A couple of posts ago, I walked you through the different websites, the tools that you can leverage to do the proper due diligence and learn about areas that you think might be a good place for you to invest in real estate and find the best places to buy rental property.
We’re going to go with our finances. You need to figure out how much you need and how much you have available, so you can start planning how much you can even afford.
We’re going to reverse engineer this, assuming you have $20,000 saved. Let’s play around with a number. I have $105,000. You can either put 5% down or 20% down, or even 20% down. Just take a look at it so that you can get an idea. For this exercise, we’re going to go with 5% down. For an investment of $105,000, you’re going to need at least $5,250 for a downpayment. Mind you, and closing costs will probably be about the same. It’s somewhere between 3% to 5%.
For those who don’t know what closing cost is, it’s everything. All the fees that you have to pay at the end on closing day for services. That includes the attorneys that are helping you in the transaction, for those who live in a state that requires an attorney. All the appraisal fees, all the legal recording fees, property taxes even at some point. Typically, in a nutshell, it’s about 5% as well. With 5% as a down payment plus another 5% for a closing cost, we’re looking at $10,500. You’re going to need somewhere around $10,500 for a deal to happen.
Looking for places: Zillow
Now that we know how much we can afford let’s play around with the numbers. We can afford a house for $105,000. We’re going to go ahead and look into-first, in Google Maps, because we have to pick on an area where we can invest. For this exercise, I’m not going to tell you this is what you should go ahead and invest, but let’s say I want to play with Buffalo, New York. Because let’s say I’m interested in investing in some type of property next to the University of Buffalo because I want to rent it out to the students and stuff like that. By that, I’m not saying you should. You still have to consider doing your due diligence and see if the investment will make sense for you.
For this exercise, we’re going to go ahead and do some research around the Buffalo area. We have this area near the University of Buffalo. We’re going to go ahead and start zooming in to get an idea of what the zip codes are. We’re looking at zip codes. Nearby, you can see that various towns surround the school. We have Allenton, Lakeview, Columbus, Buffalo, Willert Park, etcetera.
I’m going to go ahead and click on the University of Buffalo Downtown campus, and that will give me the zip code that I need to start doing my search. I’m going to go ahead and go into Zillow, and I’m going to type 14203. and then I’m going to search. After that, then I’m just going to sum it up. The houses, as you can see, they’re somewhat affordable. You have anything from $80,000 to $50,000 even up to $150,000. That’ll be completely up to you. We’re going to search, at any price. A minimum is $0, but we have said that the most we can afford are 105.
Let’s play around with numbers. Typically, I like to be conservative, and I usually bring it to $100,000. Sometimes you encounter surprises. I want to have a little bit of a buffer but so that you can get a sense of how much you can afford $105,000 if you were to invest in New York State. That is the housing just that we have on the list. You have an apartment for sale. You have a whole place for $79,000.
I typically do like to see how close it is to the University of Buffalo or Downtown. Just copy paste and start getting directions to get an idea of how far it is. It’s about 13 miles away. Given my daily commute of one and a half hours to my job. I will take 11 minutes anytime. It’s relatively close, and it’s nearby. Let’s start our research with this house. You take a look at this number, and it looks fairly decent. It seems like it’s in good shape. Now, we’re going to go ahead and consider what the areas are.
I’m not sure if I mentioned that before, but you always want to reach out to the listing agent directly. Not so much with all of the other agents that are more like a backup. That is the person who’s going to get the full commission. Do you want to start working out with the person who is 100% familiar with the property? Why are they selling? This person has already interacted with the past owners and knows the houses’ ins and outs.
It’s going to make your transaction and your interaction a lot easier. As if you were dealing with all of these other agents. Not that I have anything against them, but they’re like the middleman. If you reach out, let’s say, to Robert, Anesha, chances are any of these three people will have to reach out to Christian, and then Christian’s going to have to tell them what he knows. The whole funnel takes time. I like to go straight to the source and make it easier. You have a single-family, which means you’re going to rent it out to many families or maybe to a group of roommates.
Let’s say you have a couple of friends or pretty cool, and they have no problem living together, and you have three bedrooms. You can easily rent them out to three students. Granted, you have to check the rules around renting in the area. If you have a house that they’re not allowing any more than two unrelated people to live in on the same roof, then you have to consider those limitations as well.
This is an estimate that they have. The history, how much it has appreciated over time. Somebody bought it around up for $30,000. It has enjoyed more than double. We don’t know what happened in between. Maybe this person bought it at $30,000, and they flipped it, and that’s how they were able to sell it for $60,000. I do pay attention to things like that. What’s going on with this house? What is it that this person sold it in 2017 and now in 2019 is listing it for sale? Is it because the person has an exit strategy? Maybe they want to use the money from this house elsewhere?
