We’re going to talk about where exactly to invest. I get that question a lot every time I talk to people, what do you recommend I get started? Is it local, is it behind your back yard, in another state? You’re actually going to hate me for this but the answer I got for you is I don’t know.
You have to figure out what works best for you because what I consider to be a great investment for me it’s not necessarily a great investment for you. What I can do for you is to walk you through the process of how I got started in selecting the areas that I wanted to invest with or that I was actually able to invest in.
First things first and you know where I’m going with this it all revolves around your finances. Once you have done an assessment and know how much money you have in your account, in your back pocket so to speak, then you’re going to be able to determine how much of a down payment you can put down accounting for closing cost and anything related to that matter. Let’s say for example I have $40,000 safe, right? 20% of 40,000 that will make it a house of approximately 200K.
Given my amount of down payment I know that all I can buy is a maximum of $200,000k. That’s assuming that the 40K is not accounting for closing costs and stuff like that so you– chances are you’re going to have to come up with a little bit more money but for purposes of doing the math and making it easier for calculations we’re going to use 40K. 40K down payment that means you can afford up to $200,000 in a house, and then the next step is to look in what are the areas that I can actually do a search on how much money will I get for rent that’s going to help me cover that mortgage payment?
Based on prior work that I’ve done, on average a house worth about 200K, the monthly mortgage depending on your credit history is going to be somewhat between $1,500 to $1,700. Based on this amount you’re going to start searching in the criteria of different areas where you can actually rent it out for this much money. The next thing you’re going to do, now you know that the mortgage payment it’s going to cost you somewhere between 1,500 to 1,700.
Once you’ve jotted down how much your mortgage payment is going to be, the next step is to actually figure out what areas have rentals that are going to help you cover that much money. We saw that the higher range in that rental or that mortgage payment was 1,700 so you’re going to have to find something that is that least 20% more what you’re recovering.
Why am I accounting for at least 20% more? Because you’re going to have to pay for property management fee, maybe cover some type of utilities depending on the states that you’re in or the type of rental you’re willing to do and things of that matter. Mind you I’m not talking about flippings or anything like that, because what I have in my portfolio are pure long term rentals. The house that I flipped a while back was basically for me to live in so I wouldn’t really consider that some type of real estate investing flipping kind of thing or activity.
1,700, let’s account a maximum 20% that would make it 1,870, just to round it up. Let’s say you need at least 2,200 in rent. What you’re going to do next, you’re going to go to websites like Zillow that’s pretty generic all over the states. You can also use a website that I like a lot that’s called Niche.com. What are the differences between these two? With Zillow, you’re going to see mainly real estate postings for you to purchase and you’re also going to learn about the rental market.
You’re going to learn about the stats in terms of schools, what type of schools living in the area, because if you want to rent single-family homes chances are you’re going to rent it for a family where they have children. If you’re going to rent that apartment chances are they’re going to be rented to people who don’t have any kids or maybe one max.
Again that all depends on the demographics of the area that you’re looking into for example a place like New York City, it’s pretty common to see children live in an apartment but if I were to go down to the suburbs down in Florida, chances are you’re going to see most single-family homes with children as opposed to just a single couple or just one individual living in a single-family house. With niche.com you can actually get an approximate as well of what the rentals are.
They’re more of an estimate, they’re not entirely accurate but it gives you a range that is I’ll say 80% close. Again it’s just to give you an idea of what areas you’re actually looking at and it gives you everything from demographics and by demographics, excuse my writing. By demographics, I’m referring to age, race, type of works, type of employment that is readily available, the crime statistics, schools.
It’s a bit more comprehensive than Zillow but this website, it’s more focused on lifestyle and what you can get out of this specific area or a rental market as opposed to Zillow what it’s basically a hub or a dump of properties available either for sale or for rental. Another website that you can actually check out, and I think this is actually mentioned as part of the Elite training Rentometer. I used to use Rentometer at the very beginning when I did Elite but eventually, I found Niche.com by accident and I just happened to like Niche a lot more.
It’s just a matter of preference, it doesn’t mean this is better than the other and so I will leave that entirely up to you. There’s another website that is called datausa.io. Data USA it’s very similar to niche.com but the difference that Data USA doesn’t give you the rental average of the area but it does tell you the average cost that a house has been sold.
Now one thing about these sites, with Niche and datausa.io is they’re probably about a year or two lag or behind depending on the area. If you’re in a very highly transited area such as New York City, San Francisco, big cities like Miami or Boston, then you’re going to see the data or the information updated on a more frequent basis as opposed to let’s say if you’re in a town like Poughkeepsie or something. Then the chances are the information located there is going to be a lot more outdated.
