Key Rules for Investors

I have the experience and knowledge to help you become a successful investor. ~ Matt Kornstedt

Due Diligence Is Never Optional. You’ve got to understand the local market – and that includes not just where prices are headed, but specific market demand for rental real estate in this price segment, and even the local government’s plans for the area where you’re thinking of buying.

Buy With A Written Plan - that’s right, just like the large professional investors use, with an entry strategy and an exit strategy. How long are you going to hold onto the property, how much will it earn you during your period of holding? And what’s the endgame – a sale to another investor? Conversion to condos? Tear it down and build something that’s closer to the underlying real estate’s highest and best use? “Write it all down -that way you can analyze it better.

Calculate The Actual Costs Of The Property In Advance – not just the bargain basement price, but how much you’ll need to fix it and feed it – the management costs, rental commissions, vacancy costs, taxes, to name just a few.

With this investment, I opted to purchase, remodel & rent with a good cash flow.

Matt Kornstedt ~ Let me use my experience to help you invest!

Real Estate Investments Can Realize Attractive Returns

Rental Yield – This is the percentage yield from direct rental income, and can be calculated as either gross or net. Experienced investors prefer to calculate the Net Rental Yield, which takes the expenses, taxes and other costs into account, and divides by the property value/cost. It could be a negative cash flow, as it doesn’t take mortgage payments into account. For this reason, many investors prefer to look at Cash-on-Cash rental yields. The example at the link shows a 6.4% example return on cash invested. Though the investor can purchase and manage for a yield on this single component that exceeds average stock or bond dividend yields, it is only one of the ways in which real estate returns on your investment.

Appreciation – Rental properties normally appreciate in value with inflation. Increased value can mean sale and reinvestment in higher value properties, or provide an equity line of credit to use for other investments. This is the second, and a historically proven value component of real estate investment return.

Inflation Is Rent-Friendly - Rents usually increase with inflation, while mortgage payments on the property remain stable. This increases cash flow, with more rent income without increased expense for holding the property. When inflation is up, it can also mean more renters, as the affordability of homes can be negatively impacted by inflation. More renters increases demand, so rents can escalate.

Leverage - Using leverage, while being careful to buy properties with good rental yields, provides greater returns. Using $100,000 to purchase three properties with down payments, instead of one for $100,000 cash, can greatly increase returns. Of course, all leverage involves risk, so the successful investor must understand how leverage impacts their real estate investments.

Paying Down The Loan - Amortization, or paying down the loan, frees up more investment resources to increase leverage. Some investors use increased equity in one property to free up funds to invest in others.

Property Improvement For Equity – Many investors intentionally purchase properties at a value because they lack some feature or could use some improvements in condition or amenities. They have calculated that the value of the improvements will exceed the cost, resulting in an immediate increase in equity.

With this investment, I purchased the property as an REO, rehabbed it & have rented it with a good cash flow.

Matt Kornstedt ~ I’d love to help you invest & make money!

Things to Avoid:

1. Planning As You Go. First, you find the plan, and then you find the house to fit the plan. Pick your investment model, and then go find property to match that. Don’t find the strategy after you find the home.
2. Thinking You’ll Get Rich Quick. Real estate isn’t easy. It’s a good long-term investment, but so is putting your money in a mutual fund, which is a lot easier. “These gurus don’t talk about all that hard work. You have to be smart, you have to be willing to work, and you have to understand your risk tolerance.”
3. Playing Lone Ranger. A key to success is building the right team of professionals. At the very least, you need good relationships with a Realtor and a lender – both for your own deals and to assist with financing for prospective buyers. In the remodeling and maintenance segment of the business, the team includes a plumber, an electrician, a roofer, a painter, a heating and air-conditioning contractor, a flooring installer, a lawn maintenance service, a cleaning service and an all-around handyman. You can’t build a business as an investor if you’re spending all your time fixing leaky faucets and putting up ceiling fans.
4. Paying Too Much. The biggest reason investors don’t make money is simple: They pay too much for properties. The profit is locked in immediately once the investor buys the property. Due to mistakes in the analysis, the investor pays too much and then is surprised later when he doesn’t make any money.
5. Skipping Homework. You wouldn’t think you’re qualified to perform open-heart surgery without years of education and training. Yet many wanna-be real-estate investors don’t think twice about taking their financial lives in their hands without even cracking a book. Educate yourself before you put your family’s financial security on the line. Read articles, check out books from a library, contact us as we own a lot of rental properties in the area, and can help you decide whether this is a good career for you.
6. Ducking Due Diligence. Investors often have to move quickly on their deals. That doesn’t mean they sign a contract and write a check without plenty of research, though. That’s where a lot of newbies trip up, they don’t do their due diligence about the deal, the costs or the market conditions, and they wind up draining their personal savings because the house needs extensive repairs or they can’t sell it. Sometimes, new investors are buying property just based on the idea that the property is going to appreciate. Usually, they don’t have any information to substantiate that.
7. Misjudging Cash Flow. If your strategy is to buy, hold and rent out properties, you need sufficient cash flow to cover maintenance. People think they can get a property manager, but many have never interviewed a property manager and have little idea about how they work. Most managers, for example, are reluctant to take on one single-family home or a duplex, preferring larger complexes. And fees of 7% to 10% of the monthly rent are common.
8. Lowering The Volume. If you’re working on one deal at a time, you’re doing transactions, not running a business. You need a steady pipeline of prospective deals; sufficient volume will weed out the marginal deals and let the good ones rise to the top.
9. Painting Yourself Into A Corner. Many people buy a property and get stuck with it because they have only one exit strategy. They’re going to sell it or rent it out. What if it doesn’t sell? What if the rental market stalls? Always have two, if not three, ways to get out of any deal. For example, if plan A is to rehab the house, put it on the market and resell it, then plan B could be to offer a lease-purchase to a buyer. Plan C might be to hold the house and rent it out. And as a plan D, there is the wholesale option, which would involve selling to another investor at a below-market price. Hopefully, you’ll still make a profit, but at the very least, you’ll cut the losses you’re taking every month in carrying costs.
10. Miscalculating Estimates. New rehabbers that after they’ve done their homework, they should double the amount of time and money they think it will take. If they can still make money then and they might be able to rent it out, it’s a good deal.