Rental Property Investing

Question 1

How does the principle “You make money when you buy a property” relate to cash flow and appreciation?

Answer 1

The principle emphasizes the importance of the initial investment. By securing a property at the right price, you set yourself up for positive cash flow and potential appreciation gains. For instance, if monthly expenses are $1,004.23 and the rent is $1,200, the cash flow is $155.77.

Question 2

Using various sources, how would you determine the Fair market rent for a property with specific characteristics:

Answer 2

To determine the Fair market rent, analyze data from sources like Craigslist, rentometer.com, and local papers. For example, if similar properties in these sources are renting for around $1,200/month, that gives an indication of the market rate based on factors like location, amenities, and size.

Question 3

Given common expenses, how do you holistically estimate rental property expenses for a property valued at $100k:

Answer 3

Research specific costs in your area and apply typical percentages. For a $100k property with repairs estimated at 10%, that’s $10,000. A 5% vacancy rate accounts for $5,000, and 10% for property management is another $10,000. Combine these with other specific expenses for a comprehensive estimate.

Question 4

Using the 50% Rule and the 2% Rule, how would you quickly evaluate a duplex property valued at $120k:

Answer 4

For the 50% Rule: With a total income of $1,200/month from both sides of the duplex, half is $600. Subtracting a hypothetical mortgage of $550/month gives a cash flow of $50/month. For the 2% Rule: The monthly rental income of $1,200 divided by the purchase price of $120k results in 0.01, suggesting it might not be as profitable in certain markets.

Question 5

How do you conduct a comprehensive financial analysis for a property with specific costs:

Answer 5

Start with the total cost: $75k purchase price + associated costs (e.g., $2,500 closing costs, $1,200 pre-rent holding costs, $17,250 repairs) = $96,950. For financing: a 20% down payment on $75k is $15k, leaving a $60k loan. The out-of-pocket cost is $36,950. Calculate monthly mortgage payments, total income, and expenses to determine cash flow. ROI is then determined using cash flow, equity, and the time the property was held.

Question 6

How does the initial purchase price of a property impact future profitability, considering cash flow and appreciation:

Answer 6

The initial purchase price sets the foundation for profitability. A good purchase price can lead to positive cash flow, as seen in the example where a monthly rent of $1,200 against expenses of $1,004.23 resulted in a cash flow of $155.77. Additionally, appreciation can offer future gains on the property’s value.

Question 7

When determining the Fair market rent of a property, which sources and property characteristics should be considered:

Answer 7

Fair market rent can be gauged using sources like Craigslist, rentometer.com, and local papers. The property’s location, number of bedrooms/bathrooms, amenities, and size are key characteristics to consider. For example, if properties with similar characteristics are listed around $1,200/month across sources, it provides a benchmark for the market rate.

Question 8

Given a property valued at $100k, how would you estimate its rental expenses, factoring in common percentages like Vacancy (5%) and Repairs (5-15%):

Answer 8

To estimate expenses, apply the typical percentages to the property’s value and combine them with other specific costs. For instance, a 10% repair rate on a $100k property would be $10,000. A 5% vacancy rate would account for another $5,000. Adding these to other expenses like Property management (10% or $10,000) provides a comprehensive estimate.

Question 9

How can the 50% Rule and the 2% Rule be applied to quickly assess the profitability of a $120k duplex, where each side rents for $600:

Answer 9

Using the 50% Rule: With a total income of $1,200/month, half (or $600) represents expected expenses. Subtracting a hypothetical mortgage of $550/month, the cash flow is $50/month. For the 2% Rule: The monthly rental income ($1,200) divided by the purchase price ($120k) results in 0.01. Since this doesn’t meet the 2% threshold, it suggests potential challenges in profitability in certain markets.