This is how I got started in terms of finding what the good range of properties are and then once I had this judged down that’s when I decided the market where I wanted to invest in. Either Florida which is where I have my rentals at and Alabama. Now I’m not saying that you need to invest or you have to invest in Florida and Alabama, it’s just based on the numbers this is what worked out best for me.
I would love to invest in New York City but based on my calculations in the mortgage of how much money I could put down, the amount of rent that I was getting was not enough to cover the mortgage payment. I would have had to come up with money out of my pocket to cover that and the whole intent of doing this exercise is to have the properties pay for themselves as opposed to me having to worry about coming up with any additional money on the side to cover not just my expenses but also any of my investments.
That was the first step that I did, and if and only if after all of these numbers make sense and you found a good area then you have two choices. One is to actually leverage Google Earth and you can just type in the area or maybe an address of a property that you’re interested in that you found through Zillow, or any of those websites, or you can just basically take a trip to the area just to check it out yourself.
I personally don’t travel to my rentals because I don’t intend to live there so I figure if my research went well and I spoke to realtors and people who were familiar with the area, and I check out all of the stats in terms of crime and schools, there’s no need for me to go. I think the first investment that I purchased in Florida with an investor, I ended up visiting and that was because I just happened to be visiting Miami.
I didn’t mind driving up an hour to where my property was located but other than that it just– it doesn’t really make any sense. Once you figure out the area where you want to invest in, you need to determine, if this is a local investment then you can go ahead and do these steps that I show you in prior videos, going to local Ria’s, speaking to lenders in your local area and then just manage to build a relationship and learning more about how you actually qualify for loans.
If you happen to pick an area that’s outside of your state where you live in or maybe even within the same state but too far, then I have a nice tip for you.
You can actually go to a website called scotsmanguide.com. If you can’t read my handwriting one, I apologize and two, don’t worry I’m going to include the link down below in the description box so that you can have access to it.
Basically, at Scotsman Guide, it’s going to give you a list of lenders in all 50 states and I didn’t introduce you this website before in one of my earlier videos because I wanted you to get acclimated with speaking in public and reaching out to people and start building that relationship on your own.
Remember real estate, it’s all relationship-based even even if you were to bypass that stuff, and you were to leverage scotsmanguide.com, to call one of the lenders. You will still have to talk to the person over the phone or via email, and eventually wind up meeting them.
You will definitely need to learn how to be eloquent and be able to communicate yourself in a very succinct and professional manner. That’s the reason why I didn’t introduce this before, but if you do, go ahead and take a look at it. In fact, I’m going to show you in the screen in a little bit. Basically what you can do with it, is that you’re going to have access to lender, that not only have license to issue mortgages in one specific state, but they actually have the right or the licenses to practice in multiple states at the same time.
Let’s say, if you live in New York and you want to invest in Massachusetts, that lender might be licensed to issue mortgage in New York and also Massachusetts. That’s a great way to actually find lenders, and it’s not just traditional lenders. You can find hard money lenders right there, you can actually find the traditional lenders. People who are solely specialized in business lending and which I’m sure you know. I [unintelligible 00:11:07] might have talked to you about this but personal and business credit are not the same.
If not, please leave me a comment down below so that way, I can create another video just to cover business credit for you. For the purpose of this module, we’re going to stick to scottsmanguide.com and without further ado, let me show you my screen.
Okay, here we are. We’re going to head and type Scotsmanguide.com and it’s going to be the third link down and voila. For the different type– depending on the types of loan that you’re looking for, you’re going to have residential, and you’re going to have commercial. What I did with Scotsman Guide, I went straight into commercial and then I typed in, lender search. Here’s what you’re going to see. You’re probably wondering, “Well, what if I’m interested in something residential?” Don’t worry, I’m going to walk you through this.
My investment was in Alabama, so, for the sake of doing an exercise, we’re going to do half a million dollar. Don’t worry about anything else, just go ahead and click Search. The reason why I didn’t pre-populate everything else is because I wanted to see everything that was available out there. As you can see, commercial lending results. You have 34 types of different products that are being offered by the lenders out there.
You had anything from a regular purchase, rate, and term finance, a cash-out refinance, acquisition and development, all kinds of loans that you can ever thought about. Acquisition and development, I think that’s for those who want to do land development, although don’t quote me on that. All I know is that all I care was number three. I was looking for anyone who was able to issue a loan in the state of Alabama, and that was also able to do a cash-out refinance for what I was looking for and even do a traditional financing.
