Last Updated on February 25, 2022 by Mark Ferguson
Rehab Valuator is a real estate investing program that analyzes properties for flipping, wholesaling or renting. I had the opportunity to try it out and provide my own Rehab Valuator Review. The Rehab Valuator is a great tool and the lite version is absolutely free. It helps you estimate repairs, calculates financing costs, figure returns and profits. I am constantly writing about the costs involved in flipping because so many beginners underestimate them. The Rehab Valuator program does a great job of figuring all the costs for you and even figures the 70 percent rule, which many flippers go by.
I don’t review many products on InvestFourMore, because I only endorse products I believe in. I have tried out many products that I thought were lacking in substance or extremely overpriced and you don’t hear about those products, because I don’t feel they deserve any publicity. I have tried out more than a few real estate investing programs and most of them are not worth the money. This is one of the few products that I feel is worth the money.
How can Software help house flippers?
The Rehab Valuator Software is extremely easy to use. Daniil Kleyman created the program, who is an extremely experienced real estate investor. He has invested in many rentals, flips, and commercial projects. The program helps fix and flippers in a number of ways including determining financing costs, figuring repairs, determining closing costs and carrying costs. When I first tried out the program I was able to determine the potential profit on one of my flips in about five minutes.
The program is in an excel sheet that prompts you to enter the important data on a flip; loan terms, repair estimates, length of the rehab, purchase price, closing costs, selling costs and after repaired value. The form gives pre-populated values and percentages for common costs of these items and is very accurate in my experience. The program then tells you the potential profit, the cash needed and the return on your investment.
Financing costs
The program is great for flippers because they have many features built in for hard money loans. You can choose a loan amount based on the ARV, you can choose the points to be paid when you sell the house like you would with hard money. If you have other types of financing, then that can be entered into the program as well, but it is a little trickier. I could not find a way to enter a loan to value amount on the purchase price, but I could adjust the percentage of the ARV loan percentage until I reached my loan amount.
Repair costs
The program has a separate page just for repair costs on flips. The program does not give you common costs for repairs, which is understandable since costs can vary so much depending on the scope of work and your location. The form lists many repairs that would need to be done; you enter a dollar amount for the repairs, a time frame to complete them and the form computes the repairs and time frames into the entire equation.
Carrying costs and selling costs
Many investors forget about carrying costs when flipping homes. You have to account for insurance, taxes, utilities, and maintenance when you hold a property for months. The Rehab Valuator lets you input all the holding costs as a lump sum or enter each cost on a monthly basis. The program then calculates the costs based on the number of months you will hold the property. The program also lets you enter the selling costs as a percentage of the selling price. Those costs would include commission, title insurance, recording fees and a few more.
Profit
When you enter all the data into the program, it gives you a total profit number and return on your investment. I used numbers for a flip I am almost done with and my profit came out to $68,000 and a 78 percent return on my investment. I like those numbers and I will detail this flip in my fix and flip update articles. The great thing about the profit number is you can change financing terms or length of time you hold the property to instantly see how much your profit changes. The program even has a spot where you can enter a percentage of the profit to be split with the lender or an investor.
My Rehab Valuator review: Can it help wholesalers?
The Rehab Valuator has some great features for wholesalers as well. There is a very simple program to determine what price a wholesaler would have to buy a house to sell it to an investor who would flip the house. Enter the ARV, the repairs and the profit the wholesaler takes, and you get the price you can pay for the property. The only issue I saw with this calculator was you can enter carrying costs and closing costs, which decrease the offer price even more. In my experience, the 70 percent rule works without having to enter holding or carrying costs as additional expenses. You can also adjust the 70 percent value to be 65 percent, 75 percent or whatever value you want.
Another great part of the program is it generates detailed, professional reports that you can give to investors who may want to buy the wholesale deal. You plug in the numbers for the repairs and other costs and the Valuator generates the report that will make you look like it was created by a professional. The more information you can give to the investor, the more comfortable they will feel buying a house from you.
What about rental properties?
Rehab Valuator also has a program that calculates returns on rental properties. This program is similar to the flip program as far as the data you enter but gives different figures for returns, cash flow and lets you include information on refinancing.
Financing costs
When you enter the loan terms, you use the same form as when you entered loan terms for the flip. You can then enter terms for a refinance after you repair the property. This is a nice feature because it lets you see what your returns and costs would be if you use hard money to refinance into a conventional loan. The only problem with this form is I could not turn off the refinance feature, so if I wasn’t refinancing I have to change the numbers around on the refinance terms to match my original loan. I can change the numbers pretty easily to match my interest rate and loan amount to what the original loan would be.
Repair costs
You can enter the repair costs just as you would with the flip calculator and it will factor those into your repairs. The program also tells you exactly how much cash you will have invested in the rental property after down payments, repairs, and closing costs.
Cash Flow and Cash on Cash
The rental property program will take all the figures you plug into it and give you cash flow, cash on cash returns, cap rate, and even DCR. The DCR is the debt coverage ratio and is a tool many lenders use to evaluate how good of an investment your rental is. The program has more forms where you would input the monthly expenses including vacancies and maintenance to come up with the cash flow.
The rental property Valuator and the flip Valuator can both be seen on the same page to help you determine whether it is better to rent the house or flip it. I wish I could see the rental property numbers on their own without the flip Valuator, but that is not a feature yet. If you are using different types of financing on the rental versus the flip, you have to manually change all the financing numbers to see a comparison.
How Rehab Valuator can help you get private money funding
Rehab Valuator also has many reports that can be created to help find investors or private money. You can attach pictures, enter comparable property information and couple that with the flipping or rental property numbers to create a professional looking report. If you are trying to secure private money or a partner, they are going to want a lot of information. Those investors will not want that information scratched onto napkins or lose notebook paper. The more professional the package is the better chance you have getting investors to give you money.
How easy is the program to use?
The program is very simple to use and comes with video instructions if you have any problems. The program also has great customer support if you need personalized assistance to get it up and running. I was able to get started right away as it is very straightforward. Each number you enter into the program is on a numbered line and each number line has instructions on what the figure is and what it means to you. The tricky part comes in with some of the financing options if you are not using hard money with a flip or you are not refinancing a rental property. You can still work around those items and there may be a better way to enter information that I have not found yet.
Conclusion
I think the Rehab Valuator is a great tool for flippers, wholesalers or buy and hold investors. The Rehab Valuator lite version is available for free here. The lite version does not come with every feature I described here, but it gives you a great idea of the functionality of the program.
2014 was a very exciting year for me and I am looking forward to an even better year in 2015. I had a lot of big real estate goals for 2014, which I discussed in detail here. I did not accomplish all of those goals, but I did accomplish a lot and I know setting goals helped me achieve more than I would have without goals. For 2015 I am continuing to set big goals to push myself to achieve as much as I can. I love writing these articles because it helps me recount what I wanted to do, what I ended up doing and helps me plan the next year.
On the surface it looks like I fell way short on many goals, but when analyzing them it is not as bad as it seems.
My goal articles for other years
What real estate goals did I want to accomplish in 2014?
Here are the major goals I wanted to accomplish in 2014 and what I actually did in 2014.
I wanted to sell 15 fix and flips and I ended up selling 12.
I wanted to sell 300 houses as a team and we ended up selling 160
I wanted to buy 6 rentals and I only bought 3
I wanted InvestFourMore to reach 150,000 views a month and it reached 170,000 in October!
I wanted to buy a Lamborghini Diablo and I did!
As I mentioned I fell short on many goals, but I still sold 12 flips, sold 160 houses, bought 3 rentals and bought a Lamborghini. I think that was a pretty good year, even if it was not quite as good as I hoped.
Fix and flips in 2014
In 2014 I set a huge goal to flip 15 houses; I had previously flipped 10 houses in 2013. Flipping 15 houses takes a lot of work and a lot of planning. I assumed the biggest roadblock to that goal would be finding and buying that many houses to flip. I ended up buying enough houses to flip 15, but I could not find the contractors to do the work. I had to fire one contractor I had worked with for years and I ended up trying out at least four new contractors. I think one of those new contractors has worked out so far out of the four.
I learned a lot about flipping homes in 2014. I learned that having ten flips at one time is not a great way to do business unless you have the contractors to do the work. I will have held a few properties for almost a year and that is way too long on a flip. One of those properties did take about $60,000 in repairs and was an extremely long rehab. A before and after video is below.
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Fix and flip goals for 2015
For 2015 I am not going to be as ambitious on my flipping goals. There are a number of reasons I don’t want to flip 15 houses in 2015.
It takes too much babysitting of contractors and I would need to add at least a couple more.
It takes a lot of capital to fund all those flips and the repairs. I think all the flipping made it harder to buy rentals.
I can still buy as many properties, but instead of flip them myself, I could wholesale the properties.
My goal for 2015 is to flip 10 houses and wholesale 5 to 10 more. I have 8 flips right now so reaching ten should not be a problem, but I might sell a couple I have now as wholesale deals. If anyone is interested in some Northern Colorado deals, let me know!
Rental property goals in 2014
In 2014 I wanted to buy 6 rental properties to keep on track with my plan to purchase 100 rental properties. I only bought three rentals, which was disappointing, but better than not buying any! You can find the details on the properties below:
Rental property number nine
Rental property number ten
Rental property number eleven
These are all great properties and I will make a lot of money with them in the future. I have a total cash flow of about $6,000 a month coming in after I paid off rental property number one early in 2014. There are many reasons why I fell short on this goal as well.
I tied up much of my available capital in my flips
There were very few deals in the area for rentals
It is tough to focus on rental properties when I am also working on flips, my real estate team, and the blog. Plus I have a family that I spend as much time with as I can.
I want to shift much more focus on rental properties again, because they are such a great investment. The income from flipping is great, but I have to pay a lot of taxes on it and once I sell a house it stops making me any money. The rental property income keeps coming in every month with much less work and fewer headaches.
Rental property goals for 2015
For 2015 I want to get back on track buying as many rental properties as I can. I am going to flip fewer homes, which will give me more capital to buy rentals. I am also refining my direct marketing campaign, which should bring me more deals (I will have an upcoming article to discuss my direct marketing). I want to buy at least seven rentals in 2015 and that should put me closer to my goals of 100 rentals by 2023.
Real estate team goals for 2014
in 2014 I wanted to sell 300 homes as a team, but we sold about half that. I had sold over 200 houses in 2013 and 2012, but the market changed drastically. Prices increased, buyers increased and inventory decreased. For many agents, this was a good thing, but I focus on REO and HUD listings and that cut my listings down drastically. Our county went from 10 to 20 foreclosures a week in 2012 to 2-4 a week in 2014. Even though our sales went down drastically we accomplished a lot in 2014.
