In our work with numerous Real Estate Investors in the Richmond VA market, we have heard lots of reasons preventing people from getting started in investing. Most of these hesitations can be mitigated. Below are the 7 most common hesitations that we hear.
1. “I don’t know where to find properties or real estate investment deals”
It is very normal to struggle to find real estate investment deals particularly in Richmond VA and surrounding areas. The Richmond VA market is highly competitive. Often you may be competing w/ professional investors who have been around for a long time and are paying for the deals in 100% cash.
These investors are extremely quick to make offers. In Richmond VA, we hear that potential new investors are often outbid by professional long term investors or the property they are interested in already under contract as soon as they have time to make a call or follow up on a potential deal. This is where we come in. We are constantly in contact w/ distressed sellers and we have several people that are also “bird dogging” deals for us. We often find a deal before the rest of the investor community by working directly with the distressed seller. We can help connect you with those deals. Reach out to us at (804) 482-7351 or RedBrick Properties.
2. “I’m not sure how to analyze a deal”
Of course, if you work with us, we will help you analyze your deals to help you find the best return on investment for your situation, but if you prefer to do the analysis on your own there are a lot of really good cheap trainings on the market.
Simon He has several really good courses on Udemy that seem to range between $10 and $12 per course. We have no association w/ Simon or Udemy, but have taken and thoroughly enjoyed his training.
Some of our favorites from Simon are:
- Learn to Analyze Rental Properties
- The Fundamentals of Real Estate Investing
- Pre-investing – What you should know before Real Estate Investing
BiggerPockets also has some really good articles and calculators:
- BiggerPockets How to Analyze a Rental Deal
- BiggerPockets Buy and Hold Calculator
- BiggerPockets House Flipping Calculator
3. “I don’t have financing”
If you are a first time investor or if you have fewer than 4 properties, you may qualify for a standard conventional mortgage. Typically these will require that you put 20% of the price down. We can help you calculate, if you will have a positive cash flow based on your predicted mortgage payment, likely rental payment, assumed maintenance and vacancy costs, etc.
You can also get your money back out of a property in 6 months using the Buy Rehab Rent Refinance and Repeat Model. This BRRR Model was first discussed in a blog on BiggerPockets. Basically this model says that after you purchase, fix up, and rent a property; that you can refinance it and get some of your money back out to do that again. This is like blending the flipping model w/ the buy and hold model. We have helped several clients follow this model in Richmond VA. Typically most local banks will require that your property be “seasoned” for 6 months. What that means is you need to own your investment at least 6 months before you try to refinance. After you rehab your property, you can typically refinance it for closer to the appraised value. So if you purchased a property for $50k and put $20k of repairs into it, your total investment would be $70k. After you fixed up the property if it appraised at $100k, you could potentially refinance the property for closer to the appraised value. Typically we see, people refinancing for 75% to 80% of the after repair value. So refinancing for 80% would result in $80k back in your pocket (a 10k profit!) to buy a second investment property. The key to this strategy is ensuring your after repair value (APV) is high enough and that you own the property for at least 6 months. One pitfall that we have seen investors fall into is transferring their property to an LLC. The property needs to be owned by the same entity for 6 months in order for this strategy to work. So if you own a property for 2 months and then transfer it to your LLC, you will need to wait another 6 months or a total of 8 months before being able to refinance.
If you don’t have 20% to put down, you can also work with a Hard Money Lender to obtain financing. Hard money lenders typically charge a significant rate for using their money, so you would need to ensure that you have a really profitable investment deal. Here is a great article on 4 Reasons When It Makes Sense to Work with a Hard Money Lender
If you are ready to jump in, we have several traditional and hard money lenders as our partners. Contact us today and we can get you synced up w/ the best lender for your needs.
4. “I am scared that I won’t understand the potential of the legal ramifications of investing”
If you have more than one rental property, you may want to consider setting up a new legal entity. Most people set up an LLC. We recommend using working with a local accounting firm like Equity Financial Services here in Richmond.
5. “I don’t understand the tax implications of investing”
Investing in real estate will typically help you in tax planning as you may be able to write off the mortgage interest and depreciation costs assuming you are above the standard deduction. If you have several investment properties, you will most likely fall above the standard deduction and be able to get a larger tax return. Due to the frequently changing tax code and audit risk, we highly recommend that you work with an accountant to finalize your taxes. At RedBrick Properties we use Equity Financial Services here in Richmond.
6. “I’m not sure how to engage and work with a contractor to rehab my investments”
Working with contractors can be challenging as timelines slip and budgets increase. At RedBrick Properties, we can help you avoid several of the pitfalls leading to these delays and cost increases. We also have a trusted contractor list that we utilize heavily for not only our clients deals, but also our own. Through experience, we have found some of the best contractors to work within Richmond VA. Reach out to us today for recommendations.
7. “How will I find Renters? What if I don’t?”
We can teach you to advertise your property to renters using CraigsList and we can also help connect you with great rental property management companies in Richmond. Most of our clients currently use Renters Warehouse located here in Richmond VA