Steps to Buying Real Estate

What can you afford to buy

• Savings

• Credit Score

• Increase income

• How much you should spend on housing

Property Analysis

• Analyze Each Property

  • Cost to Purchase

    • Pre-Closing Costs

      • EMD

      • Home Inspection

      • Appraisal

      • Contractor Quotes

      • Pay yourself - if its an investment property - if you have an LLC -- you are the project manager and you need to get paid

    • Closing Costs

    • Down Payment

  • Cost to Repair

    • Home Inspection

    • Repair Costs

      • Estimate Repair Costs

        • Paints

        • Floors

        • Locks

        • Appliances

        • Deep Cleaning

        • Pest Control

        • Post construction cleaning

    • Upgrades

  • Monthly Cost Estimate

    • Monthly Income

    • Monthly Payments

      • PITI

    • Monthly Operating Expenses

      • Maintenance and Repairs 10%

      • Vacancy 5%

      • Property Management 10%

      • Lawn Care

      • CAPEX 10%

  • Yearly Costs

    • • Expenses

        • Property Taxes - Tax Rate, Tax Override

        • Property Insurance

      • Income

        • Estimate Rents - Compare your rental to market

          • Rentometer

          • Pad Mapper

          • Zillow

          • Apartments.com

          • Realtor's Rental Market Analysis

      • Deductions for Rental Property

        • Depreciation

          • Home 27.5 years

        • Property Taxes

        • Mortgage Interest

        • Utilities

Investment

• Cash on cash Return

• Cap Rate = Net operating income divided by Value of Property

  • typically lower cap rate in nice neighborhoods

  • Whether or not it's a good cap rate depends on average cap rates of your area

  • Higher caprate = investment is more risky

  • Lower Cap rate = investment is less risky

• How do I know if its a good deal

  • Can you Afford it?

  • Are the cash on cash return greater than the stock market?

  • 1% rule in some areas

  • Cap Rate = Annual NOI/Market Value

    • High Cap Rate = investment is more risky

    • Low Cap Rate = investment is less risky

    • Good Cap Rate - in between 8% to 12%

  • Will you still have cash reserves later?

Build a Real Estate Team

• Realtor (Make sure you find an investor-friendly realtor. You wouldn't believe how many realtors have never bought investment property.)

• Contractors

• Home Inspectors

• Appraisers

• Trades

  • Electrician

  • Plumber

  • HVAC technician

• If Flipping - Stager

Reasons to buy real estate

• Appraisal came in higher

• hidden value

• Path to Progress - Appreciation potential

• Financial Freedom

• Tax Deductions

• Cash Flow

• Cash on Cash Return

• To Start your Real Estate investing business

• House Hack

Making Strong Offers

• Goal: Get the property under contract and then negotiate and counter offer, if need to

• QUICK Offer - Drop dead clause

• Offer over list

  • Safety

    • Bank Appraisal

    • Home Inspection

Contingencies can impact how strong your offer is

• Appraisal Contingency

• Financing contingency - typically includes appraisal contingency to protect the bank

  • Cash As-is offers beat this.

Buyers Market

• home inspection

AS-IS

• whatever they disclose has been accounted for in the listing price

• If its not disclosed you can still try to negotiate a price reduction

Ways you can lose the deal

• You get cut loose

  • Financing falls through - financing contingency

• You cut the deal loose

  • As - is Walk away

  • Home Inspection - right to re-negotiate or walkaway

  • Title Issues

  • Pull out before they sign the deal

  • Forfeit EMD - you could also get sued for specific performance

Finding a contractor

• Licensed or insured

• what cases do I need a permit

• Sign a contract

• Use PowerPoint visuals for scope of work

• Payment schedule

• Start with small task

• Find Handyman

• Get itemized quote

• Takes lowest quotes to your best contractors

• Turn quote into contract - date, signature, time schedule, timeline, start and end, payment schedule, percentages for draws, ask for licensed and proof of insurance

• Never pay in full upfront

  • Time schedule 40%, 30$%, 30%

• I will write you a great review when your done to help you get more business

• Go with contractor to buy materials

• Get recommendations

  • Once you find a good plumber, ask them to recommend a contractor, electrification, etc.

  • ask Realtor for recommendations

  • Drive for dollars - take pictures of truck

  • stop at projects

  • day laborers

Barriers to Entry

• Bad Agent

• Bad Deal

  • Problem tenants in tenant-friendly city -- long investment process

  • Can't afford repair costs

  • Can't profit based on repair costs

  • Seller hiding information

• Low Credit

• Low income