How to Analyze a Rental Property (No Calculators or Spreadsheets Needed!)
⭐ Join Rental Property Mastery, my coaching & learning community:
www.coachcarson.com/RPM-YT
🎙️ This video will show you how to analyze a rental property without fancy calculators or spreadsheets. In fact, the formulas you’ll learn can be done on the back of an envelope, napkin, or any scrap of paper you can find!
Chad “Coach” Carson has used this “back-of-the-envelope” approach during 17+ years of buying investment properties. And it’s also the basic approach used by famous investor Warren Buffett to make multi-BILLION dollar purchases of large companies.
▶️ Next Video: How to Calculate Internal Rate of Return (IRR) for Real Estate Investing
• How to Calculate Inter...
🎬 Topics Covered:
0:00 - Coach's Intro
0:58 - Why the best deals don’t need a calculator
2:42 - The job of rentals and your financial goals
5:42 - The Gross Rent Multiplier
8:23 - The 1% Rule
11:10 - Cap Rate
15:31 - Net Income After Financing
18:31 - Cash on Cash Return
22:01 - Why Equity is Important
24:50 - 4 Ways to build Equity and Wealth
🔗 FREE Rental Analysis Cheat Sheet with Formulas:
coachcarson.com/rentalcheatsheet
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I made a new video that explains how to do deals in 2023 if the 1% rule or other cash flow rules of thumb don't work: kzhead.info/sun/ZbVsor5xjZeOp2w/bejne.html
I started watching about real-estate videos since 2021 but ... This one of the few channels which provides really deep insights and number calculations..... Good work bro 🔥
@@chandra0094 thanks for the feedback! I plan to do more deal analysis videos on real deals soon.
Good video. How can manage taking over a property where there are tenants already in property, keep the rent the same or increase the rent by 10%, which might drive them away and I would be trying to get new tenants during that time? Thanks
Excellent video. Guess not teaching math in public schools is the reason people are broke.
Dozens and dozens of videos, with millions of views and click bait thumbnails and titles, and NONE of them cover this information. "How you can invest!" And then don't talk about how any of it is done. This is quality content and much appreciated.
Thank you Chris!
@@CoachChadCarson And a reply from the content creator! While you're here.. 😄 I'm taking a cash out refi to begin investing in properties. Do you have any opinion on Roofstock or recommendations for purchasing investment properties in other states?
I love your back of the envelope calculation. I have owned up to 70 properties, made large amounts of money, lost large amounts too, but real estate investing really is this easy. You really do a great job breaking things down for newer investors. Thank you!
Thank you for the feedback!
Did you made a profit over all? What advice can you give?
Literally the best keys to keep in mind when considering investment properties! I’m so glad this popped up in my search. Thanks coach! Keep these videos coming!
This is a great video and the first (but not the last) video of yours that I have watched. This video is explained and broken down to the simplest comprehension. Great job.
This video is GOLD. Every real estate investor should watch this. You went in depth on all the major components of real estate analysis and broke down the concepts so well. This is the type of video I'll always refer back to. Thank you!
Glad it was helpful, Jean! Thank you for watching and for the feedback.
Make a video about Transformers
@@CoachChadCarson Coach; I am 63, a college graduate, I am a working person but (obviously) I can retire. I have $20K in the bank for a downpayment on a piece of property, and would like to buy a home (to rent out a room) or a rental property (and I would live in one of the units). I am looking in Texas, the Corpus Christi area. There is a 2 on a lot deal, the owner is asking $70K. The places need some work, need carpet or flooring (and I'll probably choose flooring). I have a "high 700's" credit rating, but I only earn like $2K per month, and I will probably earn less for a while if I retire to do work on the properties. My retirement income will be MORE than what I need to pay a monthly mortgage payment on the properties, but I will be done working on the rental unit (the unit I rent) before a month. Everything works out nicely in my mind. (I will work part-time at the same time I am working fixing the rental unit for rent, so my income should be well over $1,500 per month, not to mention the $20K I have in the bank for investment.) How do I convince the FHA loan people or conventional loan people this is a good deal? The very negative loan broker tells me that the FHA will NOT let me have a loan, that I will have to go to conventional loan, or private money -- what do I need a loan broker for? Anyway, the rents in the neighborhood where I will buy is about $800 per month. That kind of rent will be enough to pay the loan and expenses and even pay a small positive cash flow. I will even rent a room out in the other unit on the property that I am living in myself. All your criteria seem to be met with this deal. How can I get the lenders to agree? I am looking at becoming a real estate investor. I was a licensed general contractor for a few years between 2017 and 2019, then I decided I would become a teacher -- when the state of California opened up its "district intern" program and I found out about it. I was on a "district intern" program in 2009, "hired" by the Los Angeles Unified School District in CAlifornia. Then it closed up, and I had no teaching job. In fact, I had no real job until 2014, doing a bunch of gig jobs, mostly handyman work, some paralegal work too. I got a job in a credit card factory in 2014 and worked at that for 3 1/2 years until in 2017 I decided the economy was good enough to try something else. But at a