Question 10

For a property with a purchase price of $75k and estimated repairs of $17,250, how would you perform a comprehensive financial analysis, especially considering a 20% down payment:

Answer 10

Start by determining the total cost: Add the $75k purchase price to associated costs (like $2,500 closing costs and $1,200 pre-rent holding costs) to get $96,950. For financing: A 20% down payment on $75k is $15k, leaving a $60k loan. The difference between the total project cost and the loan amount, $36,950, represents the out-of-pocket cost. Subsequent steps involve calculating monthly mortgage payments, total income, and expenses to derive cash flow. Finally, ROI is determined using cash flow, equity, and the duration the property was held.

Question 11

What strategies can help identify profitable real estate investments in your area:

Answer 11

Determine what’s working in your area, explore wholesaling commercial properties, multi-family properties, condo conversions, fast food triple net leases, and subsidized low-income housing. Engage with local investors and research on platforms like biggerpockets.com.

Question 12

How can you find affordable properties in expensive cities:

Answer 12

Look for pockets of low-priced properties, typically in middle-class neighborhoods on the outskirts of the suburbs. These are usually 20 to 40 miles outside the city center in smaller towns and communities. Partner with a knowledgeable real estate agent in these areas.

Question 13

What are the key considerations for DIY Long Distance Rental Property Investing:

Answer 13

It’s not recommended for beginners. Key steps include establishing an ideal location, understanding the city’s dynamics, having a local connection, recognizing industry drivers, and areas to avoid. It’s crucial to use a good property manager, research extensively, and make a preliminary trip to talk to locals and real estate agents.

Question 14

What are the benefits of partnering with a local investor for long-distance investing:

Answer 14

A local partner offers insights into the area, can identify good and bad regions, inspect properties, liaise with contractors, show vacant units, and handle property maintenance. This strategy is often considered the best for long-distance investing.

Question 15

What is Turnkey Investing in the context of long-distance property investment:

Answer 15

Turnkey Investing is a strategy where the investor buys, rehabs, and has the property managed through a third party, often from a distance. Some companies offer a full package of buying, rehabbing, renting, and then selling the property to you, while others might only find the property, leaving you with most responsibilities. The return on investment might be lower compared to other strategies.

Question 16

What is the all-cash method of purchasing rental properties:

Answer 16

The all-cash method involves the buyer paying the full purchase price without taking out a loan, often using certified funds like a bank cashier’s check. This payment is typically made to the title company.

Question 17

What are the two primary schools of thought concerning rental property financing:

Answer 17

1. The No Debt Camp: Advocates purchasing rental properties solely with cash.
2. The Leverage Camp: Supports using borrowed money to achieve a higher return on investment (ROI).

Question 18

Using the Leverage Camp’s perspective, how does leveraging affect ROI in a hypothetical scenario of a $100,000 property with a 20% down payment:

Answer 18

With a 20% down payment ($20,000) and borrowing the remaining $80,000, the monthly mortgage payment at 4.5% over 30 years would be around $400. Including $600 in monthly expenses, the total monthly outgoings would be $1,000. This results in a monthly cash flow of $200 or an annual cash flow of $2,400. The cash-on-cash ROI would be 12% ($2,400 cash flow on a $20,000 investment).

Question 19

How does leveraging affect appreciation in property investments:

Answer 19

When leveraging to buy a property, the percentage increase of your return based on your initial investment (down payment) is significantly higher compared to buying with all cash. This means you get a greater return on the money you actually invested.

Question 20

How do tax savings differ between an all-cash purchase and a leveraged purchase of a $100,000 property:

Answer 20

For an all-cash purchase with a clear $7,200 per year after expenses, a $3,000 annual depreciation deduction reduces taxable income to $4,200. For a leveraged purchase with a cash flow of $2,400 per year, the same depreciation results in a paper loss of $600 for tax purposes.

Question 21

What is the significance of loan paydown in property investments:

Answer 21

As you pay off the mortgage, you’re building equity in the property. Each payment reduces the principal amount, increasing your ownership stake. This is a form of forced savings, ensuring part of the rental income is securing your financial future.

