Each month we select one of our Rev N You with Real Estate newsletter reader’s questions to feature as our QUESTION OF THE MONTH. We respond to everyone that sends in a question but the published question writer received a Rev N You with Real Estate T-Shirt! Here’s September’s Question of the Month Winner!
Hi Dave & Julie,
I found your website a while back and have become a frequent visitor
and now receive your weekly newsletter, which I enjoy very
much….keep up the good work! I am deciding on your 12 month
course…looks like I could use it. When it comes to real estate
investing I am a beginner….no properties yet, but I have looked at
few. I have read a few books and read the Canadian Real Estate
I have a property I am interested in and would like to get an expert
opinion before proceeding.
Property price: $259,000
Rental Income: $2,615 utilities included
Heat – $300
Light & hot water- 150
Cable – $60
Prop. tax – $200
Prop. Ins. – $57
Prop. Mgmt – buyer
Prop. Main. (5%) – 130
Total Cash Out – $897
If purchase price at $250,000
Down pymt. 20%
Mortgage – 1100
Cash Flow – 618.00
I read your 1% rule and if you subtract the cash out ($897) from the
mthly income ($2615) we get approx. 6.6%, but the cash flow looks
good….am I missing something.
Hopefully you have time to respond to this email.
Thanks for your kind words and we are happy to hear you enjoy our newsletter!
It sounds like you have a decent property/deal that you are investigating. Questions to ask yourself:
1 – What are your real estate investing goals? That is, what are you trying to accomplish with real estate? The reason I ask, and this is a VERY important piece of being a great real estate investor, is that you need to know where you are going before you take a step. We try to walk all of our Real Estate Millionaire students down the Setting your Goals path before they get going on, possibly, the wrong path. For example, is your goal to earn $X per month within the next 5 years? Is it trying to fix and flip properties to replace your hourly income? You don’t need to have a 50 page business plan before investing, but you really should consider what you are trying to accomplish with real estate. If you have a plan, and you stick to it, you are much more likely to succeed.
2 – Have you considered whether you want to answer telephone calls, possibly late at night, from your tenants in order to learn how to be a landlord and save some cash (rather than paying a professional property manager)? Again, this will link back to your goals. I am not trying to dissuade you from being a property manager, but do keep in mind that being a property manager can be quite time consuming. And if you intend to invest in many properties, you will soon find it very challenging to invest wisely and run your real estate investing business while also managing your tenants and properties. Even if you are going to manage this property yourself we STRONGLY advise you speak with a couple of reputable property managers in your area about your prospective property BEFORE you buy it. What do they think of the area? The rental income (is it reasonable and repeatable)?
Would they take on a property like this? Check out this article we wrote: http://revnyou.com/Hire_Property_Management.html
3 – A few other quick things to consider. As for the 1% rule, you actually apply it to the Gross Monthly Rental Amount, not the NOI (Net Operating Income) which you have done. That is, your $2,615 divided by $250,000 = 1.05% which is fantastic! The most important thing to consider besides the 1% rule is the area that the property is located in. Is it a nice area? An area you would live in? Is it an “up and coming” area that’s in transition? Or is it in a shadier part of town that isn’t very desirable? Often the 1% Rule can lead people to buying in areas that aren’t great because they focus solely on the numbers. Remember to thoroughly research the area of the property. Is it convenient for your tenants to get to school, shopping, and work? Is the area full of rentals or are there some nice single family homes there too? Again, they type of area is important to research in advance of buying a property. Remember, you can change your property (paint it, add to it, remodel it, etc.) but it’s next to impossible to change (or control) your neighbourhood where it’s located.
Harold, I could go on and on about the things you may want to consider before buying any property, but the key point is to always do your research and due diligence before you buy. Based on the numbers alone, this particular property sounds good. But, it’s important to remember it’s not all about the numbers! Check out this article: 5 Ways to Know You’ve Found a Great Investment Property.
Thanks for stopping by Harold and good luck with your real estate investing!
p.s. Harold, and everyone else, we invite you to join our 12 Months to $1 Million club where you’ll receive unlimited email coaching, group coaching calls, additional reports and resources and special members only teleseminars. Your first 60 days are free …
We’d love to have you join us!
Congratulations to Harold of St. John’s, Newfoundland who is the winner of September’s Question of the Month. As a thank you for his question, we will be sending Harold a Rev N You with Real Estate T-Shirt.
To be entered to win a T-Shirt in October all you need to do is send us any email with a comment or your biggest real estate investing question. Not only do we promise to respond … you just might win a T-Shirt!