Bill Tierney runs a management company that makes investing in real estate automated.In this episode of Freedom Fast Lane, Ryan Daniel Moran wants you to see that automation is possible, and he discusses opportunities that exist in the world of real estate.
Opportunities for Investors
Ryan believes real estate has gotten a bad name in the last five years because people assume things are no longer appreciating, as they are comparing to the 2005-2006 boom. Bill suggests the best way forward is to focus on single-family residential properties, as he is seeing properties that are up to 60% below market value (where they were 10 years ago). He also recommends looking for homes that are post-WWII and at least 30% below market value. These rent very well and continue to do so as the market stabilizes. Also, in time the quality homes won’t be available so the sellers can ask more for these properties.
Bill sees profits being made in real estate using a medium to long-term (5-10 years) strategy with single-family residential investment properties. Look at your cap rate and know what your exit strategy is. To start getting active as a real estate investor you need to have $20K cash, but Bill knows people who started with no money and went to third party private investors.
Rental rates are strong right now so you will see properties being sold at a great value. For example, a 3 bedroom, 1 bath, 1,000 square foot post-WWII construction should be renting for $1,000 a month, and you can buy for $35-70K depending on the neighborhood. You can’t buy a $300K property, only get $1,200-1,400 a month in rent, and expect to make a profit.
Automating the Process
You don’t have to acquire, manage, and repair and be involved in all the moving parts. Automating the process is about letting go and understanding your role as the investor, which is to acquire the properties and build your team.
Before investing in real estate, the following needs to be ascertained:
- What type of returns are you looking for?
- How long can we tie up your money?
- Is this something you’ll be actively passively involved in?
Ryan admits he has always had a mental block around his real estate investing, being truly passive, and believes it comes down to having the right partner, which in this case is Bill. You need to know when you hire team members that they are abiding by industry standards and belong to the right organizations.
No one is really talking about vacation rentals, and Bill believes they should be as it is the Holy Grail! When you are renting these properties, you aren’t renting them for long term but rather by the week or the month. This keeps the headaches down for the property managers so the tenants can be in and out quickly and address issues before they became too big. A lot of vacation rental properties rent for $10,000 per month or more depending on the area. The clientele doesn’t require as much hand holding and are easier to deal with, as they don’t ask as many questions (except for where do I send the check). This is a higher level of clientele with different priorities than a regular long-term property rental.
Bill says it will take more legwork and patience to invest in vacation rentals. Ideally, you want to rent by the month to keep the revolving door limited. Remember, when you rent weekly, you’re sending in the maid service more often and other associated costs.
When it comes to sourcing properties and investment locations, look online as a guide to what is already renting in the popular markets and at what price. Also find out as much as you can about that real estate market. As far as returns go, you want to be in an area you know people are always going to go to, like Florida.
An example case study is when Bill represented an investor client who lived in Virginia and wanted to invest for five years. The investor decided on South West Florida and purchased a 6-year-old, fully furnished property in Naples that needed very little work. This was a million dollar property he got for $350K. It is a 3 bedroom ranch style with a 2 car garage, a pool, and a boatlift with canal access. The property was rented from day one. Bill says in Florida it is very easy to get 40-50% occupancy. They went in at $7,500 a month to rent, and at a 50% occupancy there is a 13% return on a $350K purchase. If it is 70% of the time, you are then looking 16-17% return.
The bonus behind the vacation rental properties is that you can take advantage and stay in the property yourself and possibly retire too.
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