The team lost a couple of agents in 2014
The team added a couple of agents in 2014
The new agents are doing awesome and selling a lot of homes
Even though we sold less REO and HUD homes, we had many more traditional sales in 2014
The average price of our sales increased by 20%
We had a down year as far as houses sales, but the price per sale was up, our team is much stronger than it was and it is also more balanced. The best part is I have to do less work because I set my team up to be able to complete many of my tasks and sell houses on their own.
Real estate team goals for 2015
For 2015 I want to sell 200 houses, which is a big pullback from my previous goal. REOs and HUDs are even harder to find in 2015 than in 2014, which will decrease our sales. However, the new team members and training we implement should increase the number of sales from the other agents. I also want to add a couple more agents and my goal is to have every agent on my team make $100,000 a year.
InvestFourMore goals in 2014
2014 was a great year for the blog and thanks to setting up my team to handle much of the work I had more time to work on the blog. I wrote over 100 articles on the blog and the traffic peaked at 170,000 views in October. Traffic was down slightly in November and December due to the holidays and I stopped doing as much guest blogging on other sites.
I learned a lot about the internet, marketing, SEO and blogging in 2014. I continue to improve the site and I have met a lot of great people while blogging. The Complete Blueprint has been a great success and adding the conference calls has been very successful. If you missed it, I added CDs, a goals setting guide and a few more features recently. I am working on a system to help real estate agents as well that is almost complete and the REO kit has been very successful as well. My eBooks are doing well, which can be bought on Amazon.
InvestFourMore goals in 2015
In 2015 I want to increase traffic, increase my relationships with other investors and blogs and continue to improve my investing strategies by learning as much as possible. Here are some specific goals:
300,000 views a month by the end of 2015
Implement a new real estate agent success system
Borrow private money through the blog in 2015
Improve or create a new forum for InvestFourMore
Personal goals in 2014
In 2014 I accomplished a huge goal by purchasing a 1999 Lamborghini Diablo. I bought the car much sooner than I was planning on, but a great deal came up on a car that was the perfect color. I did not think I would be able to find that color again for a reasonable price for years so I jumped on it. I also thought Diablo prices were at a low point and I have already been offered $26,000 more than I bought the car for. I am not selling it anytime soon as it is awesome and a great marketing tool as well.
As for other goals I reached some, missed others, but had a great year. My wife and kids are doing great and we love the house we bought in 2013.
Personal goals for 2015
I don’t have any big goals for 2015 as far as car buying. I would love to buy an Aston Martin V8 or Lamborghini Countach at some point, but I don’t plan on doing it in 2015. I have personal income goals and a few more that I will keep private. I can’t share everything!
I hope everyone had a great 2014 and if not, then think of all the things you learned and don’t focus on how bad things went.
Last Updated on February 25, 2022 by Mark Ferguson
Rental properties are a great investment, but they take work to manage, especially if you do not use a property manager. I own more than 20 rental properties and I managed my rentals myself until I had 7 and realized it was taking way too much time. My rental properties are single-family, mixed-use, and commercial properties. Managing rentals is not extremely difficult but it takes time, you have to pay attention to details, and be firm with tenants to successfully manage rental properties yourself. You can’t be easy on your tenants and you can’t ignore problems, because that is when rental properties can change from a great investment to a poor investment.
Self-management
Whether you chose to manage your rentals on your own or hire a property manager you need to know how to manage the properties. If you are hiring a property manager you need to know if they are doing what they are supposed to be doing. It can help top manage rentals yourself to get an idea of what is involved to see if the management company is any good or not! A lot of this is also common sense and you don’t have to manage properties first if that is not your thing.
Here are some tips on how to manage rentals the right way. You will notice that there is a lot that needs to be done and it may not be as easy as you thought.
How to figure market rent rates
Determining market rent should be done well before you are ready to rent a house and one of the first things you do as a real estate investor. You should have an idea of what a house will rent for before you even buy a rental property so that you know it is a good investment. It is tricky to tell people exactly how to determine market rental rates because each market uses different techniques to rent homes. Some markets primarily use the MLS to rent homes, while other markets (like my market) use Facebook, Craigslist, or Zillow as the primary method to rent a home.
You need to check the prices of other rentals in the area to see what market rents are. You cannot simply choose the highest rent you can find and assume that is what you will get. You can also check with property management companies or real estate agents to see what they think properties will rent for.
When I am trying to determine rental rates, the first thing I do is pull up properties for rent on Facebook. I browse the marketplace to see what is available in the neighborhoods that are most similar to my property. I don’t look at the most expensive rentals, I look for homes in the lower end of the price range (Be careful if you see an incredibly low-priced rental, it may be a fraudulent listing trying to get people to mail money to Nigeria). There also could be some incredibly high rents being asked for executive or short-term rentals that may not compare to your rental.
Looking at prices online is the first step. To see what is actually renting takes a little more work. Print or write down the ads that are the most comparable to your property. Wait three days, and then check to see if the ads are there. If the advertisements are gone, then those houses were probably rented. If they are still up then they probably have not rented. Check again in a week to see which ads are still there and which are gone. If you want to take one more step then call the numbers or email the ads that you first printed and ask if the properties are still available.
I have tried a couple of different methods of pricing my rentals.
Price at the top of the market and try to find a renter who will pay a premium.
Price a little below market and take my pick of great renters.
My experience has been better with taking my pick of great renters. Even though the rent is lower, I usually have a lot less to worry about like late rent or excessive wear and tear. Whenever I price rentals high, I am waiting for a decent to mediocre candidate to send an application in, instead of picking the best tenant from many applications.
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Advertising
Once I have a decent idea of the market rent, I place an ad on Craigslist, put a for rent sign in the yard, and post it on Facebook, Craigslist, and Zillow. I don’t post in my MLS because very few people look for rentals with an agent in my area. Other areas of the country primarily use MLS or another method to advertise rentals. Be sure you research what the most prominent way to advertise rental properties is in your area.
Application
I use an application I found online and altered slightly when I am looking for potential tenants. I used to not charge an application fee or run a credit check but I do now. I charge $50 for an application fee and I use that money to run a credit check and background check. Potential tenants have had no problem paying these application fees, and it helps to make sure all tenants submitting an application fee are serious. A great way to judge a tenant is by talking to them as much as possible and looking at their application.
I want to see an application that is filled out as much as possible with multiple references. If an application is barely filled out, then the potential renters aren’t taking the process seriously or they are trying to hide something. When I talk to a potential renter, I want to learn as much about their previous living situation as possible, I ask about pets, I ask about employment, and who will be living in the property. The longer you talk to a tenant, the more you can learn about them.
When you first talk to a tenant on the phone, take notes so you remember what they said. Then when you meet them in person, ask them some of the same questions to make sure they give you the same answers. If someone is lying to you, it is a very bad sign. If they are late or do not show for an appointment it is an extremely bad sign. To avoid tenant problems, proper screening is vitally important and we now use SmartMove for credit and background checks. SmartMove lets the tenant sign in and pay them directly for background and credit checks so you don’t have to take social security numbers or private information. They also give you a recommendation on whether you should accept the tenant or not.
References
I always call references for all applicants that I am considering. I want to talk to the reference for the applicant’s previous residence and their current employer. I want to know if they paid rent on time, took care of the residence, or were high maintenance. By high maintenance, I mean calling in every week for minor issues, causing plumbing problems because their children like to flush toys down the toilet or any number of other items. I want to see if they had pets and if that information matches up with what they are telling me on their application. I want to ask the employer how long they have worked there. I want to know if they are a good worker and how solid their position is.
I will also ask how much money they make to see if it lines up with what the applicant is telling me. You cannot rely on everything a reference says because they may want the tenant out of their property and will say they are great when they are a nightmare! This is only one piece of the puzzle.
Pets and smoking
Pets can be an extra source of income or destroy your house. I prefer not to allow pets at all, but I may allow one dog with an additional pet deposit or an increase in rent. I usually charge a $200 nonrefundable pet deposit for a small dog. I always want a pet reference as well, meaning they had the pet in their previous residence and the pet did not hurt the property.
I do not allow cats, cats can ruin a house quicker than anything. If you haven’t smelled cat urine in a house, it is not pleasant. At a minimum, you have to remove all carpets and padding and in some cases remove the subfloor as well. I do not allow smoking in my rental properties at any time. If anyone is caught smoking or breaking any of the other rules, the lease says I can fine them $750 per occurrence.
Lease
I am lucky that I have a sister who is a property manager. I was able to use her lease and customize it for myself. Everything needs to be in writing including rent, term, late fees, the date rent is due, and things the tenant can and can’t do. A few things I include in the lease:
No painting without written approval.
Do not hang curtain rods without written approval.
No smoking on the property.
No pets on the property.
Only people on the lease and their children may live in the home.
No overnight visitors for over three straight nights.
No illegal activities on the property.
If any of these rules are broken, the lease says I can fine the tenants $750 per occurrence. If there are any exceptions to these policies, I put them in writing in additional provisions in the lease. I have a section that shows what utilities are paid by tenants, in my case all of them. I have a section that says if the tenants break their lease early, they owe the remainder of the rent due for the entire lease. If I can rent the home again, I can’t charge the previous tenants for rent as well, but I will charge a one-month’s rent lease-break fee. I have many other items in the lease. I am not an attorney and I highly suggest you have an attorney look over any lease you create.
Lead-based paint
With any house built prior to 1978, I have to provide a lead-based paint pamphlet explaining the dangers of lead-based paint. I also have a lead-based paint disclosure signed by the tenants as well.
Deposits
I charge one month’s rent for the deposit, and it must be paid with the first month’s rent before the tenants move in. The only time I split up the rent and deposit is if the tenants want to reserve the home before they move in. They can pay the deposit first and then pay rent when they move in.
Safety
Each state has different laws regarding carbon monoxide detectors and smoke alarms. No matter what your state law is, I would put them in. In Colorado, we have to have carbon monoxide detectors within 15 feet of every bedroom. They are very cheap for the protection they offer, and you can plug them straight into an outlet.
Keep tabs on your tenants
The worst thing a landlord can do, besides rent to bad tenants, is ignore tenants or their properties. If you never talk to your tenants or never send them anything in the mail they will think you don’t care. Once they think you don’t care they will stop caring about the house and stop paying rent. Landlords cannot assume tenants will pay their rent and take care of properties without any oversight.
When I managed my properties, I had a tendency to be very lenient with my tenants. Some tenants paid on time and took care of my rentals and others always paid late and damaged my houses. I learned you have to be tough no matter what the tenant tells you. After learning my lesson I became very strict on rent being in on time and scheduled routine check-ups on the houses.
I learned the more you contact your tenants the better tenants they will be. We have a maintenance person check every house once a quarter. He checks furnace filters, smoke detectors, carbon monoxide alarms and looks for any problems. It is written into the lease that we have someone check the house every quarter and the tenants know they will have to keep the house in relatively good condition.
