Joe Torre: Welcome everyone. My name is Joe Torre, I’m an investment counselor here at RealWealth and I’ll be your host today. Today, we’re going to be talking about how to do your due diligence when evaluating a single-family home investment.
Before we get started, here’s our standard disclaimer: the strategies mentioned in today’s presentation may not be appropriate for everyone. Other options not mentioned may be more suitable for your specific circumstances. Consult your personal accountant, tax advisor, [00:01:30] or an attorney to discuss your specific situation. This is a broadcast to lots of people and we don’t know what your particular situation is, so don’t take this as investment advice. What might be a good investment for one investor might be a terrible investment for another investor, so you have to talk to your Investment Counselor and your advisors and get the input about your specific situation.
As usual, past performance is no guarantee of future results. [00:02:00] Real estate purchases are subject to investment risks including the possible loss of amounts invested. While we make every effort to maintain accurate and current info, the possibility of errors and/or updates always exists. Learn what you can today, and do your due diligence. We’re actually going to talk about how to do that.
All right, with that let’s get into it. Here’s the agenda, we’re going to talk about an overview of due diligence because due diligence is a big area tat [00:02:30] covers a lot, and you could spend hours talking about it. We’re going to focus on three areas that you, the investor, should be able to do on your own. That is deciding what markets you want to invest in, learning how to evaluate neighborhoods.
Especially now with the pandemic, people are reluctant to get on a plane and go visit neighborhoods on their own. How do you do that remotely? Also, the pro forma financial statements that we give with all of our properties. How do you do a sanity check on those to see that the numbers that you’re being shown are in the ballpark? Then we’ll wrap it up [00:03:00] and have hopefully some time for Q&A.
Overview. Like I said, due diligence covers a wide number of areas. There’s markets, property management, finding tenants, evaluating neighborhoods, looking at the pro formas, deciding what property to get, there’s a whole lot of financing options, inspections, insurance. We could talk for weeks about this, but the good news is that RealWealth has done most of the heavy lifting here. [00:03:30]
We’ve done a lot of market research to identify the best markets around the country, and we’ll talk about those. We’ve screened and vetted good property management companies in all of our markets, and those property management companies, in turn, will help you select tenants. There’s a lot of stuff here that you don’t need to personally do yourself because we’ve done it for you. We have an ecosystem of lenders who can help you navigate through the financing process. We have inspectors, insurance people, everybody.
The three that you need to focus on [00:04:00] are the markets, the neighborhoods, and the financial statements. The reason I say that is because we’ve done 90% of the work in finding good markets but the last 10% is up to you. You have to decide which markets you want to invest in and nobody can do that but you. You can talk to your IC and get ideas, but ultimately, it’s your decision. Secondly, you have to be able to evaluate neighborhoods if this is an area you want to invest in. Also, do the sanity check on the [00:04:30] pro forma financial statements.
Let’s get into it with markets. Here’s an overview of the markets that RealWealth operates in. Some of them are in the Midwest like Chicago, Indianapolis, Cincinnati, Cleveland. One’s in Baltimore. It’s on the East Coast. The rest are in the Sun Belt, Dallas, Huntsville, Alabama, Birmingham, Alabama, Atlanta, Georgia, and then Charlotte, North Carolina. [00:05:00] We also have three Florida markets, Jacksonville, Orlando, and Tampa. As you can see, there’s quite a lot to choose from.
Here’s what we look for when we identify markets. We look for job growth, population growth, diverse economy, and a landlord-friendly state. We look for positive cash flow and we look for places where we can find good property teams. Sometimes we have a market that we like but we can’t find property teams that meet our standards so we can’t be there. We have to have good teams there. [00:05:30]
All of our markets have pros and cons, and not all of the markets check all the boxes. Some of the markets in the Midwest don’t have population growth. The population’s flat or maybe slightly declining. Some markets like Detroit have not as diverse an economy as other markets. We’d like to see as many different kinds of industries there so you don’t have all your eggs in one basket. If you have only one industry and it’s going through a rough patch then the local economy can [00:06:00] suffer.
Landlord friendliness is also important. Some states of ours are more landlord-friendly than others. The outlier may be Chicago as the least landlord-friendly state, but the rest of them are pretty landlord-friendly. By that we mean it’s not hard to evict somebody if they don’t pay the rent. There’s no rent control initiatives on the ballot every year. That sort of thing.
All right. If you listen to our webinars you’ll find that they all sound good. If you listen to the Tampa webinar, you’d [00:06:30] say, “Oh, that sounds great. I want to invest in Tampa.” Then the next week you watch the Cincinnati webinar and say, “No, no. Now, I want to invest in Cincinnati.” You have to decide which one you want to go with. I’m going to give you some parameters to help you make your decision, and you can consider those when making your choice.
What I have here is a simplified view of markets with appreciation on the y-axis and cash flow on the x-axis. [00:07:00] What we see here are some markets that RealWealth is not in: San Francisco, Manhattan, Seattle, which are really expensive markets. You notice at the bottom there’s negative cash flow. Those markets have prices so high relative to rents that they have negative cash flow: negative $500 to negative $1,000 a month.
RealWealth doesn’t invest there. A lot of people got into trouble in 2008 because they bought properties with negative cash flow like that hoping that the [00:07:30] value would keep going up and up and up. When it stopped, the music stopped playing, they were stuck left holding the bag and they lost a lot of money. We don’t play in that space. At the opposite extreme, we have some markets like our Birmingham market, Baltimore, and most of our Midwest markets, where you can get really good cash flow because the price is a little relative to rent but the appreciation is going to be low, probably in line with inflation, like 2% or 3%.
Now, of course, that’s a generality in any city. You might have pockets [00:08:00] of appreciation here and there. Some neighborhood that’s becoming trendy, millennials are moving there or maybe just because interest rates are so low there’s a general rise in prices, but for the most part, the properties here are mostly for cash flow. You can’t expect them to appreciate very much.
In the middle, we have most of our Sun Belt markets, Atlanta, Charlotte, Huntsville, Coastal Florida, anything near the beach, and Dallas. Those markets have less cash flow [00:08:30] than the other markets we’ve just talked about, but they have more potential for appreciation. Why is that? Because the population is growing, jobs are growing. More people move into the area, the demand for housing goes up, so rents go up and property values go up.
A lot of your decision about which markets to go for depends on what your primary goal is. It may be overwhelming to consider 13 different markets and 13 webinars is a lot to watch, but if you decide on [00:09:00] your goal, whether you’re focused on appreciation or focused on cash flow, that can help narrow the list very quickly.