Question 22

What are the potential liability concerns with all-cash offers in property investments:

Answer 22

Property owners with significant equity can be more attractive targets for lawsuits. Additionally, attorneys may be less motivated to pursue lawsuits against landlords with high levels of debt on their properties.

Question 23

What are the key steps in the conventional loan process for rental properties:

Answer 23

1. Shop for lenders.
2. Get pre-approved.
3. Submit property information.
4. Loan goes to underwriting.
5. Lender issues an appraisal.
6. Loan returns to underwriting for final review.
7. Loan closes.

Question 24

What are the characteristics of portfolio loans:

Answer 24

Portfolio loans might have slightly higher interest rates, might offer shorter loan terms, and some may come with a balloon payment.

Question 25

How do private lenders differ from hard money lenders in real estate financing:

Answer 25

Hard money lenders are professionals who lend using predefined rates and terms. Private lenders use their funds and usually don’t do this as their primary business, offering more flexible rates and terms.

Question 26

What are some creative financing methods in real estate investing:

Answer 26

1. Partnerships.
2. Seller Financing.
3. House Hacking (Live-in Flip or Small Multifamily Property).
4. BRRR Investing (Buy, Rehab, Rent, Refinance, Repeat).

Question 27

How does the BRRR investing strategy work:

Answer 27

buy a property at a lower price, rehab it to increase its value, rent it out, refinance with a traditional lender (ideally covering the initial costs), and then repeat the process for the next deal.

Question 28

How does the Earnest Money Deposit (EMD) serve as a reflection of a buyer’s commitment in a property transaction, and what factors typically influence its amount:

Answer 28

The EMD is a deposit made by a buyer to demonstrate their genuine interest or good faith in a property transaction. Its amount can vary based on the property’s price and the party from whom the property is being purchased, typically ranging between 1-2% of the property’s purchase price.

Question 29

Describe the potential outcomes of an EMD in various scenarios of a property sale:

Answer 29

When an EMD is submitted, it can lead to:

- Application towards the final purchase amount in a 
         successful sale.

- Forfeiture to the seller if the sale fails due to the 
      buyer's fault without a legitimate reason.

- Return to the buyer if the sale doesn't proceed due to 
         a legitimate reason, often stipulated as 
         contingencies in the contract.

Question 30

How do contingencies act as protective measures in property transactions, and what are some common examples:

Answer 30

Contingencies are specific conditions or events that must be met for a contract to be binding. They serve as “escape routes” in purchase agreements, safeguarding buyers from unforeseen circumstances. Common examples include the Inspection Contingency, ensuring a thorough property check, and the Financing Contingency, protecting buyers if they can’t secure the necessary financing.

Question 31

In the context of making an offer for a property, explain the balance between understanding the current market and ensuring not to overextend financially:

Answer 31

Understanding the current market is pivotal in determining the offer amount. If properties are selling quickly in a hot market, one might need to act fast or even offer above the asking price. However, it’s crucial not to overpay just for the sake of securing a property. The investment should align with one’s financial strategy and goals, ensuring that decisions are based on thorough research and analysis rather than emotions

Question 32

Differentiate between hard money lending and private lending in real estate, highlighting their unique characteristics and potential advantages for investors:

Answer 32

Hard money lenders are professionals who use either their own funds or pool from other investors to extend loans, characterized by predefined interest rates, fixed fees, and short loan terms. In contrast, private lenders use their funds and usually don’t lend as their primary business, offering more flexible rates, lower and negotiable fees, and generally longer and more negotiable terms than hard money lending.

Question 33

Discuss the strategic implications of removing certain contingencies, such as the financing or inspection contingency, from a property offer

Answer 33

Removing certain contingencies can make an offer more appealing to sellers. For instance, waiving the financing contingency signals a strong commitment, as the buyer risks losing the EMD if they can’t secure a loan. Skipping the inspection contingency can also make an offer stand out, but it comes with the risk of unforeseen property issues. While these strategies can enhance the attractiveness of an offer, they also increase the buyer’s risk, making it essential to weigh the potential benefits against the potential pitfalls.