I said this once already, but it is worth repeating. The worst stories I hear are from landlords who did not check on their houses for years and they were surprised to find the tenants had trashed the house. Not only can tenants trash the house easily without oversight, but they also have a greater tendency to commit illegal acts at the house or create dangerous situations.
A drug house is a landlord’s worst nightmare, especially a meth house. If a property is used as a meth lab, the entire interior may have to be gutted costing tens of thousands of dollars or more. If the tenant knows they will be checked on every couple of months, there is a much better chance they will refrain from illegal activities.
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Late Fees
My leases say that all rents must be received by the 1st of the month and rent is late on the fifth. If we don’t receive rent on the fifth we start charging late fees. I don’t care why the rent is late, we charge late fees. It is not fair to charge late fees to one tenant and not another. If you don’t charge late fees the tenants will think they can continue to pay rent late with no penalties. Pretty soon the tenants are one month behind and it is a struggle for them to ever catch up. Once they get too far behind they may stop paying altogether and then you will have to evict them.
Evictions
I rarely have to evict a tenant, but that doesn’t mean I have not had bad tenants. The reason I avoid evictions is I usually come up with a mutually agreeable move-out plan for the tenant. If you have to evict a tenant it can be a very expensive and a long process. The eviction process varies in every state. In Colorado, it takes about a month to evict a tenant. In other states, it takes longer and in a few states, it is a quicker process. It is not only the time it takes to evict someone that costs money.
To get to the eviction point, the tenant is at least a couple of months behind on rent. People also do not like being evicted and have a tendency to do damage to homes when they are evicted. I have avoided evictions, but that does not mean I have avoided vacancies. I have ended leases early in multiple situations where the tenant could not pay rent or would not for various reasons.
Instead of going through the lengthy eviction process, we were able to work out a deal where the tenant moved out before their lease was up and I did not hold them responsible for the rest of the lease. I could have held them responsible for future rent as well, but that leaves hard feelings and there is a better chance they would damage the home.
By letting them leave early, they get the feeling I am helping them out. In my rental market, I also have no problem renting homes quickly. I would much rather get a bad tenant out right away and get a good tenant in the property. I still try to collect any back owed rent or any damage done to the property above and beyond the security deposit.
We also always use a lawyer when we have to evict because while it costs money it saves time and it is easy to mess up the paperwork!
Behind on rent
Most of my tenants are very good about paying rent on time because they know they will be charged late fees. I had one tenant that was always late and always has a multitude of excuses and pretended he was not late. The funny thing is he had bought a brand new Toyota Sequoia and we got a call from another car dealership because they were trying to buy a second brand new car. Some people do not know how to manage or save money! If I never told this tenant how far he was behind, he would assume he was paying on time. In fact, he would probably stop paying altogether and assume someone else had started paying rent for him.
One thing we do is send an invoice every month to every tenant. This reminds them to pay rent on time, reminds them where to send the rent and they have no excuses for not knowing they were behind. If a tenant gets more than one month behind or stops communicating with us we will post a notice to vacate on their door. When you post this notice you do not have to evict the tenant, but it sure gets their attention and if they don’t contact us, it is the start of the eviction process.
Maintenance
Some landlords are cheap and will not maintain their properties or repair their houses. You are asking for problems from the property and the tenant if you do not maintain the property. A house that shows poorly will attract poor quality tenants and if the tenants are unhappy with the home they will be less likely to pay rent or take care of it.
If the landlord ignores problems like a bad roof, bad electric, or bad plumbing it could cause thousands of dollars in damage or be dangerous. Rental properties do not have to look like a luxury resort, but they should be functional, all the major systems should work and they should look and smell decent. Maintenance items will come up and that is why it is important to have enough money in reserves to pay for repairs.
How long does it take to manage rentals?
There are many tasks associated with managing rentals, but it doesn’t take a lot of time for one property. The most time-consuming part of managing properties is getting them rented. If you only have one rental property you should be able to spend a few hours a month managing it. Many of those hours will come from renting the home and much fewer hours will be from collecting rent, dealing with maintenance, and other issues.
Managing one rental property, two or three rental properties is not too difficult either. Once you start getting four or more rentals it starts taking a significant amount of time to manage your properties. If you don’t have the time to manage them; get help. When you don’t take the time to screen tenants or check up on your properties is when you encounter serious problems.
Hiring a property manager
There is a lot involved in managing rental properties, but not every rental will have issues that require a lot of management. I have had rental houses that never have a problem, are well maintained and the tenants always pay on time. I have had other rentals where the tenants are always having problems, pay late, or stop paying completely. I had one tenant who had a heart attack and could not work anymore. We came up with a mutually agreed-upon plan where he would move out and try to pay me back for back rent owed. He never paid me, but I rented the house right away for more money than he was supposed to be paying and it worked out okay.
It is worth it for many people to use a property manager, especially if they can’t handle being tough on tenants. Property managers will cut into your profits, but they will save you time as well. Property management fees usually range from 8 to 12 percent of the monthly rents. Some property managers also charge a leasing fee, which could be one-half or one month’s rent. In my area, I can find property managers who charge 8 percent of the monthly rents with no leasing fees. I have thought about starting a property management company, but with fees that low it is hard to make much money.
I have a real estate team that consists of real estate agents, assistants, and myself. When I gave up managing my rental properties, I handed the duties over to my team. Not only does my team help me with selling houses and my fix and flips; they manage my rental properties.
Conclusion
If you want to manage your own rentals, make systems to help you. Create a system to check your houses, make sure rent is on time, and make sure accounting information is logged every month. It was not difficult for me to manage my rental properties, but I also started to let things slide at the end and that is when problems occur. If the tenants don’t think you are paying attention they will be more likely to try and take advantage of the situation. If you are looking to buy rental properties and do not think you can handle managing them, make sure you account for the cost when figuring your cash flow.
I fix up a lot of houses whether they are my personal house, my rental properties or my fix and flips. When I repair a house I don’t mean I do the work myself; I have a contractor do it for me. The most difficult part about fixing up a home is finding a great contractor and estimating how much the repairs will be. Estimating the costs to repair a house is not easy to do, but this article will give an idea of what repairs will cost. Repair costs will vary based on the quality of products used, how much labor costs are in your area and the contractor you use.
Update on 2021 repair prices!
I wrote this article before Covid hit the world. You might assume that Covid would decrease the prices of repairs but the opposite has happened. Repair costs have skyrocketed. Many manufacturing companies that produced materials shut down or reduced production while at the same time people were staying home and completing remodeling projects! The price of lumber, insulation, windows, doors, etc has gone much higher.
I am hoping that the market corrects itself soon but you can take most of the prices I list here and add 20 to 40 percent thanks to the increase in costs.
Why buy something that needs work?
Almost all the houses I buy need work and some need a lot of work. I would love to buy houses that are in great condition, but I want to buy houses that are a great deal. To get a great deal you usually have to buy houses that need some type of repairs, because there are fewer buyers who will buy those homes. When a house needs a lot of repairs, most buyers may not be able to get a loan on that house. The fewer buyers for a house the better deal you can get. It also takes cash to make repairs on a house, which further reduces the number of people who can buy houses that need work. Many people don’t want to hassle with making repairs or finding a contractor to make the repairs, which further reduces the buyers for homes that need work.
Even if you buy a house that is in great shape it will need work at some point. The fixtures may become outdated, the interior or exterior may need paint and things eventually break.
Below is a video on a house we flipped and how much it cost to fix up:
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How much does it cost to paint?
When I fix up a house I always paint the house and replace the floor coverings, unless those items were just done. The cost to paint a house has increased a lot in the last few years because the cost of paint has increased and labor has increased as well. My costs to paint the interior of a house are about $1.50 to $2.00 a square foot. For a 1,500 square foot house, it costs about $2,200 to paint the interior. That includes painting the trim white and the walls a different color like beige or gray.
The exterior of a house costs more to paint because the paint is more expensive, more prep work is needed and the weather has to be nice. Painting the exterior of a house can run $3.00 a square foot or more depending on the complexity and condition of the house. If a home has peeling paint it will cost much more to scrape and prepare the surface for new paint. If a house has lead-based paint, the costs can be much more due to the preparation and clean up work needed to dispose of the old paint. Your contractor or painter must be certified to remove lead-based paint or they can face huge fines from the government.
How much does flooring cost?
When I replace the flooring I almost always use carpet for the living areas and vinyl or tile for the kitchens and bathrooms. If a house has hardwood I will re-finish the hardwood, but I don’t add or replace hardwood because of the cost. It will cost three times as much as carpet to install hardwood floors. For me to replace the carpet in a 1,500 square foot house it will cost about $3,000 to $3,500 installed. Vinyl or tile will cost another $500 to $1,000 for the kitchen and baths. These costs are for middle of the road materials that look nice and will last, but do not cost a fortune.
If a house already has hardwood I will do my best to re-finish it, because refinishing is cheaper than installing new carpet. I also like the look of hardwood floors and buyers love them. I can re-finish a 1,500 square foot house that is mostly hardwood for about $2,000.
We will also use laminate or vinyl plank flooring now that the quality has improved and it lasts if installed correctly.
How much are light fixtures?
Another great update to a house is replacing the light and plumbing fixtures. A house with brand new lights, door handles, and faucets that all match, can transform a home. I like to use antique bronze, but we have also used brushed nickel. Light fixtures are as cheap as 2 for $20 for a basic bedroom and bathroom lights. A nice chandelier can be bought for under $150 as well as a nice ceiling fan. Door handles are $20 or less depending on the style and faucets run from $35 to $150. For an entire house, you can replace the lights, door handles and faucets for about $1,200 installed.
How much are appliances?
Another way to make a house look great is by adding new appliances. We put stainless steel appliances in our houses; I can get a stove for $500 to $600, a dishwasher for $300 and microwave for $250. I usually do not buy a fridge for my flips and for my rentals I may buy used appliances off Craigslist. Appliances make a huge difference in the look of a kitchen even if the cabinets are dated.
How much are cosmetic repairs?
If you do all the work mentioned above and the rest of your home is in decent shape, it will make a huge difference in the look and feel. I almost always do all the repairs I discussed on every fix and flip. With my rentals, I usually do most of those repairs, but if a house is in decent condition I can get away with less. Here are the total costs for a cosmetic upgrade on a 1,500 square foot house:
New interior paint: $2,200
New floor coverings: $4,500
New fixtures: $1,200
New appliances: $1,300
Total cost: $9,200
When you fix up a home it almost always costs more than you think so be prepared to spend more than what you calculate. It is very rare that I ever spend less than $10,000 on any house that I fix up because there are usually many little things that need to be repaired as well. Drywall holes, outlet covers, landscaping, and many more things will increase the costs. It is also rare that I do not have more major repairs to complete.
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How much are major repairs?
The repairs on my flips and rentals vary from basic cosmetics to a massive remodel. Here are other common repairs we make on houses and the cost.
