What should I do next?

Question

So I’ve read Rental Property Investing, Beginners Guide to Real Estate investing, found out what I need to do to get pre-approved, but what can I do next? I’m listening podcasts and about to start reading The Millionaire Real Estate Investor but think I should be doing more to be prepared for when I do get pre-approved.  I also want to invest in Florida and eventually re-locate there but currently  living in Boston. Any suggestions on what else I can do or advice on analyzing deals such as getting repairs cost, how to go about analyzing property expenses etc.

Tim Herman · Answer

@Keleisha Carter How are you going to recognize a deal if you don't analyse deals. Look at Zillow and for a rough idea use the 1% rule. Monthly rent/.01= Max purchase price to get it to cash flow. Example $1000 monthly rent/.01= $100000 purchase price. You might be able to get by with less than 1% but that is where the calculator or spreadsheet is necessary. For a conservative estimate on expenses I use 8% vacancy, 5% repairs, 10% capex, and 10% pm. The people saying 5% capex are in lala land, unless it is in a super high price rental area. Example for floor capex. assume 1500 sf of flooring. New before you bought it. In my area it is $6 sf to replace. 1500 sf*$6 sf = $9000/ 8 year life span/12 months in a year= $94 per month for 1 item. Need to budget for appliances and hot water heaters 12 year life span,hvac 20 year life span, roof 25 year life span, etc.

Keleisha Carter · Answer

@Mitch Messer Thank you. You are 100% right when you mentioned not to confuse the deal. I get so confused with this sometimes. But will try get expenses as close or accurate as possible, keep those assumptions the same to figure out at what price it will cash flow

Mitch Messer · Answer

Hi @Keleisha Carter! You've made a great start; now it's time to dive into the details.

What's your deal flow: How many prospective deals are you reviewing/analyzing each week? It should be at least 2 - 5. If not, get on the email lists of wholesalers offering the types of Florida deals you would want. As these deals come in, start getting really good at (quickly) determining whether the investment makes sense at the asking price. Determine at what price it would make sense. Then, for extra credit, come up with a few strategies that might make it an exceptional deal! (Hint: It's not always about the price you pay!) Then, rinse and repeat!

When you get stuck on something, hit us up here at BiggerPockets for answers and advice.

After just a month of this, you will have developed a much sharper sense of where the deals are and how to recognize them. Keep it up and you'll be well on your way to becoming a serious investor!

Mitch Messer · Answer

@Keleisha Carter Great, analyzing 5-10 deals each week will absolutely hone your skills!

When you get stuck or confused, bring your questions here. Be sure to be as deal-specific as possible in your description of the issue, providing details where helpful.

For example, whether you include utilities in the rent or not is generally based on what your specific market expects. If all other competing landlords include them, you may have to as well. But, I wouldn't expect any upcharge from utility payments to hit my bottom line; it's just fair compensation for the hassle of dealing with it every month. So, including utilities won't magically turn a dog-deal into a home run!

I propose you keep it simple: If the deal won't cash flow at asking price, then at what price will it cash flow, keeping all other assumptions the same. If you start throwing in alternative strategies and enhancements too soon, you'll end up confusing the analysis.

Plan to buy at the right price from the start and then you can get creative and turn a great deal into an exceptional one!

Keleisha Carter · Answer

@Tim Herman Gotcha !

Tim Herman · Answer

@Keleisha Carter Yes for 10% CAPEX. All items have a useful life. Depends on how much detail you want. There is a spreadsheet that @ sam tato created that lists items and their life spans. You just have to plug in your numbers. In reality rather than a percentage it should be a monthly dollar amount. Let's just use my floor capex as an example. So at $1000 per month rent, the percent is $94/1000 or 9.4% for 1 item. If the property rents for $1500. then the percent is $94/$1500= 6.2% for the 1 item. So you have to adjust for useful life span. Example roof is 10 years old. So that means you have to budget enough to pay for the roof in 15 years. $7500 for a new roof/15 year useful life left= $500 per year unless you want to come out of your pocket.

Keleisha Carter · Answer

@Mitch Messer Thanks. I aim to snalyze at least 5-10 each week. But most times the deals don’t cashglow so I play with the numbers and see. But I get confused as it relates to the numbers if I decide to include utilities in the rent, like how much do I upcharge, what terms. Those are the only things that i’m not sure about when analyzing deals

Keleisha Carter · Answer

@Tim Herman Thank you for all the details Tim. What about roperties that are fully renovated with new roof, hvac etc. fo you still budget fr 10% Cap Ex?

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