Investment property

Let me give you a quick rule of thumb that you can use when you are investing in real estate for your next rental property. This process will only take you 5 seconds to analyze your next rental property deal and will save you massive amounts of time finding your next investment property.

Analyze your next rental property deal in only 5 seconds

The question you need to ask yourself is, “Will the property that you are buying be able to rent for .01% per month of the total purchase price+rehab?” If the property will rent for 1% per month of the purchase price+rehab, then this property is worth looking further into and run your numbers.

With the current interest rates, (4% for a 30 year note) you will more than likely make money and find investment properties that you can invest in. As the interest rates rise, you will need to be more diligent in making sure your numbers work and you still make money by adjusting your offer price.

Investment Property Rule of Thumb

Monthly Rent ≥ Purchase Price+rehab x 01%
$1,200 ≥ $110,000+10,000 x 01%

To apply this rule of thumb, you can use my how-to video that shows you how to use Zillow.com to find a property to invest in and my investment property calculator to analyze the property. For example, if you can buy a house for $180,000, and rent the property out for $1800 a month then you are in a good area to start looking for deals.

Now in a place like Phoenix Arizona where I had been looking, I found that a property that sells for $180,000 house would only rent for $1200. As an investor, I would lose my shirt if I bought the property.

Zillow.comHere are the numbers:
Purchase price: $180,000
Monthly Rent: $1200

Monthly Expenses = $1481
5% – 30 year mortgage payment: $966
Insurance: $85
Property Manager: $180
Property Taxes: $250

Total Income: $1200
Total Expenses: $1481
Total Net Income (loss): -$281

 

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Houston ZillowYou can easily see that you would lose $281 each month if you bought this property because of the interest rate and expenses.

Now imagine if you could rent that same property for $1800 a month. That would be 600 more dollars each month in income and turn your total net income into a positive cash flow rather than a negative one.

Total Income: $1800
Total Expenses: $1481
Total Net Income (gain): $319

If you could rent the property for $1800 a month you would make $319 each month in positive cash flow.

 

Personally, when I am investing in real estate, I run the numbers for potential properties and I only look for properties that I can make a $300 profit each month in cash flow. If I am not able to make a minimum of $200 a month on an investment property I will not buy it. Anything below $200 is too small of a profit to handle vacancies, repairs, and expenses that come with the property.

If the property is vacant for one month, you still have your expenses that you have to pay but you have no income. If you make $200 a month, that is $2400 a year increase in your personal income.

When you are looking for a new area to invest in, use the Investment Property Rule of Thumb for finding a good deal.  Once you found a property you want to analyze further, you can use my investing property calculator to see if the property will be a good deal or not.

You can also watch this video that shows you how to use the investment property calculator and find a great deal on an investment property.

 

Let me know how you find a good deal on an investment property in your area.  Comment below!

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5 Seconds to Analyze Your Next Real Estate Deal and Finding an Investment Property
  • Dustin Heiner

    What do you guys use for a method to find a property to invest in? I’d love to hear it. Let me know!

  • Is there a quick way that you analyze your buy and hold deals that help you shave hours off your research for finding a new investment property? Let us know.