Kitchens: It is not as expensive as you might think to replace a kitchen. I can replace a basic kitchen including cabinets, countertops and sink for $2,500 in materials or less. After adding the labor you can replace a kitchen for well under $5,000.
Baths: Baths can be gut jobs or a simple vanity replacement. For a full gut job, I can usually get the job done for less than $3,000. To replace a vanity, toilet and bath surround it can be done for less than $1,000.
Roof: I have a great roofer who will replace the roof on a 1,500 square foot house for around $6,000.
Electrical: Electric repairs can vary a great deal based on what needs to be done. Minor repairs can be a couple of hundred dollars or major rewiring jobs can be $5,000. It is important to get any electrical concerns checked out to see how serious they are.
Plumbing: Plumbing is similar to electrical. A minor job can be very cheap, but to re-plumb, a house can cost $5,000 or more.
Sewer: Sewer lines can be very expensive to replace. Luckily I have never had to replace one, but to replace a line can be $3,000 to $10,000.
Foundation: Most foundation repairs are not fun to deal with. There are many issues from settling, water leakage, grading issues or structural problems. If you have water problems in the basement or crawl space it could be a major foundation issue that is $10,000 or more or a simple grading issue that some dirt work will fix.
Windows: We end up replacing a lot of windows because we buy older houses all the time. For basic vinyl windows, I am usually charged about $300 a window by my contractors for material and install.
Doors: We also replace a lot of interior doors. Six-panel white doors make a home look very nice. Doors are usually $100 to $150 per door installed.
Stucco and siding: I rarely replace the siding on a home, but I have on occasion. I am putting brand new stucco on a fix and flip that is costing about $8,500 for a 1,250 square foot house. Replacing wood siding is cheaper, but you then have to paint the wood siding. You can still re-side and paint a house for less than stucco in most cases.
Drywall/Sheetrock: With old houses, I see a lot of plaster and bad drywall. Brand new drywall makes an old house look so much better than uneven crumbling plaster. On a recent flip, a drywall specialist charged about $3,000 to do the walls and ceilings in three rooms that totaled about 500 square feet.
Furnace/hot water heater: I had a brand new forced air furnace system installed for about $5,000 this year. To replace just the furnace is about $2,500 and a hot water heater about $800.
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How much do I spend when I repair a house?
On my most recent fix and flip that is about to be put up for sale, I spent about $18,000 on the remodel. That included interior and exterior paint, new carpet, new doors, new trim, some electrical work, some new drywall, trash out, landscaping work and many little fixes. On a flip that is about to have the work started, I will spend over $50,000 on the repairs. That house needs new plumbing, new electric, new paint everywhere, siding work, new windows, new doors, new drywall, new baths, new kitchen, new floors, new fixtures, new trim and more.
Where do I buy materials to fix up my houses?
I shop at Home Depot for most materials including fixtures, doors, windows, door handles, kitchens, baths, and all the little stuff. I have a pro account with Home Depot, which gets me huge discounts on the materials we buy for flips and rentals.
Conclusion
Repairing a house does not cost $50,000 or $100,000 for basic cosmetic repairs. I see kitchen remodels on television that cost $50,000 and I can’t believe my eyes and ears! Even if you use high-end materials like granite counters and custom cabinets you should not spend $50,000 on a kitchen unless it is in a million-dollar home. Repairs can add up quickly on remodels and I always expect about $5,000 more in costs that I plan to spend due to unknowns. Find a great contractor, make sure that contractor does their work and shop around for the best prices to keep your costs down. Remember these costs are what I pay to fix up homes in my area. If you live in an expensive town, your costs may be significantly higher.
My book Fix and Flip Your Way to Financial Freedom, goes over exactly how I flip houses! It covers how to find deals, finance properties, what repairs to make, and how to market finished flips! It is available as a paperback and ebook on Amazon.
Flipping houses can be a very lucrative business, but in most cases, you have to pay a lot of taxes. There are ways to pay fewer taxes flipping, but it takes some sacrifices from the investor and a lot of time. Most flips are taxed at the ordinary income tax rate, but in some cases, you may be able to pay only the long-term capital gain tax rate. I flip many houses a year and to me, it is not worth the time it would take to pay fewer taxes on flips, but for others, it may be worthwhile. I am not an accountant and for specific legal or tax questions please consult an attorney.
What are the tax rates on house flips?
Flipping houses is considered a business by the IRS, not an investment. Rental properties are considered an investment and have much more favorable treatment from the IRS. Rental income itself is considered ordinary income, but you can depreciate rentals, which is a huge tax advantage.
When you sell rental properties, the profit is often considered long-term capital gain and taxed at a much lower rate than ordinary income. If you make $30,000 on a rental property sale you may only pay 15 percent taxes instead of twice that if you are in one of the higher tax brackets. It is possible to flip a house and pay that lower tax rate, but there are many things you have to do to qualify your property.
Can a flip be considered a rental property?
The IRS tax codes are not the clearest things in the world. They tend to be very vague when giving instructions on how to figure taxes. The IRS says a rental property has to be held for a certain amount of time for it to qualify for long-term capital gains. However, they do not specify what that time frame is. Many people assume it is one year, but there are no guarantees with the IRS. Some even argue a property has to be rented, not just held for one year to qualify.
It is argued that you can buy a house you intend to flip, fix it up, rent it for one year, and then only pay long-term capital gains taxes. However, the IRS has many intricacies and you should always consult an accountant when trying to figure out the tax code. The IRS created this code because they felt dealers or professional house flippers should have to pay ordinary income tax on their earnings because it is their profession. Just like a doctor, real estate agent or most anyone has to pay ordinary taxes on their wages. If you are flipping ten houses a year, holding them all for over a year, and then trying to pay only long-term capital gains on the taxes, the IRS may say you are a dealer and you owe ordinary income taxes
Is it worth it to pay fewer taxes on flips?
For me, it is not worth holding properties for over a year to save money on taxes. If I have to rent them for a year it would really not be worth it. I try to sell my flips in six months or less, although that does not always happen. Here are the concerns I would have holding on to a flip longer than I have to.
I have a limited amount of money I can spend on flips. It takes almost $50,000 of my own cash to flip a house and I have from four to ten going at one time. If I had to hold them for one year I would not be able to flip as many houses, because I would not have the cash to keep buying them.
I have to pay interest and carrying costs when I hold flips. Every month I hold a flip I would have costs piling up that would eat into my profits. My carrying costs can be as much as $1,000 a month and I have cheap financing.
My loans are only one year long on my flips. If I held them longer I would have to pay off those loans or refinance them, which would greatly increase my costs.
The longer you hold a property the more risks there are the market could change. I buy rentals for cash flow and I am not as concerned about market changes, because I will make money with rent. You make money on flips from buying low and selling high. If you hold a property for over a year, the market could decrease and you could lose money.
All of these factors are assuming I hold a flip for one year, but what if I rented the flip to make up for the costs?
Does it make sense to rent a flip for one year to pay long-term capital gains taxes?
If I were to rent my flips after I fixed them up, I might be able to get away with paying long-term capital gains tax. Again, there are no guarantees because I am a professional flipper. Here are the problems I see with renting a flip.
I make a lot of repairs on my flips and I want them to look great when they are listed. If I rented the property I risk the tenants messing up all the new fixtures, paint, flooring, and more. I can’t wait to make repairs, because most of my flips need a lot of work and cannot be rented in the state I buy them in.
I would have to refinance the property or pay off my loans if I rented the houses as well.
After I repair the house I would have to take time finding tenants, checking references, advertising, and signing leases. Most tenants want a long-term lease, which means I would have to rent the house for a year. It takes time to repair the property and I would want to sell the property after the tenants moved out. I would have to hold the properties well over one year, probably close to 18 months to make renting work.
How much money would I save by holding these properties?
If I go to all this trouble and time to pay fewer taxes, what would I actually save? Assuming the long-term rate stays at 15 percent, I would save about 20 percent on taxes. However, there is a push to increase the long-term capital gain tax rate. I average about $30,000 in profit on each flip, which would equate to $6,000 in tax savings on each flip. That is a lot of money to save, but I am actually getting more money overall?
If I held my properties longer I would have to flip half the houses I do now. If I flip ten houses a year I would make $300,000. If I could only flip 5 houses a year, I would make $150,000 a year, but pay fewer taxes. If I made $300,000 paying 35 percent in taxes I would pay $105,000 to the IRS. If I made $150,000 paying 15 percent in taxes I would pay $22,500 to the IRS. I pay a lot less in taxes, but I don’t care how much I am paying, I care how much I am keeping. In one scenario I keep $195,000 and in the other scenario, I keep $127,500.
Not only would I make much less money holding the properties, but I would also risk the IRS saying sorry you don’t qualify since you are a dealer and I would have to pay the full taxes. I also risk the market changing and I didn’t even consider the refinancing costs or carrying costs, although rent may make up for some of that.
Can corporations lower the tax rate on flips?
New tax laws are constantly being enacted and using a corporation to flip houses may save you money. My accountant suggested I use an S corp and that is what I do. With the deductions corporations get I save money but those tax laws could always change.
Can you use a 1031 exchange on flips?
Some people say you can use a 1031 exchange to flip houses but that is a tricky situation. A 1031 exchange is meant for rental properties and investments, not fips. You most likely have to hold the property a year and rent it out but again please talk to a professional!
Conclusion
I make more money by paying more taxes on my flips because I can flip more houses. There is also less risk with the market and tenants. For some people who only flip one house a year, maybe it makes sense to turn it into a rental before you sell. Always talk to an accountant to make sure you are following the rules in these matters.
Last Updated on February 25, 2022 by Mark Ferguson
Flip2Freedom is a real estate wholesaling and flipping program put together by investor Sean Terry. I was able to provide a Flip2Freedom review and check out all the features and benefits of the program. The program or system is full of information. To be honest I could not get through all of it, because it would have taken weeks of my time without doing anything else! The program is based on wholesaling and flipping with a focus on finding deals, especially off-market deals.
I try to review as many real estate programs as I can for many reasons. I like to inform people on how good a program is and what is really included in the program. I never review a program I have not tried out myself and I don’t post reviews on bad programs. I don’t post reviews on bad programs, because I do not want to give publicity to programs that are a rip off or not worth the money. I have reviewed a few programs that I never posted anything on because of this.
*Please note I may receive an affiliate commission on some programs I link to on my site.
Should you pay for real estate coaching?
You will find a lot of varying opinions on if it is worth it to buy real estate programs. Some people feel you should never spend any money on a real estate product because you can find information for free online. It is true you can find a lot of free information online, in fact, I have over 300 free articles on my site. One problem with free information you find online is knowing how accurate that information is and if the person posting that information has any idea what they are doing.
I also think there is a place for buying products and spending money to save time or learn faster. I spend a lot of money on products that reduce my learning curve or will prevent costly mistakes. When I started out in the REO business I bought a $400 REO kit that taught me a lot about the business and helped me get more listings (I have my own REO kit as well). I have spent over $5,000 on a personal coach to help propel my business and I have spent much more than that on a paid mastermind group. It is tough to spend a lot of money just to talk to someone or a group, but it has all been well worth it and made me much more money than the cost of the group or coaching.
