All Forum Posts by: Cory Binsfield

For what it's worth, I use the 2% rule as a filter to investigate deals that cross my path. Just like the gross rent multiplier (GRM), however, it gets abused. I've had sellers try to cite both ratios as a selling point and when I dig into the numbers, I find the expense ratio is too high.

Thus, the 2% rule and GRM are simply tools to help you filter properties and determine which ones are worth conducting more due diligence. I'm more than happy to look 1.25s or 1.5s if the property fits my model.

For example, I'd rather have a 1.5% with low expenses than a 2% property with high expenses. 

Bottom line, it's about net operating income, ease of management, and location. If you can find a nice property in a nice neighborhood you will attract nice tenants.

Always do a background check. It prevents problems down the road and helps you avoid fair housing issues. I've learned the hard way and it cost me thousands. I don't care if they are a doctor or a college student. Background and credit is the best way to judge if they will pay you and keep their promises. 

Be careful on this one. The cap rate approach is great for your own analysis but it worthless on any property that is 4 units or less. Residential units are sold on a comparable sales basis. I would get all the comps for similar duplexes and determine the value from their since you might purchase all of these properties and then be in the same shoes as the seller five years from now. 

On the other hand, if this is a commercial deal the cap rate is fine. Again, you would have to determine what similar cap rates are in the area and run your numbers based on sold multi-unit properties. 

As a package deal, it warrants a discount for market value. However, if you can get owner financing, that may allow you to pay retail or just below retails with favorable terms-10% down, 20% owner carry, 70% commercial lender financing. 

I agree, tax value is worthless. I've purchased deals far below tax value and then had the city assesor lower my value by protesting the valuation. 

"@Cory Binsfield I am currently in a situation similar to yours prior to your first rental. I am self- employed and currently repairing my credit so I am a little nervous about getting financed through a bank just yet. How did you find you owner financed deal?"

Sharlisa, I'd pick a target zone for your rental business and then become an expert in that area. My first deal was in my zone and I found it by driving through the neighborhood to and from work every day. I simply called and asked if they would consider owner financing. 

It takes forever to find a deal this way and I wouldn't necessarily recommend this approach as your only source of leads. 

Here's a link to a great post from the tallest guy on BP Duplex post Make sure you visit the link on finding decals. 

One more off the wall tip. 

Once you pick up a few properties, make sure you build rapport with your neighbors. I used to mow all my lawns and picked up a number of sweet deals by cutting my grass on my rentals and even helping a neighbor from time to time by cutting her grass. 

People thought I was crazy to mow my own properties but I easily banked $100,000+ in found equity by mowing my lawns and then buying the house next door before it was up for sale. 

Get your credit score up, save for a down payment and keep learning. Do this at the same time (do not try to fool yourself into believing you should build credit first, save second, etc) You need to take massive action to create massive results. 

Even if your totally broke, you can spend time learning on BP while becoming an expert in your local real estate market. You should be able to drive by a house and know exactly what it would sell for along with the potential rent. Attend open homes and act like your already a big shot investor and tour listings. 

Good luck!

My very first deal took about 4 years. At the time I was starting a new business and my self-employed tax return was an issue when I first tried to qualify for a loan. 

Fortunately, I persevered and kept working hard on my business while scouting for the right deal. Eventually, the perfect deal came along and I seized the opportunity and closed in less than 30 days.  

It was an owner financed deal and we literally wrote our contract out on paper napkin over some beers-he was an odd dude who demanded we meet at his house and that I bring him a 12 pack before we talked business. 

I'm glad I was patient since this first property allowed me to learn the ropes as a new landlord in terms of both rehabbing and tenant management. 

It also taught me about the power of owner financing and how you don't always need a bank to realize your goals. 

Good luck! Check out Ben Leybovich's posts and podcast for great stuff on structuring deals. He's a great resource.

I would wait for a property with higher cash flow. Being your first deal, the numbers seem too low for a 5 unit. Great rule of thumb is 50% of gross rents for expenses and then see if it excites you after subtract out the mortgage pmt.

One other tip, it's better to immediately raise rents to market then wait. Just factor in a reserve for people moving out.

Tightening your goal means getting more specific as you acquire properties.

You may find that single family works in the beginning, but it becomes difficult when you consider your 10k/mo number. At $200/mo per property it means 50 single family properties. Or, you might attempt to fix and flip and raise more capital for down payments and accelerated mortgage paydown. Then you could hit your goal with only 20 properties that are cash flowing at $500/mo.

A good resource to check out is the Millionaire Real Estate Investor book by Gary Kellor. It's both motivational and practical.

Lastly, is cash flow the ultimate goal or part of the goal? You could hit 10k/mo with cash flow, depreciation benefit (the actual amount you save in taxes on your personal return), principal paydown by tenants and appreciation. I'm not a fan of betting on appreciation. However, it's reasonable to expect an appreciation rate at 3-4% depending on your market. At a 3 rate, your investment doubles in 24 years.

Hi Sam,

This is a great goal to shoot for and I see no reason why you couldn't hit it in ten years as long as you keep your eye on the prize and do not get discouraged or distracted.

The trick will be tightening your goal as you start with your first property and then get a feel for what it's like to run a rental.

I started with a goal of ten duplexes in 10 years and attained it after 5 years. I then changed my goal from duplexes to small multi-family's after I realized how fun it was to build a portfolio of passive income properties.

I would research your marketplace and try to buy in a target area that is as close to your home as possible. From there, I would become an expert in the area and make sure you don't deviate from your target market.

Ideally, the area would be 20 minutes or less from your home base.

Make sure you chose your target area carefully. It should be a desirable rental area with decent schools, proximity to public transit and shopping and a growth trajectory that is either stable or on the rise. These areas tend to cost more to purchase but it will pay off in the long run due to easy management. Bottom line, nice properties attract nice tenants.

Good luck and whatever you do, don't give up until you have reached your 10k/mo.

I buy slightly used vehicles with warranties and run them through my business so I don't have to deal with standard mileage deductions. My CPA runs them on the tax return in my corporations.

I'm not a fan of buying a vehicle for a big deprecation deductions and I never lease since it doesn't make economic sense.

Frankly, a vehicle takes money out of your pocket so it doesn't make sense to me to spend more to get a big deduction. My plumber's CPA advised this for a a last minute tax deduction. I told him he is better off buying a rental property or opening a SEP IRA for the deduction since the big truck he was looking at was $45,000.

It's crazy how some people justify spending $45k on a shiny object and think it's an investment when it's an expense.