If you come in here, they have a gross rate with all 34 lines, and then you’re going to see, yes in each of the boxes. Depending on the company, you’re going to go ahead and see what type of products they actually offer. The first one in line is actually Velocity Mortgage Capital. They’re actually the lenders that I utilize for the acquisition of my 17-unit in Alabama. They’re basically a direct lender and they also tell you what states they invest, or they partner-up with.
They do this nationwide, and with the exception of these states that you see here. If you happen to be in one of these states, let’s say, Nevada and, “Oh, bummer, they don’t loan here.” That’s fine, then just go on to the next lender. The next one is called 5 Arch Funding Corp. They do offer a cash-out refinance, which was like the feature that I was– Not the feature, the product that I was looking for, but then you have all these other products that Velocity didn’t offer back here.
Now, I’m curious. Number 11, non-recourse loans, there you go. They have non-recourse loans. See what 17 over here. 17 is automotive loans. There you go, all kinds and then what’s their minimum and their max their loan-to-value. Basically what this means is that for them to finance your deals, you’re going to have to spend at least 100,000 with them. Let’s say, if you want to purchase a property and your property costs $50,000. They’re not going to finance it for you.
The beauty is that they go for large amount because it is considered a commercial loan. They can finance up to $5 million, $20 million. If you’re a first-time investor, the numbers probably look outrageous for you. You’re trying to figure out, “Wow, I was capped before by a traditional mortgage at 200,000 because as much as I could afford given my salary or my income.” When it comes to commercial loans, they don’t care about your income, they actually care about how much the property can produce.
If your property can produce up to $1 million a year, in rental revenue, whatever is it that you utilize the property for, they will finance up to how much they view the revenue is for. You have the list of all of these lenders and how much it’s required for you to put down. With Velocity, the company that I use, they had a 75 LTV, which means I put down 25%. 5 Arch, they actually have a much more flexible term which is 90 LTV. That means you only have to come up with 10%. You can even find us a property that cost $75,000, a lot more flexible than what Velocity did.
Basically, let’s say for example, if your property cost, let’s say, 500,000, and you have a total of 5 apartments in that complex that you were trying to buy. Then you just make the cut but then if you have, let’s say, 10, then that means each of those units or each of those properties cost 50,000. In that case, Velocity will not fund it for you, because the way they do it is that when they divide it up. That means the individual price of each of your property is not going to meet their criteria, which is a minimum of 100,000 per property.
There you go. That’s basically in a nutshell. You have the contact information of each of the lenders that you see here, and just simply reach out to them, explain to them, “Hey, I have this acquisition that I would like to get, and it’s located in this.” Give them as much information as possible, just so that they know right from the get-go if they can help you or not. If not, again, don’t take it personal. Don’t feel bad. This is a long, long list of lenders as you can see. If one doesn’t work, you have the other and so on.
It’s the same thing. If you’re not interested in commercials, then you can go back and do residential, and then look for a lender search. You just simply come in here and you can go ahead and look at the type of lending that you are looking for. For example, if you are looking for FHA loan, that’s when you need a 5%, then you can go ahead and do this. If you’re looking for branch opportunities, I believe it’s just the bank that you can just go in and just walk into. I’m actually curious to see how this works because I’ve never checked the residential site.
I always go straight to the commercial site due to the number of properties I was trying to finance. You come here and then you hit Alabama, oh, voila, same thing. You have all of these banks that you can leverage, and then they’re going to tell you where they lend nationwide. This is awesome, then, the type of loans that they offer. Minimal annual income, this is how much you need, the contact and then the type of loan is number 5, 12. Wow, this is amazing. I’m actually discovering this for the first time and I’m loving this. This is a lot better.
Luckily for me, for my first couple of deals with single families, the realtors that I was working with, they already had a Power Team. They knew what mortgage lenders to use and they were very, very resourceful. Now, I know that if eventually, I hit a cap with those lenders, then I can actually come here and try to find a lot more. This is a great tool as you can see. That’s not to say or that’s not to eliminate that you will stop going to the local branches nearby you, so, you can practice your speaking skills.
This is something that you will continue to have to grow and improve. Even myself, I need to get rid of some of the [unintelligible 00:18:40] as you can see. This is a great tool if you don’t really know where to start out of state. If you have a house outside of your residential state, let’s say, my case New York and then I want to invest in Alabama or Tennessee. Chances are you’re not going to look at any local branches unless you hop on a plane or your car and just drive over there or fly over there. This will cut you a lot of time, this will help you save a lot of time.
You can learn how to build relationships over the phone. Then, by the time you fly down there, if it’s even necessary because nowadays, you can do everything electronically. In the event that you do go down there, then you already have a rapport, build-up with this person, this mortgage lender. Then, the next deals are going to come in a lot easier. Now, back to the video.
That’s what I have for you today. Hopefully, you find that information valuable.