There are a lot of real estate programs online and it can be tough knowing what is legit and what is not. I will get into Sean Terry’s program soon, but it is legit and affordable. Some programs will charge you $40,000 before everything is said and done and teach you almost nothing! Here are a few things to watch out for if are considering a real estate investing course.
Free seminars
Most free seminars lead to a $300 boot camp, which then lead to a $20,000 to $40,000 coaching program. Stay away! If they don’t teach you anything in the free seminar or the boot camp, they won’t teach you anything in the coaching program either. It is all a sales tactic. Buy a house or hire a local investor to teach you with that money.
Money back guarantee
I offer guarantees on my programs and most good programs will as well.
Free information
Many gurus refuse to teach anything until they are paid. If you have to pay to get any information at all, there is a good chance they don’t have any good information.
Current programs
Try to work with investors who are doing deals in today’s market, not 20 years ago or who have never done a deal.
What is Flip2Freedom?
One of the perks of running a blog is I get to try out many products for free. I was able to go through Flip2Freedom and see everything it has to offer and if it would be useful to investors. I have to say I was impressed with the sheer amount of information provided in the program and the topics he covers.
His program is focused on wholesaling by finding off-market properties. He uses direct mail and many other tactics to find off-market properties. Sean himself is a wholesaler and a very successful wholesaler. He not only preaches these techniques, but he uses them himself (last I saw he does about 10 deals a month). You can also use direct marketing to flip houses and this program talks a lot about flipping as well. Here are a few of the topics covered
What is wholesaling
How to find distressed sellers
How to buy HUD homes cheap
How to use a website, bandit signs, direct mailing, Google ad-words and many other techniques to find off-market homes.
How to write contracts
How to talk to sellers
How to negotiate with sellers
How to close on a property
How to find buyers and build a buyers list
How to hire staff and build the business
And even how to sell your wholesaling business
How to flip houses instead of wholesale them
I actually learned a lot from this program myself on how to improve my direct mailing program. I have bought one flip and listed three houses as an agent with direct mail (much more since I first wrote this).
What is in Sean Terry’s coaching program?
The sheer amount of information in Flip2Freedom is a bit daunting, but it is worth going through it all. There are multiple learning channels included.
Videos: If you like videos you are going to love Flip2Freedom. There are close to 150 videos included in the program that help guide you through the entire process of wholesaling and flipping.
Coaching Calls: Every month they have a coaching conference call and you can listen to previous calls dating back to 2010.
Buying houses: They will buy your deals of they are good enough and they have partnership opportunities.
Supplemental information: With every video comes documents and forms to supplement the training. Many come with word docs or PDFs if you don’t like video training.
Software: The program comes with excel software to help you analyze deals and even project the number of deals you have to do to make the money you want to make.
Facebook and community: There is a discussion board for members and a private Facebook page to discuss investing.
Additional materials: The program has motivational videos, articles on attitudes and goals and teaches people how to think successfully, not just the actions to take investing in real estate.
Here is a link to Flip2Freedom.
My Flip2Freedom review: What are some of the downsides to Flip2Freedom?
Flip2Freedom takes an investment of time and money. It will take time to get through the training and you have to commit yourself to completing it and taking action if you want to be successful. That is true for anything as there is no program that will do the work for you. The program is more expensive than my investing program, but it covers completely different material than mine.
The program is based on videos so if you don’t like videos it may be tough to get through. I used to hate watching videos, until I realized I could listen to them while driving or working out. If you still don’t want to watch videos you can read the supplemental information, but you may not get as much out of it.
When you visit the sales page for the program it will look like every other sales page you see online. A lot of crazy colors, videos and other tactics are used to sell the program. Many people are put off by this sales technique, but the sad truth is it works. I have resisted using any sales tactics like this for a while, but the stats and research shows this is the best way to sell products. If you can get around the hard sell, it is a great product and I recommend trying it out.
Conclusion
Flip2Freedom is full of great information from an investor doing deals in today’s market. I would love to put together a fix and flip or wholesaling program myself, but it takes a ton of work to create these products. I am also not a wholesaling expert, although I think I know a little bit about flipping. If you are looking for a program that can walk you through the process of flipping, finding off-market properties and wholesaling I highly recommend Flip2Freedom.
It takes a lot of hard work to save $100,000 or you have to be very lucky for $100,000 to fall into your lap. Once you have $100,000 it can be even harder to commit to investing it and not blowing it on material goods. If I had an extra $100,000 to invest I know exactly what I would do with it; invest it in real estate. In fact I invest all of my money into real estate. Whether I invested in fix and flips or rental properties would depend on my current situation.
For others there are a number of factors that determine how and when you should invest $100,000. My specialty is investing in real estate because of the awesome returns rentals and flipping can produce. I am a real estate agent and I have a big advantage over many new real estate investors. This article will describe why I think real estate is such a great investment for me and if it would be for you as well.
Why is real estate my top choice for investing $100,000?
There are many ways to invest money into real estate and that is one reason why I love to buy houses. The main reason I love real estate is the great returns you can get if you are willing to do some work. I own 13 rental properties and fix and flip about 10 houses a year. On my rentals I tend to get 20 percent cash on cash returns or more. On my flips I average over a $30,000 profit on each one.
It is not easy to get those returns on rentals and make that much money on each flip. It helps that I am a real estate agent and I have been investing for many years. That doesn’t mean a novice or beginning investor cannot make great money with real estate if they do their homework, work hard and are patient. When investing money in the stock market it is very hard to get the returns I get and there are even more advantages to investing in real estate that blow the stock market away.
What is the best way to invest $100,000 in real estate?
There are many ways to invest in real estate. Besides flipping and rental properties, there is private money investing, REITs, notes and more. Choosing the best option is not easy, because everyone has different goals and everyone is willing to spend varying amounts of time to learn to invest and complete the investments. Here is a quick break down of the most popular ways to invest in real estate.
Flipping: flipping houses takes a lot of work and a lot of experience to make money. A flip is buying a house very cheap, fixing it up and selling it for a profit. Flipping is more of a job than investing and it usually takes a lot of capital to get started.
Rental properties: rental property investing can be very involved or very hands off. I like to buy properties below market value and then make repairs, which takes time and money. The cheaper I buy properties the more cash flow I am able to create. If you are looking for an easier way to buy rental properties; turn key rentals take very little time and are mostly hands off.
Private money: private money is when one investor lends money to another investor for the purpose of investing in real estate. Private money can be very hands off once you find a great investor. Finding the great investor can take time and if the investor does not follow trough on their promises, private money investing can turn into a nightmare.
Notes: buying notes is also mostly hands off, because you are not buying a property. Buying notes involves buying a mortgage and becoming the bank. However if the borrower stops making their payments you may have to foreclose on the home which becomes very hands on.
REITs: REITs are more like investing in the stock market than investing in real estate. You buy shares of a REIT, which give you a piece of a real estate trust. With a REIT the management is taken care of by a large company and don’t have to worry about taking responsibly for a property. However, you give up all control of the investment and have to hope you picked a good manager.
Even though there are many ways to invest in real estate, this article is going to focus on investing $100,000 into rental properties and fix and flips, because I think they provide the best returns. They also take the most work which I think is a good thing. If you are investing for your future retirement and livelihood I think it should take some work!
Why are rental properties how I would invest $100,000?
Figuring out the best investment for you depends on how much time you have to learn and implement. The more time you have, usually the more money you can make and the better returns you will get. I think rental properties are the best investment if you have the money and time to learn the correct way to invest in them. Once you buy your rentals and get them set up with great renters or property managers, they take very little work.
I spend about $30,000 to $35,000 in cash on each rental I buy. I finance my rentals with 20 percent down and make repairs to add value. Rentals in my area produce about $500 a month in cash flow which equals $6,000 a year. I buy my properties from $80,000 to $135,000 and rent them from $1,200 to $1,500 a month. A 20 percent cash on cash return is pretty awesome, but it is getting harder and harder to find these types of deals in my area. However, even with much lower returns rentals properties have many advantages besides the cash on cash return.
Rentals have great tax advantages.
Properties will most likely appreciate over time.
I am paying off loans and gaining equity every month.
Rents will most likely go up over time.
Rentals can be bought below market value giving you instant equity.
To see all the advantages of rental properties I will show you the numbers on rental property 7, which I bought two years ago. I bought this house as a short sale and it was a smoking deal.
Purchase price $113,000
Repairs $8,000
Closing costs out of pocket $500 (seller paid $2,000)
Down payment $22,600
Commission I made -$3,000
Total cash spent $28,100
I rented this house for $1,400 a month shortly after the repairs were made and it has been rented to the same tenants for almost two years.
Not only am I making over 20 percent on the cash I invested from rent, but I bought the home below market and added value with repairs. The home recently appraised for $195,000 and I was able to take out $52,000 in a cash out refinance. Even after the refinance the house cash flows every month (it does make less than $500 a month now).
Many circumstances came together to make this a great rental. These deals are not easy to find and not readily available in every market. However, getting half the return I did would still be a great deal for most people. Here is a look at the total return I have seen in two years on this property.
Returns from buying the home below market
Value of home when purchased and after repairs: $155,000.
Repairs and purchase price plus closing costs: $121,500
Value gained $33,500 which equals 59.6 percent return per year.
Returns from appreciation
Current value of home based on appraisal: $195,000
Appreciation of house over two years: $40,000.
That is a 71 percent return per year over two years.
Returns from rental income received
Rent income per year: $16,800.
Expenses per year: $8,440 (mortgage, taxes, insurance, property management and maintenance)
Profit from the renal property income: $8,360, which equates to a 29.7 percent return.
This number is misleading, because I have been very lucky with these tenants and had no out-of-pocket maintenance, except for the deductible on an insurance claim. We had a major hail storm that damaged the roof, some siding and windows, but my expense was only $500. When I figure cash flow for the future I include much higher expenses for vacancies and maintenance.
What are the total returns of this rental property?
Those returns equal a 160.3 percent return on the initial money I invested each of the first two years. But to be honest, the returns are not that high because you would have selling costs if you sold the house. There are costs to refinance as well when you take cash out. If I sold the house I would have to pay about 6 percent of the selling price in real estate commissions and closing costs (10 percent if I was not a real estate agent). The returns would also go down over time, because the initial benefit of buying below market value would be spread out over more years and we can’t count on 20 percent appreciation each year. A word of warning, I never invest strictly for appreciation.
If you never sell or refinance the property, you will not see those returns from appreciation or buying below market. They would be paper returns which would make your net worth look awesome, but the actual gains would be just the cash on cash returns. Even if you don’t sell or refinance having a lot of equity in homes looks great to banks if you want to get more loans.