Maybe they just got tired of being a landlord. What’s the story behind it? Is there an issue? Are they encountering a lot of loss that they cannot comply with, and therefore they think it’s not worth the headache and want to move out? Those are the questions you will have to ask the realtor. Here, they give you a bit of a mortgage calculator. It’s similar to what I said. Suppose you have $79,000 for an asking price. Assuming you decide to give them a full-price and 20% down, this is how much you’re going to need for the down payment.
As I mentioned, for this exercise, we’re going to do 5% down. Assuming you’re doing a traditional mortgage, 30-year fixed. That will be your monthly payment. You have $370 principal and interest. That is how much you will pay for property taxes, insurance, and the lender usually escrows it. You also have to pay for PMI. PMI is an insurance that you have to pay whenever you are giving less than the 20% down. Let’s say, for example, if you have all the 20% down. This number is going to go away. Do you see it?
The reason why they charge that is that now this is to cover the insurance for the value of the entire house, but if you default and you stop paying, and the lender still wants to get a hold of the remaining 15% that you didn’t put it in in the first place. They have to cover that one in the additional insurance. Again, let’s go back to five. PMI is $48.623, which means that’s the minimum that you should be getting for rent.
Rentometer.com
The next question is we want to know how much we can rent this house because you need to make sure that your mortgage covers at least $623. We’re going to go to a place like, let’s say, rentometer.com. You’re going to put in the zip code or the address. I want to do a copy-paste, and I’m just going to search for three bedrooms, how much is it renting? Three bedrooms and I want to rent it for $800. Even renting it for $800, it’s telling you that the area’s average rent is about 900. It’s a lot, 100% more than what I can do. If you come to think about it, you’re going to end up cash flowing, assuming there are no additional expenses.
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If your mortgage is $623, you can rent this property out for $900 minus $623. You’re cash flowing $277 a month at the end of everything. That’s assuming you don’t cover any utilities. In a place like New York, you have to consider heat, water. How much is it going to cost you monthly? Are a hundred Dollars to cover that enough? Is it going to cost me $200? You have to factor in those expenses. I just wanted to start giving you an idea of the type of utilities or costs you need to consider other than only the mortgage itself.
Now that we have that, you know that you can charge up to $900. Suppose you don’t want to use a tool like rentometer because it’s a paid tool. What I like about rentometer is that it is a one-stop-shop. You punch in the numbers, and it gives it to you right away, but I assume that not all of us have the money to pay for memberships. As little as it sounds, sometimes, when you’re getting started with a business, you have to maximize every little penny you have.
If that’s the case, don’t worry, and you can use Zillow again as a way to calculate how much you can rent the property for, but it’s a little bit more manual. How much rent will this go for in this area, and I want to rent this? I’m going to hit ‘rental listing,’ and I’m going to University of Buffalo. You know that nearby the University of Buffalo. It is as much as you’re going to get for rent. It is also another tool that will give you the ranges you can charge for rent, but you can also see what the property entails.
It is a lovely fictive house, that’s renting for $900. If you compare that with this house and look at the carpeting, some of the stuff will need to go away. You’re going to have to fix this house a little bit before you can even demand $900. You can’t compare a house in this condition versus a place in this one. Those are some of the things that you have to keep in mind.
You don’t have to charge $900. You could probably bring it down to like $850. Let’s say how much. Well, see $875. They’re renting this for $875, but this is an apartment. It’s still fairly decent, so it’s not so bad. The range can go somewhere between $875 to $900, so here you go. You can use rentometer or Zillow. It will still give you somewhat an approximate of what you can rent it for you.
The good thing about using Zillow is that it gives you pictures of the houses, so that way, you can compare the one you have or plan to buy versus what’s available in the market, your competitors. Analyze the perks they’re offering and how I can get them so that my rental is just as competitive as theirs.
Niche.com
All right, this is about the house. Let me see what else. I do consider crimes and things that happen around the area. I talked about a tool that’s called niche.com. We’re going to come in and do niche.com, and I’m going to enter the ZIP code 14213. Overall niche grade is B+, that’s pretty good. Not a bad neighborhood to invest in.
This is the full card. Outstanding in terms of diversity and nightlife. That means it tells you that it’s going to be a pretty hip neighborhood for millennials to hang out, and it makes sense because you’re nearby the University of Buffalo. It would be best if you had the area surrounding it to be like that, in terms of jobs, C+. There’s not a lot of jobs around there. You have to consider that in terms of your rentals. It’s not necessarily a bad thing because this is a college student town. You have to consider that. Most of them are receiving some stipend from the parents or have student loans that can afford or help them afford just some of the area’s housing costs.
