10.1 – Where To Start

10.1 – Where To Start

THE FOLLOWING HAS BEEN REPLACED BY THE REMOTE INVESTOR ECOURSE

 

I recommend that most people (especially those net worth under $500,000) start out with single family homes as opposed to multi family due to the following reasons:

  1. Get experience with less on the line
  2. Learn to be a remote investor
  3. Learn the basics

“Turnkey rentals… its like climbing Mount Fuji…. It’s good to do once but you never do it again”

Check out this article before proceeding…. Simplepassivecashflow.com/turnkey

If your net-worth is over $500,000 you should start learning about syndications and understand when you should make the jump to being a LP in multiple private placements.

And be careful of the marking (propaganda – see below) out there trying to get you to take the leap.

As much as we know turnkey rentals or syndications is better than the stock market lets get educated and then go in eyes wide open.

 

Simple Passive Property Investor Acquisition Checklist

Guess what! An investor is born everyday. The name brand turnkey providers out there have unsophisticated investors lining up around the block to buy whatever they put at whatever price – some mark them up $5,000-20,000 over market price.

Here’s is a checklist of the high-level parts of a transaction: 

  1. Understand that at some point you will have an investment philosophy where you know how much risk/reward you will take based on your life circumstances. But, for now you don’t really have one so let’s try to be conservative and stick to the basics which is cashflowing properties with little to know construction (risk) involved. This is where at some point you have a quick call with a mentor and/or connect with a bunch of peers in a mastermind.
  2. Rent-to-Value Ratio and the 50% expenses rule for starters. Most people I work with live in primary markets (as opposed to Birmingham, Atlanta, Indianapolis, Kansas City, Memphis, Little Rock, Jacksonville, Ohio, or other secondary or tertiary markets) where the Rent-to-Value Ratios are under 1%. Most investors make the mistake of spending more than 1-2 months going over all this data and picking the best market where in reality its all about connecting with investors that came before you and using their referrals. Don’t try to recreate the wheel especially as a remote investor.
  3. Pick a couple secondary and tertiary markets in B and C class properties that have cashflow. (Suggestion – before you start talking to potential brokers, vendors, or property managers especially good ones that have been referred to you, you might want to practice interacting with bad to normal ones just so you can begin to practice to learn the lingo.
  4. We like to utilize prudent leverage (learn more about debt) let us connect you with a lender we use and trust.
  5. Where is your capital coming from? Performing a 1031 exchange, do your market research far in advance as you will have only 45 days to identify replacement property.
  6. Consider visiting the market or a property tour once you’ve decided to buy. Investors find these short trips very helpful in understanding the investment and at least feeling comfortable.
  7. Build a relationship with the property management before purchase help mitigate risk because you have someone you trust you can hand the keys over after closing and verify the rents and the property quality. 
  8. Once you choose a property you sign a purchase and sale contract. make sure you ask for contingencies for a 3rd party appraisal and inspection. We do not recommend purchasing all-cash because that can be a way of rushing buyers and not doing an appraisal. If you are financing, the lender will order the appraisal and you order the inspection.
  9. Call the property inspector and build a relationship with them. Come to an understanding with them that you really want to know if its a good rental and that the major components are good as opposed to evaluating it like a retail purchase to live in where they might highlight silly things (that will also take up their time). I try to come to and understanding that I am not looking for these silly details but at the end of the day ensure that I am not buying a lemon and really need to know where I need to ask for legitimate concession from the seller in the form of repairs or reduction in price. Depending on the level of needed repair you might want to send an inspector back to verify the work has been completed before closing. I don’t advise this but I have been know to send in my property manager on my behalf to get the inspection done cheaper.
  10. Get quotes for homeowners insurance and make sure the policy is in place before you close. You need to be filling in your proforma sheet during the process with actual quotes. Get a quote here.
  11. Communicate with your property manager the close date they can hit the ground running marketing for tenants. And make sure you have a signed property management agreement.
  12. You will need to notarize your closing documents on the closing date. Communicate any travel plans to your lender. If you are gone a power of attorney might be a solution.
  13. Once closed… celebrate we often forget to do this and get the rest of your family involved! Review your property management statements each month and verify that rents have hit your bank account. Make sure you are reasonable and don’t get yourself fired as a client but keep a firm handle on what is going on out there. It is your job to keep your property manager accountable and ensure work plans are made and executed. Spot check invoices and communicate with your property manager from time to time. If the property is rented and everything is smooth instead of a 100-300 dollar repair every month or two consider yourself lucky and you might go months before even getting an email or call with them.

Metropolitan Statistical Area (MSA):

There are over 384 MSA in the United States. As investors we are able to obtain data on MSAs however we really are interested in what is really happening in the submarket. In each MSA there could be 2-4 dozen sub-markets. Additional info.

What market do I invest in?

Here is a handy spreadsheet to help collect your thoughts on which market to invest in but I would move away from the data and these tables as most times I recognize that investors are just getting bogged down with data and using it as an excuse to take action. More importantly it is wasting time where you should be expanding your network to add value to other investors who came before you so you can utilize their brokers, property managers, vendors. Birmingham, Atlanta, Indianapolis, Kansas City, Memphis, Little Rock, Jacksonville, Ohio, or other secondary or tertiary markets… you can’t go wrong. Just find a few people you trust there and start building relationships. I repeat build relationships.

Due-dilligence checklist

 

Verify Price

 

Any value add

    • Rent
      • Other Income: Focus on non variant streams
        • Pet Rent
        • Pet Fees
        • Parking
        • Storage
        • Garages
        • Trash Valet
        • Laundry
      • Rubs
      • Move in fees
    • Expenses: Verify biggest categories
      • Insurance
      • PM %
      • Taxes
      • Identify outliers either high or low
        • R&M
        • Payroll
        • Trash
        • Contract Services
      • Reno Budget
        • Deferred Maintenance/expressed as $/unit total
          • Roofs, siding, decks, parking lot, HVAC, appliances, wall units, chiller, landscaping, fencing, amenities (pool, playground, bark park), laundry
        • Rehab Budget
          • Unit and or exterior upgrades needed for business plan
            • Interior: Paint, flooring, kitchen, bath, light fixtures, plumbing fixtures, toilets, tub/shower,
            • Exterior: Paint, Lot striping, landscaping, dumpster area
            • Amenities: Fitness Center, bark park, car wash, laundry, storage, package deliver (amazon locker?)
          • Verify Lending Assumptions with soft quote
            • Docs needed
              • Rent Roll
              • T-12
              • Last year P&L
            • Stress Test
              • Establish Break Even Analysis
                • Debt Service+Operating Expenses/Effective Gross Income
                  • Break Even Point   = 50,000 + 35,000/100,000 =   85%
                • Determine Business Plan – How the property should perform, what will be added or removed and why