Wealth from Rentals Today

Here is how we go about our buy and hold purchases...

First step: The Money. Where is the money coming from regarding this deal? Do you have the cash, will you use private or hard money? Is the deal turnkey so you can finance it from the start? Knowing where the money is coming from is key to making any rental deal a reality. For the most part you’ll at least need to have a down payment figured out before proceeding.

Second: Find a bank....What, you just said you figured out the money? Yes, but this is for leverage. Even if I buy a property with my cash or private money, I’ll want to have a bank lined up for refinance so I can leverage my money into additional properties.

I look for small local banks or credit unions that do Cash out Refinances. To find look up banks & credit unions and your area in the yellow pages...then sort by name. This will allow you to see how many branches the bank has. We are looking for banks that have 3 or less branches. We want a bank that does not require season (a set wait period before they allow a refinance), in house loans (they do not repackage and sell to other bigger banks), that base the loan amount the appraised value of the home not your purchase price.

Next: Find discounted properties in good rental area that are less than 80% ARV (after repair value) The better deal you get the more value you’ll have. Additionally, we look for the 1% Rule. The property’s rent each month must be at least 1% of the investment amount. For example: If I buy a property for $80k and put $20k of repairs in it, I’m all in at $100k. That means to meet the 1% rule, I have to get at least $1000 month in rent. This is just the starter requirement before I break down the number further.

Make sure: Get a good property manager on your team that can do both the leasing and the repairs to get rent ready. This is very important for us, as all of our rentals are out of state. Having a solid team on the ground helps us ensure success.

Now the Process: Buy the properties Cash or Private Money. If you are using private money establish a rate that you will pay them. ie 12% annual interest on their money for 6 months (6 months guaranteed even if you complete the deal in 4 months - great deal for your Private money and makes them want to do it again). I usually use a Promissory Note for the private money. If it is the first time, I've worked with this private lender I may need to put a lien on the property to make them more confident in the deal.

Finally, once purchased and rehabbed with tenant in unit schedule refinance with bank. This could take a month or two based on the availability of the appraiser, etc. This system allows us to improve the property from the start, increasing the value. The increased value allows me to take out more of my money when I refinance. Don’t take out so much money that you over leverage and ruin your cash flow. However, the lesser amount of money I have in a quality deal usually increases my return on investment and allows for more funds in my next deal.

If you’d like more information on rentals or would like to see some number examples, I have a great Free Rental Wealth Webinar for you. Rental Wealth Webinar

Best of Success!

Andrea

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