Why would one person pick one market versus the other? Well, let’s say you’re relatively young, say 35, you’re starting out and you have a long runway. You’ve got many years of work ahead of you. You might decide that you want to invest for appreciation, so you buy five houses in one of the appreciation markets, the five houses are $250,000 each, and 10 years from now they’ll be worth $350,000. Your net worth just went up [00:09:30] by $500,000 so that’s a good gain. You can then 1031 exchange those properties into other properties and build your portfolio.
On the other hand, if you were 65, you don’t need appreciation 10 years from now. What you need is cash flow to replace the income from your day job, because you’re getting ready to retire. In that case, you might want to sell your house in California and buy 5 or 10 houses in one of the Midwest markets of Birmingham or Baltimore to maximize your cash flow. [00:10:00] That’s an example of why you would pick one type of goal versus another. I talk to investors all day long. There are all kinds of investors who have all kinds of situations. I had a doctor once, who makes $1 million a year, ankle surgeon, and he didn’t want cash flow because he’s in such a high tax bracket, he would get killed in taxes. We put him in one of the appreciation markets, I think was Florida and on a 15-year mortgage. Because the mortgage payment was higher, he had no cash flow for 15 years [00:10:30] and then starting in year 16, he had a ton of cash flow, which coincided with when he was planning to retire.
Depending on the investor’s goal, we the ICs, mix and match the right investor to the right market, and maybe some financial engineering, and we try to solve the investor’s problem accordingly. These are some considerations.
There are only two variables here, cash flow and appreciation. There are other things to consider. [00:11:00] Another consideration is property type.
If we had a Z-axis on here, we can look at different types of properties, for example, multifamily housing, like fourplexes and duplexes. These can cash flow a lot better. You can get a multifamily house, a fourplex in Jacksonville, Florida, that has the same kind of cash-on-cash returns as one of these cash flow houses down here in Birmingham. It’s not just a two-dimensional matrix design. It should actually be a third dimension property [00:11:30] type because that could have influenced the kind of property or market that you want to invest in. Not all of our markets have multifamilies. Florida and Dallas have them right now. You might want to consider those if cash flow and some appreciation is a goal.
Another example of property type would be renovated versus new. For $250,000 you could buy one house in Huntsville, which is an appreciation market or you could buy two renovated homes in Birmingham, Alabama, which are cash [00:12:00] flow markets. Which one do you want to do to build your portfolio? That’s another consideration in helping you choose your market.
Another factor, this is a big one, is inventory availability. Inventory is really tight right now. A lot of our markets are out of inventory or have one or two houses a month. It’s really tight. Florida has been sold out. If you wanted to buy a house in Florida today, you’d have to put your earnest money deposit down and wait 6 to 12 months to get the house built. In the meantime, Dallas, which [00:12:30] we’re going to talk about next week has at, any given time, 30 to 40 properties all over North Texas.
For example, if you’re doing a 1031 exchange, and let’s say you need five properties, then that would automatically focus you on the markets that have the most inventory. If you need five houses, you don’t want to look at five, you want to look at 10 or 15. That way you can pick the best five, or the five that you like the best. You need to focus on markets with lots of inventory. That’s another reason to select one market over another.
Finally, [00:13:00] there’s the weather. Some people are just paranoid about Florida, about hurricanes. A lot of these investors are here in California where there are earthquakes, and earthquakes don’t bother them at all, but the thought of a hurricane frightens them, which surprises me because at least with hurricanes, you have a week advance notice that it’s coming and you can prepare. The property management company can prepare. The tenant can prepare. Earthquakes just happen without warning, but go figure.
Some investors don’t want to [00:13:30] invest in certain areas because of tornadoes in the Midwest, or hurricanes in Florida or whatever. With these various considerations, you have to narrow down where you want to invest based on your risk tolerance, your goals about what you’re trying to achieve, and who has what inventory. All of our markets have a story. They all have a good reason why we like them, and you have to decide at the end of the day, which one you want to go with. Work with your IC, narrow it down and decide which market is best for you. [00:14:00]
With that, let’s talk about neighborhoods. Here’s a typical property. Let’s say in the market section, you decided you wanted to buy something in Florida. The property team sends you this property 123 Main Street, which is a fictional address in Ocala. Ocala is right in the center of the state, northwest of Orlando. It’s away from the ocean, but it’s a good market. They send you the photo and they [00:14:30] send you the address and the pro forma financial statement.
Now, if you’re in someplace other than Florida, it’s going to be really hard for you to know whether or not this is a good neighborhood to invest in. Especially with COVID, a lot of investors don’t want to get on a plane, go out there and visit the area as they normally would, but even if COVID wasn’t a factor, you’d still want to be able to do a lot of your research online as much as possible.
Let’s say you’re considering five markets. You don’t want to fly out to five different locations. That would be very expensive. If you could do most of your due diligence here at your desktop, maybe you could eliminate three markets right off the top and just make a shortlist of two, and then fly out to those two only. That will save you a lot of time and a lot of money and expenses.
Let’s see how we can do that remotely from our desktops. There’s a couple of online resources that I use, and we use here at RealWealth. Here’s one, it’s called niche.com, and it’s a great website for [00:15:30] providing information about areas. Up here at the top, you click on Find Places to Live, and then type in the address of the property you’re thinking of investing in. Now, if it’s a new construction home, the property might not have an address yet because it’s not built. It may not show up, in which case, you would just put in the zip code. In this case, the zip code’s 34472 so plug that in, and this map comes up.
Right away, we see a couple of good things about this [00:16:00] area. It’s near the freeway. I75, which is a major freeway, and that’s great for a long-term investment for a couple reasons. One, you can attract a wider pool of tenants. If your tenants live close to the freeway, you can attract tenants who work locally, or you could attract tenants who work further away. They can hop on the freeway and go to jobs anywhere.
Whereas, if the tenant has to drive 30 minutes just to get to the freeway, then your tenant pool [00:16:30] is much smaller, because you’re only going to be able to attract tenants who work locally. When you have a vacancy, you have fewer people applying for your property. I like being near freeways. Also, in terms of future growth, if you’re a company and you’re going to expand to build a new factory, build a new office complex, where are you going to build it? You’re not going to put it out in the boonies somewhere. You’ll probably put it near the major arteries. Having a property near a major freeway stacks the deck in your favor in terms of future growth. [00:17:00]
The other thing is it’s near jobs. You can’t see it on this map, but Ocala is just north of an area in Florida called The Villages. Some of you probably heard about this. The Villages is the largest retirement community in the country. There’s 80,000 retirees who live there, and the City Planning Commission has just given permission to double the size of The Villages over the next 10 years.
Now, the people who work there, the groundskeepers, who maintain the golf courses, the people who work in the restaurants, the [00:17:30] health care workers, retirees bring jobs. All the people who work there can’t live in The Villages because you have to be 55 or older. They live in the next town over which is Ocala, and that’s why we like this market. Whenever they expand The Villages, you have a built-in tenant pool of people who are going to move to Ocala and work at The Villages. So far, so good, this is looking like a promising area. Let’s go to the next report.
