Evaluate rental property like a pro – the frugal ways to make money vagabond

I am still learning, just like everyone else. Relative to many veteran landlords, I am a rank amateur. However, I’ve done a few deals now, made a few mistakes, and hopefully learned something from them. I have a few cash flowing properties, and each has been more successful than the last as ways to make money I raise my standards, learn how to anticipate some of the trouble areas, and most of all, have greater confidence in my ability to oversee all aspects ways to make money of a deal.

I frequently answer questions about whether or not a given ways to make money property is a “good rental.” though this is a highly subjective question, many rentals people consider are virtually guaranteed losers. This is usually because people fail to consider all the ways to make money possible costs of buying and owning a rental, and/or because they are overly optimistic about vacancies, repairs, etc.

My own real estate investment strategy is buy and hold ways to make money for cash flow. The goal is to build a steady stream of income ways to make money that compliments the safe withdrawal rate from my stock and ways to make money bond portfolio. Thus, my analysis makes bottom-line cash ROI the most important factor versus appreciation. That is not to say that quality of neighborhood, tenant, and prospects for the city aren’t just as important– they’re just things that I consider before I ever get ways to make money to evaluating the raw numbers. I’m a california resident and have found that the best ways to make money deals in my price range are out of state, even after accounting for property management.

I’ve uploaded my modified version, which corrects a few excel issues with the original, and enhances it somewhat to allow for evaluating duplex/triplex/small multifamily units. The version I put there contains real numbers for a ways to make money property I recently purchased in a major midwestern market. This version also has some tweaks that are specific to ways to make money the area/property management but if you decide to use my copy ways to make money as a basis for your own, it should be pretty easy to figure out.

The sale price is $65,000. It’s a 2/1-per-unit duplex located in a C+ neighborhood with somewhat below standard schools. The average household income for this part of the ZIP ways to make money code is approximately $40K. The unit was priced too low for the market and ways to make money was pending within 24 hours of being on the market. That deal fell through and I moved on it quickly. The duplex is in above-average condition for the neighborhood and will rent for approximately ways to make money 650 per unit.

Downpayment %: because this will be an investor mortgage on a multifamily, I will need to put down 25%. Fannie mae requires that investor loans on multifamily properties be ways to make money 25% through the first five financed properties (after which it becomes a 30% downpayment). It’s 20% on single family for investors. Thus, my downpayment amount is $16,250.

Interest rate: also because it is a investor mortgage, the interest rates are slightly higher than consumer. The rate I got on this property with a 750 ways to make money credit score was 4.625%. Roughly in the same ballpark I’ve gotten on my last few properties. My mortgage rate for new properties will rise as the ways to make money fed raises interest rates, but should be affordable for some time.

Improvements: any improvement needed to get the property ready for rental. Remember, the goal is to be in good, safe, and clean condition, with amenities appropriate for the neighborhood, not amenities which you would demand for your own home. Initial forecasts for improvements were conservatively $1000. After the inspection, I learned that there are some electrical issues needing repair ways to make money (missing grounds and a few knob-and-tube issues) so that was revised to $2500. In the end, my repair costs ended up being $2,140.

Per-unit market rent: the desired rents for this property were $650 per unit. This is on the medium-high end of average for the neighborhood, which is justified by the extremely good condition of the ways to make money property. Median rent in the area is about $612. Don’t delude yourself about rents if you don’t know the area! At least use rentometer, check zillow and craigslist for rentals, and get somewhere in the ballpark. Ultimately, I ended up accepting $625 from the existing tenant (up from $550) in order to get them onto a new lease and ways to make money avoid paying a tenant placement fee. I placed a second, new, tenant for $650.

Vacancy/loss rate: set at 10%. Average vacancy for the area is 4-5%, but I prefer to estimate high and use any extra ways to make money income from low vacancy to fill reserves quicker. This is one of the areas that I consistently see ways to make money people underestimate. There are always hand-wavy arguments about how “the market is really tight in the area” or “it seems like everything fills up quick around here.” it costs you nothing to estimate conservatively. At worst, you might pass on a deal that could be good ways to make money but falls on the wrong side of the bubble because ways to make money of being too conservative. At best, you only pick the cream of the crop because of ways to make money high (but not unrealistically high) standards.

Insurance: $904/year. This is 1 million in liability coverage, full replacement value, DF1 insurance. The deductibles on repair/replace are $2500. I knew about what I wanted to spend on insurance, so went back to the insurance broker 4 times to ways to make money get adequate liability (first quote was 300K), adequate property value (first was 53K) and a higher deductible (first was the lowest/most profitable for the company). The DF1 policy covers fire/wind/smoke, but excludes things like flood, war, etc.

Property management: the property management is 10%. You may want to manage your own property, but for a variety of reasons I believe it’s best to build it into the budget anyway. You may want/need to move. You may want to travel long term in retirement. You may become disabled. Again, the only risk in being too conservative is that you ways to make money pass on a deal that might otherwise have been profitable. Don’t be a motivated buyer.

