# Entrepreneur of the Week - Post No. 2 Hello everyone, Uri Bar. This post is dedicated to reviewing properties for purchase to…

Recommended management company in suburban Cleveland, Maple Heights area (except Remax) Thanks!
# Entrepreneur of the Week - Post Number 2
Hello everyone, Uri Bar.
This post is dedicated toTesting properties for purchase for rent.
At the macro level
It's all about Risk VS Rewards. That is,
The greater the risk
So the yield can be higher and vice versa.
1. Regions
1.1. Looking laterally,
Each city in the US is divided into 4 unwritten areas:
1.1.1. Area A - Private homes that are mostly owned by homeowners and not renters. The population is at a high socio-economic level.
Buying these types of assets will not yield a large return, as the price of assets is high relative to the rental price.
The properties worth buying for rent are buildings whose cap rate is relatively low (4-6%). This passive income is defined as good with a low risk level since the amount of repairs and property damage is small while the tenants are excellent.
1.1.2. Zone B Mixed area of ​​landlords and tenants. The population is slightly less good than in Area A and properties that require a relatively small level of repair can be purchased. Relatively stable tenants (blue collar and faculty graduates) The yield rises to the region of 7-9%.
1.1.3. Area C - Mixed area of ​​landlords and tenants though more towards tenants. The population consists of people who work in the retail business, industry, service providers, etc. The yield obtained in these areas ranges around 9-11%. The vacancy rate increases and the number of repairs increases.
1.1.4. Zone D – consists mainly of tenants. The population is characterized by hard working people who are supported by the state. Crime is much more common in these areas. Certain areas within D are dangerous crime areas (drugs, prostitution, etc.). The yield is skyrocketing although in direct relation to the risk. In certain areas the closing costs exceed the value of the property. The vacancy rate is high and the number of repairs is high.
The yield obtained in these areas is higher than 11% (on paper)
2. Questioning phase
We will ask the workers of the real estate industry in which area they recommend us to buy houses for rent. The questions are reading direction and understanding the area as a whole.
Realtors, property managers and appraisers
They are the professionals we want to talk to.
mediators Know where people are buying and how the region is developing (market trends).
Asset Managers Know how to calculate the vacancy rate and which tenant area is better for a property owner.
Appraisers You can tell what the market trends are and what the market changes are.
3. Market trends
Examine how the rental market has changed over the past 5 years and what is expected to change in the coming years. Search the following topics:
3.1. Market analysis, Market trends, Rental market forecast
3.2. Vacancy rate - a very important figure in calculating the future return. (Percentage Gross Gross Income)
3.3. Future developments of the region.
3.4. The number of properties offered for rent in the area and the time they are advertised up for rent.
3.5. The number of empty properties in the area.
4. What type of property to buy?
4.1. In order to increase the demand among potential renters, I prefer to buy 3 Bedroom. 2 Bedroom is less negotiable than 3 Bedroom.
4.2. In terms of risk, Single family is usually more dangerous than Multi family.

Why?

Since Single Family all eggs are in one basket.
When a tenant leaves, I have no income at all.
but,
In the multi family the tenants included
Usually the property does not leave together.
Therefore, if a tenant holds leave I have income from the other tenants.
hence,
As the number of "doors" in the property increases, my risk percentage decreases.

5. Location of the property within the specific neighborhood
5.1. Properties located About A main road, near railroad tracks, near factories or any other nuisance, will realistically sell at a lower price than other properties.
5.2. Properties located near a school, police, hospitals (not really adjacent to them) are considered safer areas because in most cases there is police security and therefore the level of crime drops. Strategic locations are also preferred for different types of population.
5.3. Checking the property tax cost. Sometimes he is Deal Break!
A present case as of this writing
A good customer of mine, Moore asked me to look for a rental property for her.
I found her a good location property in a good and developing neighborhood.
After all the calculations and downloads (and after I have deducted about 45% of total monthly revenue), its return on earnings will be as we thought.

I thought to myself how I could lower my annual property taxes to increase Moore's return on profits.

After all, the annual taxes are calculated among the other parameters and, as a significant part of this, the property cost estimated by the county assessor multiples the tax rate determined by each county and province.

If the property purchases at a price lower than 25% of this price, then we can demand that the annual tax price be offset.

so,

I suggested that a tax reduction request be submitted by a local attorney who would charge money according to his success.

5.4. Which school belongs to the neighborhood where the property is located. The school's rating directly influences the value of the property, its demand and its time of sale.

A case happened

Three months ago, I searched for my client, Citrus, a property to buy in Ohio.
She wanted an asset for a long period to bring in passive income.
A realtor they knew offered me a property to buy.

Initial check, following the Comps (assets to compare)
Sent to me,
Showed really good results.
The properties for comparison were very little away
From the property I wanted to purchase
Distance of 0.2 miles.

The property was in good condition
Better yet, some of the assets for comparison
Were located In the same street
But across the road

With a simple check I did
The assets for comparison were found to belong
To another school district
From what I was offered.

The difference was minor though
Really significant

The price of the properties in the same School District
Were on average about 27%
From the other side of the street.

6. Current (Main) Expenses in Rental Maintenance
6.1. E. Property tax
6.2. E. Insurance
6.3. Maintenance
6.4. E. Occupancy permit
6.5. U Utilities (water & sewer)
6.6. E. Unexpected repairs
6.7. HOA - home owner's association
7. Minimum time period to calculate average return
I will understand 3 - 5 years. During this time, we can calculate with great certainty the average return on the property.

Why?

Because a situation can arise
In which the first rental year will be a dream year
Year in which yield will skyrocket to 15%
or,
That a certain year would be really bad
There, after about two months, comes the following senario:
7.1. Tenant does not pay
7.2. Eviction is required which takes about two months and costs money
7.3. We pay the sheriff to get the tenant out
7.4. We have to pay rent for the tenant's belongings
7.5. We pay for the damage caused to the tenant in the property (the deposit cost he left is about a fifth of the cost of repairs)
7.6. We wait about two months to populate the property.
7.7. We pay the management company a month's rent for occupancy.
so,

It is very important to populate the property with a good tenant
And do screening
Although the management company should
We're supposed to check it out

8. Average rental price check
How can we know the rental price of the property?
8.1. Rentometer website.
8.2. mediators
8.3. Management companies
8.4. You can ask the owner for his tax report two years back and see how much the rent was each month he declared.
8.5. You can request a rent roll management company two years back.
In addition, you should choose an excellent management company
A management company is our eyes and feet.
It is important to choose a reliable management company
To protect our interests overseas.
as well,
Sometimes you should consider hiring his services
Of a body or individual from Israel or overseas
Which deals with the "management" of the management company.

This body has the knowledge to examine and guide
The management company
How to act,
And improve the property.

Most successes !!!
Uri Bar

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Responses

  1. Excellent post, definitely organizes the knowledge for all knowledgeable but less organized and at the same time helps all who are not familiar with the subject. I personally agree less about property management in multifamily and land. You can buy land in several neighborhoods and spread the risk of regional status while in a residential tower you put all the eggs in one basket. I would add a risk board (with which I work) to incorporate the asset maintenance and controls to be performed at the maintenance stage.