The next report [00:18:00] is the overall neighborhood rating. This is rated a B neighborhood, and I’ll talk more about what that means in a minute for those who aren’t familiar with it. B is a good grade for a neighborhood. They have here a little button, little link, how are grades calculated? and data sources. If you’re interested in how they calculate that, you can click on that and get more background information.
You can see the schools are pretty good. It’s an A for diversity, A minus for weather. The commute is good, not too much traffic. [00:18:30] Housing, good for families, jobs, cost of living, outdoor activities. This area gets high grades for livability. Now, since it’s next to that large retirement community, I’m not surprised it doesn’t score well on nightlife and adult clubs, but that’s okay because the people there don’t need that. This is, so far, looking pretty good.
Just a word about the neighborhood rankings. [00:19:00] You’ll hear this term in real estate investing, “A, B, C, D, neighborhoods”, and there’s no official definitions, and it’s somewhat subjective, but I like to make these definitions for myself. Let’s get D out of the way, right off the top. D is a war zone. That’s where you have the graffiti, boarded-up houses, drug dealers on the street corner, drive-by shootings. Nobody wants to invest in the D neighborhoods, so just eliminate that, right off the top [00:19:30]
Going up to A. A is the affluent neighborhoods in any city, and that’s where the doctors and lawyers live. Very nice, best schools, best ratings for everything. The problem is they’re so expensive, they don’t cash flow very well. It’s rare to be able to find a good investment property in those neighborhoods. The B neighborhoods are the good ones. Those are the ones where it’s mostly a homeowner neighborhood where people own their own homes. The people might be school teachers, nurses, [00:20:00] fireman, the manager of the auto parts store, workforce people. They own their own homes and take care of their houses, but they’re not in the same class as the affluent ones. C neighborhoods in my mind are tenant neighborhoods, where most of the people are tenants. A neighborhood with fourplexes and duplexes or all apartment buildings.
There are exceptions. There are some really nice areas that have very good, high end and well-maintained tenant neighborhoods. If you go to San Francisco, you’ll find [00:20:30] tenants who are attorneys and doctors making six figures, but they can’t afford to buy the property, so they live in tenant neighborhoods, but their neighborhoods are still good. That’s an exception.
The reason for that distinction is, a tenant neighborhood tends to deteriorate faster or has a potential for deterioration. People who rent don’t take care of their houses same way a homeowner would, so those neighborhoods can decline. The sweet spot is typically a B neighborhood. Most of what RealWealth offers will be in B neighborhoods. [00:21:00] The two exceptions are Baltimore and Chicago, which are tenant neighborhoods with mostly Section 8 tenants. Those cash flow really well. That’s why we’re there because some of our investors want those, but they’re an exception within our network.
So far so good, this neighborhood is looking pretty good. Let’s go onto the next report, the real estate report. Let’s just view a snapshot of what kind of real estate is there. The average home value is $116,000 and the median rent is about $1,000. The area feels rural. I was there a couple of weeks ago [00:21:30] and it does feel rural. Here’s the key metric that I watch, rent versus own. As I mentioned earlier, tenants don’t take care of properties as well as owners do. I personally prefer a ratio of 2:1, a neighborhood where there are twice as many owners as renters, like 65% owners and 35% renters.
I like that for a couple of reasons. One is preserved property values. [00:22:00] If you have a property in the neighborhood of both tenants, then it’s iffy, the neighborhood might decline. It might be okay, but it might also decline. Whereas, if you’re in a neighborhood with mostly homeowners who have pride of ownership, they mow their lawns, they make sure no trash collects on the lawn, they have nice cars, your property value is preserved, when you’re in a primarily owner neighborhood.
The second thing I like about owner neighborhoods is that I have multiple exit strategies. 10 years from now, when I go to sell a property, [00:22:30] I can sell to the tenant or I could sell to another investor, or I can sell to an owner occupant who’s going to buy the property and move into it and make it his primary residence. If you’re in a tenant neighborhood, you pretty much have only one exit strategy, and that’s the sell to another investor.
Investors don’t have an emotional decision. To them, it’s just dollars and cents. They drive a hard bargain and you’re likely to get less money for your property. The fact that I can get multiple exit strategies makes me [00:23:00] personally, look for a preponderance of owners. Now that’s just my rule. I like 65, 35. You don’t have to follow that. You can have your own, but that’s just what I do.
The next report is the resonance report, which gives you a feel about who lives there, who lives in this area. We get an A for diversity. I’ll talk about that more in a minute. The household income is only $45K, which is not much in California, but in Central Florida is not bad. If you look at the education levels, you see there’s [00:23:30] a bell-shaped curve with a peak around the middle, somebody with an associates degree or a high school diploma. You might have somebody who’s an auto technician or a refrigerator HVAC technician, a nurse, that kind of person, and they make good tenants.
Let’s take a deep dive into that diversity. Another site that I like to look at aside from niche.com, I’ll show you here, is [00:24:00] city-data.com. City-Data is not as polished a site as Niche. It’s basically a raw download of data from the Census Bureau. You have to wade through a lot of numbers, but it does have some good reports about crime statistics and others. Here’s a drill down on the zip code 34472. You can see it’s pretty diverse. You’ve got 58% white, 20% Black, 16% Hispanic and then there are Asians. It’s quite a mix. [00:24:30]
That’s important because when you have a vacancy and you’re looking for tenants, it allows you to cast a wide net. Just anecdotally, in 2015 I was looking at properties in San Antonio, Texas, and in certain areas on the south side of the city. I was driving around, I felt like I was in Mexico. Everybody was Hispanic. All the signs were in Spanish, all the restaurants or the grocery stores were Mexican food. Nothing wrong with that. It’s just that if I had a property in that neighborhood and I was looking for a tenant, there’s really [00:25:00] only one kind of tenant that would ever apply to live there.
I’m very unlikely to get applications from white, Black, or Asian people because that neighborhood was very monolithic. That’s what we like about this neighborhood. It’s pretty diverse. If I have a vacancy, there’s pretty much no one that wouldn’t want to live here. I have a wide tenant pool to choose from; whites, Blacks, Hispanics, Asians, anybody could live here. That’s what it meant back up here when it says, “an A based on ethnic and economic diversity.” [00:25:30] That’s what you want to look for. You’ll appreciate it when you have a vacancy.