When I refinanced the property I had to pay closing costs, which were about $5,000. I will get some of that money back, because the bank collected escrow amounts for taxes and insurance. I already had money in my escrow accounts for my previous loan which I will get back. I also skip one payment with the new loan, which will save me $800. I spent $28,100 buying this property and took out over $52,000 when I refinanced. I still have 25 percent equity since the maximum I can refinance with my lender is 75% of the appraisal. As you can see buying below market coupled with appreciation can make for some great returns when you refinance.
Having said all of that, let’s get back to the entire point of this article. How would I invest $100,000 into real estate? I would buy rental properties, but I would not spend all the money on rentals.
Why do you need to have money in reserves for rental properties?
I may not have had any vacancies or maintenance needed on rental property number 7, but that doesn’t mean I never will or I haven’t had those costs on other rentals. If you are going to buy rentals, you will have to fix things, you will have vacant properties and you will have tenants who don’t pay rent. If you have no money to handle these situations, you will run into some very tough times.
A good rule of thumb is to have at least six months of mortgage payments, taxes and insurance per property in savings. Banks will require this amount as well when you try to get a new loan on a property.
If you bought two rentals using $35,000 cash for each property, you would have $30,000 in cash left. You might be tempted to buy another property with that cash, but you would have no money left for reserves. If you had two rentals and a personal residence, you would need at least $16,000 in reserves assuming you had two $600 payments and a personal house payment of $1,500.
With $100,000 to invest, you could buy two rental properties which would give you great returns on $70,000 of your money. Some may argue the stock market is a better investment because you could invest all $100,000, but no matter what you invest in you should have an emergency fund or safety net. It is more important to have a safety net with rentals because you may have to put more money into then for repairs or to make mortgage payments. Where the stock market you would not need more money, unless you are buying on margin (one of the few advantages of the stock market).
How your goals and personal situation will affect investing the $100,000
There is more to consider then just the $100,000 investment you have. How did you get the money? How much do you save? How old are you? Are you investing from an IRA?
If you make $500,000 a year and it is not difficult to save $100,000, then maybe you are okay taking more risk and buying three rentals. If you make $50,000 a year and it took ten years to save $100,000 maybe you only want two or even one rental. If you are retiring in five years maybe one rental paid with all cash would make you more comfortable. Personally I think leverage is the way to with rental properties as long as they cash flow and I explain why here. If you are in a market with more expensive houses it will also affect how you invest and how much money you need.
If you happened to inherit $100,000 and have no prospect for saving more money, be very careful when investing in anything! It is vitally important you have reserves in savings if you buy rentals.
How much time you have to invest will also play a big role in how you spend the money. If you have no extra time to learn about rentals and buy properties, my strategy will not work well. You have to know your market well, be patient to find great deals, and take time to hire great managers and contractors. Turn-key rentals are a better option for those with no time, but will not provide nearly the same results.
If you have a lot of time to invest, you might even consider flipping to boost your rental property purchasing! If you want help with learning how to invest in rentals, I offer a great program to get you jump started.
How can fix and flipping increase the returns on $100,000?
Fix and flipping can provide a great income, but will take a lot of direct involvement. It is more of a job, because once you sell the property it will no longer make you any money. It takes a lot of money to get started flipping unless you use hard money or have a partner. Having $100,000 to start a flipping business would be a great start,but you are taking on a lot of risk. I love to use flipping to make more money to invest in my rentals.
This article is already way too long to start going into the details of flipping, but here is a great article that describes the process and how much money you can make.
Conclusion
I have invested much more than $100,000 into rental properties and fix and flips. My investments have built up over time and I was not able to put a large chunk of money into the investments in the beginning. If you have $100,000 or $50,000 or one million to invest, don’t dump it all into the business at once. Make sure you know what you are doing, have done the proper research and have a safety net. The returns I show in this article are not typical, but show the incredible power rentals can have. If you have questions or comments for me, be sure to check out the discussion forums!
I have been involved in many multiple offer situations as a buyer, seller and listing agent. I just made an offer on a short sale late last week where they received multiple offers and they have asked for highest and best. There are many different strategies you can use when trying to win a highest and best situation. It is tough to decide how to revise your offer and how much to raise your offer in a highest and best situation. The biggest problem in any multiple offer situation is you don’t know what other buyers will offer. All you can do is analyze the situation as best you can, and make the best offer you can based on your own numbers and needs.
What does highest and best mean?
Highest and best has become more popular in the last few years due to decreasing inventory and increased buyer demand. I am a HUD and REO listing broker as well as a real estate investor, and I am in highest and best situations all the time on my listings and as a buyer. Highest and best is when a seller receives more than one offer on a property, and they decide to give everyone a chance to submit there best offer. In the seller’s formal request, the seller gives each buyer a chance to raise their offer and a date and time all offers must be received by the seller. The seller will review all offers at the same time and pick the offer they like best.
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I used to list a lot of bank foreclosures, and banks use highest and best in almost every situation when they receive multiple offers. Banks can take a long time to respond to offers, and some banks have policies that they will not review offers until a home has been on the market for a certain amount of time. Because of these policies, banks end up with multiple offers on many of their properties. The banks started asking for highest and best to give every buyer a fair chance to revise their offers. In a highest and best situation, the bank notifies every buyer they have multiple offers, and to submit their highest and best by a certain date and time.
Many traditional sellers (not banks) using highest and best as well. In the past, most traditional sellers may let all buyers know they received other offers, but not officially ask for highest and best. Even if a seller does not formally ask for highest and best, I would treat any situation where a seller gets multiple offers as highest and best.
Do not be scared off by multiple offers
Many buyers do not like it when a seller asks for highest and best. I hear buyers say; “I don’t want to get in a bidding war” and they withdraw their offer. If you want to get the best deals you have to take part in highest and best bidding wars. The worst thing that can happen is you get beat out, so why not try? Why not leave your offer the same as your original offer and if you get it great, if not move on. For more detailed tips on getting your offer accepted here is a great article on how to make an offer that will be accepted.
Why do sellers ask for highest and best?
Highest and best situations can make buyers mad, but the sellers have a good reason to use it. The biggest reason is they want to formally give every buyer notice of multiple offers and give them a chance to raise their offer. Banks, in particular, have been sued a lot and they want to do everything by the book, with paperwork to prove it. Highest and best is usually the fairest way to handle multiple offers.
Banks and traditional sellers also use highest and best to try to get the most money they can for their house. They are the owner of the house and they have every right to try to maximize their profit or cut their losses.
Can you get information from the listing agent about other offers?
If you are dealing with multiple offers, you most likely have a real estate agent, and the seller has their own listing agent. You can’t exactly talk directly to the listing agent, but you need your agent to get as much information as possible. Here are some great questions to ask:
1. How many offers are there?
2. Are any of the offers cash?
3. When is highest and best due?
4. What is the highest offer you have now?
5. Is there anything special the seller is looking for? Closing date, financing, rent back?
If you have any experience with highest and best, you know the listing agent will not answer most of these questions. It doesn’t hurt to ask and see if they will answer. As a listing agent myself I won’t answer any of them, except how many offers there are.
How much should you offer?
There is very little chance the listing agent will tell you how much the other offers are and even if they do, the other buyers could raise their offers. It helps to know how many offers there are, but It only takes one offer to beat you. Whenever I am in a highest and best situation I make the highest offer I can based off my buying criteria and profit potential.
I don’t try to guess what the other offers are in a highest and best situation. My theory is that I would rather pay a little more, and get a great deal than try to save money and get beat out. Having said that, don’t pay more than your numbers say you should. Most of this advice applies to investor offers if you are an owner occupant you have many factors to consider. You need to look at supply and demand, how much you love the house, and what neighborhood prices are. Emotion will come into play much more with an owner occupant offer than with an investor offer.
Remember that the list price is not the only thing you should base your offer on in a highest and best situation. Some buyers will think of the list price as the most they will offer, but this may be a huge mistake. I try to think of a multiple offer situation in this way: What is the most I would pay for the home if the house did not have a list price. If someone is willing to pay more, then I am confident I made my best offer and gave it my best shot. I won’t regret trying to save a few bucks by offering less than I was ultimately willing to pay.
How does your loan affect the chances of getting the house?
For myself, I have the option of offering with a loan or cash on most properties. On my long-term rentals, I like to use financing, but I may use a cash offer to give myself a better chance. On fix and flips, I will always offer cash, even though I have bank financing on them. The reason I do this is that I can pay cash if needed and my bank doesn’t require appraisals on most of my loans. If you can offer cash, it almost always looks better than a financed offer. Just make sure you can produce a proof of funds letter showing you have the cash. In some situations like with HUD, financing does not matter. HUD only cares about the net price to them.
How else can you get your offer accepted?
I always explain my financing if I submit a financed offer in a highest and best situation. My portfolio lender does not require an appraisal or repairs on most of my properties. I make sure I tell this to the seller so they know I will close quickly without having any appraisal issues.
Sometimes I will ask for the seller to pay closing costs in my offer to save cash. In highest and best I usually remove the closing costs, because it increases the net to the seller and makes my offer stronger.
I will remove my inspection contingency on some properties. Usually, I only remove my inspection contingency on newer homes that I have a very good idea about the repairs needed. If a home has had a few offers fall apart because of inspection issues this can be a great way to get the seller to accept your offer. Only remove your inspection contingency if you are experienced with repairs and evaluating a home.
An increase in earnest money can also get the sellers attention in a highest and best offer situation. If you raise the earnest money and remove the inspection contingency, this can really increase the chances of your offer being accepted.
What if the seller does not ask for highest and best?
Many times traditional sellers will receive multiple offers, but not ask for highest and best. In many states, the listing agent is required to tell all buyers when the seller receives other offers. When you are informed that there are multiple offers, don’t wait around to see if they will ask for highest and best. There is a chance they will never ask for highest and best, but you can still revise your offer.
If I am notified a seller has multiple offers, I immediately ask if they are asking for highest and best. If they don’t know or say no, I will revise my offer right away. If you revise your offer right away, they may accept your offer without asking for highest and best and giving other buyers a chance to raise their offers. Another tip is to always ask the listing agent to notify you if they receive other offers after you have submitted your offer. I hate it when I find out I lost out on a house, and I was never notified they had other offers!
Should you use an escalation clause?
An escalation clause is when a contract states the price will be this unless a higher offer is received, then the price will rise this much over the next highest offer. For example:
Contract price: $100,000
Escalator clause: If the seller receives any offers higher than $100,000, this offer price shall increase to $1,000 more than any higher offer up to $110,000. Any other higher offers must be given to buyers agent to confirm the higher price.
Many buyers feel this is a great way to get the lowest price on a home in a highest and best situation. However, there are many problems with an escalator clause and it may actually cause the buyer to pay more than they would have otherwise.