Christmas party in 2018 I found out that the "district intern" programs re-opened, so I went and signed-up with the Los Angeles County Office of Education as a "district intern." I finished the "teaching skills" part of their program, but did not yet take the "subject matter" skills exam, but by that time the PROGRAM CLOSED AGAIN! But this time for "covid 19" reasons. I left for Oregon to stay for a cheaper rent at my sister's ranch in Oregon. Too cold for me there. I am moving to Texas. That's my life story. Let me know how to get a loan at the best possible rate either by conventional loan, FHA, or maybe private money. I am working now, in Oregon, but moving to Corpus Christi like in a few days. By the time you read this (if you do) I will be in Corpus Christi. I will try to become a teacher in Texas too -- they have "district intern" programs there too. But I will keep working either as a teacher or as a handyman working on my own properties and part-time at a golf course and pull my SS retirement income at the same time. I am still quite spry. I look at my physical work as exercise. I am in shape and I do not shy away from work. So, again, you know my life story here, let me know what you would do, especially with regard to getting financing. I understand I can obtain as many as 10 rental properties using FHA financing? Great! I really want to set up for retirement and owning a lot of rental property. I think homes are best to rent, but maybe apartments are good too. Would like to eventually own a mobile home park.... let me know something. Thanks
Op
@@billygraham5589 I wish you great success in you endeavors. However, focus on one thing first. Ask yourself what do you want. Real Estate is the industry that have made tons of people millionaires, but the industry needs focus. Becuase Rental Properties business is different from investing for capital gains, also different from mobile homes, homes parks, or RVs. Also different from airbnb So decide what you want and focus on it. Because although all real estate have these same valuations formulas, the business side individually have some perks you must know so you can achieve your dreams. Again I wish you great success you are doing great.
Thanks for continuing to help me add to my finance toolbox, Coach!
Happy to do it! Thanks for watching.
Ton of Value... clear as the wind love it. Much blessing to all!
Love this! You broke down each rule very well and helped me to better understand the foundations of them. I know NIAF as cash flow so my mind was a bit blown when it clicked that you were talking about the same thing.
Thank you so much for breaking down how to analyze a property and then how to compare it to other potential properties. I’m just starting to consider rental properties and this was the perfect video to begin thinking about the relevant factors.
Glad it was helpful, Hannah! thanks for watching and good luck with your next steps.
Brilliant - Thank you for really breaking it down and laying it out - Really appreciate it! Im not great with excel - this really helped with being able to properly format. My clients will be equally as grateful! Looking forward to the rest :)
You're very welcome! Thanks for watching, and I'm really glad to hear it was useful.
So agreed
kzhead.info/sun/eN2elqWxmZh9mpE/bejne.html this channel will help you this guys explains very well
This is the best video I have found on the internet about the topic. Well done!
Thank you, coach. You've clarified to a new investor like me important analysis better than others I have listened to.
Hi Coach Carson, THANK YOU VERY MUCH for this comprehensive rental property analysis for both income and equity sides. Quick question: among the four income metrics - GRM 1% rule, cap rate, NIAF, and CONC, which one is the most important one? Let's say we compare between Property A and Property B and Property A has a better GRM but worse NIAF; then which property is better overall? Is there a weighted average that can be assigned to each of these income metric? Also on the equity side, can you educate more on how to find discounted deals? (i.e finding through a specific database, associations, networks, etc). I am looking forward to learning more from you!
Thank you for putting this simple yet in-depth presentation together. Simple math education in real estate at its finest. This was so helpful and it didn’t take some flashy so called “guru” giving vague examples. Wishing your channel much success!!
thank you Jake! I like it simple (for my own understanding!!).
These are some great formulas when analyzing properties on your own. When we find properties for our clients in the Toronto area, we just run the numbers through our Property Analyzer spreadsheet for them. That way we can send them only properties that meet their cash flow and ROI expectations. Often we have to show clients what to expect from different markets so they are disappointed when we start looking for properties. But it also allows us to make a quick move on really good deals when they come up.
So far your video is my favorite. Simple, easy, clear! Thank you!!!!
Thank you!
Hey, thanks so much for the video. I’ve sat through lots of videos to better understand how to “run the numbers” and not many are as easily explained as yours. I’ll certainly refer back to this over time and have subscribed to your channel. Keep up the great work!
I appreciate that feedback, Jeremiah! Glad you stopped by and I look forward to connecting on other videos.
This is great information provided for free. I’ve been doing this stuff for a while and I haven’t found anyone on KZhead that explains it as well as you. Great job sir! 👏🏼
Thank you for that feedback, Brandon! 🙌
Man I am not going to lie to you, this is probably the best rental property investment video I have ever seen
I really appreciate that Henry!! 🙏 Thank you for watching.