That’s our look at neighborhoods. We did a little armchair analysis. We determined that it was a solid B neighborhood. It’s near the freeway and jobs. There’s a high percentage of homeowners, 71%, I think it was. We have a diverse tenant pool. In the event that we have a vacancy, that’s good. Overall, the area looks good. [00:26:00]
A couple of other notes about neighborhoods, tours. We always recommended, pre-COVID, that investors, at least the first time, go out to visit a market in person. You can do so much from your desktop, but nothing beats actually going out there, seeing the neighborhoods, driving by, meeting the property management company, meeting the leasing agents, and getting a feel for the area. If you’re okay with getting on a plane and you’ve narrowed it down, [00:26:30] to this is one market that you’re seriously considering, you can always do a live tour, and our property teams will set you up.
If you don’t want to do that, another option is a virtual tour. A lot of our teams are doing that now, where the property manager will take the camera and walk through the property, room by room and record, “Here are the cabinets we use. Here are the fixtures we use. Here are the floor tiles we use.” It’s a very detailed look at that property, and they can give you a walkthrough as though you were there. That’s the next best thing. [00:27:00]
If they do that though, you should ask them also to show you up and down the street. You want to see what the neighborhood looks like. Are there other nice houses on the neighborhood? Are the lawns mowed? Are their junk collecting on a lawn? Are there nice cars or clunkers? Because your house might be nice and brand new, but if the houses around it are not as nice, then that’s going to affect what kind of tenant you can attract, and what kind of rent you can command. Make sure you, if you did do a virtual tour, that you get the street as well. [00:27:30]
Here’s a final tip. This is just something I do. Whenever I buy a property, I go to those sites like City-Data and niche.com. There used to be one called crimereports.com, but it was taken down recently. I don’t know why. I take a look at those sites, I take screenshots of those reports, I save them in a word doc, and put it in my folder. 5 or 10 years from now, when I’m planning my exit strategy, I can revisit those reports online and see what the neighborhood looks like then, and compare it to [00:28:00] what the neighborhood looked like at the time I bought the property.
There’s no way I’m going to remember 10 years from now, what this neighborhood looked like, what the household income was, and what the percent of owners to renters was or anything like that. I like saving a copy of this in my folder for every property I buy. As a best practice, you might want to consider doing that as well so you have a baseline that you can use for future comparisons, hope that makes sense.
[00:28:30] That’s it for our neighborhoods. Let’s see, pro forma financial statements. The property team sends you this pro forma, and we’ll just go through it very quickly. Most of you are familiar with our pro forma format. What we’re going to do here is just go through it line by line, so you can see how to do a sanity check on these numbers to make sure they’re in the ballpark. They don’t need to be exact, as long as they’re roughly accurate. It seems like a tedious process, but it’s not. You can do it [00:29:00] pretty quickly once you’ve done a couple of these. Don’t be put off by the line-by-line explanation. It takes longer to explain it than it does to actually do it.
Here’s the standard format. The selling price was 160, down payment of 20% was 32, closing costs estimated at $4,000, so the total investment on this property would be $36,000. The property team is telling you or the property management company is telling you this will rent for 1,350. Your principal and interest payment, which is usually [00:29:30] calculated on 20% down at 4% interest is 609 a month. Property taxes are 200 a month. Insurance is 30 a month. The property management, which is 8% of rents is about 108. Your total expenses are 947 subtracted from your rent. That means you have monthly cash flow of $400, $403 and the annual return of $4,836. Your ROI, simply your return on investment, your return of 4,836[00:30:00] divided by your investment of 36 comes to 13.4%. That’s pretty good. Double-digit cash-on-cash return on a brand new house. That’s a very good cash flow.
You may remember at the beginning I said Florida was an appreciation market but that was coastal Florida. Anything near the beach is going to be more expensive. This same house on the beach would be 200, 220 easily. It won’t cash flow as well if it was on the beach but it has more potential for appreciation. This house is in the middle [00:30:30] of the state, away from the beach. It’s actually a very good cash flow investment.
You as the investor, you want to take a look at this. How do you know if you can believe these numbers? You want to do a sanity check. Let’s go line by line and see how we do that.
First line is rent, 1,350 a month, and this is pretty straightforward. I think most of you are doing this already. To confirm rents, just go to any of the real estate sites, like Trulia, Zillow, Realtor.com, Redfin, and then plug in the zip code of the property and then [00:31:00] filter on the number of beds, number of baths square feet. Find houses that are similar to yours and see what they’re going for.
When I did that, which site did I use? Zillow, I found that the rent range, you can see the first property is 1,300 a month, the second one is 1,345, but they go up from there, 1,450, 1,475. You can’t see all of them, there’s 10, but they go all the way up to 1,975. The rent range for this type of property in this area is 1,300 to 1,975, and most of them are [00:31:30] higher than 1,400. At this point, you can check the box and say, “Okay, this rent estimate from the property manager is pretty accurate, and I can feel confident that 1,350 is a realistic rent to expect for this property.” That’s your due diligence for the rent.
While you’re here, you might also want to look at other things like competition. You notice in the upper right-hand corner, right about here, it says, “10 results”. When we filtered on all these different properties, we came up with 10 properties, and that’s [00:32:00] pretty good. There’s not that much competition. If you searched on this and found 30 or 40 properties, then that would be a red flag because you’ve got a lot of competition. You may not get the rent that you think you’re going to get because there’s so many rentals on the market, you might have to lower your rents to attract a tenant.
This happened to me in, when was it? Phoenix. My first rental property, in 2004, I bought a house in Phoenix, and when I went to visit it, I was horrified. It was in the subdivision and every other house on the street had a “for rent” sign in front of it because investors were [00:32:30] flocking there and home builders were just building them and selling them to investors. That’s scary. It worked out in the end, but that’s what you want to avoid. This map here shows you that the other 10 properties that are in the zip code are all spread out. They’re not all on the street that your property is on. That’s a good thing. You want to see that they’re spread out.
Another thing to consider is you might want to loosen some of these filters because your tenant isn’t confined to brand new houses with the [00:33:00] exact same square footage as your house. Your tenant might be okay with a house that’s 10 years old or 20 years old if the rent is less or maybe a house with less square footage. You just play with the filters a little bit. Think like a tenant. If you were a tenant looking for a house in this area, what are your options? Make sure that you don’t have a lot of competition and that the rents are realistic.
We’ve done that one. Let’s go to the next line item. Next is vacancy and maintenance. [00:33:30] You’ll notice the pro forma didn’t have an estimate for vacancy and maintenance. If you look at any of our pro formas on our website, there’s fine print underneath them, and we have a quote down here that says, ”We recommend that the buyer-,” that’s you, “-set aside reserves for potential vacancies and/or maintenance, typically 3% to 6% of rents.” We’ll leave it up to you to plug in because there’s a lot of variants as to how much to put in for these numbers. [00:34:00]
Let’s go to the next slide here. We talked to the property management company, and said, “How long does the average tenant stay?” What we find out is about 30 months, two and a half years is the average. That means for every 30 month period, you’ll have a tenant in place and then the 31st month, you’re going to have a vacancy, as the tenant leaves. You have to take some months to find a new tenant, clean the carpet and touch up the paint, and all that.