Question 34

Amount of Cash reserves:

Answer 34

• Dependent on number of factors: number of properties, condition/age of properties, anticipated cost of repairs, future big-ticket expenses
• At least 6 months of expenses for each property.

Question 35

Main reasons investors fail:

Answer 35

1. Understand risk
2. Build solid education foundation for yourself
3. Understand the math for any property
4. Treat your investments like a business

Question 36

How to quit your job through rental properties:

Answer 36

• Think about cash flow per door
• Author states x3 income of your current job before quitting

Question 37

Write down your goals and read them out loud every day:

Answer 37

• Read self goals everyday out loud every morning and night
• Take whatever goal you have and multiply by 10
• Change mindset to realize goal
• Take massive action to achieve objective

Question 38

Realize who you associated with:

Answer 38

• Network/Build relationships
• Try to spend time everyday with other real estate investors
• Go to local real estate clubs and landlord meetups

Question 39

Formulating a plan/investing strategy:

Answer 39

• Write down strategy for achieving financial freedom through rental properties, include:
  
  1. What is the end goal? Where are you headed?
  2. What kind of strategy do you want to use?
  3. What won’t you do? (ie. purchase condos)
  4. What kind of properties do you want to buy?
  5. How ofter will you buy properties?
  6. How are you going to finance properties?
  7. Be specific with your goals

Question 40

What is your why?

Answer 40

• Spend more time with your kids?
• Travel the world and collect life experience?
• Leave a terrible job ?
• Wake up every morning and do what you want?

Question 41

Manage the right metrics:

Answer 41

• How is your property performing ?
• What did the cash flow look like last month?
• What kind of increase in expenses did you see last month? past 12 months?
• What has appreciation done to your property over the past decade?

Question 42

Example of setting your standards:

Answer 42

Make a strict guided to follow

• I.E. will Multifamily property - fourplexes
• Require cash flow of $200 per unit/month after all
  expenses paid (Including vacancy, maintenance,
  utilities, management, capital expenditures, taxes and i.
  insurance, plus any other expenses)
• Property must be purchasable at a discount - 80% of
  what is normally worth
• Property value must be able to be improved by 10% by
  forced appreciation (i.e. paint job and landscaping)
• Property must appreciate 3% per year after year one

Question 43

Plan 1: (Wealth through multi-family - Fourplex)

Answer 43

• Goal of achieving 1,000,000 million net worth
• P. 54-58
• Property value - 100k, Purchase price 80k, Down payment $16k @20%, Repairs: $4000k
• Standards for buying apply for purchasing all properties
• Author buys fourplex - during years 1,3,4
• Year 5 : Trades 3 fourplexes for apartment building using 1031 tax exchange
• Year 6 : No purchase
• Year 7: No purchase
• Year 8: Trade up to 75-unit apartment building

Question 44

Plan 2: (Wealth through Single family homes)

Answer 44

• Standards apply for purchasing
• Property bank foreclosure/value 100k, Purchase price 80k, Seller pay closing
• Goal of achieving extra $5000/month cash flow
• ~300/month cash flow - with each property purchase
• P. 58-63
• Year 1: Save money
• Year 2: Buy 3/2
• Year 3: Buy 3/2
• Year 4: Buy 3/2
• Year 5: Buy 3/2
• Year 6-10: year 7 - buy 2 rentals, year 8 - buy 2 rentals, year 9 - buy 3 rentals, year 10 - buy 4 rentals, year 11 - buy 5 rentals

Question 45

Plan 3: (Wealth through house hacking)

Answer 45

• Standards apply for purchasing
• P. 64-66
• Triplex - Property value $210-230k, Foreclosure value 180k (FHA loan, 3.5%)
• Expenses: Mortgage (taxes, insurance and mortgage insurance)
• If property 100% rented - it would bring in $2,850 (but since living in one unit - $1,900/month)
• Still set aside (5% vacancy, 5% repairs, 5% capital expenditures + $130 water bill): 2,850 x 0.5 = $142.50 thus:
  