Agreed! Every time I look at a property I have to review this video several time as one of the best video for new investor like me. Wondering if @CoachChadCarson has any video on offer price.
If you got to say I’m not going to lie… you’re probably lying. Just say this is the best video you’ve seen for real estate investing.
Bro you are easily the most honest educational content creator out here on investment in real estate....thankyou for not being dramatic for likes and subs..I watch this several times to keep me grounded
Great stuff Coach. When you taught us the NOI formula in 2011 it was a lifesaver. Thanks for stacking these tools so that we can understand how the cash flow analysis interacts with comps and how to prioritize. This is one of those dense content videos that I will need to come back to a number of times.
Understanding NOI really is a game changer. Yet, so few people do it correctly! Go figure:)
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That was a really good analysis. I’ve been around real estate for 15-20 years now, and you described these income elements better than I’ve heard before. I will definitely use this to teach my kids :-). Thank you
Thanks for sharing, Jimmy! Passing this knowledge down to others so they can use it successfully is what it's all about!
Thinking about a business to make money weekly,, With over 60,000 account holders blockspace has been at the forefront of the forex trading industry since 2016,access over 10,000 global markets and trade with attractive marginal rates..it is regarded as one of the best, most beneficial, brilliantly successful companies in the industry of forex trading
Have you considered doing something useful though?
Thanks for the time stamps in the description.
While I knew most, if not all of these steps! I truly appreciate you making this process available!
Happy to share! thanks for watching.
Watching this video I feel like sitting with Coach Carson at the pubs bar counter and having a beer while he explains it all. Great content
Cheers my friend! 🍻
You summed up almost everything I have learned and used in 40 years of real estate investing. Great job. No exaggerated examples to make it look too easy. Thanks. I'm forwarding this to several close friends.
Wow. Thank you for that feedback. And I appreciate you forwarding it to your friends.
Thank you so much for this video! Completely new to REI. I stumbled upon a property that seemed like a good deal but needed a video to help me confirm it with numbers. This video is exactly what I needed.
Love this guy and his simplicity🙂
Stuff like this does not get taught in school.. At least not any school i've ever been to. Thank you.
I went through entire exercise of writing everything out and working out the formulas with real properties with my notes, then once I understood it a little better (I had to rewind several times, haha) I printed the cheat sheet and added some abbreviated notes as reminders. Great, simple tool for what at first seems overwhelming. Thank you!
Students who take notes and apply what they learn are the best! Nice job Nancy! It definitely makes me happy but more importantly, I think you'll notice a difference in more confidently analyzing your own deals.
This is exactly what I needed! Thank you, you've got a new subscriber in me!
What a helpful video, im an accountant looking to do my fist investment and didn’t want another pep talk video about investing, I wanted numbers and formulas and you did just that, thank you soo much!!
I saved this one for sure Coach. It's a life long tool. Your KZhead is great!
Thanks Sam!
A well thought out and easy to understand overview. Thanks for taking the time to put this together Chad! I'll be sending this along to my own clients.
Thank you Brent!
Your clients will think you are stupid. Please check out my comments for why this information is flawed.
Thinking about a business to make money weekly,, With over 60,000 account holders blockspace has been at the forefront of the forex trading industry since 2016,access over 10,000 global markets and trade with attractive marginal rates..it is regarded as one of the best, most beneficial, brilliantly successful companies in the industry of forex trading
kzhead.info/sun/iqqTe6mhpoNto3A/bejne.html
Bro I’ve watched so many different people on KZhead on real estate and so far you’ve explained this way better than every other KZheadr I’ve watched . All the other KZheadrs will make 5 min videos and honestly just brag. But you my friend take your time and break it down. I learned a lot from this video thank you. I subscribed
Thank you for the feedback. I really appreciate you watching and learning with me. Hope we can do more!
you are awesome buddy, this guy just gave us all this free info and isnt trying to sell us a course
Hey, this is the first video of yours that I've seen. Really like the drawn explanation. Some other channels just run through the subject like you're supposed to know what it all means. Really liked this approach for folks like me hoping to get started. Looking forward to browsing your other videos. Thanks!
Thanks for watching! And I'll keep that in mind and plan to draw out more explanations on the little whiteboard:) Hope you find the channel helpful.
