How To Buy A Property That Cash-Flows Each Month
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Today we’ll talk about how to buy a rental property investment that cash flows each month. Most crucial part of helping making your property cash flow is identifying and buying right.
You got to buy the appropriate property that’s going to cap in cash flow. There’s some definitely some factors that we’ll look at and discuss of how to identify the property correctly. The number one is always look at how much you expect your income to be? How much is the rental price going to be? Once you figure out that number you can calculate your return. Then one thing we like to look when I’m just barely browsing and kind of overlooking properties.
I look on what’s called the yield that is taking your expected rental income for the year. Let’s say it’s a thousand rental. That’s twelve thousand a year divided by how much you cost the property not your total cost. I would actually put it based on the purchase price the property. So if the price was two hundred thousand you take that twelve thousand divided by two and thousand and you get a percentage. Typically you want that yield to be around sixty eight percent and then you can kind of work from there. So that’s where I filter those out. If I find those properties there’s 68 percent. I’ll take those properties and I’ll get a little bit more of a deep dive in. That’s a good barometer. Usually if you’re on 8 percent with all the other fees associated maintenance vacancies each ways taxes insurance all that usually come out ahead plus appreciation all those things factor into the income.
So if you really want to get detailed into it if you want to go beyond just the yield once you can identify the property okay does fit in that 68 percent range. I’m Go deep dive into it more if you have 20 percent. Yeah definitely just keep that more into it but you know you usually want to be least 60 percent once you get that deep dive in. Look at all the costs associated and you’ll forget there’s lots of costs associate with rental property that your normal just with any home mortgage tax that is actually fees insurance.
Look at those research those you can not always figure those out get those numbers and then add in the actual rental experience costs which are going to be vacancies. Remember your property is going to set for probably 30 days. If you have a good tenant moved out every two years so I think 30 days every two years you know there’s one month’s rent just based on the vacancy. Look at repair cost. We typically see about 8 to 10 percent a year is going to be year repair costs on some of these older homes. You have a newer home then that’s more than 1990 and above. That’s gonna go down.
So you can’t figure out the repair cost. There’s lots of websites you can look on to actually see how much the repair costs in certain regions and certain how the property is. Usually that’s what dictates how old the property is. How many problems you have but also you can have to do some investigation. Mike Murphy would just replace the AC then you’re good for two years to replace the AC so there is some kind of magical work there. You got to do investigation work and actually figure out your projected repair cost. That’s something that’s takes a little bit of an hour but you definitely if you want to get down to the grind of it or you can just say hey it’s going to be 5 percent a year which is can be typical then put that in there as a metric.
There are other costs besides vacancy and maintenance I’d put in if you can’t have a third party manager here or you’re going to have somebody else manager your counting your books put that on there. Let’s figure out the true costs and to income unit gain that you profits to really identify a property. A lot of people just overlook those things or they just trust the yield which is great. You can look at income versus your cost but you don’t know the ongoing cost really deep dive into the property find those maintenance really projects that out be detailed about it be deliberate about it if not hire someone that can do that for you. That’s an experienced person In that it’s filled that area of expertise.
Actually FBI identify the property which against number one identifying the property, Figuring out the cost, Forget the income. Figure out your net profit the next thing actually make sure it’s rental is actually to some of those repairs make it rent ready. The key is vacancy is going to take 30 days to 60 days to 90 sometimes. That can be a huge suck on your fund. So make sure you do other repairs you can and quickly manner get it what we call make ready or rent ready. Get it ready to be present and market it out but do those repairs if there’s definitely some stats we can pull.
I can show you some case studies of if you actually do the minimal repairs and do the repairs that you need to to get it rented. It’s going to run rate quicker there’s their balance they’d want an over upgrade a property you want to find the middle balance of home and upgrade enough so presents well. The animal can go overboard it’s still a rental there are some people they gotta go up the road and they want to be at the Four Seasons that’s a different mindset and that’s the niche that’s not ever scoped out do you know they’re staying within your wheelhouse what you feel comfortable with. But again the number one reason that people are going to lose money is going to be vacant. Or they have ongoing issues of maintenance so if it’s gonna be vacant let’s minimize the vacancy get him ready as quickly as possible.
Put it out there. Good pictures. Make sure you take pictures. This is 1 to 1 Take pictures to get out there. But do the repairs that are necessary. And again I count that toward your cost. And those are one time repairs sometimes. But there I can see it’s about every ten years you replace it. In your model for every ten years at the CDC and averaged out per yearly basis to kind of get your our return on your investment. How do you make them property rent ready clothing I suggest now.
I would highly recommend is do preventative maintenance on the property is going to be an ongoing cost but it’s going to save you thousands or hundreds of thousands or whatever it is can save you tons of money if you just do preventive maintenance. There’s a great bigger pockets article on it than I love that I have about eight areas of things that you should be doing annually or semi annually to the property to make sure you kind of prevent those huge big maintenance repairs that come up if you do some hundred alternatives lives here and might save you two to five thousand dollars later and so do this preventative maintenance account that in your cost analysis when you’re running your return or run your your percentage or yield.
Figure that out. Put that in there but definitely highly recommend that. So those all together can help you identify and actually make sure you identify property correctly. Remember there’s going to be maintenance that can be ongoing maintenance. There’s other cost. Remember to always put that in there if you can’t figure it out and you have some spreadsheets it’s just going to complicate or this is hey this is too much. I want to buy a property we can help you figure out identify the right property even have with the transaction process and manage the properties well to help you find that great tenant or make it rent ready as well. We’re experts in the field we do it all the time. But again we highly recommend it.
You’ve put all those costs and remember those costs. Otherwise you could end up with a dud or losing and not being successful in your rent or investment property. So to take those steps figured out buy it right. Once you buy a right there’s lots of the things you do but usually that’s the most critical part to making your investment successful.