Today we are continuing our journey with the fourth step in how to buy your first single family home rental property? This step is all about finding properties that make financial sense. In other words, how to know if a property is going to be a good deal in both price and rents.
If you haven't watched Part 1 yet with the first three steps click here. If you already have, watch the video below for step 4:
If you want to learn more about real estate investing with me, click the button below for a quick webinar where I explain more about how all this works:
So the next step we're gonna talk about here is actually finding properties.
How do you go out there? How do you find these properties? How do you find these deals? We've already talked a lot about what properties you should be going after.
We've talked about their criterias, the schools, and all those types of things. This is how do I actually go find the property? And there are two ways to find these properties. And, I'm gonna talk about both of them.
One is what's called off market properties.
The second one is called on market. And you're gonna say, well, what's on, what's on off market?
On market properties is stuff that's listed on the MLS.
That's actually for sale.
Off market properties of stuff that's not listed on the MLS. Now There's some advantages and disadvantages to both, and I wanna talk about that. Normally, if you're doing like a fix and flip or something like that, you're going to have to go after off market properties because if it's already on the market, you're getting more competition. They're getting a higher price rather than going on an off market.
Where you can typically negotiate a better deal or find a house in worse condition. But when we're dealing with rental properties, remember rental properties are gonna go up over time, and what I find is a lot of people delay buying rental properties because they're looking for an amazing deal. And you don't have to find an amazing deal for rental properties. It becomes an amazing deal over ten years or twenty years.
That's really what happens. And so I've bought a lot of rental properties off the MLS.
I use a strategy called MLS sniper.
And that's how I actually find those properties and use those properties. So if you're, if you've got a day job and a family and all that type of stuff, and you're trying to get cash flow and build cash flow for the future, I recommend you use the MLS sniper and go after properties are currently listed.
If you have the time and you have the money and you have some resources where you can go after off market properties, you're gonna find even better deals. But it's gonna take you longer to find those. And so you've gotta weigh that out. So we're gonna talk about both of these.
Okay? So off market properties are properties that are not listed. And so we're looking for two things. We're looking for motivation.
And we're looking for equity. Okay. If somebody has motivation, but they don't have any equity, I can't really help them unless I do a short sale, which means I get the bank to take less than what's owed and go through that process.
So but there's not really a lot I can do. I need equity and I need motivation. And so you're gonna say, well, how do I find people with equity and motivation? Let's jump over to Investors Ed. So let's talk first with motivation. Again, this is for off market properties.
So if a property is vacant, meaning nobody's living in the property, that's gonna be motivation because somebody's paying taxes, somebody's paying a mortgage, somebody's taking care of the property.
If it's in pre foreclosure, which means it hasn't gone to a foreclosure sale yet, but they've got a notice of default or list pendants on the property. So let's just use one.
Let's just use Let's just use bankruptcy because the number was small and that'll give us an idea but we wanna make sure that with the bankruptcies, we wanna make sure that there's actually some some equity in this. So just single family houses. This is what I'm gonna look for here. And then estimated equity.
I wanna make sure they've got at least seventy five percent equity based upon what the computer says. Okay. So I've got forty four properties of that two hundred that we estimate have seventy five percent or greater equity that's actually going through a bankruptcy. So this is a more targeted list that I can then go after to try and find these off market properties.
So now I know who I want to go after, and I can do this for every category we just talked about. Now I need to get in contact with these people, and there's a couple of ways to do that.
I can save this search or save this list or add this to a list. And, we'll just create a new name. We'll just call this rental, motivated, equity, or, actually, let's start with video. I do so many demo stuff on this account that it's sometimes hard to find the records that I'm looking for.
Okay. So now the idea is we wanna do a campaign. So with a campaign, we can do a postcard or we can do an email. If we wanna make phone calls to them, we have to skip trace. And to skip trace, we pay for skip tracing. Third party service does that, and the skip tracing is going to give us their email address, their phone numbers, all that type of stuff. So this is a good example.
Here's their names, here's their mobile phone numbers, their land phone numbers, their email addresses, and so that I can call or text them.
Or what I can do is send an email to them. If I wanna email them, I wanna send a postcard, if I wanna send a postcard, I don't need to skip trace because we know where to send the postcard, and that's the same place where their tax records are being sent to. If I wanna email, I do need to skip trace. And if I wanna call or text message them, I'm gonna need to skip trace as well.
So those are my options there. We've got pre made templates that are already defined. I like the four by sixes, and sort of the predefined. And then there's just different templates that we've got made here for you.
You can just come in, you can plug in your information, you can hit a button, and it will send it and then off it goes, you don't have to print, you don't have to do anything.
You can also do this from your phone while you're sitting in front of a property. You can hit the button and set a postcard out. Or you can do a skip trace from your phone and call the person right there from our mobile app. This is a phenomenal way to do this.