That’s what I’m saying bro 💯
Thinking about a business to make money weekly,, With over 60,000 account holders blockspace has been at the forefront of the forex trading industry since 2016,access over 10,000 global markets and trade with attractive marginal rates..it is regarded as one of the best, most beneficial, brilliantly successful companies in the industry of forex trading
I learned something similar to this in an audio book series. They taught NOI similarly, take total annual rents then subtract property payments on a 15 year mortgage, then subtract 10% of total rents for management fees, 10% for maintenance reserve, and 5% vacancy rate. If the NOI was positive after all those deductions then it was a deal, with expectations of 3-5% rental increases per year.
what audio book please
@@albe7292 The Weekend Millionaire, I got very lucky my first property. I was looking for warehouse space for myself, at least 3k sq feet for my business. In the area I was looking, I found a property for sell that had 2 buildings 10k sq feet each. With this formula you can value a property to the penny, if asking price is under that then its a buy. In this particular case, in my area you could rent 10k sq feet for $2400 easily per month, so 2 buildings 4800 per month. 4800x12 is 57,600 in expected rental income. Subtract 10% management fees, 10% maintenance fees, and 5% vacancy, bringing net income down to 43,200. Then deduct taxes and insurance which is around $3000 a year combined. So $40,200 was net rental income. If my total payments per year are under 40,200, then I cash flow the difference. Anything over is an easy no. The owner was asking 200k on the property and tax value was around 180k. He owner financed for 15 years at 4% with 0% down. My payments are $1479 per month or $17748 total, so the property cash flows over 22k per year, assuming I never raise rents, and in 15 years I own it. The Weekend Millionaire was probably done in the early 2000s, but its rules are the same. Most properties that hit zillow, redfin etc have already been picked through, and are well represented. The best deals are from just reaching out to people personally. The course talks a lot about structuring deals and offers to best suit the sellers. The $30 course over a 15 year period just in my 1st property will add over million dollars to my total income/net worth.
@@OptionsJunkie Happy for you! There are some big home improvement expenses such as Roof, HVAC, and Plumbing... did you factor them in maintenance fees 10% as you mentioned?
@@HungNguyen-qo9xt The audio book goes into details about any renovations that need to be done before purchasing a new home like hvac,, new appliances, or roof etc. Those problems are all solved with the math prior to even purchasing the home, and all fresh before the 1st tenant. The 10% maintenance fees pretty much covers all future home repairs. A roof typically lasts 20 years and Hvac 15+, I buy 5 year warranties on all appliances to cover my bases. A rent of say $1800 a month brings in over 43k in 20 years in maintenance reserve. I got a new roof on my home in 2020 and it was $14000 and I have 3700 sq ft. So say the avg roof for an 1800 rental is $12k, new Hvac replaced in that 20 year spread another 12k. That leaves you with 19k to buy what appliances needed, and I believe is plenty, but if you felt you needed more you could reserve 12 or 15% in the math.
I just ❤ this video. This is what I have been looking for the longest time. Thank you, Coach Carson! Keep them coming! 🎉
Went through twice - second time taking better notes! Will put this to work. THX!
What a great video, thank you! Everything was explained in a clear and concise manner, with no fluff. Just what I was looking for. Again, thank you!
Thanks for watching! I'm glad it was helpful.
Great teaching. I have been in real estate rentals for years; nevertheless, your analytical method is so true and easy to understand to apply. Thanks.
I appreciate that feedback, George!
Thank you for making it simplified and easy to understand
This is a super informative video. Thank you for putting the time an share w us!
Love this video I’ve been looking for a simple explanation to start calculating deals. Thank you love the content! Keep it coming!!!
Great! Glad it was helpful. Thanks for watching.
I appreciate your emphasis on why equity matters. I also tell my clients all the time that appreciation does not pay your monthly expenses and to pay attention to income and expenses. Great video! Lots of gold nuggets.
Very true! Lots of real estate investors who are rich "on paper" but have trouble paying the bills (especially in a downturn). I appreciate the feedback and best of luck with your investing and helping clients.
@@CoachChadCarson Yes! I totally agree. Greetings from Chicagoland
Great video! Sooooo simple and straight to the point. Thank you very much.
This was great Coach! Very clear and easy to understand. Thx!!
I really enjoyed the video and format, Thank you !
Glad you liked the format. Thank you!
This video is so helpful and have watched multiple times and can’t recommend enough. Even people with no finance background can make sense so easily. Thanks, Coach.
Thanks for the kind feedback, Khushbu! I appreciate your stopping by to learn.
@@CoachChadCarson With the high prices of houses, I have searched and haven't found a house in our area that meets the 1% rule. Does this mean to wait until rents rise in the area or home prices fall or both to get closer to the 1% rule...or has things changed with the 1% rule
@@CoachChadCarson How do you know what the rent should be in a particular area since it fluctuates even in the same city (in Memphis, rents can range from 1200 dollars/month in the less desirable areas to 2200 dollars/month in the better locations. Do you use a real estate website and look at rents in the area to get an idea.
@Brian Borkowski ... guy, if you can't see the writing on the wall at the moment in terms of the market, you aren't cut out for this kind of work.
@@brianborkowski5977 hey Brian, I made a newer video about that question. Let me know what you think: kzhead.info/sun/ZbVsor5xjZeOp2w/bejne.html
This is the most articulated and simplistically explained property Investment with calculations I have ever come across so far.
Thank you so much, Mfundo!
Great info, works for any beginner and even experienced investor. a must see video. Thank you!
All of these formulas are also most commonly used in stock analysis, for example the 1st formula: GRM can be compared to a stocks P/E ratio (price/earnings). Its amazing the power of these financial tools and how they work with all asset classes. Thanks Coach!
