Residential Investor Guide

What You Need to Know

During our personal home search, we seek out a special feeling or an emotional attachment. But residential investment is different — we don’t need to love everything about the property for it to be a sound investment. Connecting with the right lender and loan product can turn a good property into a great investment opportunity. You can leverage low down-payment, interest-only or adjustable-rate mortgages to make more money and get higher returns as well!

The approach is all about being goal-orientated. It’s essential to have a specific goal in mind before starting so you know what to look for when evaluating properties. David will assist you in every step of the planning and evaluation process. Investing is different from buying a home in that if the numbers work and match with your goals, it’s a worthwhile investment. Time to make an offer.

David’s preferred approach is cash-on-cash return (CoC), but he is well-versed in capitalization rate, gross rent multiplier (GRM), and other measurement standards. In Southern California, cap rate and GRM are typically only used for comparing properties within the same neighborhood to see which ones have the best opportunity of return if the cash-on-cash returns are similar. 

CoC returns matter because they calculate the percentage of return on the money you invest. This doesn’t include appreciation or value-add returns because those are like the icing on the cake of a fantastic investment. You typically receive a 5-12% return on your direct cash investment, depending on the city. 

High-end luxury cities will have a lower return rate because the land is more expensive, however the investment is safer overall. In contrast, fast-growing, up-and-coming towns have a greater cash return and yield more aggressive total investment returns. As an expert in these matters, David can assist you in finding the best long-term investment options

Investing can be daunting if you’re unfamiliar with the process. To begin, you will need pre-approval so you can understand your finances and budget when seeking new properties. To be in the running for most investment property opportunities, it requires proof of funds — this is not as daunting as it may seem! David will walk you through this process that is actually very simple and involves no risk. 

Within the contingency period, you can cancel any written offer with no penalties or costs. The only nonrefundable elements are inspections and appraisals, which come later in the process after an offer is accepted.  

It’s much easier than people assume. David will help you ensure the numbers work so you can hold the property safely regardless of what market we are in. By becoming an accomplished investor, you can gain true financial freedom––having enough money to pay your child’s college tuition, medical bills, and early retirement.  Even if you have to move out, the market has shown that it will always recover and exceed previous values. 

House-flipping can work as an investment strategy but is not recommended unless you have legitimate resources and connections. Extensive experience in the construction industry is helpful as flipping can quickly cost you significant time and money. 

The best strategy for first-time flippers is to buy and live in a fixer-upper with a lower monthly payment while you remodel. Then, move on to a new home within 3-5 years and use the original house as a rental or to sell long term. By doing this, you can maintain a lower monthly payment to free up money for the renovation and remodeling! Lower monthly payments also help you save up to buy more properties, giving you options! David will help you learn how to leverage your earned sweat equity for future success.

Don’t underestimate the impact of saving a percentage of your income every month for a down-payment. The first investment is always the hardest.With the second property, it gets easier because you can combine the equity and appreciation from your first property with your personal savings. Your home will increase in value over the next real estate cycle, which is generally 3-10 years. How much and how quick it increases will depend on the market. Then, these funds can be combined to purchase more properties. 3-5 properties can equal financial freedom and early retirement for the average person. Over five properties will vastly increase your financial security — you can get there by taking the right steps in the right order.

Are you interested in learning more about residential investment? I want to help you learn how you can build for retirement and financial freedom by simply owning the place you live in.

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