The seller is not obligated to show any other offers to the buyer or their agent. Yes, it can be asked for in the offer, but the offer is not signed by the seller and they are not bound to it.
The buyer has stated in writing they are willing to pay $110,000. A smart seller will simply counter the buyer at $110,000 and does not have to show any other offers to the buyer or their agent, because they did not accept the original offer with those terms. I also do not know how legal it is to show a confidential offer from one buyer to another buyer without their permission.
Some offers may ask the seller to pay for closing costs and this will change the net price to the seller. Even though this offer is $100,000, another buyer could offer $105,000 with the seller paying $6,000 in closing costs. The second offer is actually lower than the $100,000 offer, but because of the escalator clause, the first offer would raise to $106,000.
Most banks simply will not accept an escalator clause. It may actually hurt your chances of getting the house and if your agent argues that they have to accept the escalator clause, it could make the banks and listing agent mad, hurting your chances even more.
Conclusion
It is tricky to know how much to offer in a highest and best situation, but stick to your numbers and do not let emotion get involved. It is better to lose out on a home than pay so much that it stops becoming a great deal. Another tip is to always ask the listing agent to notify you if they receive other offers after you have submitted your offer. I hate it when I find out I lost out on a house and I was never notified that they had other offers.
I am a huge believer in setting goals to help myself achieve more in life and in business. I love to make big real estate goals that are tough to achieve because I know they will help me accomplish more. Because I set really big goals, I do not always accomplish everything I set out too, but that is okay. I know I am still farther ahead not accomplishing big goals than I would be accomplishing small and easy goals. 2015 was a good year, but not as good as I hoped. I ran into many roadblocks (some of the same as 2014), but I also had many successes. Even though things did not go exactly as I planned, I had a great year, I have big plans for the future and I am going to challenge myself even more in 2016.
My goal articles for other years
Why do I like big real estate goals?
Before I get into exactly what happened and did not happen in 2015, I want to discuss goals. I overlooked goals when I was younger and it was a huge mistake. I thought goals were a waste of time and I never even tried to set any meaningful goals. When my career and life really started to turn around was when I accidentally set some goals as a real estate agent. I wrote out a very detailed plan on how many houses I would have to sell to make what I thought was decent money back in 2005. I gave that plan to my dad, who I was working with at the time to show him how unfair my commission split was. He didn’t change the split I was getting, but I did end up selling that many houses a couple of years later. When I wrote that plan, I thought it was an incredibly ridiculous number (100 houses a year). I know I would not have sold that many houses as a real estate agent if I had not written out that plan, even if it was by accident.
I started to make good money and I realized I wanted to make even more. So I started reading every book I could on goal setting, self-improvement and even “how to get rich”. I even took Jack Canfield coaching, which helped my career tremendously. Along the way, I learned a lot about myself, about habits I needed to have to be successful and how to continuously improve. Many people with life would get easier and are looking forward to a time when they can relax. I learned that challenges are fun, and solving problems is fun. Being bored with no challenges and an easy ride is not fun. I love Jim Rohn’s quote:
“Don’t wish life were easier, wish you were better.”
I started to realize I was in control of my life. If things weren’t going how I wanted them to go, I could change things by changing the way I did things. That may remind you of the saying:
“The definition of insanity is doing the same thing over and over again, but expecting different results.”
Honestly, this saying is one of my biggest pet peeves. First off, many people attribute this saying to Albert Einstein, but there is no record of him ever saying it. Second if this were true, 95 percent of the population would be insane. Sometimes doing the same thing over and over does change the results, if you do the same thing better and better every time you do it. While I think the saying sends a good message about trying new things if something is not working, it still bugs me that it is used so much and wrongly quoted to Eisenstein.
Making big goals is one reason I have accomplished so much. One of my biggest goals is to buy 100 rental properties by 2023. When I first starting buying rental properties I thought a good goal would be to buy 30 properties. I based this goal on my trend of buying 3 properties a year and thought I could continue that trend for ten years. After learning about goals and how to best use them, I knew I had to make my goal bigger. If I knew I could achieve my goal without changing much, I knew my goal was too small. I changed my goal to purchase 100 properties in the next ten years. That goal would challenge me to make more money, find new ways to buy properties or discover other ways to get more properties than I thought I could. While I am a little behind on my plan to reach 100 rentals, I am much farther ahead than my original goal to buy 30 houses.
What were my rental property, fix and flips, team and blog goals for 2015?
2015 rental property goals?
At the end of 2014, I wrote a goal article about what I had accomplished in 2014 and my goals for 2015. Below you will find the goals I set for 2015 and comments on how I did.
I want to get back on track buying as many rental properties as I can. I am going to flip fewer homes, which will give me more capital to buy rentals. I am also refining my direct marketing campaign, which should bring me more deals (I will have an upcoming article to discuss my direct marketing). I want to buy at least seven rentals in 2015 and that should put me closer to my goals of 100 rentals by 2023.
I only bought five rentals in 2015, which was less than my goal, but more than I bought in 2014. However, I am thinking about turning a couple of my flips into rentals, which would put me at my goal. I have one flip that I intended to sell quickly unless the tenants wanted to stay. The home was rented for $1,100 a month and I bought it for about $100,000. The tenants wanted to stay and we just upped their rent to $1,300 a month and they still want to stay. I have not done any work to the property and I think I may try to sell it as-is for $150,000 as with the tenants in place or I might keep it as a rental. My hesitation about keeping it as a rental is the location is a little different from most of my rentals.
I have another flip that I may turn into a rental as well because it is in a great location and could have a basement apartment. If I decide to make those properties rentals I would have met my 2015 goals. In fact, I may have surpassed them if you look at units because both of the new rentals would be 2 unit properties and one of the five other rentals I bought in 2015 was a 2 unit property as well.
To learn how to use mindset and attitude to make yourself more successful, check out: How to Change Your Mindset to Achieve Huge Success: Why your attitude and daily habits have more to do with making more money and having more freedom than anything else. A 200-page book available as an eBook or paperback on Amazon.
2015 fix and flip goals?
For 2015 I am not going to be as ambitious on my flipping goals. My goal for 2015 is to flip 10 houses and wholesale 5 to 10 more. I have 8 flips right now so reaching ten should not be a problem, but I might sell a couple I have now as wholesale deals. If anyone is interested in some Northern Colorado deals, let me know! There are a number of reasons I don’t want to flip 15 houses in 2015.
It takes too much babysitting of contractors and I would need to add at least a couple more.
It takes a lot of capital to fund all those flips and the repairs. I think all the flipping made it harder to buy rentals.
I can still buy as many properties, but instead of flip them myself, I could wholesale the properties.
In 2015 I will flip 9 houses. This is less than the ten I wanted to flip and I should have flipped many more. The biggest problem was I could not get houses fixed fast enough. I even hired a project manager full-time to get things done faster and it has not changed anything. I love flipping houses and I have realized that I am addicted to buying houses. I did wholesale two properties in 2015, which was nice. On both deals, I made close to $20,000 without doing any work at all. I would still be open to wholesaling more properties if the opportunity arises, but those were unique properties. One was in a very small town that was perfect to wholesale because it was 45 minutes away from me and the other was a college rental that needed a ton of work.
2015 real estate team goals?
For 2015 I want my team to sell 200 houses, which is a big pullback from my previous goal. REOs and HUDs are even harder to find in 2015 than in 2014, which will decrease our sales. However, the new team members and training we implement should increase the number of sales from the other agents. I also want to add a couple more agents and my goal is to have every agent on my team make $100,000 a year.
In 2015 we did add two new agents and almost added a couple more to our team. They have just gotten started, but are doing awesome so far. One of my agents that was hired in 2014 made well over $100,000 in his first year, which was awesome. We did not sell 200 houses, we sold 127. That is way below my goal, but our market keeps going crazy. Prices have increased and even though we sold fewer homes, the value of the homes was much higher. HUD homes and REO properties have decreased even more and the sales have shifted from me to my team, which is exactly what I wanted.
2015 goals for InvestFourMore?
For InvestFourMore I want to increase traffic, increase my relationships with other investors and blogs and continue to improve my investing strategies by learning as much as possible. Here are some specific goals:
300,000 views a month by the end of 2015
Implement a new real estate agent success system
Borrow private money through the blog in 2015
Improve or create a new forum for InvestFourMore
InvestFourMore has done awesome and I have the most fun working on it than I do anything else. I did not hit 300,000 views, but I am very close! I have a new source for private money, that was from the blog. I knew the investor before I started the blog, but he approached me about lending money after reading about my business on the site. I created the new forum and it has been a success as well. I also created a new Facebook Group, which has been very successful and you are all welcome to join. I did many more things with the blog, including starting a high-level mentor program (email me if interested: [email protected]).
2015 personal goals for 2015?
I don’t have any big goals for 2015 as far as car buying. I would love to buy an Aston Martin V8 or Lamborghini Countach at some point, but I don’t plan on doing it in 2015. I have personal income goals and a few more that I will keep private. I can’t share everything!
The year was a good one personally and I did not buy any more cars. I did meet a lot of great people and I started a new blog about cars: Howdidyouaffordthatcar.com. I have not had time to do too much with the site yet, but I plan to work on it little by little. I didn’t reach many of my personal goals for income, but I achieved many others I did set.
What are my new goals for 2016?
As you can see, I did not achieve many of my goals for 2016. That may seem like a disappointment, but it is actually a good thing. If I had achieved everything, that would mean I set my goals too low and did not challenge myself enough. I also know there is a lot of room for improvement! Below are my new goals and some things I plan to do to achieve them.
2016 rental property goals?
For 2016 I want to buy 10 more rentals! Yes, that is a huge number, but I think I can do it. Here are a couple of things I am going to change to reach that goal:
I am working on refinancing 8 of my rentals into long-term 30 year fixed rate loans. I am using some national portfolio lenders. I will pay a little higher rate, but have my loans locked in and get $300,000 in cashback. My properties will still cash flow and I will be able to buy many more rentals with that money that cash flow as well.
I am thinking about investing in other markets. I bought a turn-key property in Ohio in 2015, but for future rental property purchases, I want to buy below market value. In order to do that in another market, it will take a lot of work. My reason for switching markets is the huge appreciation we have seen here. It is getting harder and harder to find great cash flow.
I am looking for a new local portfolio lender. My portfolio lender is getting tougher and tougher to work with now that I have hit a certain dollar amount of loans with them. That is one reason I am considering refinancing 8 of my properties with another lender. I would also love to find a lender who does not have a seasoning period, which would allow me to refinance properties faster and get some of my investment back.
fix and flip goals for 2016?
For 2016 I want to flip 20 houses! Yes, this is another huge goal for the new year. This will double the amount of homes I flipped in 2015, but I think it is possible as well. It will be tougher if I decide to keep two of my current flips as rentals. Here is why I think I can make this happen:
I have ten flips going right now. I will get these ten flips sold in the first half of the year. I have two more flips under contract, which would leave me with 12 flips. I only have to buy 8 more, get them repaired and sold before 2016 is over.
