Hi, this is Mikki Ramey with Healthy Realty. I’m the broker and owner of Healthy Realty. We designed our company specifically with the needs of healthcare professionals in mind. Most of you are interested in becoming a real estate investor – medical students, residents, pharmacy students, dental students, and those of you in training. So we’re going to gear it a little bit toward the future. I know many of you who are students are thinking real estate investing? What in the world? Do I have any idea thinking about that? I have a lot of student loan debt. I’m just a student.

Well, you are a student who is planning for a future career. If you didn’t start planning now and studying now for your future, then school really wouldn’t be worth it. So this is about planning. It’s about planning for your financial future. So, that’s what we’re going to talk about this evening.

Get in the market. That is my number one tip. Just get in the market. Get rid of the wrong thinking that real estate investment is for hedge fund types, rich folks. Actually, most wealthy people that you know gain their wealth through real estate investment. Making a plan now for the future with real estate investment in mind is very wise. If you own property, you are an investor. Most investors begin the journey with their primary residence.

Number two, make a financial plan with a team. If you attended our dinner earlier this year, you met some of our team. We have a great loan officer actually too, Josh Feldman and Jules Deas with Suntrust are excellent members of our team that can help you with a loan. Andrew Reina with Voya Financial Services is a great financial planner who can talk to you about how to manage your debt and how to plan for the future.

These folks are great resources. We’re happy to talk to you about the real estate portion of your investments. Creating a personal budget that allows for investments and saving for down payments, those are big and part of your financial plan. So very important. That’s my team. That’s Gabby, Abby, me and Shannon. We are the real estate team that’s happy to help you.

My first big suggestion with moving forward with your first investment is to get a roommate. Sounds very simple, but it’s very practical. If you have roommates help pay for your mortgage, that is a very smart and financially savvy way to get started as an investor. A few years ago I helped a medical resident buy a home. His mortgage was maybe around $1,400 a month. He was able to get two roommates to pay him $600 a month each and he had a living expensive of $200 a month. If you can get your living expense down to that amount, that is just amazing and a very smart way to begin your financial investment.

If you have a family, if you’re married, you have kids, a duplex, triplex may be a better way to start investing. You buy the entire property. You have a little more privacy where you can rent out one or two portions of the property. Same concept as getting a roommate, but just more privacy.

Number five, consider traditional investing. Buying a home for the purpose of renting it out monthly, that’s traditional investing. This is usually your six, 12 month lease. It can be a two year lease. Will you manage this property yourself or hire someone? When you buy traditional investment property, usually management fees are about eight to 10% of your monthly rent, so keep that in mind. That’s going to be part of your costs.

Number six, consider buying a short term rental. Short term rentals are rented out on a weekly or monthly basis. They actually do create more of a time constraint than a longterm rental, just takes longer to manage them. The profit margins are higher in a longterm rental. That’s really, or excuse me, in the short term rental than in a high longterm rental. If you’re renting weekly, your profit margin is usually higher. So that’s one reason why investors like to go for those weekly rental properties.

And check with city ordinances. I have had people ask me to help them buy weekly rentals in downtown Charleston and oftentimes it is against city ordinances. There are a few areas like Elliotborough and Ansonborough downtown in Charleston that do allow weekly rentals, but everywhere else they require a minimum of a 30 day rental. So it’s very important to check city ordinances.

And think again who will manage this property? Will I do it myself or will I hire someone? Management fees can be $1,500 a year for a flat fee, they can go up to 40% a year per month. If you are hiring a property management company, there’s just a lot more upkeep with people. Contracts going out on a weekly basis, sometimes a few days at a time. So it is a lot to manage, that’s why they can charge the higher management fees. A pretty average management fee is about 15 to 20% though but some companies will try to charge you more.

Calculate your cashflow. Cashflow, this is why you’re investing. You want cash coming out of this property. You’ve got to look at your income versus your expenses. Your income is going to be the rent money that you have coming in from this property. Your expenses will obviously be your costs. You’re going to have mortgage, taxes and insurance, homeowner fees, repairs and property management fees.

I actually took these numbers from a property I was considering purchasing earlier this year. I calculated that I’d probably get about $2,000 a month in rent. You can talk to your realtor about how much you might calculate, what’s the fair market rent and value for a particular property. Then you have to figure out, have I saved a down payment to make my mortgage lower? If you’ve done that, that’s great, that’s going to help with your cashflow. Then you need to figure out the other fees involved. So on that particular property, there would be a cash flow of about $250 per month. So not so bad. You know, the more you can get your mortgage down, the higher your cashflow. So $250 is better than what I was earning in the bank, so I thought, “Hmm, $250 a month sounds pretty good.”

You certainly can get some investments that might be more, but one thing that we haven’t talked about is also the added value of appreciation of a property. We can discuss that.