True! There are some nuanced differences but pretty much the same concept. Thanks for watching!
Thinking about a business to make money weekly,, With over 60,000 account holders blockspace has been at the forefront of the forex trading industry since 2016,access over 10,000 global markets and trade with attractive marginal rates..it is regarded as one of the best, most beneficial, brilliantly successful companies in the industry of forex trading
Really good content. Explained pretty nice in layman terms so any one can understand.
Glad it was helpful! Thank you for watching, Kumar.
4yrs ago starting my real estate journey your video taught me alot thanks CC
Fantastic! I appreciate the feedback, and congrats on making it to 4 years of real estate investing.
Yeah I'm youtube university all the way lol 😂
Mind blowing information, I took 3 pages of notes, thanks for taking such great time to explain
Thanks for watching and taking notes, Sara!
Property prices have increased so much in the last two years in my area, its priced the rental market out of existence, there is no way you could look at a house at the 1% rule, even breaking it up into two or three rental spaces, the average person couldn't afford the rents.
I live in California. The 1% rule is impossible here.
True 100 💯 I’m in California and that’s impossible. As an investor should I wait or just accept 0.2% rent ?
We Californians are like where is he getting these house prices from.. you can’t get much for under 500k in California.. 500k/ 30k 2500 a month rent) = 16.6 That’s not too bad but with a mortgage and high interest rate cash flow would most likely be negative..
You can purchase property anywhere in America. Tennessee is a great place for incredibly inexpensive homes. If you’re dealing with section 8 housing then the rental income is guaranteed.
@@restorationcarpetcleaning4140 So are the major damage to the property as well as twice the people on the rental agreement and three times the number of dogs or cats plus guaranteed smoke & pot damage.
This was great! Simple-straight forward. I have been in real estate forever-love this.
Thank you Janice! That feedback means a lot.
great job explaining in simple terms. thank you
Yet more awesome RE content from the Clemson Tiger! Thanks Coach, will share! :)
Appreciate it Gregory!
Thinking about a business to make money weekly,, With over 60,000 account holders blockspace has been at the forefront of the forex trading industry since 2016,access over 10,000 global markets and trade with attractive marginal rates..it is regarded as one of the best, most beneficial, brilliantly successful companies in the industry of forex trading
When calculating the net income after financing, should you include not only your p&i payments, but your closing costs? Where are they reflected? Thank you so much for your podcasts and videos! They've been very helpful to us!
Good question. Closing costs are included in your cash on cash return. So, it is added to your down payment. And thank you for watching!
Great 👍 way to do it.
wow a very calm and neat way of explaining... that set my mind on stepping forward with analyzing more deals. thank you very much
Amazing video, thanks for explaining this formulas so smooth, you made me feel that I can make it!
thank you so much! You make it really simple and fun to learn. I'm 19 and im so excited to purchase my first property! Would love if you share tips on investing in rental properties for beginners. Love ur vids!
Thanks for watching Zerlinda! I actually have a playlist of videos for new investors. Here it is: kzhead.info/channel/PL5F-I4oW-y2GSa4B55DgpGOXFwhqMcCAm.html
I'm jealous you are getting started so young, I wish that had been me. The best thing you could do to start IN MY OPINION is to house hack. i have a few videos explaining it on my channel. But essentially just buy a duplex instead of your first single family home like your friends will be doing. Then move in one side and rent the other. The tenant will pay you rent and use that for your mortgage. You should be able to get most of your mortgage paid for that way. Then get a roomate. a significant other or best friend and charge them fair price as a roomate and BOOM you've probably paid for your entire mortgage. NOW you are living for free. NEXT BIGGEST MISTAKE is dont burn that newly freed income. SAVE it and invest in property number 2. This is the one that starts making you MONEY. Then buy number 3. 4 years after buying your first property you could easily have 3 more. And probably you are retired and financially free by 26 or 27. Good Luck you can DO IT
@@MillennialMike mo poomk kmmmmmmmmmmmk
Thinking about a business to make money weekly,, With over 60,000 account holders blockspace has been at the forefront of the forex trading industry since 2016,access over 10,000 global markets and trade with attractive marginal rates..it is regarded as one of the best, most beneficial, brilliantly successful companies in the industry of forex trading
Buy a duplex or 4 plex n owner occupy.
One of the best videos on real estate 101. You are literally teaching like a teacher and that really helps . I'm completely new to real estate investment and this video has motivated me in the first 7 mins itself. Thank you so much
followed the whole video, i must say you made a good job making me understand the property market in a nutshell. thank a lot
Glad it was helpful! Thank you for watching Simo.
This is fantastic. Thanks for putting this out there
I read the book "ABC of real estate investing" this the same information that was said in the book. It gaved me that extra boost of understanding the concept of each term and on how to analyze a property. Thank you so much for the helpfull video, for sure already subscribe, will keep watching your videos!!
