good thing happen when you are patience. I’ve been looking for a commercial space for 2 years. People who look at me and and see I made the decision to buy so quickly and think that I make hasty decision. But that isn’t true at all. I know I had to make the decision quickly because I bought one for 1/3 to 1/2 of the going price around there.

#3: Only Buy Something You’d Want to Live in It

Yes, I saw the property and I fall in love with it immediately.

 

What method did you use when you decide on your property?

 

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2 comments on “Real Estate Investment for an Average Jane

  1. Troy @ Market History
    June 17, 2017

    I think detached real estate is going to experience strong gains in the next few years. It’s just demographics. As millenials settle down and start families, they’re going to start buying starter homes.

    Liked by 1 person

    • Vivianne
      June 17, 2017

      You and Mr. Buffett have the same view. Single family resident is the way to go. I don’t deny this fact. My brothers and sisters in the Midwest is now have close to 30 single family home. I encourage them to buy more single home while we can still find sub $50k to rehabilitate. *I can see the potential for selling when they’re ready to liquidate and retire.

      For me, at this point, it’s too hard to run around to different properties. My multi family’s rental is at the university, and will always cater to students. I don’t like the buying and selling business, I like to buy and hold.

      My other rental is also within 6-blocks of my hospital in the financial district, also cater to single people. It would be hard to sell. I totally agree with you on this.

      Like

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This entry was posted on January 29, 2017 by in Best post.

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