Who do I turn to when initially searching for my investment prop?
Most Popular Reply
Eric FernwoodBusiness Member
Realtor · Las Vegas, NV · Member since 2014 · 997 posts · 1k+ votesHello @Alis B.
Before I answer your question (as best I can), know that I believe you should only buy properties that generate a sustained positive cash flow and are located in an area likely to appreciate over time. Meeting these two goals (sustained positive cash flow and appreciation potential) is not easy. Let me explain:
Sustained positive cash flow
Sustained positive cash flow means that rent consistently exceeds the total recurring costs. What criteria must the property and the area meet in order to achieve sustained positive cash:
• A good tenant. I define a good tenant as one who: pays all of the rent on schedule, takes care of the property, does not cause problems with neighbors, does not engage in illegal activities on the property, and stays for multiple years.
• Low maintenance cost. This is a combination of the climate, condition of the property, and the quality of the property manager.
• Stable or growing job market - Rental property profitability is dependent on a stable job market. You want a job market that is growing and not dependent on industries like manufacturing. Also, it is better to have a lot of smaller employers than a few large employers.
• Property price vs. rent. There are areas where it is virtually impossible to rent a property at a profit due to the cost of the properties vs. the rent.
• Landlord friendly laws and taxes. Clients have told me that in California, if the tenant knows what they are doing, it can take up to 1 year to evict a tenant. Also, state, local and property taxes are very important. It is very difficult to have a profitable property in a high tax area.
• A property that will rent quickly at a price which will exceed recurring costs thus generating a profit.
• There are other considerations as well but I think I covered some of the more important ones.
Potential Appreciation
• Low crime. High crime and appreciation do not go together.
• Sustained population growth of people who can and will rent your type of property.
• A stable area in which people desire to live and have good schools.
• Overall state population growth.
If you limit your search to any single geographical area you are unlikely to find such properties. Focus on your goals and not geography. I am a Realtor in Las Vegas, and my business is almost exclusively remote investors; at this time I have zero local investor clients. People invest here because some properties here meet their profitability and appreciation goals. However, Las Vegas is not the only place where you can meet the profitability and appreciation objective and I will now tell you the process I would use to find others.
The process
Note that the following is more of an outline rather than a description so please ask if you want more information on any point.
• Start by understanding the overall population movement trends. See population changes by state here. In general, I think the population is moving towards the southwestern states. This should narrow your search to only a few states.
• Each state has a limited number of viable cities since you need cities that are sufficiently large so that there is a stable (and growing) population. I am guessing a population over 1 million people would be a good start. This should get you to 5 to 10 cities.
• A rental property is no more valuable than the jobs around it so you need to look at job stability in each of the cities. Googling each city and the local chamber of commerce web site is usually a good source. This should eliminate one or two more cities.
• For each of the remaining cities check the taxes/landlord/eviction/rental/rent control laws. For example, in Las Vegas a typical eviction takes less than 30 days and costs less than $500.
• Seminars and blog answers (like the one I am writing) are general in nature and may not apply to a specific local because each local is unique when it comes to investing. The best source of such local information is a mid sized property manager. They will have enough properties under management to know the market but small enough to be interested in a new client (you). You will learn more about local investing by talking to 3 or 4 property managers than you will get from seminars and books. You are essentially looking for the intersection of four factors:
1. Location: Usually a very specific area. For example, west of 23rd St and south of the river, etc.
2. Type: Condo, high rise, single family, duplex, single story, two story, etc.
3. Configuration: Two bedroom, three car garage, mud room, etc.
4. Rent Range: If the majority of the population to which you want to rent are willing to pay $1,000/Mo to $1,300/Mo. you should be looking at properties that can profitably rent in the same rent range.
• Once you have a property profile (that matches the above factors) you can use Zillow or any other source to determine the typical price these properties recently sold for. Once you know the typical price and the typical rent you can use a tool I created to determine if you can make money in that market. Break-Even Calculator. Using this tool and data from Zillow, I looked at properties in three cities: Austin, TX; Cupertino, CA and Las Vegas, NV. If the Break-Even Price is lower than the Actual Sold Price it is unlikely that properties in that city will generate a positive cash flow. As you will see in the table below the prices of properties in Cupertino (and possible Austin) are too high relative to the rent to generate a positive cash flow. You should be able to generate similar data for all the cities you are considering in an evening. (Note: the following are "typical" prices. You can usually do better than typical once you are actually looking at properties.)
