When purchasing real estate, remember that you are only buying houses for other people to live in, not yourself.
This principal will help us to avoid the pitfalls of default thinking, which would have us believe that bigger investments, or nicer properties, are better, when in fact they usually aren't
IN FACT, Increases in rent don't keep pace with appreciation in value.
In other words, as property values increase, returns diminish
This means that you can make more money off of rent from two $250,000 houses than you can from one $500,000 house
The only thing worth considering when evaluating a potential investment property is how much money your investment will make (=,%) compared to how long it will take to earn it, and how much risk there is that you will loose it.
Develop clarity of exactly what you're looking for as an investor. The more specific you can be while searching for an investment, the more time you will save, which ultimately translates into money made.
Figure out what kind of profit you want to make from an investment
The more specific you can be about what you're looking for, the better chance you'll have of finding it
Create a profile of your ideal investment Ex. 3 or more bedroom, 2 bath, 1850 SF, etc.
Loc. 845 (0-130 properties in 3.5 years)
Use formula's to determine acceptable purchase prices
Ex. Take the probable weekly rent and work backwards from there
Property Inspection Templates
Use templates when inspecting new properties Make sure to find a good one
Possible Resources - 0 - 130 properties (Loc 880) Bigger Pockets Phelps Reality Iphone Aps
Example of Cost/Return Calculations
Purchase Price Solicitor's Costs (Current) Solicitor's Costs (Prior) Bank Cheque fees Rate Adjustment Stamp Duty Fee Titles Office Fee Misc. Transaction Charges Deposit Paid Balance (required to settle) Total
$44000.00 $375.55 $200.00 $18.00 $14.46 $856.00 $204.00 $36.77 $45704.78
Purchaser's Settlement Statement
Purchase Price Deposit (20%) Closing Costs Loan Establishment Initial Cash Needed Loan Principal Type Term Rate Weekly Repayment
$44 000 $8 800 $1 705 $714 $11 219 $35 200 Principal + Interest 25 Years 8.05% $62.82
Rent Per Week Annual Cashflow received Loan Repayment Management Costs Rates Insurance Repairs Budget Total Cashflow Out Annual Net Cashflow / Initial Cash Needed Cash-on-Cash Return
$120 $6 240 $3 267 $840 $690 $200 $200 $5 197 $1 043 $11 219 9.30%
Annual Cashflow Received
Loc. 963 (0 - 130 in 3.5)
Different Variables of Owner Financing
Vendor is willing to accept terms of Owner Financing House to Sell Buyer willing to Purchase at Vendor's Terms (Must be legal in applicable State/Country/District)
Loc 1112 (0 -130 in 3.5)
How the Transaction Benefits the Seller
Primarily used when Buyer cannot acquire financing on his/her own
Seller increases the sales price of the home slightly above what he paid for it Paid $200 000 Sold $220 000 Seller increases the percentage of the loan offered to the buyer to a number SLIGHTLY over original loan percentage Original Loan 6 % OF Loan 7-8 %
Result is a substantial positive cashflow each month
Example of Owner's Financing Calculations
Purchase Price Deposit (20%) Closing Costs Initial Cash Needed Less New Buyer's Deposit Net Cash Needed Bank Loan Interest Rate Loan Term Weekly Repayment
Owner's Purchase Terms
Owner's Selling Terms
$44 000 $8 800 $2 419 $11 219 ($1 000) $10 219 $35 000 6.55 % 15 Years $70.81
Sale's Price Deposit Closing Costs Total Net Cash Needed Vendor's finance Interest Rate Loan Term Weekly Repmt Yr. 1 (higher rate for lack of downpayment) Weekly Repmt Yr. 2-15
$65 000 $1 000 $500 $1 500 $1 500 $64 000 7.55% 1 year / 15 years $234.92$125.19
Example Newspaper Add Offering Owner's Financing
Loc 1098 (0 - 130 in 3.5)
Finally, A Family Home That's Warm, Affordable and Convenient
Relax with the family in this WARM and well-maintained 3Br family home. Enjoy the quiet yet convenient location by walking to shops, schools, bus and parks. Sunny lounge area with gas, heater, tidy kitchen, spacious bathroom (sep. bath and shower) and enormous backyard. Owner can help with finance. Call Steve today on [mobile]
Owner's Financing Refined
Require Higher Down Payments so more of the original purchase costs are recouped Advertise for Clients in advance and empower them to find a house in advance that you can buy and then resell to them.
Owner's Finance Completely Refined
Sign a contract to buy a home, leaving the lowest possible deposit. Arrange for Vendor's finance paperwork during settlement period The Week following the purchase of the home, sell to the new buyer and receive the deposit back from the original purchase.
Searching for Investment Property
Buying a New Property