  • Mortgage: $1,200
  • Utilities: $230 ( $130 x 2 )
  • Vacancy: $142.50
  • Repairs: $142.50
  • CapEx: $142.50
• Need to also do calculation for when you move out of property :
  
  • Double cost of vacancy and repairs and add 11% for property management
• Year 1: Buy Triplex (FHA loan, 3.5% down) (Foreclosed property/additional money spent on renovations)

Question 46

Plan 4: (BRRRR Strategy):

Answer 46

• Buy, rehab, rent, refinance, repeat (basically flip, then rent out)
  
  1. Buy:
     - Great deal: great location, great neighborhood but fixer-upper
     - 70% of ARV(after repair value - less rehab costs)
     - ie. house with ARV of 150k that needs 30k of rehab could be bough for 75k
     - $150k x 0.7 = $105k, $105k - $30k = $75k
     - will probably have to use hard money, private money, cash, home equity or other strategies
  2. Rehab:
     
     • Make property as tenant proof as possible
     • Use good quality materials
     • Turn 2 bedroom into 3 if possible
  3. Rent:
     - ?consider self management
  4. Refinance:
     
     • Refinance to a conventional mortgage
     • Can maybe get money back after refinancing
     • Should be about to payoff original loan and rehab costs
     • 70% loan to value “LTV” refinance
  5. Repeat:

Question 47

Essential team members for real estate:

Answer 47

1. Spouse
2. Mentor/accountability partner
3. Real Estate agent: recommended to use referrals
   - Qualities:
   
   1. Understands investor mindset
   2. Responsive
   3. Hungry
   4. Has a pulse on the local market
   5. Tech Savy
   6. Has investment experience
   7. Offers one on one support
   8. Well connected : knows contractors, lenders etc.
   9. Honest and displays integrity
      - Have a meeting with them to discuss your plan and strategy, ask questions
      - Consider getting real estate license
4. Lender
5. Contractors and Handymen
   
   1. Must be proactive to find
   2. Make a continually evolving list
   3. Understand price vs. Cost:
   4. Don’t necessary always go for the cheapest option
   5. Think about quality and longterm durability
   6. Ask for referrals - ask other investors who they use
   7. Check references:
      - Call references ask if they showed up on time, finished what they said they did, try to change the amount of money, would you use them again?
6. Home Depot 6am trick - talk to contractors picking up supplies before going to work site
7. Ask Store employees: (ie. go to plumbing store if you need plumbing work and ask employees who they would have do their work)
8. Place Craigslist Ads
9. Make Them Compete: find 3 different contractors (to bid and give them all same appointment time?)
10. Ask for referral from other subcontractors (ie which drywall person does the painter like to follow)
11. Be clear about expectations: Give clear, detailed instructions or your needs
12. Bookkeeper
13. CPA
14. Lawyer
15. Insurance agent (find insurance broker, not just agent)
16. Property manager (can make the difference between success and failure for an investment)
    
    • Advertise vacancies
    • Take call from potential tenants
    • Show units to prospects
    • Hand out and accept applications
    • Screen tenants for rental, career and criminal history
    • Chose a tenant and sign the lease
    • Accept maintenance calls and schedule needed appointments
    • Prepare monthly reports concerning the property
    • Supply the owner with a year end summary
    • Manage problems as they arise
    • Stay in constant communication with owner about problems
    • Pay property bills
    • Range between - 8%,10%, 12% rent
    • can be great source of leads for next property

Question 48

Calculating property income

Answer 48

• Know Fair market rent (what someone is willing to pay for a set period of time):
  
  • Based on the market and local average for certain characteristics:
    
    1. Location of property
    2. Number of bedrooms/bathrooms
    3. Amenities - AC, parking, appliances
    4. Size of property
  • Check local papers
  • Check Craigslist
  • Check competitors and local property management websites
  • Read local for rent signs
  • Talk with other landlords
  • rentometer.com Rentometer
    5. When unit goes vacant, try to bump up the rent - if no takers then decrease the price
    6. Too many applicants: raise the rent
    7. Check the MLS

