Buy & Hold questions

[Phillip Gonzalez]

I have a couple of questions I need answers to and a better understanding if anyone can help me thanks! Something I keep coming across is how you should build a relationship with a real estate agent to help you out. What I don't know is what I should ask him & what I should look for in a real estate agent as a buy & hold investor. When searching for a property to purchase with a focus on cashflow, do you look to get a deal where rent is the highest in your area keeping in mind of the location as well? One thing I learned was that sfr are bought mainly for appreciation while small multi fam are bought for cashflow how much of this is true? & does that mean I can't cashflow off a sfr? Thanks again!

[Jeremiah B.]

@Eric Petersen 

Welcome to BP man - and props to looking for a RE investment.

It sounds like you're hoping for a discussion more than an answer, so forgive me for meandering a bit...

You need a certain set of skills and expertise on your team - but whether it's you or your team that has them is somewhat open for discussion. For example, I've become pretty well versed in SFR investing, and am more savvy about the topic than the RE agents I work with. What I value is her work, responsiveness, eye, character, etc. etc. She looks at tons of properties, puts in tons of offers, and keeps deals together with duct tape. My RE agent is a more valuable resource than my cash. But, I would not advise someone new to the game using her.

It sounds like you're newer to REI, and that's great. But that does mean that you should have a RE agent who really gets investing!!! I would educate yourself on the following questions, and then ask them:

1- What are your feelings on the 1% rule no today's market? (THEY MUST KNOW WHAT THE 1% RULE IS, OR YOU SHOULD NOT USE THEM.  The answer is a big one that you need to decide on.  This will also answer your cash flow question).

2- What expenses should I be factoring into my proforma? (correct answer is taxes, vacancy, normal repairs, big repairs, and maybe property management, mortgage, HOA, etc. If they don't list taxes, vacancy and repairs, run away)

3- What vacancy number should I use in my projections? (google the rental vacancy rate in your area and expect to hear a little lower than that.  If their number differs by more than about 50%, really consider your next steps)

4- How many investors have you sold to in the last 12 months?  (They will talk about individuals, but get to a number.  I think you want at least 3).

5- I plan to look at lots of houses and put lots of low offers in. Are you comfortable with that? They will all say "yes" to this, but it sets an expectation, and lets them opt out shortly afterwards if they prefer. Any REI focused agent will already assume that this is the case.

Happy hunting!