One month of vacancy for every 31 months equates to a 3% vacancy rate. [00:34:30] That times are 1,350 a month rent is about $50 a month. On our case study here, we’re going to plug $50 a month for vacancies to protect ourselves. Sooner or later, you’re going to have a vacancy. You should put that in there.
The same drill for maintenance. This is a new home, still under builder warranty. It’s not going to require a lot of maintenance, but sooner or later, a toilet’s going to clog up or a garbage disposal is going to clog up and they’re going to have to send out a handyman to fix it. You can reserve $50 a month as well for this, [00:35:00] for maintenance. Now, that’s because this is a brand new house that’s still under builder warranty. If you were getting a house that was in the Midwest, that was 80 years old, then you might want to double that, $100 a month. Plug that in and see what that does to the cash flow and if an investment still makes sense.
Some people use a rule of thumb, like 1% of the purchase price of the property and CapEx expense per year. If we bought a $150,000 house in Indianapolis, [00:35:30] you get to set aside 1,500 a year for maintenance. Basically, 1% of the capital stock needs to be replenished every year. You can work with your investment counselor to plug in some numbers that are realistic.
All right. The next line item is principal and interest payment. That’s pretty straightforward. You’re financing a certain amount of money. 20% down, 4% interest for 30-year fixed loan comes to 609 a month. [00:36:00] What you can do is do some finance due diligence with your lender and find out if you get a lower interest rate if you put the 25% down. Usually, that’s the case.
With 25% down, you can get half a percentage point off. Your monthly payments go from 609 a month down to 537 a month. It’s funny after 25% down, it really doesn’t matter. You could put 50% down or 25% down, the rate will be the same, but there’s usually a price break between 20 and 25. As part of your due diligence, you want to ask your lender, [00:36:30] “What’s the price break?” and then do some numbers, do some math and see if it makes sense for you to get the lower rate. In our case study here, we’re going to do that. We’re going to go for the lower rate.
Let’s see. Other things relating to closing costs and fees. Since this is a new construction home, you might want to talk to the builder because the builder might have his own preferred lender, and oftentimes, they’ll give you a price break if you use their lender instead of your lender. RealWealth has five [00:37:00] lenders on its website that we have approved and have been working with for years.
If the builder gives you a couple of thousand dollars off then you might want to go with them instead of one of our lenders. As part of your due diligence, you should explore it with the property team if that’s the case, if they have their own lender, and what their price break is. Most lenders are pretty close in terms of rates. A 30-year fixed is going to be pretty much the same, but the largest variance is going to be with fees. If the preferred lender gives you a [00:37:30] break on price or fees, then you should go with them.
The next line item is property taxes. The pro forma, if you remember shows, $200 a month which is 2,400 a year. 2,400 a year divided by the 160 purchase prices is 1.5% tax rate, and that’s pretty realistic for Florida. A couple of things you might want to look at though, in some of our markets, new homes are assessed differently than homes that have been around [00:38:00] for a while.
In Dallas, the taxes for the first year are just based on the land value, not the improvements. The property taxes in the first year are very low and then in year two, they go up after the property is reassessed. Our Dallas team is very meticulous about giving investors two sets of financial statements, one for the first year and then one for the subsequent year. You can see what your first-year cash flow is likely to be and then what your subsequent cash flow is likely to be. That’s typically not an issue, but [00:38:30] you should just keep an eye on it.
Another thing to look out for if it’s a renovated home, sometimes they use the taxes that were paid, the actual taxes paid for the previous year, and that could be misleading. Let’s say the property team bought a house for say, $70,000, put $20,000 worth of improvements in it, for a total of $90,000 and then they sell the property for 100k. The taxes showing might be based on that 70,000 number because that’s what the house was worth last year. Going forward, your taxes [00:39:00] will be based on the 100k which is worth now. You should confirm with their property provider how they got their tax number. Was that based on last year’s actuals? Or is that based on the new value at post-renovation?
In general, property taxes is not a big issue. There’s not a whole lot of [unintelligible 00:39:20] here. They’re pretty straightforward. The markets where you want to pay attention to it are Texas, like in Dallas. Property taxes are high in Texas 2.5%. [00:39:30] In most cases, the rents are higher, will also help offset that. You just want to keep an eye on that and make sure that that’s the case that the rents are higher. Basically, is the property still cash flowing well, even with the higher taxes?
The other market to look at is Cleveland. Most of the properties are in suburbs outside the city, and the property tax rates vary wildly from one suburb to the other. Don’t just look at one number and then assume the taxes are okay. For each property you get from that market, you should take a look at the property
[00:40:00] taxes. Again, see if the rents are high enough to cover it, and the property values, the property taxes don’t kill you in cashflow. Just a note of trivia, Alabama has the second lowest property tax rates in the country, it’s for those who are interested in keeping more of your rents.
After property taxes, the next line item was insurance. The insurance on the pro forma was $30 a month, and at first, that seems really low. [00:40:30] You say, “Oh, that’s got to be a mistake,” but it turns out it’s pretty accurate. What it is, brand new homes in Florida have to be built to modern code, and they have to be hurricane-proof, so they’re designed to withstand a 120-mile an hour winds. They have very sturdy roofs, they have concrete block construction, dual pane windows so they’re very solid.
The insurance companies don’t see much risk in ensuring those, so the insurance is actually pretty low. It’s $30 a month. The irony is, if you bought [00:41:00] a 40 or 50-year-old house in Florida, the insurance will probably be twice that, because it’s not built to modern code. Even though that looks suspicious, that’s actually an accurate number. That said, you might want to decide if you want additional assurance above and beyond what’s required by the lender.
The amount that’s usually on the pro formas is what the lender requires, so you might want more than that. For example, there are some areas of Houston that had– They weren’t in flood zones, but yet, [00:41:30] they got flooded. Some people believe that the FEMA data that’s used to determine flood zones is dated and not trustworthy.
In fact, realtor.com uses data from this site, FloodFactor.com, so if you’re in a coastal area of Florida or Houston, you just plug in the zip code of the property you’re considering, and see if this site– It’s like getting a second opinion just to make sure as part of your due diligence. Does [00:42:00] this property have flood risk? If it does, then you can decide. Talk to your insurance agent, and talk about getting a quote about additional insurance for flood.
Other kinds of insurance you might want to get is an umbrella policy. I know a lot of investors like to use LLCs to protect themselves in the event of a lawsuit, but the other option is to use an umbrella policy. The way that works, you can get a million dollar policy for $150 to $200 a year. [00:42:30] In the event you’re sued or anything like that, the expenses come out of that policy and not out of your pocket. In our example, we’re going to add an umbrella policy. Since this property is inland, it’s away from the ocean, we’re not going to add for flood factor, but we will add for an umbrella policy.