So that's gonna send those out. If you wanna do the email, you're gonna do the same campaign thing. You're gonna tie it to that. And then you'll be able to send an email or you can just make phone calls.
Now I'll tell you that this is a lot of work. You're gonna have to go through a lot of people to find the right one. It's gonna take time It's easy to get discouraged. You gotta plan on plan on those things.
So, let's say you're in the other boat which is where I was when I started buying rental properties.
I was working full time. I was working as a real estate agent full time, for myself, but that was my day job. And so I wanted to find properties, but I didn't have the the time or the money to go after the off market properties. And so what I said is, hey, I'm just gonna find really good deals on the MLS.
So what I did is I determined my areas like we talked about And then I looked at making multiple offers. So I made offers on lots of properties. I kept a really good eye on the market, and every single week I was making some offers on properties that are currently listed on the MLS. So the first thing that you've got to know when we're talking about MLS sniper is that we're going after properties that are on the market.
We'll be making an offer through an agent. We can hire an agent or we can go directly to the seller's agent and ask that they discount, three percent or two and a half percent, which is typically the buyer's agent commission. One of the things that I like to do is if you're going to that agent, typically with agents, let's let's actually, let's wipe port this out.
Typically, when a seller hires an agent, they hire a seller's agent, they're gonna pay that seller's agent six percent is kind of been the standard. Right? They pay six percent. Sometimes that's discounted to five or whatever the case is.
Sometimes it's flat fee, but kinda industry is around that six percent. Okay. Typically, what happens is when they list it on the MLS, they say, Hey, buyer's agent. If you bring a buyer, I'll pay you three percent.
And I'll keep three percent. So if you go to this agent rather than bringing in your own buyer, so buyer's agent's gonna get paid by the seller. And so you could hire a buyer's agent that's gonna go make all these offers and negotiate. And that might be the right thing for you depending upon your personal circumstance.
If you're super busy with kids and work and everything else, find somebody that's hungry that is willing to make fifty offers for you this year or maybe more. And knows that you're gonna be buying properties every single year and have them make offers for you and look at stuff every single day and do that. That's more than worth the three they're gonna get paid from the seller's agent won't cost you anything. Great.
If you're trying to save some money and wanna save the three percent and put that time, you could go directly to the agent and say, Hey, I'll tell you what. You're getting three percent, buyer's agent typically gets three percent. Why don't I give you four percent? And you give me a two percent discount on the price from the seller and only charge the seller four percent.
I get a discount. You make a little bit more, and we're all friends However, that is gonna take more effort on your part in making those offers contacting the agents, where a buyer's agent could do that for you. And not cost you anything. So you've gotta look at that.
Lots of times people are trying to save a penny.
So they're walking over a dollar to pick up a dime type of an idea. And so you've gotta be careful with this because in the long run, this house value historically is gonna go up about every ten years. It's gonna double. Twenty years for sure.
We're seeing that double if things happen like they have in the last fifty years. So when we look at that, We don't want to get too caught up on these things because really it's about staying power. It's about getting something tying it up and staying with that for a long period of time, that's where things go really well. Along with that, it's probably worth mentioning interest rates.
You know, interest rates right now are about six and a half percent. I've seen interest rates in my day as low as two and a half percent. I've seen them as high as probably ten percent. Okay.
So right now rates are at six and a half percent. When you buy that property at six and a half percent, Let's say that was today, you hold on to that and then at some point you refinance to the lowest rate. That may take five years, ten years, twenty years, I don't know when it will, and then you keep that rate long term. And the difference between this is cash flow, additional cash flow that you're gonna get because you're paying less on interest rate.
So if you're holding for the long term, you're you're gonna get that lower rate. So, that's a conversation how to find the best rates and that type of stuff stuff we can help you with as well. But that is a side note. Okay.
So if we're doing this MLS sniper, let's clear all these filters.
We wanna go analyst listing is for sale.
We could say we want stuff that's been on the market forever, or we can simply say, we want stuff that we think is below market value. Okay? So we think they're asking prices below market value. That doesn't mean it's gonna make a good rental for us, but it's a good start.
Let me come here.
And let's just say estimated loan balance is forty two thousand. Let's just take this one. K. Random, just pulling this out. Okay. So here with the monthly rent is eighteen fifty.
I'm just gonna discount it to seventeen hundred or seventeen fifty. Let's just use seventeen hundred just to be just to be safe.
We're gonna come up here and say tax information.
Tax information is sixteen eighty two.
So that meets our thing sixteen eighty two a year and sixteen eighty two divided by sixteen eighty divided by twelve. Our property taxes are gonna be about one hundred and forty dollars a month. K? And then we've got repairs.
We've got cap improvements, capital improvements, five percent each.
