When you’re investing into real estate, you have to figure out how much money you’re looking to generate to become successful. That number is going to be different for everybody. You have to sit back and think about how much you want to make. Is it $5, $10 or $15 thousand a month? Once you figure out what that number is, that’ll cover all of your expenses where you won’t have to worry about money so much.
That’s really the best strategy when you’re looking to invest. You can target deals that make the most sense and help you achieve your goals. At first, you have to worry a little bit about where the money’s coming from since you have to cover your expenses and living costs. Once you’ve reached your goals and have acquired properties that pay for those expenses, then you can set that aside and continue to grow your net worth.
If You Love Investing…
If you love investing into real estate, then you’re going to start looking at deals differently. You’re not going to look so much at the money you’re going to make. You’re going to love the thrill of doing deals. That’s why we invest into real estate. We love investing into deals so much. That’s what’s going to happen to you if you like investing as much as we do. That’s the power of investing.
The Excitement of Real Estate
Once you get that revenue, after you make deals work and the underwriting process makes sense, it’s going to be less stressful. You can continue expanding your portfolio when can underwrite deals that formulate financial success.
That’s what’s really exciting about real estate. You can scale it to different levels. You can build a team to help you manage the properties and then continue to acquire others. There’s so much upside potential when you put this system in place. It takes time to build out the infrastructure to put it all together. However, once you get it there, it’s going to be great. It’s just about getting that infrastructure set up to build that success.
Think About The Process Of Investing Into Real Estate
Think about how much you want to make. Let’s say, for example, you want to increase your income by $10,000 per month. If you multiply that by 12, you have $120,000 a year that you want to generate investing. Maybe that’s to replace a job or add extra income to make more money. But you have to figure out, on a unit basis, how many apartment units you have to acquire to reach that number.
Let’s say, for another example, you’re looking at a real estate deal and it’s 10 units. Each unit generates $1,000 per month in rent. Then you’re going to have $10,000 a month in rents that are coming in at the property. So your expense ratio is the ratio at which how much income is expensed out. How much do you have to pay for your utilities, gas, electric, and water? Anything else, like repairs and maintenance, lawn care, or snow removal, if you’re in colder climates? And don’t forget about other expenses such as property taxes and your mortgage. Your mortgage isn’t so much figured into your expense ratio, it’s figured later on. So you have to figure out all of these expenses so you know what you’re paying and what your income, your gross income, is going to be knocked down to.
If you find a property that’s making $120,000 per year, and you figure out that you’ve got a 33% expense ratio, multiply it by the remaining 67%. This will give you a net operating income of $80,000. That’s what your property makes minus all of its expenses.
Value Of The Property
Then, you have to figure out the value of that property. Today properties like that are trading at maybe a 6 cap rate so this property would be worth somewhere around $1.3M to purchase. Keeping our $80,000 in mind, and the purchase price of $1.3M, let’s multiply it by 80% because that’ll be our loan, and then we’ll multiply it by 4%, so you have about $42,000, call it $43,000, of a mortgage you’re going to have to pay for. So let’s take our $80,000 and subtract the mortgage, that’s going to leave a passive positive income stream of about $37,000 per year.
Now, not to get too technical, let’s divide it by units. We have 10 units on the site. You’re making about $3,7oo per unit when you acquire properties that are on an average of $1,000 per month rents and a 6 cap rate. So if you have $3,700 per month, take your $120,000 that you want to generate, and divide it by $3,700. I have 32 units going to be able to generate that much money in real estate income to be paid and to cover some of your lifestyle expenses. That’s what it’s going to take to create that amount of revenue.
Getting Into The Market
The next step is to communicate with people. Get into the market and find deals. You have to start building your portfolio to find these 32 units. It’s difficult and you have to figure out what your strategies are going to be. Are you going to find 10 unit buildings or greater to acquire? Are you going to look for four unit buildings to acquire? You have to figure out what your strategy is going to be.
We definitely recommend purchasing properties that are four units or greater. The bigger the better, but if you’re limited on capital maybe you buy a house and rent it out just to start increasing your liquidity and your network. You just have to dig in and figure out a system that will work for you. Putting all of the pieces together is what it’s going to take, and you’ll need banking relationships. There’s a lot that goes into it and it’s going to take a lot of time. We always talk about how you have to, if you really want it bad enough, be looking at real estate all the time. It’s something that’s critical to really building that success up with real estate.
If You Want It Badly Enough
If you want it badly enough and you want to create an income stream through real estate. It’s just a matter of spending the time, putting systems together and making the whole process work out. It’s definitely a difficult process once you’re first starting out, but once you have the infrastructure set up, it gets easier once you build up the experience investing into real estate.
One Of The Toughest Parts In Real Estate
The toughest part is just figuring out where to find the deals. Once you have those deals, you can get financing, a bank loan, you can find equity, or even raise equity to do deals. There’s so many ways to acquire real estate, you just have to dig in and figure it out and find a way to make it work.
If you’re lacking deals you have to get out there and start picking up the phone and calling people. Working with brokers, making cold calls, sending letters, there’s a lot of things that you have to do to find deals. Once you find that deal, then you can assemble the bank financing, bring in equity partners, and the people who have capital that will put money into the deal. There’s a ton of opportunities out there. Yes, the markets are extremely hot right now which makes it a little harder, but if you can find off market deals and communicate with people who own real estate, it will help you find deals.
That’s one of the best ways to get into the market. You don’t have to compete with 20 to 30 people bidding on a property. We acquired 150 units last year on a project. It was off-market so we didn’t compete with 10 other people, which would really skyrocket the price on the property. It’s really beneficial to find an off-market deal, so you just have to get out there, look at deals, explore, and see what works. Look at properties and tour them. Look at the numbers, underwrite deals, see where things are penciling out. If you can make the numbers work, the more bids you submit on a property, the more opportunity you’re going to have to put deals together. So get out there and go start looking!