That's a great book! He's an excellent teacher. Thanks for stopping by.
This is great stuff! Once thing that can easily confuse people though, is using your own terminology that is not standard terminology used in the market. An example is using NIAF (Net Income After Financing) which looks to be exactly the same thing as Net Income. I've been in the industry for quite a few years and never heard Net Income referred to as NIAF. That confused me when watching this video. Love your vids though
How can this be confusing??? NIAF= (Net Income After Financing), is common sense for what it is.
@@dennisgarcia7590 It's also common sense to stick with standard terms instead of inventing your own new redundant terminology that means exactly the same thing :) It would be like inventing my own accounting term "accounts receivable after billing" which means the same thing as "accounts receivable". What's the point?
great video "running the numbers" always sounded so foreign to me and such a loaded term, thanks for this well curated breakdown, hope to teach like you someday
Great presentation with vital information 👏 👌 👍 Great job keeping it simple and easy to understand.
Thank you Coach Carson for your time and effort to make this video , your explanation is easy to understand and very thorough. You help a ton of people, it's a very valuable information you are sharing, you have a good heart!!! May you and your family receive many God blessing!!!
Thank you so much, Lisa! I'm really happy to hear that it's been helpful.
I think so
Thank for the quick calculation methods. I would love to see more market specific examples. In Seattle, there are a lot of 1 bedroom units going for $2000/month but the SFR property likely costs close to $800k. Would we need to factor in multi unit SF homes? I can't see where a $200k home could get $2000/month. Would love some examples. Thank you!
Noted. Good suggestion on examples from different markets. I'll plan to do some deep dives on running the numbers in different places in future videos. Higher priced markets have a different dynamic of rent to price ratios. So, the 1% rule is less applicable - which also means they do not produce as much cash flow for the price you pay. You have to either make money in other ways - like appreciation (forced or passive) - or you have to find other niches where cash flow is better, like short-term rentals, commercial, mobile home parks, etc. Some people also just invest out of town in other markets that do have the cash flow dynamics they want.
The beauty of these formulas is you could literally sit down with Zillow and start running numbers on properties right away. You could analyze properties while watching Netflix or waiting in line.
Great video. Good explanation of property/deal analysis. Exactly what I needed. Thanks Coach!
Glad it was helpful, Perrier! I appreciate you watching.
fantastic !!! VERY well done and clear ....very much appreciated !
Wonder about the 1% rule, at least where i live! We are usually happy with a net return of 6-7%. In your example you get 12,6% which is great but sadly not realistic as far as we are concerned.
thanks for the comment. The 1% rule doesn't work everywhere or with every type of property. In my experience, the 1% rule translates to a 6-7% NET return (without leverage). This is after deducting all your operating expenses, because the 1% rule is just a ratio of the gross rent.
I trust you because of my Clemson tigers helmet hanging in all its glory.
Go Tigers! 🐅💪
This is kind of info I was looking for! Thank you
Glad it was helpful! Thanks for watching, Rochelle.
One of the best condensed and precise video on rentals. 👍 great
Thank you for watching!
I'm just on the 1% rule so far. At the moment, in the market I live, no homes come close to the 1% rule. I know you mentioned you could adjust it as needed. You gave the example of 0.8% rule instead. I'm curious if others are finding it basically impossible to find a home that meets this criteria.
i was thinking the same thing!
1% rule is rare to find. A way to meet the 1% rule I sort of see is to find a remodel that’s empty of renters, fix it up, then get new renters at the current market rate. This would have high up front costs and take time to generate income.
Thanks for the great info! I knew, as soon as I saw that Clemson football helmet, I was gonna have to listen at 1.5! Go Tigers.
Ha, Ha. Yep - slow talking down south:) If I have to listen to myself when I edit videos I use it on 1.5x speed as well, so I understand!
Incredibly helpful! Thank you!
Thanks so much for breaking this down. I can do this
BEEN DOING THIS FOR 30 YEARS!!!!!!!!!!!HAVE 40 PROPERTIES I QUIT MY JOB AT 39 IN 2004!!!!!!!!!!!THE BANK WAS GLAD I QUIT BECAUSE THAT GAVE ME MORE TIME TO WORK ON MY RENTALS!!!!!!!!!OH YEH I GOT LAUGHED AT BECAUSE OF MY JUNKIE HOUSES!!!!!!!!!!!!!!!BEEN DOING WELL EVER SINCE!!!!!!!!!!!JESUS IS LORD!!!!!!!!!!!!!!!!
Well done!!
Amen
Ok 😳
Kind of a long and drawn out statement of what my Grandfather taught my Father in the 1940's. 100 times the monthly rent equals a fair price for a property because this gives you a 12% return on your gross investment and you can make a profit on that after usual maintenance. KISS
Your grandfather was a smart investor. Kept it simple!
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Literally the best YT post I've seen on rental basics!
Thanks Jake!
