SS96: Questions to Ask Yourself Before Buying a Rental Property

SS96: Questions to Ask Yourself Before Buying a Rental Property

Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing questions to ask yourself before buying a rental property.

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Talking Points:

  • Many investors like the idea of actively purchasing rental properties. They think will purchase 1 rental property, it will make $500 a month passively, then they will refinance it and buy another rental and before they know it, they are making $10,000 per month and they can leave their job and travel the world. Sounds great, sounds like something you would hear from some real estate guru on social media who coincidently is selling a course on doing just that.
    • But there is a lot that goes into purchasing a good rental property. There is even more that goes into managing that rental property. What you won’t hear on social media is how difficult it is and how risky it is to directly purchase rental properties.
    • Any investors seriously considering active real estate investment should ask themselves these 4 questions.
  • 1st is experience: a dead giveaway of a newbie investor is when they are explaining a real estate investment and they say something along the lines of; rent is $2,000 and the mortgage is $1,500 and their monthly passive income is $500; nothing could be further from the truth.
    • There are multiple parts to purchasing a rental property (if you are self-managing or hiring a manager). You need to choose the market, the sub-market, and the neighborhood, build a team, identify the property (usually underwriting 100 properties before buying one), inspect the property, put an offer on the property, have it accepted, finance it, purchase it and then renovations and property management start; including dealing with tenants…all before making $1.
    • An operating partner of ours has 2 data scientists on the payroll, and all they do is review real estate markets throughout the United States. Population, job growth, crime, and migration; among dozens of other factors. That is how important it is to choose the right markets when investing.
    • The experience and expertise you utilized to generate your investment funds, most likely will not carry over to real estate investing; no matter how successful you were in your W2 or in another business venture.
  • 2nd is money: It is common for new investors to underestimate the funds required to purchase, renovate, and reposition rental real estate. Experienced investors have sizeable reserves that are available for the inevitable cost overrun or unforeseen repair. Most new investors only calculate the down payment and closing costs but nothing more. They say they will pay for renovations from the cash flow; which is a huge mistake. If properties are not maintained; tenants will leave and/or not pay rent. Issues need to be addressed immediately.
    • The second part of this is the lack of diversification; if you have 2 small duplex rental properties that you invested $100,000 in each; you are betting all of your real estate investment funds on these 4 units. If there is an issue; there are no other real estate income streams to cover you. That $200,000 could have been invested in 4 passive syndications that now provide you with diversification over hundreds of units, in possibly multiple markets.
  • 3rd is the team: It takes a long time to find and build a really good team in real estate. A real estate team consists of; an attorney, an agent, a mortgage broker, a property manager, handymen, and contractors. If your team is weak in one of these areas; it will require more of your time and it will lower your overall net operating income.
    • Property managers are not a one size fits all position; managers thrive with properties, in markets that they are comfortable with; have them manage outside of that box; and you will fail.
    • Finding a good property manager takes time and you need to be sure they are good or you will be spending hundreds of hours finding, interviewing, and integrating a new manager down the road. The property manager is the most important part of your real estate business and they will make or break your real estate portfolio.
  • 4th is time: no matter how good your team is; you will be required to oversee operations; this is called asset management. We are consistently speaking with our property managers (usually once per week) and even more frequently during the initial 12-24 months of ownership. When we are buying 100+ unit complexes, it is much less time-consuming per unit when compared to small multifamily properties. Ask any landlord that directly owns rental property and has a manager; how much time they actually spend overseeing operations and then factor those hours into your monthly budget to see your ACTUAL return once you pay yourself for the hours you are spending; you might not be making as much as you think.
  • If you are a successful professional or entrepreneur and you are considering direct investment into rental real estate; consider passive investing as an alternative that will help you generate TRUE passive income.

Transcript:

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing questions to ask yourself before buying a rental property.

Charles:
Have you always wanted to invest in real estate, but didn’t have the time, didn’t know where to find the deals, couldn’t get the funding and didn’t want tenants calling you. Since 2006, I’ve been buying income producing properties and great locations that provide us with consistent passive income. While we wait for appreciation in the future and take advantage of tax laws while we’re waiting and unlike your financial advisor, we invest alongside our investors in every property we purchase. Check out to investwithharborside.com. If you like the idea of investing real estate, if you like the idea of passive income partner with us at investwithharborside.com, that’s investwithharborside.com.