The last line item on the P&L is the property management. Again, there’s not much here. [00:43:00] A property management fee is a percent of collected rent. It’s usually 8%. It is what it is. Now, remember, when we first started, we looked at that rent of $1,350 a month, and we decided to leave it because it was realistic.
If we decided that it was unrealistic and we brought it down to $1,200 a month, then this number would change because 8% of $1,200 is lower than 8% of $1,350. Otherwise, there’s not much to worry about here. Property management is pretty much what it is. [00:43:30]
All right, so let’s wrap it up. We have our original pro forma, which was given to us by the property team, and then we as savvy investors do our due diligence, so in the second column here we say, “Here’s our adjustments.” We took the numbers that was given to us by the property team. We decided we’re going to add more down to get a lower interest rate, and because we chose to use the builder’s lender, we got a couple of thousand dollars off on the closing costs.
Now, we have some negatives here. We added a reserve from vacancy, or reserve for maintenance, [00:44:00] and we also added an umbrella insurance policy, which increased our expenses by $15 a month. That would have a negative effect on cash flow, but on the other hand, we have a positive effect on cashflow here because we changed the loan amount. We’re only financing 75% instead of 80% of the property value, and in so doing, we’ve got a lower interest rate.
When the dust settles, we make all of our adjustments. Here’s where our revised pro forma looks like with the [00:44:30] new numbers, and you see that the return on investment went down from 13% to 10%. After doing your due diligence, you discovered this, what does that mean? Does it mean you don’t buy the property? No, not at all. This is a 10% return on a brand new house, that’s pretty good cash flow. You would probably proceed to go ahead with the investment.
Even after doing all this number crunching, you convinced yourself that this is a sound investment, you can move [00:45:00] forward. I’ll just make one observation here. You notice the change from 13% to 10%, what caused it? The annual return didn’t change that much, it was only $500 a year. It’s all these pluses and minuses that we added cancel each other out, and the return is pretty much the same.
The big difference was that we put $8,000 down more for down payment, so when you have ROI, return on investment, the denominator is investment. If that goes up significantly, then your overall returns are going to come [00:45:30] down, so at this point, you can reassess and decide, as the investor, do you really want to do this? Do you want to put 25% down? Is it worth getting a lower interest rate if it affects your returns this way?
The answer depends on how long you’re going to hold the property. The longer you’re going to hold a property, the more advantageous it is to lock in the lower rate, so if you’re going to hold it for 10, 20, 30 years, then you want to lock in the rate. If you’re only planning to hold it for five years, it may not be worth your while, you might [00:46:00] put less money down, get the higher interest rate, and then sell the property in five years.
You have to do the math, your investment counselor can help you with that to see where the breakeven is. I did the math, the breakeven was at nine years, so if you’re going to hold a property for nine years or longer, it makes sense to get the lower rate. If you’re going to sell it in five to seven years, then you’d be better off not putting the extra money down and getting a higher cash on cash return.
Okay, so let’s wrap it up [00:46:30] here. Some final thoughts. This may sound like a lot of work and it sounds like it’s tedious, but it’s not. You can do these pretty quickly after you’ve done a few. How much time does it take to go to realtor.com and plug in the zip code and see what rents are going for in that area? It doesn’t take much time to go to niche.com or city data and see what the neighborhood looks like.
You can do these pretty quickly. Then, when you work with specific property teams, you may notice certain trends. You may notice that this team tends to be too optimistic on rents, [00:47:00] so when you get their pro formas, you just automatically deduct a $100, or this other property team tends to be spot on, so I don’t even need the check. I can just take it at face value, so don’t be put off and think that you need to be a CPA or something to buy a property, it’s not nearly as hard as it may look.
Also, you should focus on the big-ticket items. Rents are the big one. If the rents are $500 say, let’s say you raise rents $25 every year, [00:47:30] if your rents are lower by $100 in what you were expecting, it’s going to take you four years to get the rents up to where you thought they were going to be on day one. That could be a real hit, so you want to focus on rents and make sure the rents projections are realistic.
If you do change it, that you can still live with the result that the outcome is still good. Property taxes are generally not a problem. They are what they are, but in markets like Texas or Cleveland, you want to keep an eye on it to make sure [00:48:00] that it’s not an issue, that the rents are high enough to cover them.
Similarly, maintenance is not usually an issue. About 75% of what our investors are buying right now are brand new construction homes that are still under builder warranty, so maintenance hasn’t been an issue lately. If you’re buying one of those older homes in the Midwest, then you definitely want to keep an eye on maintenance. Unforeseen maintenance, $100 here or $200 there can eat away your cash flow, so you want to focus on those items.
If you focus on the [00:48:30] big-ticket items, this process will go even faster. The final thought or the final thoughts is, my advice is to reserve the property first, and then you do your due diligence. In some of our markets, property sell really quickly like in Florida, as soon as they put them out, they get sold like within a day. The worst case is probably Cincinnati.
The Cincinnati team puts out a list of properties every Sunday at 6:00 PM Pacific time, and by [00:49:00] 6:05 they’re all sold. I’ve had investors complain to me that they email within two minutes and a property was already gone, so that’s really unnerving and disappointing. I’d say, if you look at the Cincinnati properties week after week, you get a feel for which ones you like and which ones you don’t, what areas you like.
When you see one that looks promising, immediately reply to them, send them an email saying, “Reserve this for me, give me one hour to do my due diligence.” Don’t tell it [00:49:30] and then do your due diligence. If you do the due diligence first, then by the time you decide you wanted it, by that time it’s gone. You don’t want to be rushed. It’s just on principle.
You shouldn’t have to make a $250,000 decision in 60 seconds. Reserve the property first, and then do your due diligence, and the team will work with you on that. If you don’t want it, it’s no big deal because they always have a waiting list. They’ll just offer it to the next person on the waiting list.
[00:50:00] Okay, let’s recap. We went through a lot of material here. I got on my soapbox. We’re running out of time. I want to leave time for questions. All right. For markets, you have to decide what your goal is.
Cash flow focus versus appreciation, consider which markets have the type of property that you’re interested in, single family versus multi-family. If you’re doing a 1031 in particular, you should worry about which markets have lots of inventory to choose from. Also, what weather conditions there are. [00:50:30] For neighborhoods, just look at those sites that I pointed to Niche.com, City-Data. We’ve looked at those.
I spot check properties. I spot check properties of neighborhoods where I grew up in Philadelphia, definitely a B minus. Some neighborhoods where I went to school, definitely a C minus. As far as I can tell, and our Director of Property teams can tell, these Niche ratings are pretty accurate. You can go by that. Their objective, it’s not like, somebody’s trying to sell you a house telling you this is a B neighborhood. This is an objective.