@Coach Carson Ordered your book on Amazon 🙂
Awesome video, I actually learned a lot from this. Thank you 🙏🏽
1% rule doesn’t work anywhere in Australia, it’s more like the weekly rent = 0.1%. So a $400k property can get $400/week, sometimes, but often not. I have never seen a $400k property that can get $4000/month.
That's what I heard. How much would yiu guess an average property in your location has appreciated over last 10 years?
yes, same in US too, you never get a rent, all real estate is depends on appreciation.
I agree for Australia that 1 percent does not work.
*Internal Rate of Return* is the best metric I've found to see how a rental performs. See me break it down in this next video!! ► kzhead.info/sun/e66nntSQpoRsrGg/bejne.html
Good video but what I don't understand is how can one find the CAP RATE on a property BEFORE they own that property and by owning it would know what their operating expenses will be? How can one know their operating expenses before having the property and thus how can you do the math to get the CAP RATE?
And the other question I had is: do we need to use ALL or just some of these calculations in order to size up a property to determine if it's a good deal or not?
@@jjr4070 good question. Short answer - you just have to estimate. But you can get good at making fairly accurate estimates. For example, property tax rates are on your local tax assessor website. For insurance you can get quotes from an agent (or talk to investor friends to see what they pay). Management fees you can get quotes on (often 8-10% for my residential properties). Maintenance is tougher to pin down because some properties have a lot more than others (older, high maintenance materials, etc) but just to give a rule of thumb my properties have averaged between 10-20% for maintenance and capital expenses over time. All of this together allows you to run the numbers on net operating income and cap rate before buying.
@@jjr4070 most people don't use all. It's like tools in a toolbox - some people prefer one tool over another. And there are certain tools more useful in some situations than another. For example, I just use GRM for big picture market analysis. But NOI, NIAF, and cap rate (actually it's close cousin unleveraged yield) I use on every rental. I like to use a few core metrics because each one might tell me something a little different about the deal - like different gauges on an airplane dashboard. Hope that helps!
is this all the math involved in income approac for appraisers ?
This is probably the most informative video i have found so far. Most videos just go through tips and ideas, but dont really tell you how to calculate the numbers.
Thanks for the feedback! I appreciate you watching.
This is one of the best videos I’ve seen so far I’m a new investor and have scrolled over countless videos Chad thank you for breaking it down. This is the exact information that I was looking for to be able to start analyzing. I really appreciate it. It’s gonna stick with me for lifetime.
Awesome! Thank you for the feedback and for watching. It will take some practice but you can do this!
A cap rate is not a return. They come from an income approach to value called direct capitalization. An investor never needs to calculate a cap rate. That is done by third party professional companies such as PWC that analyze closed sales and derive cap rate comps. All thos do is tell the market what $1 NOI is currently selling for. You cannot calculate a cap rate unless you have the NOI or the rate. Only a very poor investor would try to use asking prices to calculate anything. Also a cap rate has nothing to do with financing. It remains the same with no financing or 1oo% financing. So if you buy my $10,000 NOI for $100,000 you think you are making a "10%" return? NOPE! I used direct capitalization correctly and used cap rate comps of 12% X the $10,000 NOI and bought for $83,333 and made $16,667 by flipping it to you because you don't know how to use cap rates. Where's your 10% return now? Chad, back to the showers.
"an investor never needs to calculate a cap rate." You do know the same concept of a cap rate can be used by a 3rd party appraiser AND this poor investor who wants to evaluate a particular property? And this same poor investor can buy that property BELOW that market value because he or she understands how to use them more broadly than an academic exercise? Or maybe I should just return all the properties and profits I have earned over the the last 17 years with my incorrect use of formulas.
@@CoachChadCarson First, you are not calculating cap rates. You are doing some novice calculation that I call a crap rate. Direct capitalization is V=I/r You do not have a V or an r and cannot correctly use direct capitalization with only one input of a three input equation. You are wasting your time. Secondly, a 3rd party will not have access to the principals of multiple closed sales to derive meaningful cap rate comps unless they are working for firms such as PWC or an Assessors office. Appraisers rely on these firms for cap rate comps that can then be used to VALUE the NOI's of their subject properties. They are not deriving their own cap rates. Thirdly, when you buy "below market" you have created a new higher cap rate and if the property is of any significance then the professional third party company such as PWC would analyze the sale and determine if it means that the market is actually softening or if there were circumstances to the sale that explained the increase in cap rate. And finally, any success you have had has been in spite of your obvious ignorance of direct capitalization.
@Walina1001 I bet you're a lot of fun at parties...
Well done! I love to learn from simple and clear directions. You did a great job explaining this.
Thank you for the feedback, Charlene! I appreciate you watching the video. Best of luck with your own investments.
Hands down one of the best videos to watch. It is worth the time! Thanks @coach Carson.
Great to hear! Thank you for the feedback.