Question 49

How to estimate property expenses

Answer 49

• Many can be easily calculated or can call somewhere to find out:
  1. Taxes - call local county or look online
  2. Insurance - call agents for estimate
  3. Vacancy
  4. Repairs
  5. Capital expenditures
  6. Floor insurance - call agent
  7. Water - call water department
  8. Sewer - call local provider
  9. Garbage - call
  10. Electricity/Gas - call
  11. HOA fees - call HOA president
  12. Snow removal - ask local landlords what they pay or call company
  13. Lawn care - ask local landlords or call company
  14. Property management

Question 50

Most common expenses (averages)

Answer 50

1. Vacancy: (typically 5%) depends on local market, ask property management companies
2. Repairs: (typically between 5-15%) dependent on condition and age of property
3. Capital expenditures: (typically 5%) ![[IMG_0459.jpg]]
4. Property management: (10%)

Question 51

Example Scenario-chapter four:

Given the following info, calculate Cash flow, COC return, 50% rule and 2% rule:
- Home purchase price 100k (rent for $1,200/month)
- Mortgage payment - 20% down, 80k mortgage @5.5% x 30yrs = $454.23/month
- Monthly expenses: ![[IMG_0460.jpg]] = $590/month
- Total expenses = $590.00 + $454.23 = $1,004.23

Answer 51

Cash flow = Income (monthly rent) - expenses (operating costs + mortgage)
Cash flow = $1,200.00 - $1,004.23 = $155.77

COC return:
Ratio between : Cash flow (over 1yr)/ Money invested
Example above: $1,869.24 (155.77 x 12) /$28,000 (20k + rehab&closing) = 6.7%
This calculation doesn’t factor in loan pay down, appreciation, equity, tax benefits

The 50% Rule:
Way to quickly analyze property but can vary widely
Rental expenses tend to be 50% of Income, not including mortgage and P&I
Cash flow= (Total Income x .5) - Mortgage (P&I)
Example:
Property value 120k (Duplex) + each side can rent for $600/side = $1200/month
Mortgage calculated at $550/month
Cash flow = $1200/month x.5 = 600 - ($550) = $50 Cash flow

The 2% Rule:
More based on specifics of local market
Monthly rental income/Purchase price = X, if X >0.2 rule has been met
These property would be most likely to cash flow in authors market bc income is typically high in comparison to expenses in his particular market

Question 52

Determine total cost of project given following information?

1. Purchase price - 75k
2. Purchase closing costs: - $2,500
   
   • Cost associated with transaction, loan points, loan origination fees, prepaid insurance, prepaid property taxes, title/escrow fees, recording fees, attorney fees
   • About $1500 for 100K property + fees added by lender
3. Pre-Rent Holding costs: - $1,200
   
   • Monthly payment until gets rented (mortgage, taxes, insurance, and utilities)
4. Estimated repairs: - $17,250
   
   • Walk through the property, get inspection and bids from contractors
   • Fill out rehab estimate form

Answer 52

Total cost of project:
- Purchase price - 75k
- Purchase Closing costs - 2,5k
- Pre-Rent Holding costs - 1,2k
- Estimated Repairs - 17,250
- Total Cost of Project - $96,950

Make sure other similar fixer upper homes are selling for much more than total cost of project (ie 110-130k ) - to expect good ARV

Question 53

Figure out financing and cost out of pocket:
- Purchase price: $75k
- Down payment: $75k x 0.2 = $15k
- Loan: $75k x 0.8 = $60k
- Total project cost = $96,950

Answer 53

• Total project cost - Loan amount = Total Cash needed
  for project
• $96,950 - $60,000 = $36,950
• Cash amount required includes: 20% down payment
  loan, repairs, closing costs, and pre-rent holding costs

Question 54

Calculate monthly mortgage payment

Answer 54

• Need to use mortgage calculator
• Need 3 numbers: (some mortgage calculators can include - annual taxes and insurance)
  