This [unintelligible 00:51:00] third party [00:51:00] using data, saying that this a B neighborhood. Look at the demographics, the schools, the crime statistics. I forgot to mention about crime. When we have crime statistics, the thing to focus on is violent crime. Property crime is bad in itself. Like, graffiti or someone breaks into your car, but violent crime like stabbings or muggings or something like that, that will make your tenant leave in a heartbeat.
Your tenants will leave right away, especially, [00:51:30] if they have kids, and they’ll break the lease. You don’t want to be in areas that are crime. Those are typically the D neighborhoods that we talked about at the beginning. For most of our markets in B neighborhoods, you won’t need to worry about crime that much.
If you were buying in the C neighborhoods or Chicago or say Baltimore, I would check on the crime statistics just to make sure that it’s okay. Our property teams look at these statistics too, and they won’t buy an area that has bad crime. It’s good to reassure yourself, so you don’t lay awake at night.
Then, [00:52:00] what else? Look at owners versus renters. What’s the percent ownership is versus renters? Diverse population. You have a wide tenant pool, and consider doing tours, both onsite tours or virtual tours. Also, take a screenshot of these websites, so you know you have a baseline that you can compare the neighborhoods too in the future.
The pro forma, we went through line-by-line. How to valuate rents and make sure they’re in the ballpark, adding [00:52:30] allowances for vacancy and maintenance, working with your lender on loans. Confirming that taxes are okay, Realistic. Determining your level of insurance that you need. Then, figuring out your optimal down payment and closing costs, so you can fine tune your pro forma and make sure that it’s accurate and there’s no surprises after you buy the property.
I see I got on my soapbox. We have six minutes [00:53:00] to answer all your questions. Let’s see what we got here. We might have to go over a little bit. This thing is pretty hard to read. Many markets are at peak value, how do you factor that into your due diligence? That’s a good question. Graham wants to know. You have to look at trends. All real estate is local.
Property values are going up, interest rates are low. The fed has said they’re going to keep [00:53:30] interest rates low for the foreseeable future. I believe that we still have a long runway, that this is going to still keep going. The other thing is, part of the reason for the home values going up is that the building material costs are going up. Cost of lumber or cost of steel, concrete blocks, everything is going up. I think that’s going to get worse before it gets better.
The federal government is talking about spending a trillion dollars on [00:54:00] infrastructure. That means more roads, bridges, repairing airports, seaports, everything. Our property teams, the builders are right now struggling to deal with these increased building costs for materials. By this time next year, they’re going to be competing with the federal government for those resources.
I think the property that you have now that’s 160 will be 170, 180, 190 next year and will continue to go because the trillion dollars, the government has [00:54:30] deep pockets. That’s going to make prices keep going up. Those are my thoughts on that subject. What else we have here?
For areas like Huntsville, where can you get both positive cash flow and appreciation? What type of appreciation are you finding? That’s always a crapshoot, estimating appreciation, because what happened in immediate past isn’t indicative what’s going to happen in the future. We’ve been seeing [00:55:00] 7%. There’s a lot going on in Huntsville, Toyota is opening a factory this year that’s going to create 4,000 jobs.
The FBI has announced it’s going to move 2,000 jobs from Virginia to Huntsville. There’s building going on all over. The population is growing and high paying jobs are entering the area. I would say Huntsville is in the second or third inning. I think you’ve got more potential for appreciation in that market.
Arash wants to know, may I ask [00:55:30] what is special about Cincinnati? Our Cincinnati team has been with us the longest. They’ve been with us forever. They have a cult following within RealWealth. Missy does a great job of renovating homes. She takes care of her investors. She has a great reputation and everybody wants to buy in Cincinnati. It’s a great cash flow market. Because of her cult status within the network, everybody wants to buy a house in Cincinnati. That’s why.
Let’s see. I have seen [00:56:00] aggressive rents in outlying areas of Charlotte that have been difficult to justify. Based on my research, the builder claims the rents are changing quickly, and will rise to those levels. By the time the house is built, any advice for estimating growth? Oh, that’s tough. Typically, in Charlotte, the builders build the properties within 120 [00:56:30] days of when you assign the– Send over the earnest money deposit.
I don’t know that rents are going to increase that much in 120 days. Ask them to justify to you, why they think it’s going to go up that much? I would put in a realistic number based on what you see online. If you have any surprises, the surprise will be to the upside. The builder is trying to sell you the house, however. Let’s see, any other questions? [00:57:00]
It’s hard to read this thing. What good is due diligence if the home builder can raise the price of the property? Okay, this is a question that’s been coming up lately. In some of our markets, particularly Florida, where there’s a long lead time, typically, you would put earnest money deposit down, and then nine months later the house will be built. Well, over the past nine months, like I said, building materials have gone up and price, and [00:57:30] our home builders can’t build them because if they did, they would lose money.
The $160,000 house that you have on the contract, they tell you that the price is now 170, we have to change the terms of the contract. That’s ruffled a lot of feathers. A lot of our investors are concerned about that, but when you look at it, most of our investors, almost all, I think one backed out of the deal, but everybody else’s decided to move forward.
The reason, two reasons, two points I would make. Number one, raising the price by 10,000 [00:58:00] sounds like a lot. When you consider 20% down, we’re really only talking about $2,000 out of pocket. Instead of putting $30,000 down payment, you’re putting 32,000. That’s not that much of a difference. Also, your monthly payments might go up by $30 and that’s annoying.
If you’ve been waiting nine months to have this house built, do you really want to cancel the deal because $2,000 of out-of-pocket? Probably not. The second point I would make as the one I’ve just made. Building [00:58:30] material costs are going up. There might be a silver lining in all this. As this continues, as the government gets involved with infrastructure spending, and home building materials continue to rise, that 160 house that you now have to pay 174 will be worth more next year, 190.
Nobody can know for sure. I’m not predicting. Just take that into account that this is likely to continue. There might be a windfall in terms of price [00:59:00] appreciation. When you balance all the pluses and minuses, all of our investors have moved forward, except for one that I know of that backed out of the deal. No guarantees, but that’s the way it looks to me. I think we’re in for a long period of increased prices.
By the way, every year in January, Kathy does a special webinar on the economic outlook for the new year. Right now, the legislation about this infrastructure bill [00:59:30] isn’t firm yet. It hasn’t passed. By January, we will know a lot more about what is passed and what effect that’s going to have on real estate investing. Look out for Kathy’s beginning of year webinar, so you can get a better feel for that’s going to affect your investments.
Melody asks, do you have a similar process that you recommend for STRs? I assume that means short term rentals. The answer is, no. We don’t really
[01:00:00] deal in short term rentals that much. Just recently in the past couple of months, our Jacksonville team has offered some, they found some good ones, and are offering those to our investors. We don’t broadcast them, we don’t have webinars on them. It’s an exception to what we normally offer, so we have this due diligence process for a single family homes, but not for short term rentals, so how would you do that? How would you confirm rents?
