Create a budget before you buy: To have the immediate “profit on your investment”, you must be willing to determine what you want your properties and your business to earn. So that starts with a budget. That is why I always recommend buying property that is already producing income.
Types or sizes to buy: My successes and those of my clients who have 7-Figure Real Estate portfolios have been with multi-Unit properties; 4 Units and above. I know there is a market and a business reason to buy 2 and 3-flat properties as well. They are a great business model, but what I recommend is 4 units or higher. The primary reasons are occupancy rate, leverage, and property management. The data shows that the larger the building the better income you generate, not rocket science.
Here’s the nugget; Lenders like high occupancy in any property but when you have a 4,6 or greater unit property that is 80% occupied, lenders know you are not getting lucky, but you have the acumen to run and manage this business well. Which puts you in a position to get better rates for future loans and leverage to purchase other properties. With more units you have more of a spread to cover your lost revenue from vacancies.
There are a couple of wonderful sources 1st Capital can recommend for finding deals on 4 units and larger properties. Reach out for more details.
Gross and net number:. If you purchase a $500,000 property you will need a 20-25% down payment - $125,000, leaving you with a $375,000 balance, 5% interest on a 20 yr. loan - $750,000 total balance – Your monthly payment is $3,125; insurance, utilities and all the rest is another 25% = $3,906.
$3,906 is what you need to cover to break even. Now, if you have a 4 Unit building, you need to charge at least $976 per month to roughly hit that number. This is a basic way to see what you can do in a building that size.
As I said before, the benefit of purchasing a property already producing income is that you start with income from day one of ownership on the entire property. The lenders love it because they know their investment has promise and sustainability. I know financial entry to a 2 or 3 flat might be easier and that model can work wonders too, so contact me and I will provide you with models for both so they can be part of your financial lifestyle plan. See you in July!
Contact: 312-952-8040/Cell * 312-836-3800/Direct Line * [email protected] * www.1stcig.com!