?? Your first rental property (what to look for)
Blake Bozarth, CFA ??
LEAD with confidence + humility | Host of Leadership On Purpose | Leadership Development. Executive Search.
In this issue:
I remember buying my first rental property like it was yesterday.
It was scary. There are so many ways real estate investing can go sideways. Very easy to mess it up.
And even easier to perpetually spin your wheels and never do anything because of analysis paralysis. ????♂?
But when I realized there was a way to significantly reduce my risk + maximize my upside, it became much less intimidating.
Here’s a pic of my first rental property following the “Low Risk REI” method.
The Aesthetic Remodel. ??????
People say there are no deals to be found in today’s market. That’s poppycock.
It’s true that it’s harder to find good cashflow deals especially with higher interest rates, but great deals are out there.
Especially when you hone in the “Aesthetic Remodel.”
70’s paneling, formica counter tops, linoleum floors, dumpy bathrooms, janky cabinets … these are all your friend. ?
Foundation issues, major plumbing and electrical repairs, or overall “gut jobs”? Not so much. ?
Here’s how that kitchen looks after our aesthetic remodel.
??Tip: you’re looking for the ugly houses that are sitting on the market a looong time… ones that don’t require truly scary repairs. They just need lots of TLC and cost effective aesthetic upgrades.
Sellers get antsy and end up being much more willing to consider lower offers – especially when you learn to strategically position multiple offers and direct them towards your preferred.
Plus, you’ll have much less competition to fight with compared to the turn-key razzle-dazzler down the road.
You can also find properties off market from sellers who want to avoid listing publicly (reputable wholesalers are good to know here).
A few of my best investments came from other investors who didn’t want to be the ones to remodel the property and sold to me off-market.
Is it a good deal? ????♂?
The most important mantra for your REI efforts: you make your money on the buy.
One of the (conservative) formulas I like to use for assessing how much I can offer and still feel confident it’s a good buy:
ARV * 75% – Remodel Costs
This means the highest you’d be okay paying for the home is the “After Repair Value” (ARV) multiplied by a 75% “safety margin” (covers carry costs, risk margin, etc) minus how much it will cost to remodel.
Let’s say after you fix it up, the home will be worth 250K, and it will take 50K to fix it up.
You’d need to get that home at 137.5K or below to feel very confident it’s a good buy.
[In reality, this is a conservative formula and also takes into account closing costs / realtor commissions if you plan to flip and resale … so if you’re like me and plan on holding and renting it, there’s some additional safety margin here you could trade off and the deal still make sense for a long term hold.]
But running with those numbers and assuming you did a cost effective remodel, you’d benefit from “Forced Appreciation” and gain 60K+ in equity.
Here’s why Forced Appreciation is the best: you control it. ????
Even if the housing market declines in value (historically it appreciates average of 3–5% per annum), you can stack the odds in your favor with these sort of deals, forcing healthy appreciation.
And here’s the next best part: you can repeat this process and roll your initial capital with a cash-out refi once completed and rented.
This of course underscores the importance of good estimates for ARV and Remodel for each particular deal (the kinda stuff I give perspective on to our Net Worth Coach members.)
The bottom line: there are lots of risky ways to do real estate, but if you stick to the right strategy and know how to execute, you can stack the odds in your favor and exponentially grow your net worth.
From that first rental, I ended up doing this several times over and built a small portfolio of non-glamorous, steady cash flowing rentals. ?? ?? ??
Those rentals gave me margin to take other smart risks ... like making the jump from my 9-5 job at 30 years old to live life and calling with my family in ways I couldn't before.
Which has led to more freedom and greater financial benefits than the Corporate trajectory I was on before.
You may not want to leave your job, but I do want to see you building assets you own that create freedom, optionality, and blessing for your family.
???? In the next email lesson, I’ll teach you how to make more money in your day job so you have more to invest in assets like real estate.
In your corner,
Blake Bozarth
P.S. Want to go deeper on this? See below for a live session (free) where I’m teaching the 6 keys to Low Risk REI, ask me anything.
When you're ready, here are 3 ways I can help you:
1. Net Worth Coach: flagship course, coaching, + community to reach financial freedom faster (for 20 & 30 somethings working 9-5 jobs)
2. Free Live Session: upcoming topics include The HYSH: how to choose a High Yield Side Hustle, Low Risk REI: how to build a small real estate portfolio in today’s market, and Getting a Raise: positioning for more comp in your day job. It’s a live session with Q&A, ask me anything – submit this form to get calendar invite (usually on a Friday afternoon).
3. Entrusted Mastermind: mastermind community for men earning 150K+ (in a job they may or may not want to leave one day). Faith. Family. Wealth Building.