The 1% rule is meaningless. It is just basically a PTR ratio, (price to rent). Rents are negotiated between renters and landlords. Prices are negotiated between buyers and sellers. All the PTR ratio tells you is that in a 1% market $2000 rent will sell for $200,000. In a .5% market that exact same $2000 rent will sell for $400,000. Why would a seller let their property go for half price if in fact their PTR ratio made their property the better property? This is mostly a scammer ploy to sell low value properties. The better thing to look at is the change in prices and the ratio. If the 1% market sees small to no appreciation you are better off in a .5% market where prices appreciate regularly. Skip the PTR ratio. It is a useless metric.
I guess stock investors should skip P/E ratios too? Amazing. Please let all the financial publications in the world know.
@@CoachChadCarson I'm sensing that you have no concern for dispensing correct information. You are trying to muddle real estate investing terms with stock terms. Why don't you try to show how the 1% "rule" is equivalent to P/E ratios. I'll be happy to show you where you go off the rails.
SIMPLE In a 5% cap market investors are paying $20 per dollar of possible NOI. In a 10% cap market they are only paying $10. NO ONE can tell me which is the more profitable market from that. Not you., not Chad. Yet Chad wants to charge for the misinformation and you want to blindly go along drinking the Kool-ade If there are any professional investors that can support your misinformation I challenge them to step up. Hey, let's ask Ben Why!!
Awesome! I think this is the most informative video I have ever watched. Thank you .
Wow, thanks Kenison!
Thank you for this video Coach. Really appreciate it.
You are using GRM's incorrectly (backwards). They are an income approach to VALUE. You are starting with some value that you don't identify where you got it but it really doesn't make a difference since if you have the value you are wasting time calculating GRM's. V=rents X GRM's from similar properties that have CLOSED! It doesn't tell you if it is a "good" or "bad" investment it just tells you that in a 20 GRM market a $1,000 of rent is selling for $240,000 but in a 12 GRM market investors will only pay $144,000 for the chance to get that same possible $1,000 rent. Which is more profitable? Can't tell from a GRM but I would wonder why investors are paying more in the 20 GRM market. You are leading people astray.
Math formulas can CORRECTLY be calculated forward OR backwards depending upon what you need to know. In this case, it is easy to find price and rent data. So you figure out GRM, which describes the mathmateical relationship between the price and rent. If that is leading people astray, not sure what you are aiming at. Please listen closer before commenting. I never said a GRM tells you if it is a good or bad investment. It tells you how good or bad a market or a property is at producing gross income for the price paid. It's important not to get stuck in semantics but rather to use math to make good decisions.
@@CoachChadCarson OK, where are you finding price? From what I saw you are using listing price. That is foolish. And why are you trying to solve for GRM on a listing? That is backwards. GRM's are an income approach to VALUE. You look at closed sales and correctly determine what GRM they sold for. THEN you can correctly solve for VALUE using those GRM comps. If The comp GRM's were around 10 then if you want to buy a similar property with $4000 rents then you can determine that the property should sell for about $480,000 even though the buyer is asking $600,000 and you wasted your time calculating a 12.5 GRM. I am trying to save you time and money.
@Fidel Obu Please reread. I never called anyone foolish. I correctly stated that using a listing price in any calculation in direct capitalization is foolish. Do you disagree with that. Let's discuss the content and not get our panties in a bunch trying to deflect from what is important.
Slow your role Walina1001. It's always a good idea to calculate CAP rate and use GRM when evaluating an investment property. They're not the end all be all and Chad's not saying they are. They're not going to necessarily tell you that they are or are not bad investments but they can suggest that they may or may not be. They give you a relative measure of the investment. The more information and analysis tools you can use when evaluating a deal the better. If not for your sake than so you know how other people will be evaluating it if you were to sell it. Because whether you think it is correct or not, Walina 1001, everybody in the industry uses them just as Chad is suggesting. So, you might as well understand how your buyers are going to look at it. And the 1% rule isn't a buy or not buy strategy either. Again, Chad's not saying it is. 1% rule is more of a "should I take the time to go look at it" strategy. It is the roughest of measuring sticks done as the first means of crude evaluation. To any new investors that can profit from the information Chad has taken the time to assemble and make available I'd say: listen to what Chad is saying and get familiar with it. I'd also suggest you not get too bogged down on the exact, precise, acute definition of what CAP rates, GRM's, 1% rules and the like are or are not. Their value is evident on a pretty elementary level. People that get stuck on over analysis like that (not naming any names) don't make good real estate entrepreneurs. They spend all of their time debating superfluous details instead of focusing on what the point of this video is all about. Which is finding and evaluating deals so that (hopefully) you can buy the right ones and get on with "doing what matters" with your life. Which, by the way, is not heckling Chad. Thanks for the info, Chad. As always, great content. Keep it up.
@@antpetz123 You stated, " It's always a good idea to calculate CAP rate " ! That is IMPOSSIBLE! All you have is possibly NOI and nothing else. Please convince me that you can do the impossible.