Investing in real estate can be intimidating, but the right strategies will empower you to move forward with confidence. In this episode of The WealthBuilders Podcast, Karen Conrad Metcalfe and Frank Pulley discuss what to look for in an investment property.
You will learn:
- How to create an exit strategy
- 4 criteria for profitable long-term rentals
- The difference between executive and vacation rentals
- How to find a good fix and flip
- What’s going on in the current real estate market
Get ready to level up your real estate acumen so that you can avoid common mistakes and maximize every opportunity. Click the player below to watch on Youtube, or keep reading for the Shownotes.
How to Strategically Select an Ideal Investment Property
- Now is a great time to start investing in real estate. Interest rates are deterring many from buying homes, which increases rental demand.
- The factors that make up a good investment property highly depend on your exit strategy.
Exit Strategies
- Having two exit strategies per investment property is crucial. Having three is excellent.
- An exit strategy refers how you can change the use of your property to make a profit if the market changes. So, it’s beneficial to look for properties that could function as long-term and short-term or vacation rentals.
- Executive rentals, fix and flips, and using the BRRR method (buy, rehab, rent, refinance, repeat) are more exit strategy options.
4 Criteria for Long-term Rentals
1. The property should rent for at least 1% of the purchase price.
2. The property should provide you at least $300 in cash flow after the PITIM is paid (principle, interest, taxes, insurance, and management).
3. Spend no more than 2-4 times the median household income for that particular area.
4. Have at least a 10-12% cash return (return on investment) for each property
- If these formulas don’t work in your neighborhood, consider looking at markets in nearby suburbs or even nearby states.
- Zillow, Realtor.com, and Redfin are all great places to research this information.
Executive Rentals vs. Vacation Rentals
- Vacation rentals are exactly what they sound like— short-term spaces for people who are on a trip. Rental periods typically range from one night to two weeks.
- Executive rentals typically rent for about 30 days and are for people who are traveling for work, whether it be businesspeople or traveling nurses.
- HOAs are increasing short-term rental restrictions. Typically, the cut-off is a minimum of 30 days. So, executive rentals could be a good rabbit hole for you if you find yourself in this situation.
- You can often charge double the rent for an executive rental than you would for a regular single-family home.
How to NOT Lose Money on Fix and Flips
1. Don’t overpay for the property. (Our WealthBuilders Real Estate Coaching Program can help with that.)
2. Know what the house will sell for in ~30 days in the neighborhood. Will you be able to get a quick turnaround when you are ready to sell?
3. Know how much your materials are going to cost
4. Know how much you are financing and what your selling costs will be
This has been a high-level introduction to selecting an ideal investment property. To learn more about how to reach financial freedom through real estate, consider joining us for The WealthBuilders Real Estate Workshop, April 5-7th in Denver or via livestream. Learn more here: https://billyepperhart.lpages.co/2024-april-real-estate-workshop/