That would be hard to do, especially with the [01:00:30] virus. Do people really rent? You have to talk to whoever’s selling you the property. Ask them to justify to you, why they think the rents are going to be there, and then see if it’s credible. Let’s see. Sandy wants to know, do you know an Excel spreadsheet that you use? Yes, it’s nothing special. If you copy and paste any of our pro formas into a spreadsheet, and then create an extra column for your adjustments. [01:01:00]
Then, make a third column that says, “Here’s what the net is after the changes.” That should be enough to give you an idea of the new pro forma after you made your adjustments. Let’s see. Sloan wants to know, can you recommend companies with good umbrella insurance? Actually, that’s done at the local level. Whoever you get your property insurance from, you talk to the insurance agent.
You ask them and say, “I’m interested in umbrella insurance policy in case I get sued or have legal fees. [01:01:30] Give me a quote, I want a million dollar policy. What’s that going to cost?” That’s how you do that. The local team can help you with that. We do have a national insurance agent. It’s on our website, and they tend to be competitive. If you have properties in multiple states, and you just want to get one policy for all of them, you can go to our website and find that insurance agent, and see if they can cover you.
I believe they’re competitive, except for Florida. [01:02:00] They tend to be high in Florida. If you have multiple properties that you want to have one umbrella policy for all of them, you could talk to that source. Sorry, I don’t remember the name off the top of my head. Thoughts on Columbus, Ohio. Joseph wants to know about our thoughts in Columbus.
We like Columbus as a market. The university of Ohio is there. A very good market. Good for cash flow, but we haven’t found the team that we want to work with, so we’re not there. We’re in Cleveland and we’re in Cincinnati. [01:02:30] Let’s see, this question. Arash says, just to understand, we don’t lock the price when we put the deposit for preconstruction homes. Normally, you would. Normally, when you put your earnest money deposit down, that would be the case. You’re locked in at today’s price, and the upside is yours. Unfortunately, in the crazy environment we’re in, the homebuilders are going to lose $10,000 on each house, and you’re building 20 or 30 of these at a time, they can’t afford to take the hit. There is fine print in [01:03:00] the contract that says, if there’s a– What’s it called? Force majeure. Some occurrence, an act of God that’s out of their control, that they reserve the right to change the price.
Unfortunately, it’s only affected our Florida team so far. If this building material shortage continues, it might spread to some of our other markets. Any place where there’s new construction. You could talk to the local team to find out. [01:03:30] Let’s see. I think that’s about it. We’re a little bit overtime. See if there’s any more questions here.
Yes, the box here with the questions, there’s only one line, so I can’t– There you go. Amy wants to know, how much coverage do you recommend for an umbrella policy, if I own multiple rentals? I always get a million dollars per [01:04:00] property. This one only costs $180 a year, or $15 a month. It depends on the state and how litigious it is. California, there’s a lot of lawsuits.
If it’s a landlord friendly state, you should be okay. It’s a judgement call. Talk to the insurance agent and find out how often does this really happen? How often landlords actually get sued. Usually, doesn’t happen that often. Something that is a theoretical possibility, but it doesn’t happen really that often. If you own a [01:04:30] multi-family, you’d be more inclined to get more insurance.
In a multi-family, like a fourplex in Chicago, you have two units upstairs, two units downstairs. The landlord is responsible for certain things like the smoke detectors in the hallway, or the shoveling the snow in the winter time. You have more liability with a multi-family in those kind of markets, so you might want to get more insurance rather than less. You can talk to your investment counselor, and give him more specifics about which markets you’re in, and they can help [01:05:00] advice you.
Let’s see, I don’t have W-2 income, can you say how to find lenders who based loans based on property value and rental income? Yes, you go to our website. We have conventional lenders, and then we have nonconventional lenders. If you don’t have a W-2 income, you would talk to the nonconventional lender. Ridge Lending is one of them and CoreVest is the other. Talk to them about your situation, and see if they can help you get a loan. [01:05:30]
Let’s see. Robert wants to know, can you recommend online tools and apps for evaluating a rental property including fields like on a pro forma? Yes, there’s one on our website. If you go to our homepage, on the right hand side under “investor resources”, I think it’s the last line item there, and it says, “property evaluator” or something like that. It basically pulls up the spreadsheet, and you can use that to do the kind of analysis that I just walked you through today. [01:06:00]
All right. Amy wants to know, do you like rentometer.com for rent calculation? That’s a good question. No. The other sites tend to give me pretty much the same answers when I spot check them, but Rentometer, I find it is consistently off, way off. Even though that’s what they claim they’re specialty is, I don’t particularly care for that site because I can trust the results. I don’t know where they get their numbers, but they’re completely off from what you’ll get from the other sites.
I would look at the other sites [01:06:30] and look into them, and get a second opinion, and that’ll give you a good idea how reliable or stable the estimates are. We’ve gone over, so I’ll wrap it up. Let’s see. What do I have here? Where’s my cursor? Oops. What’s next? Book a session with your investment counselor, and visit our investor portal for more information on the property teams and sample property, so you can start doing your own due diligence.
Just [01:07:00] a editorial here. I’ve seen lots of investors over the years who’ve been members with RealWealth for years. They attend all of our Thursday webinars. When we have live events in California, they use to attend our live events. Even after years of being a member, they never buy a property, and I always wonder why that is. I think it’s because they’re not quite convinced that it’s a good investment or a safe investment.
I think it’s like a analysis paralysis. Hopefully, the due diligence steps we walked through today would [01:07:30] give more people a sense of confidence that you can look at an investment opportunity, and evaluate it on your own, and independently arrive at your own conclusion. You can get off the fence, and invest in a property, and get your investment career going.
Real estate investing is great for building rough and for achieving financial freedom overtime. Real estate doesn’t work if you don’t buy properties. Whatever it is that’s holding you back, schedule a session [01:08:00] with your investment counselor, and say, “This all sounds good, but I’m hung up on this issue or this question.” See if they can get you unstuck, so you can start investing in property.
As always, this webinar is been recorded and will be posted on our website by this time tomorrow, or at the very latest, by the end of day. If you go on our website, log in with your user ID and password, and then get into the investor portal. On the left hand side, the menu bar, there’s a line that says, “Recent [01:08:30] webinars.” You just click on that, and you’ll find a recording of this webinar.
We covered a lot of material today. If you want to go over the second time, and let it sink in, you can do that as many times as you want. Okay, that concludes today’s webinar. Thanks for watching. I hope you got something out of it and found it worthwhile. Enjoy the rest of your day. Goodbye.
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