It is suitable for families, which means many people tend to buy it, but it’s still a B+. I wouldn’t be so thrown out by those numbers, great for outdoor activities. A lot is going on around this area. Public schools typically talk about elementary and high schools, so you have to consider that in mind. In terms of housing, the quality is not so good. Then you go down, and you take a look at the population. This is the medium home value, $89,700. They’re asking for $79,000, so it’s a little below what they’re asking for.
Then here, you can see the feel. You have 65% of people that prefer to rent versus to own. Although again, you have to keep in mind about throwing this number off, this is not a typical neighborhood. Buffalo, it’s a college town. You have to keep in mind that most of the people renting around the area are college students. That’s why this number is so far up compared to maybe other towns that you will see.
Every time you see such a significant discrepancy, you have to ask, “What’s causing it?’ Is it because of the availability of jobs, or is it because the area is too expensive for homeowners to even afford their place, or is it like, in this case, a college student town. Then here’s the medium rent. It tells you an approximate, as you can see, it’s a little off compared to what you are getting here in rentometer. However, you have to keep in mind that the data on this page, I think, is about a two-year lack. Just bear that in mind as well.
Here’s a listing of all the available homes for sale, and I’m pulling that from realtor.com, and here’s the ranking. It’s considered number 31 out of 667 cities as the most diverse, the best zip codes to live, number 393 of 670. I’ll say somewhere in the middle. You get just a bit. In terms of residence, this is how much they make yearly. It is a medium salary. Then the educational level of some of the students.
The lower the educational level you’ll see in a town, it’s more of a working-class neighborhood than anything that’s going up here with someone with a bachelor’s degree or master’s. When you see this level of education, you are probably thinking about a city like Downtown Seattle or Amazon or Silicon Valley. That will play a role in terms of the type of housing that you can rent out or buy or invest in.
So can I afford to buy in this neighborhood? If that’s the case, you might consider flipping, but if it’s somewhat more of a rental, you might want to hold the properties there and start renting them out to create cash flowing. You see the schools. It gives you a range of stats that typically you wouldn’t know unless you travel down there, which is why I say technology has made our lives a lot easier. Put it to fair use. We looked at safety. What’s going on with security around the area?
Spotcrime.com
Let’s see if there’s a tact here that speaks to that. Not, but that’s fine. Fear not. Let’s go to another website called SpotCrime. You can type in the zip code. It gives you a sense of the type of crimes that are happening. There’s been a lot of assault in the area, burglary, robbery, theft.
It looks a little overwhelming, but you have to keep on coming closer and closer to the map to see how far or how close these events happened. As you can see, it’s just within proximity. There’s been some theft and burglary around the area. That tells you a little bit about what type of neighborhood this is, and you have to look at the date. If this is something that happened two, three years ago, maybe I’ll be like, “Maybe this is not entirely accurate. Maybe it was what happened back then.” As you scroll down, you see this is relatively reasoned what has happened. I believe you can click on each of them to see what the report is.
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Buffalo Police are investigating this report. Again, it tells you a lot about a neighborhood. Given this, then that’s when you decide. “Do I want to invest in it, or do I just want to drive out there and take a look at it or fly.” That will be up to you. I have never flown to any of the areas that I invested in because I did this type of research, and I just got a gist of what I was investing in.
If you think about the logistics, if you’re investing in a working-class neighborhood, you’d expect it to be somewhat safe, but you can expect it to be top of the line and have the best of the best of our urban area. There’s just a type of rental that you’re investing. If you want to flip houses and buy very nice homes at a low cost and then flip them around and sell them at a high value, you might want to consider these statistics. I don’t want these events to be happening around the area, because I want people to buy my house. I’ll leave it entirely up to you. That will be all your judgment.
Datausa.io
There was another website that I wanted to show you. That one is datausa.io. Same thing. You can search for the zip code, and it will give you information about the area as well. It is done more on a high level, and it doesn’t specify that one particular area like niche does. What I will do is just type Buffalo, New York. It tells you the stats about the entire state. You might want to consider what’s relevant and what’s not. You have an about, this is the town, where it’s located, health and safety, this is the economy, the median household these are the wages.
You have to consider all of this. What is 30,000 mean? Is that the norm here at Buffalo, or is it super low? There are chances that you won’t be able to rent anything. What does the population tell, how many of them are male and female? Why is this important? Think about single moms. If you have single moms that you want to rent it out and have kids, this is a significant discrepancy. You’re going to have to ask yourself questions like, will they be able to afford my rental, or will they even buy one of my flips if you decide to go down there and start flipping?
The type of race or the city that lives in the area is dominated by whites, followed by Asians and then two more races. The wage distribution from New York. What’s the income inequality like and then by location. I’m guessing the darker the number, the more you gain. It is beneficial because it will give you a sense of these areas that are well off or making more money. Therefore, maybe they will be able to afford better housing, I don’t know that. That’s to give you a gist of how you can leverage these tools and the stats to make an informed decision. Again, keep in mind that this is a few years lagged.