• Next, I would select one realtor and one property manager from each finalist city and go. There is no substitute for personally meeting the people who will be the core of your investment team. Note: tell both the Realtor and the property managers up front that you are in the investigation phase and are not “buying” anything on this trip. If any are “too busy” to spend time with you, then you know to eliminate them from further consideration.
• At this point I believe you will likely have enough information to make an informed decision on where and what to buy.
Alis, I hope the above helps. Feel free to contact me if you have questions.
FERNWOOD Team, KW VIP Realty520 Reviews
11 Replies
- 12yShawn McenteerBusiness MemberRealtor · Boonton Township, NJ · Member since 2013 · 2k+ posts · 1k+ votes
@Alis B. welcome to the Bigger Pockets. First things first you should introduce yourself in the "new member introduction" thread. When you introduce yourself tell us all what your interested in (like your doing above) and then ask "does anyone know of any good local REI (real estate investors) meet ups?" Your local meet up will be very helpful, you can learn what other investors are doing along with get insight to the market.
When searching for property on the Multiple Listing Service I highly recommend you use a realtor to represent you. This means you should use a buyers agent not the listing agent (some members preffer using the listing agent, I don't). The reason you should use a buyers agent is because he/she represent your best interest. The listing agent represents the sellers best interest, in a nutshell this means the listing agent is trying to sell the house for the most money they think they can get for the seller. A buyers agent should be looking out for your best interest by trying to save the most money for you. The 6% only comes into play when selling your property, you don't pay commission when purchasing real estate.
House Hacking New Jersey563 Reviews Thanks Shawn - apologies! I'll head over there. I'm always looking for the best price (borderline cheapskate) so I was wanting to shave off as much $ from the sales price and thought a good way to do that would be to dwindle down to one agent.
- 12yEric FernwoodBusiness MemberRealtor · Las Vegas, NV · Member since 2014 · 997 posts · 1k+ votesFERNWOOD Team, KW VIP Realty520 Reviews
- 12yEric FernwoodBusiness MemberRealtor · Las Vegas, NV · Member since 2014 · 997 posts · 1k+ votes
Hello @Alis B.
Before I answer your question (as best I can), know that I believe you should only buy properties that generate a sustained positive cash flow and are located in an area likely to appreciate over time. Meeting these two goals (sustained positive cash flow and appreciation potential) is not easy. Let me explain:
Sustained positive cash flow
Sustained positive cash flow means that rent consistently exceeds the total recurring costs. What criteria must the property and the area meet in order to achieve sustained positive cash:
• A good tenant. I define a good tenant as one who: pays all of the rent on schedule, takes care of the property, does not cause problems with neighbors, does not engage in illegal activities on the property, and stays for multiple years.
• Low maintenance cost. This is a combination of the climate, condition of the property, and the quality of the property manager.
• Stable or growing job market - Rental property profitability is dependent on a stable job market. You want a job market that is growing and not dependent on industries like manufacturing. Also, it is better to have a lot of smaller employers than a few large employers.
• Property price vs. rent. There are areas where it is virtually impossible to rent a property at a profit due to the cost of the properties vs. the rent.
• Landlord friendly laws and taxes. Clients have told me that in California, if the tenant knows what they are doing, it can take up to 1 year to evict a tenant. Also, state, local and property taxes are very important. It is very difficult to have a profitable property in a high tax area.
• A property that will rent quickly at a price which will exceed recurring costs thus generating a profit.
• There are other considerations as well but I think I covered some of the more important ones.
Potential Appreciation
• Low crime. High crime and appreciation do not go together.
• Sustained population growth of people who can and will rent your type of property.
• A stable area in which people desire to live and have good schools.
• Overall state population growth.
If you limit your search to any single geographical area you are unlikely to find such properties. Focus on your goals and not geography. I am a Realtor in Las Vegas, and my business is almost exclusively remote investors; at this time I have zero local investor clients. People invest here because some properties here meet their profitability and appreciation goals. However, Las Vegas is not the only place where you can meet the profitability and appreciation objective and I will now tell you the process I would use to find others.
The process
Note that the following is more of an outline rather than a description so please ask if you want more information on any point.
• Start by understanding the overall population movement trends. See population changes by state here. In general, I think the population is moving towards the southwestern states. This should narrow your search to only a few states.
• Each state has a limited number of viable cities since you need cities that are sufficiently large so that there is a stable (and growing) population. I am guessing a population over 1 million people would be a good start. This should get you to 5 to 10 cities.