  1. Loan amount
  2. Loan period (length)
  3. Interest rate

Question 55

Determine total income

Answer 55

• Determine fair market rent (based on location and characteristics of property)
• Can scan Craigslist, local papers, rentometer

Question 56

Determine Total expenses:

Determine which expenses we need to pay as landlord

Answer 56

According to graph, total expenses = $902.27

Question 57

Evaluate the deal (determine COCROI)

• Total Monthly income: $1,200.00
• Total Monthly expenses: $902.27
• Cash flow = $1,200 - $902.27 = $297.73/month
• Annual cash flow = $3,572.76
• initial cash invested = $36,950

Answer 57

• $3,572.76/$36,950.00 = 9.67% CoCROI
• Overall ROI - includes, cash flow, equity, growth, loan pay down

Question 58

How to determine total profit (overall return on property sale):

• Will include cash flow, equity growth and loan pay down
• Assume selling property after 5yrs and 2% appreciation
• Property value at sale $132,490
• Cost to sale: $17,000K
  
  • Real estate agent charge: 6% ($8K)
  • Closing costs: ($4k)
  • Cleaning/painting fees: ($5k)
• Determine mortgage balance after 5yrs: $55,004.72
  
  • Use mortgage amortization calculator: Initial Mortgage $60k

Answer 58

Total profit determined by cash flow and equity

Profit/equity if property is sold:

- Start with sale price of property and deduct 
        everything that has been paid for the property, 
        including sales expenses, loan payoff and total 
         invested capital:
- Sales price: $132,490.00
- Sales expenses: $17,000.00
- Loan Payoff: $55,004.72
- Total Invested Capital: $36,950.00
- Profit/equity: $23,535

Cash flow:
- Yearly cash flow ($3,572.76) x 5 years = $17,863.90

• Total profit = Equity + cash flow = $23,535 + $17,863.90 = $41,399.08
• Total ROI = (Total profit/Total invested Capital)/ Time (years)
• Total ROI = ($41,399.08/$36,950.00)/5 = 22.4%

Question 59

How to invest in an expensive area?

Answer 59

Find what is working in your area:

Wholesaling Commercial Properties: Consider if this could be a more efficient use of your time given the local demand.

Multi-family Properties: Assess the rising need for multi-unit housing in your vicinity.

Condo Conversions: Look into older buildings that might be ripe for conversion, especially in growing areas.

Fast Food Triple Net Leases: Determine if changing consumer habits could make this a stable income source in your area.

Subsidized Low-Income Housing: Given the housing needs, evaluate the potential for both social impact and profit in your region.

Check the outskirts:

Affordable Pockets: Every expensive city has areas where properties are more affordable.

Suburban Neighborhoods: Middle-class neighborhoods on the outskirts can offer valuable investment opportunities.

Distance from City Center: Typically, properties 20 to 40 miles outside the city center in smaller towns and communities can be more affordable.

Real Estate Agents: Partnering with a knowledgeable agent in these areas can provide valuable insights and deals.

Question 60

Things to remember for DIY Long distance rental property investing

Answer 60

Beginner’s Caution: It’s generally not recommended for those new to real estate investing.

Location Research: It’s crucial to establish an ideal location and deeply understand the city’s dynamics.

Connections: It’s beneficial if you already have a connection in the area.
- Author recommends long distance partner approach:
Local Insights: The primary benefit is having a
partner who deeply understands the local area.
Operational Benefits: They can: Inspect properties.
Liaise with contractors.
Showcase vacant units.
Handle property maintenance.
Strategic Advantage: Partnering with a local
investor is often considered the best approach for
long-distance investing.
City Insights: Understand the primary industry drivers and areas to potentially avoid.

Property Management: It’s highly recommended to employ a top-notch property manager.

In-depth Research: Dedicate significant time to researching the location.

Preliminary Visit: Before investing, make a trip to:

Engage with local business owners.
Consult with local real estate agents.
Absorb as much information about the area as possible.