The last piece of information that we have here was from two, 2016. If you don’t know how to make out of it, just comfortable. Just look at the news, Buffalo, New York. You start reading some of the local newspapers. You have buffalonews.com, and you begin studying the area, what’s going on, what’s happening in there. A lot of research goes into it. When it comes to investing in real estate, you have to make sure you do the diligence. The numbers have to make sense, but at the same time, you also have to look at the area, what’s affecting the rental market, what’s affecting the purchasing market. If I have a house, can I profit from it if I invest in a place here?
Numbers play a significant role in it, but it’s not just about the numbers. You also have to understand the stats around the area and what’s going on in there. That way, you can make a fully comprehensive, holistic decision. Be well aware that, “I’ve done the research, I’ve done numbers. It makes sense for me to go in and invest in this area. This is what I’m going to have to do. There is still not a guarantee so that you know. All we have left is a word making an informed decision. It’s like when you’re investing in the stock market. You make an informed decision. You don’t know if overnight tomorrow the stock market’s going to crash. It’s the same thing here.
You have poverty by age. It’s mainly between the ages of 25 and 35, predominantly black of African-America, followed by white and then Hispanic or Latino. Here’s what you find mostly the case, the occupations that can make up this area. As we can see, occupation, we have a breakdown of the stats. Most of them are within the administrative and sales area. It tells you here’s the total number of employees that they typically focus on. It’s just beneficial to study the availability. For example, what do I do with this data?
If you think about it, what’s administrative? Secretaries, people who do clerical work. Maybe you might want to market it to courthouse clerks or perhaps even the university staff who handles all of the students’ processing, applications, and stuff like that and in sales. There’s a significant retail market, as I can see. Maybe small business owners or someone who works within the vicinity, maybe waiters and waitresses and stuff like that.
It is just how to get a sense of the population you want to target your rentals or your investments team. Here are the most common total types of specialized jobs. You get the gist. It is a fully comprehensive website. Let’s jump into housing and living because I don’t want to bore you with all of the stuff. You can do this on your own time, and this is to show you.
Housing a living, here’s the income medium, the number of households, the property value, this is the average. Taxes. How much you have to pay your taxes. Although, that doesn’t factor in the number that I calculated here with Zillow. It includes that as well. How many of them decide to run versus technology? Transportation. You will need a car. Having your investment if you’re planning to rent a nearby bus station, that’s probably going to be helpful. If you want to flip it and in a more affluent neighborhood then, I don’t think that matters as long as you make sure you provide them with some driveway.
Commute time. How close it is to where the people’s shop. The closer to people’s shop, the better you can work at it, the more money you can actually ask for it and so on. You’re going to go into the lending part. Once you’ve done all of this because I don’t want to make this video longer than it already is, next thing we’re going to talk about rentals. If you have a lender to work with, great, go ahead and reach out to them and see if they can help you with the financing on a property in Buffalo.
Assuming you like the stats, you’re going to go. That will be entirely up to you. For those who don’t have a lender, we’re going to go to a website called scotsmanguide.com, and we’re going to go to Residential Loans, and we’re going to go ahead and find a lender. We’re just going to look for–. We’re just going to go ahead and search for one. We’re going to go to New York State, given that this property is located in New York. What type of product? I’m just going to go ahead and do a quick search. I don’t want to start filling all this up.
For this, as we talked about putting down 5%, we’re going to focus on FHA. We have FHA/VAs or FHA 203 rehab program. The difference between the two is that the FHA 203 will allow you to borrow money to purchase a home, and also, they’ll lend you money to do a rehab of the house at the same time. Let’s say, if you decide to buy a fixer-upper, that means you’re going to eventually need money to fix whatever is it that you need to improve in the house. We’re going to focus on numbers five and six. We’re going to focus on anything that has five and six.
There you go, you have Guaranteed Rate Inc. Here’s the contact information of the person that you will need to reach out to. They lend nationwide, so no restrictions in New York. Then, you have John Cervantes for Carrington Mortgage Services. Same thing, five and six, so it’s covered. It’s a huge list, it’s a great tool that you can go in and manage, and you have plenty of people to reach out to. If one doesn’t work out, reach out to the next one.
RESOURCES & LINKS MENTIONED IN THIS EPISODE:
– Zillow: https://www.zillow.com/
– Niche: https://www.niche.com/
– DataUSA: https://www.datausa.io/
– Rentometer: http://bit.ly/novariserentometer
– Scotsmanguide: https://www.scotsmanguide.com/
– SpotCrime: https://spotcrime.com/
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