• A rental property is no more valuable than the jobs around it so you need to look at job stability in each of the cities. Googling each city and the local chamber of commerce web site is usually a good source. This should eliminate one or two more cities.
• For each of the remaining cities check the taxes/landlord/eviction/rental/rent control laws. For example, in Las Vegas a typical eviction takes less than 30 days and costs less than $500.
• Seminars and blog answers (like the one I am writing) are general in nature and may not apply to a specific local because each local is unique when it comes to investing. The best source of such local information is a mid sized property manager. They will have enough properties under management to know the market but small enough to be interested in a new client (you). You will learn more about local investing by talking to 3 or 4 property managers than you will get from seminars and books. You are essentially looking for the intersection of four factors:
1. Location: Usually a very specific area. For example, west of 23rd St and south of the river, etc.
2. Type: Condo, high rise, single family, duplex, single story, two story, etc.
3. Configuration: Two bedroom, three car garage, mud room, etc.
4. Rent Range: If the majority of the population to which you want to rent are willing to pay $1,000/Mo to $1,300/Mo. you should be looking at properties that can profitably rent in the same rent range.
• Once you have a property profile (that matches the above factors) you can use Zillow or any other source to determine the typical price these properties recently sold for. Once you know the typical price and the typical rent you can use a tool I created to determine if you can make money in that market. Break-Even Calculator. Using this tool and data from Zillow, I looked at properties in three cities: Austin, TX; Cupertino, CA and Las Vegas, NV. If the Break-Even Price is lower than the Actual Sold Price it is unlikely that properties in that city will generate a positive cash flow. As you will see in the table below the prices of properties in Cupertino (and possible Austin) are too high relative to the rent to generate a positive cash flow. You should be able to generate similar data for all the cities you are considering in an evening. (Note: the following are "typical" prices. You can usually do better than typical once you are actually looking at properties.)
• Next, I would select one realtor and one property manager from each finalist city and go. There is no substitute for personally meeting the people who will be the core of your investment team. Note: tell both the Realtor and the property managers up front that you are in the investigation phase and are not “buying” anything on this trip. If any are “too busy” to spend time with you, then you know to eliminate them from further consideration.
• At this point I believe you will likely have enough information to make an informed decision on where and what to buy.
Alis, I hope the above helps. Feel free to contact me if you have questions.
FERNWOOD Team, KW VIP Realty520 Reviews Eric- yes, your information is helpful. Good info to digest. After reading, I believe I am on the right path. This is a new business venture for me so I'm readjusting my way of thinking so that I am paying attention to the right details and learning the right questions to ask- thank you!
- Real Estate Investor · Las Vegas, NV · Member since 2010 · 7 posts · 0 votes12y
Guys,
Listen very closely to Eric. I've worked with him in the past here in Vegas and had him list some properties for me. He is dialed in, knows what he is talking about, and is a true real estate professional.
- Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes12y
@Alis B. Besides what others have said, especial @Eric Fernwood , I would just add that you should look at A LOT of properties. You'll find things start to coalesce once you do.
Check out dozens and dozens online. Actually walk through a couple of dozen. You'll develop a better feel for things.
If you have cash you may also want to check with local wholesalers.
- Real Estate Broker · Indianapolis, IN · Member since 2014 · 3k+ posts · 2k+ votes12y
@Alis B. I can tell you what we normally look for in a SFR is 3 bedroom 1-1.5 bath around 9-1200sqft. Craigslist is a good place to look for "off market" properties. Their new search feature makes narrowing down properties pretty easy. I'd try and find a local REI club as those guys have deals from time to time. Look for properties where you are buying it for less then it is worth. We also look for things that make the property unique. ex: everyone in your area has a car port yet your property has a 2 car garage.
- Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes12y
Everyone has their own strategy. I rely on fantastic awesome realtors to help me find my properties. I know the "rentals" aspect and they help me with the buying side. I like using a realtor because in my experience a FANTASTIC realtor will save you money and find deals that you probably can't find yourself unless it is your full time job. Since rentals and not buying is what I "love" I focus on what I love and hire someone to help me in what I don';t
Quick note - I am reading and listening to every one of you. Because of suggestions, I have found new sources to help in my property search, I have finished reading the online booklet, procured a realtor, have my ins company on stand by, have my lender on standby. Tomorrow will be to look at the documents section of BP. I'll definitely need my Peet's Italian Roast to keep up the flow of energy! Since posting 2 days ago I have gained tons of knowledge and I really and truly appreciate each of you taking time to drop advice!
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