Annual re-leasing fee/tenant placement: this is another critical element to consider if you will ways to make money be using property management. Many/most property managers charge you something, often half or all of the first month’s rent, to place a tenant. This is a large percentage of your cash flow if ways to make money you turn over tenants too frequently. The most important thing you can do (aside from picking decent property in the first place) is place quality tenants. If you’re turning over tenants every year, or more often, something is wrong and it’s going to eat even the best profitable-on-paper deal alive. This property manager charges the full first month’s rent to place a tenant, and $195 to sign a new one year lease. I am wary of this as I pay half a ways to make money month elsewhere, but I have been frank about my expectations and made ways to make money it clear that if I see a pattern of poor ways to make money tenants, they will lose my business quickly. I anticipate that I will re-sign one lease a year, and replace one tenant a year. This should be an overly conservative estimate with good tenants ways to make money (and being a good landlord).

Accounting for all these costs, which are quite a bit higher than some areas, the total annual expenses in year 1 are $7,557 even. Accounting for vacancy, the rents are $13,770. Thus, the net operating income (NOI) is $6,213. After mortgage ($3008), the cash flow is $3,205, for a cash ROI of 15.30% with a fairly conservative analysis. Throw in the equity gained and the total ROI is ways to make money 18.97%. The cash flow

The monthly cash flow with all of these assumptions is ways to make money $267, but I’ll be pulling out $270 per month knowing that I have estimated most numbers ways to make money here pretty stingily. I’m personally looking for about $100 per month in cashflow per $10,000 of my own money invested, which this meets handily. I’m very happy with this deal. If any one of the very conservative variables tips in ways to make money my favor, I’ll fill my reserves that much faster. What if it all goes right?

I hope that his article will help you in more ways to make money fully understanding some of the pitfalls and hidden costs when ways to make money getting into rental real estate, and how to evaluate rental property more confidently on your ways to make money own. Nobody knows what the future will bring, but by doing the correct due diligence, it’s possible to make real estate a reliable and profitable ways to make money investment.

I track my net worth, investments, and savings progress towards down payments on my rental properties, using personal capital. It’s net worth and investment monitoring and savings planning tools ways to make money are second to none. The best news of all is that it’s 100% free. I recommend it as a tool to all readers, and even though it comes at no cost to you, signing up through a link here and completing your profile ways to make money to track your online accounts may help to support this ways to make money site, too. I’d appreciate the support if you have a chance to ways to make money check it out.

Really interesting question. You’re right that you propose a solution that may work ways to make money for everyone. To be completely honest, I haven’t dealt with this specific situation before, but I do know you have to be careful with ways to make money the way your pay off their mortgage, as well. Forgive me if you’ve already considered this. Just wanted to highlight the fact that when you pay ways to make money off their mortgage directly, that you would probably be on the hook for gift ways to make money taxes too. There are a couple of ways around this that I ways to make money know about– you could pay off the mortgage anonymously, or you and your wife could each gift $10,000 to each of your parents, keeping each of you below the annual gift tax exemption, and achieving the same end. Anyway, just something to think about.

Normally, when people talk about inherited or gifted properties, the advice is to look at the property’s *market* value, and decide whether you would pay that amount to purchase ways to make money the rental income… at which point I’m guessing this property wouldn’t be quite 2%. That said, I think there is more at stake here than whether ways to make money you are getting maximum return. Obviously, if you wanted maximum cash flow, you would just take your $40,000 and finance a couple of great rental properties with ways to make money it. In light of the fact that the primary goal is ways to make money to solve your in-law’s problem, I think this is a pretty great solution for everyone.

One other thing to consider, once all is said and done and the title is ways to make money in your name, and you’re feeling comfortable as the landlords of a single property: you could also take out a mortgage on the property, get your own cash back out at a much more ways to make money favorable interest rate, and even pick up a few more leveraged rental properties. Not something you have to do, but it’s an option you’d have. I hope this helps! You guys are awesome for looking for a way to ways to make money help your in-laws out!

Hi! A couple of questions about long-distance investing based on your book on that subject. You say toward the end of the book to itemize ways to make money what you want done before calling the contractor, but especially if you’re long-distance, isn’t it the contractor who tells you what needs to ways to make money be done, and therefore who provides such an itemized list in the ways to make money first place?

Also on a similar subject, I know it’s customary to get multiple bids for the work. One issue I don’t think you don’t really address in the book (though I could have overlooked it) is whether or not you need to pay contractors to ways to make money give you an estimate. People often say that contractors will give estimates for free ways to make money because they’re hoping to get the work, but, mathematically speaking, if I get bids from, let’s say, five contractors, I won’t be using four of them. Even if contractors are willing to give people a free ways to make money estimate once, don’t they catch on soon and start charging for it, and, if so, doesn’t this process get to be an expensive proposition?

Regarding your first question, when you purchase property you should always have an inspection ways to make money contingency. A good inspector will provide you with a detailed report ways to make money of all mechanical and structural defects on the property, which will allow you to negotiate reductions in price before ways to make money releasing the contingency. It will also give you the basis to create a ways to make money scope of work to get the property “rent ready.” you can share the inspection report with trusted members of ways to make money your team, but particularly with your realtor and property manager. They can help you figure out what issues can be ways to make money ignored, which need addressing immediately, and which can be addressed in the medium-to-long-term.

Regarding paying contractors for estimates, you should run fast and far from anyone who wants ways to make money to charge you to quote rehab work! All contractors are well accustomed to the bid process, and are aware that a savvy property owner will be ways to make money getting at least one other bid. You *should* make an effort to give work to contractors who take ways to make money care of you (all other things being equal), but you should always get multiple bids on a large ways to make money scope of work, and trustworthy contractors will never attempt to charge you for ways to make money doing so. There’s nothing for them to catch on to, this is simply the nature of the business.

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