But cap rate, capitalization rate is a another just formula that you can use to calculate whether you made a good purchase on a property. It’s basically your net annual income divided by the purchase price. You calculate that without the mortgage in mind. A good cap rate, 6%, really a good cap rate on residential is closer to eight, so this property had a pretty moderate cap rate on it, which shows, “Hey, I’m making a good buy here. This is a good investment.” All right?

Number eight, is to form a self directed IRA or individual retirement account. This money can be spent how you want it to be. So you can take your retirement money and you can spend it on real estate or other investments. It’s a really nice thing to do as you’re building your retirement. Hopefully you can buy an investment, strong cashflow property so that money that you took out of your retirement account is working for you and earning you money each month. You decide how the money, like I said, in that IRA is spent. You have to set up this plan with an expert. Jeff Beal, I’ve used, he’s very good so I can give you his contact information.

Number nine, consider short sales and foreclosures. Short sales are meant for investors in my opinion. If we come back and think about primary residences again, some people have bought primary residences that are short sales and I will tell you, totally fine to do that. You have to be flexible to buy a short sale. Short sales are highly unpredictable. The basis of a short sale is that the seller is short on what they owe the bank when they go to sell the property.

So let’s say you bought the property for $200,000 and when you sell it, you can only sell it for $150,000 thinking very simplistically on this. So basically your $50,000 short on what you owe the lender. you’re going to hope that they forgive that debt and allow you to sell the property as a short sale. That’s a very simplistic explanation, but that’s basically how a short sale works.

Foreclosures, which you, see that that is spelled incorrectly can still be good buys, but they are not always good buys. So keep that in mind. I have so many buyers that come to me and say, “I want to buy a foreclosure. Let’s look at all the foreclosures.” Well, a foreclosure can be a good buy, but it is not always a good buy. Banks really have caught on to the fact that they can get fair market value. Banks are doing some crazy things in these foreclosures. They will go in and literally if appliances have been taken, they’ll put a new appliance package in a foreclosure and they will go and put new carpet and paint a foreclosure. So there are some turnkey foreclosures that I have sold over the years as well as banks started catching onto the fact, “Hey, let’s improve these properties and get closer to fair market value.” Some of them can still be very good buys as I said.

Short sales are probably a little bit better just generally speaking than a foreclosure. So think about that, but they are more frustrating. Foreclosures can sell very quickly, so that’s a nice thing about a foreclosure. They can close in 30 to 45 days. Usually short sales, my average on short sale close, is about four months. I’ve heard horror stories of where people close short sales in a year, so just be prepared if you do that.

All right. Studying the property. Number 10 is the most important tip. Study the property. These are some very simple tips in real estate. Buy the least expensive property in a nice neighborhood. Hopefully you’ve heard people say that before. When you get into buying, especially a primary residence, a lot of people kind of throw that belief out the window. They get all emotionally excited about buying a pretty new property. But still, buying the least expensive property in a nice neighborhood is a good place to be when you get to resell property. You’re going to increase your potential for equity or for making some money in the property, or excuse me, for appreciation. You are going to improve your chance on appreciation for the property, if you buy the least expensive home in a neighborhood. So very important to consider that appreciation or potential appreciation.

Buy a home that’s been on the market for more than 90 days and try to get the price down. 90 days is an higher average. Homes in our area are actually selling in about 60 days and less. So if you can find a home for sale 90 days, if you can get 180 on a property, that is what I consider a distressed property. Homes that have been on the market for a while, especially homes that have been on the market for a while that are vacant. The seller is at the point where they’re ready to sell and negotiate the price down, or they’re looking at renting it out if they don’t get it sold. So look for properties that have been on the market for a longer down market period. All right?

Look for homes with a new roof, a new air conditioner system, and are in good condition. When you buy investment property, if you buy a fixer upper at a good price and you’ve saved money to improve it, that’s great. If you’re looking for an average Joe kind of house, that’s okay, make sure the big ticket items have been replaced recently, or you get money in your negotiation for getting those items replaced. If you get a new roof on, you get a new HVAC heating and air system in that property, you’re going to lower your monthly costs on repairs. So those things are very important.

Again, study the cashflow. Cashflow, it doesn’t make any sense to buy a property if you’re not cash flowing on the property. Make sure you’re in the positive and that you’re in the positive as much as you want to be for that particular investment. All right.

Bonus. You get a bonus one. Buy an investment property that fits your lifestyle. If weekly rental stress you out, by longterm. If managing a property yourself is overwhelming, hire a property manager. You will make more money managing the property yourself, but perhaps your life just doesn’t handle doing that. It’s very important to consider what is going to work with your lifestyle when you’re investing in properties.

Mikki Ramey

Mikki Ramey of Healthy Realty

Mikki Ramey is the broker in charge for Healthy Realty and has served the Charleston area for over fourteen years. She has sold over 750 homes in her career and is consistently in the top 1% in sales in all of Charleston.

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