Mastery Course Week 3

Week 3: Learning the best place to invest

Deciding where to start investing or if you need to change where you currently invest is a huge decision. It is also an extremely important decision and one that could make you a lot of money. May investors have not choice but to invest in other markets because they cannot cash flow or do not have the capital to flip in their market. Other investors may be getting some deals, but are struggling to make the money they want to. Some investors may have the perfect set up, but still need to think about what they would do if there market changed or they had to switch locations. No matter what your situation is, you need to explore other markets close to you and far away.

Goals for this module:

  1. Figure out if you are making enough money with your current investing strategy.
  2. Compare your profit numbers you came up with from module 2 to how I figure profit.
  3. Figure out if you are using a risky investing strategy or if you are in a good market.
  4. Explore other markets close to you and far away
  5. Learn where and how to invest in different markets

1. Current profits on your real estate deals.

Over the years and even in this course I have seen countless methods people use to figure profits on flips or rental properties. When I first started buying rentals I did not count enough expenses for maintenance and vacancies. I was guilty of fudging the numbers like most people are.

The first task for this module is to use the 70 percent rule to figure out if you are paying too much for your flips.

Here is an article on how to use the 70 percent rule.

The second task is to calculate your cash flow and cash on cash returns using my calculators.

Cash Flow Calculator

Cash on cash return calculator

If you do not have any flips or rentals then use hypothetical properties in the area you want to invest in. Most of you will have an idea of the numbers for the properties you intend to invest in. At least you should!

2. Improving your numbers

In module two we talked about ways to improve your cash flow and profits. Now that you know how much you are really making are the profits high enough for you? Even if they are satisfactory I think we should all be looking for ways to improve the bottom line. Can you improve things enough in your current market? Or do you need to consider other markets either close to you or out-of-state?

The next task is to write out the pros and cons of investing in a new market. Are you looking to use real estate to make you rich and be able to retire early? If so, it will take sacrifice and getting out of your comfort zone. I am not saying you have to move to a new market, but you need to analyze the decision even if things are going well for you now. Markets change, our family situations change and we need to be prepared.

Once you made your pros and cons list, is there a possibility moving markets would make sense? I know many investors who buy out-of-state rentals and even flips. J Scott, who I am working on a book with, has an entire flipping operation in Atlanta, but lives four states away.

3. How to find a new market

It does not hurt to research new markets. I would always start with markets close to me and markets where I have friends or family. I can also help you with connections in most markets.

The next task is to make a list of areas you may want to invest in. Here is a list I have of great markets with some examples of numbers.

  1. Rockford, Illinois
    1. Properties purchased from $20,000 to $40,000 that produce $1,000 a month plus in rent
  2. Buffalo ,New York
    1. Properties purchased from $40,000 to $60,000 that produce $1,200 plus in rent
  3. Tampa Bay, Orlando, Pensacola, Florida
    1. Properties bought from $60,000 to $100,000 that produce $1,200 plus in rent
  4. New Orleans Suburbs
    1. Proprieties bought from $20,000 to $40,000 that produce $1,200 plus in rent (section 8)
  5. Milwaukee, Wisconsin
    1. Properties bought from $30,000 to $120,000 that produce $800 to $1,500 in rent. Turn-keys are producing $1,000 plus in rent with less than $90,000 purchase prices.
  6. Anywhere in Ohio, Indiana, Missouri and most of the Midwest
    1. Properties bought from $30,000 to $60,000 produce $700 to $1,200 in rent.
  7. Charlotte, North Carolina
    1. Properties Bought from $60,000 to $80,000 produce $1,000 to $1,300 in rent.
  8. Baltimore, Maryland
    1. Properties bought from $40,000 to $60,000 produce $1,000 to $1,5000 in rent.
  9. Anywhere in New Jersey
    1. New Jersey is behind the rest of the country in the housing recovery. Foreclosures are everywhere and many flippers are making a killing. But rentals are tough because the taxes are so high.

Remember great numbers do not always equal great investments. The higher rent to value ratios usually come in the low-end of the purchase spectrum. With low-end properties comes more maintenance and turnover.

Is it smart to buy cheap rental properties?

When you pick a few places that interest you here are great tools to help you analyze the area.

  • Investability.com
    1. This site gives you listings like Zillow does, but it also gives cash flow figures and rental data as well. It is a great tool to give you a birds eye look at different locations. Remember the listings on this site are active in MLS and you canmost likely get a better deal than the houses listed right now.
  • City Data
    1. This site gives you tons of economic data.
    2. Are people moving in or moving out?
    3. What are the major industries?
  • First American Title Company AP
    1. First American Title has an awesome AP that gives you a ton of data on your phone.
    2. Pulls up any location and gives you public records on houses: owner name, loans, recorded docs, etc.
    3. Show comp listings and comp sales.
    4. You have to be approved by First American, but if interested let me know and I should be able to get you access.

If you want to make a ton of money with rentals in a big, popular city like New York, LA or San Fran, it will be very tough. People want to live there and owner occupants drive up prices too high to make money with rentals. The big investors think their money is safer there and they drive up prices on income properties. It is an appreciation play and risky. You will almost always have to go to at least the suburbs if not farther away to find good investments. You may be able to flip, but it will take a ton of capital and be risky as well.

4. What does it take to invest out-of-state?

It is obviously much harder to invest out-of-state than local. The numbers better be much better than where you live or you better be willing to move!

The keys are the same for investing out-of-state as they are close by.

  1. Awesome real estate agent
  2. Awesome contractors
  3. Awesome property management
  4. Awesome lender

You will almost certainly have to spend some time in the area you want to invest in, unless you go with the turn-key option.

How to invest in turn-key rentals.

However, you are not paying me to learn how to buy turn-keys, you want awesome deals. If you want to invest out-of-state let me know the areas you are interested in and I may have some contacts for you.

In fact, if you need help in your own area send me what could help you out the most right now: lender, wholesaler, great real estate agent and I will send you any contacts I have.

Here is another article I wrote on buying out-of-state.

Go to Week 4 >

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