And that's gonna come to a hundred and seventy. We've got insurance, which is gonna be about forty bucks.
And let's just do the numbers. So we've got seventeen hundred minus one forty minus one seventy minus forty. That puts us at one thousand three hundred and fifty dollars is how much we have to pay.
Okay. So now we come here and we say, okay, it's on the market, property details, Let's come over here to the listing. They have this property listed for one hundred and fifty five thousand dollars.
K. So one hundred and fifty five thousand dollars With ten thousand dollars down, you might have to put more. You know, it all depends on the financing, and we're here to help you with that. So at six percent, that would put your mortgage payment hundred and fifty five thousand your mortgage payment would be eight hundred and sixty nine dollars. Okay.
So we subtract that. Thirteen fifty minus eight sixty nine equals four hundred and eighty one dollars.
So if you paid these guys one hundred and fifty five thousand, which is they're asking price for the property pending that everything's right on the taxes, the insurance, and the rent that you're going to get. Pending all of that, you'd be making four eighty one dollars a month. Wants to go do that deal?
Okay. Right. Okay. So they've got it for sale. It's been on market for twenty days.
One hundred and fifty five thousand is asking, here's the cool thing. Let's go through this property. Does this property need work? Is it in bad shape?
What are we dealing with here? Well, maybe we've gotta do some updates Maybe it's not in the best condition. Yeah. It looks like it's a little bit update, out of date, you know, that type of stuff.
So Maybe I'm gonna have to go spend some more money on this property so that I could get the full seventeen hundred dollars. Okay. Well, let's say that I negotiate a little bit and say, Hey, I'm not gonna pay one fifty five. I'm gonna pay one forty five.
And then I'm gonna go get a hard money loan, and I'm gonna spend thirty thousand dollars into that and with fees and everything else. Maybe I'm into a hundred and eighty five thousand.
But what I'm gonna do is I'm gonna do a bird deal. Okay? So let's just put this a hundred eighty five thousand.
The one hundred and eighty five thousand that puts a payment at ten forty nine. So let's talk about how we make this a bird deal. And the idea with burr is to come out of pocket with little to no money. Okay. Little to no money. Let's say you're able to buy that property at a hundred and forty five thousand dollars.
Let's say the lender can get you a hundred and forty five thousand plus a thirty for the rep rehab on your hard money loan. That's gotta there's gotta be equity there in the after repaired value, but let's say that can happen.
Then you're into it. Let's just call that hundred and eighty five thousand dollars. If you were able to get into that with little to no money down, you can do what's called a rate and term refinance.
Now we already talked about DSCR and on DSER, you're probably gonna be about a one to two ratio, meaning that your that the payment can't be more than one point two of what the rent comes in. So if our payment on this is a thousand dollars. Let's see.
They want us to make sure we're collecting at least twelve hundred so we can cover that thousand dollar payment. So that's the one point two on the DSCR. Hundred and eighty five thousand. Great. We do a rate in term refinance, and then they refinance and pay off the hard money lender.
And as long as there's enough equity in the property, say twenty percent, meaning this property needs to be worth twenty percent more. So if we take one eighty five, divided by point eight zero is two hundred and thirty one thousand. So if this property is worth two hundred and thirty one thousand dollars at we get done with that thirty thousand dollars worth of work, then a situation like this would happen. We could get in that deal with little to no money down.
And you don't have to have income qualifications, w twos, tax returns, any of those things. You just can't have collections, judgments, that type of stuff. So If you look at this deal, this is a killer deal, guys. Like this is a deal we wanna be looking at.
We wanna be all over this. We've got all the numbers. We've got the stuff. And guess what?
This is an easy one to buy because all I've gotta do is just call the agent. Okay. So again, I can have my agent call or I can just call you can call up Austin. Say, hey, Austin.
I'm interested in this property.
Like to see it, make an offer, would you reduce your fees? If we do this, if we do that, here's what I'll do, make the offer under contract. Those are future steps we'll be talking about. And gonna be cash flowing four hundred and eighty one.
Now let's say let's say you end up spending the hundred and eighty five. Let's say you're into a hundred and eighty five thousand. Now you're a thousand forty nine is your new payment every single month, and you're getting thirteen fifty. So you're getting about a three hundred dollars cash flow every single month, which would work for the DSCR.
And you've just got yourself into a property with little to no money down.
Now, It does take work to make this happen, but this is the concept, and this is how we go after finding these properties. Okay. We go after finding these properties. We're gonna do the same math, finding them off market versus on market properties.
But the on market properties are just quicker and easy for us to get to, but we're also gonna pay more money. We're gonna do the same math. We're making off road. That's what this is about.
And this is how you actually find those properties. Next thing that we're gonna talk about is making those offers.
If you want to learn more about real estate investing with me, click the button below for a quick webinar where I explain more about how all this works:
COMMENTS