I'm trepid to chime in but I've done this for over a decade, invest in real estate, manage for a couple hundred investors and several hundred properties. I've had the fortune and mis-fortune of seeing what works and what doesn't.
Real estate is a great long term wealth building vehicle. It's a long term play and not get rich quick (IMO). If you want to do this on the side it seems to work best when the person has a solid W2 job, not cash strapped and can put the mortgages on a 15 or 20 year amortization schedule. Like most things in life it really helps if you begin with the end goal in mind. Determining the end game up front will greatly affect the initial acquisition strategy (local vs secondary financing, etc). (but I started broke, without a plan and still made it).
From a 10,000 ft level, here's what we use for guidelines. And yes, these deals are out there!
- 1978 or newer (it's modern construction. Much older and maintenance $ will be a significant factor)
- 2 baths. 1.5 bath minimum. Prefer 3 bedrooms, 4 beds are great and 2 beds work.
- 16% of the gross rents is the max, all-in number you can buy a house for. (it's a quick rule of thumb).
- school district matters greatly
- section 8 is hard and can be expensive work. All that glitters is not always gold. Sec 8- go big or go home.
- typically like to stay under 1,800 sq ft. A hard turn on a big sq ft property can crush you.
- properly screening tenants is extremely important. It's make or break. The bad ones Can lie really well. Past does predict the future. Not always but 95% of the time.
- a tenant will not catch up if they get more than 2 months behind. (it's cheaper for them to move on)
Example: house rents for $1,000/month. That's 12,000/year. Divide by 16% and the max you should pay is $75k. Thats the all in price after rehab expenses. If your close to this you'll be fine.
This takes into account vacancy, maintenance and other stuff not to bore everyone with.
If buying a rental property "market value" should not be a great consideration. A person should be smart on value but it's all about cash flow. Cash flow pays the bills, value doesn't until there's a liquidation event.
Sorry to ramble. I'll stop for now. I love this stuff and eat/breath it. If you need help screening a Tenant just let me know. We have a slick screening system.
Real estate is a great long term wealth building vehicle. It's a long term play and not get rich quick (IMO). If you want to do this on the side it seems to work best when the person has a solid W2 job, not cash strapped and can put the mortgages on a 15 or 20 year amortization schedule. Like most things in life it really helps if you begin with the end goal in mind. Determining the end game up front will greatly affect the initial acquisition strategy (local vs secondary financing, etc). (but I started broke, without a plan and still made it).
From a 10,000 ft level, here's what we use for guidelines. And yes, these deals are out there!
- 1978 or newer (it's modern construction. Much older and maintenance $ will be a significant factor)
- 2 baths. 1.5 bath minimum. Prefer 3 bedrooms, 4 beds are great and 2 beds work.
- 16% of the gross rents is the max, all-in number you can buy a house for. (it's a quick rule of thumb).
- school district matters greatly
- section 8 is hard and can be expensive work. All that glitters is not always gold. Sec 8- go big or go home.
- typically like to stay under 1,800 sq ft. A hard turn on a big sq ft property can crush you.
- properly screening tenants is extremely important. It's make or break. The bad ones Can lie really well. Past does predict the future. Not always but 95% of the time.
- a tenant will not catch up if they get more than 2 months behind. (it's cheaper for them to move on)
Example: house rents for $1,000/month. That's 12,000/year. Divide by 16% and the max you should pay is $75k. Thats the all in price after rehab expenses. If your close to this you'll be fine.
This takes into account vacancy, maintenance and other stuff not to bore everyone with.
If buying a rental property "market value" should not be a great consideration. A person should be smart on value but it's all about cash flow. Cash flow pays the bills, value doesn't until there's a liquidation event.
Sorry to ramble. I'll stop for now. I love this stuff and eat/breath it. If you need help screening a Tenant just let me know. We have a slick screening system.