Charles:
Many investors like the idea of actively purchasing rental properties. They think they’ll purchase one rental property, it’ll make $500 a month passively. Then they’ll refinance it by another rental property and before you know it, they’re making $10,000 per month and they can leave their job and travel the world. Sounds great. Sounds like something you would hear from some real estate guru on social media who coincidentally is selling a course on just doing that, but there is a lot that goes into purchasing a good rental property. There’s even more that goes into managing that rental property, which you won’t hear on social media is how difficult it is and how risky it is to directly purchase rental properties. Any investors seriously considering active real estate investments should ask themself four questions. First is about experience. So a dead giveaway of a newbie investor is when they’re explaining a real estate investment and they say something along the lines of, Rent this $2,000 and the mortgage is 1500 and their monthly passive income is 500.

Charles:
Well, nothing could be further from the truth. There are multiple parts to purchasing a rental property. If you’re self-managing or hire a manager, you need to choose the market, the submarket, the neighborhood build the team, identify the property, usually underwriting 100 ties before buying one. Inspect the property, put an offer in on the property have it accepted, finance it, purchase it, then do the renovations. Then property management starts, including dealing with tenants all before making $1. An operating partner of ours has two data scientists on payroll, and all they do is review real estate markets throughout the United States population, job growth, crime migration among dozens of other factors. This is how important it is to choose the right markets when investing in real estate. The experienced and expertise you utilize to generate your investment funds most likely will not carry over to real estate Invest no matter how successful you were in your W two or other business venture.

Charles:
Second is money. It is common for new investors to underestimate the funds required to purchase, renovate, and reposition rental. The real estate experienced investors have sizable reserves that are available for the inevitable cost or run or unforeseen repair. That always happens. Most new investors only calculate the down payment in the closing cost, but nothing more. They say they will pay for renovations from the cash flow, which is a huge beginner mistake. If properties are not maintained, tens will leave and or not pay. Rent and issues need to be addressed immediately. The second part of this is the lack of diversification. If you have two small duplex rental properties that you invested a hundred thousand dollars in each, you’re bending all of your real estate investment funds on these four units. If there’s an issue, there are no other real estate income streams to cover. That $200,000 could be invested into four passive syndications.

Charles:
That now gives you diversification of over hundreds of units and possibly multiple markets. Third is the team. It takes a long time to find and build a really good team in real estate, and you’ve heard some of my previous episodes about that. And a real estate team consists of an attorney, an agent, a mortgage broker, a property manager, a handyman, and contractors. If your team is weakened one of these areas, it will require more of your time and it will lower your overall net operating income. Property managers are not a one size fits all position managers thrive with properties and markets that they’re comfortable with and they manage outside of that box. That’s when they will fail, and that’s when you will fail. Finding a good property manager takes time and you need to be sure they are good or you’ll be spending hundreds of hours finding, interviewing and integrating a new manager down the road.

Charles:
The property manager is the most important part of your real estate business and they will make or break your real estate portfolio. Fourth is time. No matter how good your team is, you will be required to oversee operations. This is called asset management. We are consistently speaking with our property managers usually once per week and even more frequently during the initial 12 to 24 months of ownership of a property. When we are buying. A hundred plus unit complexes is much less time consuming per unit when compared to small multi-family properties. Ask any landlord that directly owns rental property and has a manager and ask ’em how much time they actually spend overseeing operations and then factor those hours into your monthly budget to see what your actual return is. Once you pay yourself for the hours you are, you are actually spending, you might not be making as much as you think. If you’re successful, professional, or entrepreneur and you’re considering direct investment into rental real estate, consider passive investing as an alternative that will help you generate true passive income. So I hope you enjoyed. Please remember to rate you subscribe, submit comments and potential show topics at globalinvestorspodcast.com. Look forward to two more episodes next week. See you then.

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar, LLC, exclusively.

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