![]() He has 6-8 clients from California, because the numbers don't work here, that is, you can't find that 1% return. Fully 85% of my realtor's work is doing this very thing. And of course be sure to ask any potential realtor how much of their business involves purchasing single family homes to be turned into rental property. So if and when you locate an area you want to explore, and find a reliable, knowledgable realtor, run this formula by him/her to see how viable that market really is. Yes, you can drop that 1% figure down to 0.75% and still get a positive cash flow return, but start by aiming at a full 1% figure. Unfortunately, it's difficult to find areas where this formula will work. That still leaves you with a potential net income of 8%. Plan on one month of rent to pay property taxes, one month of rent to pay for insurance, one month of rent for local management, and possibly one month of rent for repairs, upkeep, etc. That 1%, multiplied by 12 months, gives you a potential annual return. IF THE POTENTIAL MONTHLY RENT EQUALS 1% OF THE TOTAL PURCHASE + FIX-UP COSTS, you have a potential money-maker. Now find out the reasonable potantial monthly rent for that home, in that neighborhood, at this time. Take the purchase price of the home, add to that all the fix up costs to make it "tenant ready," that is, fully fixed up and ready for tenants to move In. I don't know how much you know about doing a preliminary search for potential rental property, but here's a very simple formula that allows you to determine if a particular property has income potential.
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