I think I can buy and repair that many homes in the next year because I am changing my repair process again. I had a vision in place for 2015, which has not happened. However, I am going to make it happen in 2016 and that may take some big changes in the way repairs are handled.
I may look into more financing options with my flips. I already have a new private money lender who has made the process much easier. While he charges more than my portfolio lender does on my flips, I can close in a couple of days. I may look into adding more private money lenders as well.
real estate team goals for 2016?
For 2016 I want to hire another really good agent. I do not want to hire too many agents, because we don’t have space for many more! I also want to focus on getting leads for our team through our website FergusonGreeley.com. I think we have some great agents in place, we need to get them trained and performing as well as possible, before adding more. Again I want to sell 200 houses in 2016, this goal may seem too high, but one of these years I will get there! How will I meet these goals?
Focus on organic leads through our website, utilizing everything I have learned from InvestFourMore.
Use Facebook to generate leads and sales for our team (we already do this and have had great results).
Weekly training meetings and great support for our agents (we already do this as well).
Flipping more houses will generate more leads and opportunities for our agents.
blog goals for 2016?
For 2016 I want to keep increasing traffic and the number of people I help buy investment properties or make more money as an agent. Here are some goals:
500,000 views a month by the end of 2016. As a site gets bigger and bigger the traffic increase slow down. I still want to grow the site, but I also want to focus on helping people more than getting the biggest audience possible.
Focus on a few core things. With a blog or website, you can get sucked into 1,000 different activities that take a ton of time. I started a podcast in 2015, which has been awesome and should be a core activity, I think my coaching products should be a core activity and writing articles.
I want to write a really awesome book. I have written five eBooks that can be downloaded as a PDF or read as a Kindle eBook. I think the books are good, but I want to write an awesome book. I have already started writing an extremely in-depth book on rental properties that will be available as an eBook and a physical book that can be ordered and delivered to your door. I want this book to be the best rental property book available. I am also working on a book that I am co-writing with J Scott.
personal goals for 2016?
I don’t disclose what I make or how much I want to make on the blog because I try to keep at least a few things private! I do have personal income goals, business goals, and many other personal goals. Here are some long-term goals I added to my bucket list. I don’t have dates yet for when I want to accomplish these, but I am working on that.
Buy an old plantation and fix it up. I love old houses and old mansions. At some point in my life, I would love to buy an old plantation house and fix it up.
Start a used car dealership. I have already looked into starting a car dealership so that I can buy more exotic cars. I love cars and my dream job would be to buy awesome cars all day long, selling them is tougher for me. I met some really cool people this last year, including some guys who started a car dealership.
I want to buy a 1980’s Aston Martin V-8 in 2016. Prices on these cars are going up and I want to buy one before they skyrocket as my Diablo has.
Conclusion
Over the last year, I have learned a lot, changed the ways I do business and had a lot of fun. I think I can improve things immensely in 2016. One reason I think I can improve things is because of my personal habits and routines. I learned many things over the years about success and once you reach some level of success it is easy to slack off. I did slack off on my daily routines, goal reviews and personal improvement over the last year. I have made a huge effort to get those habits back on track in the last three months. I am really excited to get things started in 2016 and see what happens!
Investing in real estate with commercial or residential properties can be a great way to grow your money. Commercial and residential real estate investments are very different and it takes time to learn the ins and outs of each. Commercial real estate may be a great investment for some, but I think residential real estate is an easier investment to understand. But if an investor is well versed in commercial and willing to work hard, you can make a lot of money with commercial real estate. I invest in residential properties and commercial properties.
What kind of rentals did I start investing in?
I have 20 long-term rental properties, and they have been great investments with great cash flow. Not only do my rental properties provide over $100,000 a year in cash flow, but they also have increased my net worth by $600,000 in the last 3.5 years. My first 16 rentals were residential properties, but I switched to commercial for my last purchases.
One reason I like residential rental properties is I am a real estate agent who specializes in residential properties. Because I deal with residential properties all day long, I know residential rentals better than I know commercial rentals. I know how to buy residential properties below market value and I know my rental market very well. I also invest in residential properties because in my area residential rental properties tend to give better returns than commercial rental properties.
Here is a video I put together on commercial versus residential rentals
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Is commercial or residential easier to invest in?
Buying a residential rental property is pretty simple once you learn your sales and rental markets. You need to know how much the house costs, what it will cost to repair, what it will be worth and what it will rent for. Even though residential rental properties can be simple, it still takes time to learn how to invest in them and make money.
Commercial properties, on the other hand, are much more complicated than residential rental properties. With commercial rental properties you need to know the same things as you do with residential rental properties, but figuring out those numbers is much more difficult. Factors that affect rent and value are the type of tenant that best suits your building, how long a lease is, how solid your tenant is and the future desirability of your building. All of this is important with residential, but much more so with commercial. The reason these factors are more important with commercial is they have a huge impact on the value of the property where a single-family residential property is valued off the demand of owner-occupied buyers.
How are commercial properties valued differently than residential?
Valuing a residential property is done by determining what other similar properties are selling for. Many more residential properties sell than commercial properties, and it is usually pretty easy to find sold residential properties that are similar to a house you own or are looking to buy. Valuing residential properties based on the sales of other residential properties is called the sales comparison approach.
Commercial properties are rarely valued using the comparison approach because there are much fewer commercial properties and it is hard to find similar properties that have sold recently. Most commercial properties are valued using the income approach, which is much more complicated than the sales comparison approach.
What is the income approach when valuing commercial properties?
The income approach uses the income a property generates to value a property. Most commercial properties are valued this way as well as some multifamily residential properties.
The income approach takes the profit a property makes per year and multiplies it by a cap rate to come up with the property’s value. I wrote a much more detailed article on cap rates here. The cap rate is not a set figure but varies in different parts of the country and for different types of properties. When you are buying commercial properties, it is very important to know the market cap rates.
I have a brand new book that is all about commercial real estate. Build a Commercial Rental Property Empire. The good, the bad, and the ugly. I go over all the details of investing in the commercial business and include 10 case studies on my own properties. You can get the book on Amazon.
What is a CAP rate?
If you have a 20,000 square foot warehouse leased for 10 years to a tenant with almost no risk of default, that cap rate will be different from an office building that is half vacant with mediocre tenants in the other half.
The cap rate will be lower for the property with the stable tenant because that tenant has a better chance of paying rent through his lease term and the lease is longer. The office building will have a higher cap rate because there is much more risk involved and it will take work to rent the vacant spaces. Cap rates will vary based on the type of tenant, the length of the lease, the credit rating of the tenant, the condition of the property and market conditions.
Why are commercial properties hard to value?
As you can see, valuing commercial rental properties can be very difficult. You must know the market cap rates for a building, a tenant, and your market. These cap rates are not always easy to figure if you are not very experienced in the commercial real estate market. If you overpay for a commercial building, it could be very hard to ever sell or refinance if needed. Properties that look like an awesome deal may be priced low due to a bad tenant or an uncertain future.
The other problem with valuing properties off the income approach is you are using information from the current owners for expenses and income. If the owner fudges his numbers or forgets a few expenses, the property will look much more valuable than it really is.
What is the most stable investment?
Everybody needs a place to live, but not everyone needs a store or wants to own a commercial investment property. Another reason residential properties are safer than commercial properties is there will always be a larger buyer pool for residential properties. Even when the market is bad people will buy houses or rent houses because they need a place to live.
In the commercial market, people may close their shops, work at home or get another job if the market turns bad. Commercial real estate investors may have trouble getting a commercial loan and will not buy in a down market. This means that it may be incredibly difficult to sell a commercial property in a down market; especially if it is vacant. In a down market, you may have to rent or sell a residential property for less money, but you may not be able to sell or rent a commercial property at all.
How are the leases different?
Longer leases can be a good thing for investors, but there is a reason commercial leases are longer. Commercial properties typically take longer to rent and are harder to rent than residential properties. Landlords want a longer lease in place on commercial properties, because of the difficulty in leasing commercial. When a commercial property goes vacant, it can stay vacant for months or even years. This is also why the cap rate varies so much with commercial. An investor has to consider how long the current lease is and how stable the current tenant is. A ten-year lease is great, but even ten-year tenants can go bankrupt and you are left with a vacant building. Since commercial buildings are usually very specific to the tenant, it could take a long time to lease or a lot of work to retrofit a building for a new tenant.
A commercial lease is not a straight one year lease with the tenant paying utilities and no pets. A commercial tenant has many lease options; a gross lease, triple net, double net, modified gross, etc. The explanations for the different types of leases can be found here. The cap rates will change again based on the types of lease and what costs the tenant is paying.
How is financing different?
It can be difficult financing residential properties, but there are many lenders who will loan on them. Typically you can get 15-year or 30-year loan on residential rental properties. With commercial properties, the loan amortization is going to be lower than 30 years and most commercial loans will have a balloon payment. A balloon payment means the entire balance of the loan will come due after a certain amount of time like 5 or 10 years. The investor must pay off the loan when the balloon payment comes due, which is not always easy. Many commercial investors count on being able to refinance their loans when a balloon payment is coming due, but that is not always possible. If the lending market becomes tighter, an investor’s financials change or the commercial market changes, it may not be possible to refinance.
How are commercial rentals a good investment?
Even though commercial real estate can be a very tricky business to be in, there is an opportunity to make a lot of money. There is no black and white valuations of commercial properties because there are so many factors to consider with cap rates. That means the people who really know what they are doing can spot good deals or a way to increase the cap rates on properties. If you have a property that is worth $200,000 based on a 10% cap rate, that means it is generating $20,000 a year in income. If you can create a more stable lease or rent to more attractive tenants that could lower the cap rate, that makes the property more valuable. If the property was generating $20,000 a year income and had an 8 percent cap rate it would be worth $250,000.
An investor could also find a better use for a commercial building, which may increase the income or lower the cap rate. A warehouse may not have a good cap rate in a certain market, because there are vacant warehouses all over. That warehouse could be turned into self-storage, which is in short supply increasing the income and lowering the cap rate. Increasing the value of a commercial property could be as simple as taking a vacant building and finding a good tenant on a long-term lease.
You can see a video of one of my commercial rentals here:
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Conclusion
For most investors, residential properties are much simpler and easier to understand than commercial properties. It takes a lot of time and experience to understand the commercial world and how it works in the market you want to buy in. I currently stay away from commercial properties, but I won’t rule out investing in them in the future. The most attractive part of commercial investing to me would be increasing the value of properties and quickly turning them like my residential fix and flips. There are so many unknowns with long-term commercial properties because lending can change, financing terms are different and the vacancies can last a long time.
When I wrote this article I had not bought any commercial properties. I have bought multiple properties in the last year. Commercial real estate is very complicated, but I have learned a ton over the last couple of years.