A real estate investor shares the process of finding real estate bargains

• Mike Zuber says now is a great time to buy investment properties because there is less competition.
• Start by deciding where you want to buy a property and learn all about that market.
• Next, figure out what an “average supply” is in your area so you can get some good deals.

It’s a good time to get into real estate investing, Michael Zuber told Insider.

“Real estate investors should be much more excited to buy this year than they have been the past two years,” said the young retiree, who owns more than 100 rental units in Fresno, Calif.

This is because there is less competition at the moment. With rising mortgage rates and uncertainty about the future of the economy, fewer Americans are looking to become homeowners: According to an October survey by Fannie Mae, only 16% of consumers think the time to buy a house. This is a weak new survey.

Zuber’s interpretation of that stat is, “84% of homebuyers have virtually exited the market,” which is great news for him and other real estate investors. “As an investor, homebuyers are my main competition. They have lower down payments and they get better rates, so it’s hard to compete with them.”

(Lenders require a higher down payment for investment properties, usually at least 20%, than for primary residences, which you may be able to finance with as little as 3.5% down using an FHA loan or even 0 % with a VA loan.)

For the past three years, Zuber hasn’t been able to find an offer he likes on the Multiple Listing Service (MLS).

“There was too much competition,” he explained. “I watched my market every day for three years and the owners beat me. They could pay more.”

He hasn’t stopped buying property altogether — he’s found off-market deals, he said — but going through MLS was impossible until recently. Two weeks ago he closed a $203,000 home that was originally listed at $270,000, he said. With less competition, there is more room to negotiate.

If you’re a real estate investor, “it’s time to be aggressive,” Zuber said. “You build your wealth as a real estate investor during recessions. A lot of investors were excited the last two years, but it was the riskiest time. The next two years will be the best time to buy.”

That said, you need to be a careful investor and put in the time and effort to find properties that will generate positive cash flow and grow in value over time.

Here’s Zuber’s four-step process for finding great deals.

1. Determine where you want to invest and learn the ins and outs of your “buy box”

Zuber and his wife live in the Bay Area but invest in Fresno, California.

When he started looking for investment properties in 2001, he realized that buying real estate in their backyard was not practical. The Bay Area consistently ranks among the most expensive housing markets in the United States.

Fresno, which is about a 2.5-hour drive from their home, fit his criteria — it had a large population and a diverse employment base, among other promising qualities, he said — and was much more affordable.

Once he settled in Fresno, Zuber defined what he calls his “buy box.” This is a very specific neighborhood or area of ​​the city in which you plan to invest, he explained. Most cities are too big to learn all the ins and outs. If you considered the listings all over Fresno, for example, there would be thousands of them.

“Most new investors are all over the map,” Zuber said. “The first step for any new investor to take is to focus. If you want to be a buy-and-hold investor in a new area, get a buy box and make it hyper-focused.”

Your buy box should consist of 20 to 40 active listings, and it’s not just the specific area you define — it’s also the type of property, he noted. For example, Zuber was specifically looking for 3- and 4-bedroom single-family homes between 1,250 and 1,700 square feet in a particular zip code in Fresno.

To choose your buy box, spend hours driving around different neighborhoods, going to open houses, and checking rental listings. Think about the types of property you want to invest in. Do you want to buy single-family or multi-family homes? Learn about some of the criteria that other successful real estate investors look for in investment properties.

2. Watch your buy box every day for 60 or 90 days and see what’s going on

Once you’ve defined your buy box, it’s time to find out all about it: what are average home prices, what are average rents, how quickly homes stay on the market, and more.

Spend two to three months looking at ads on sites like Realtor.com, Zillow, and Redfin. Zuber goes to Realtor.com every day to keep track of what’s going on in his Fresno buy box.

“The more you know about your buy box, the better your chances of finding a good deal,” he said. “You can’t be casual. It has to be purposeful and intentional.”

3. Determine what an average offer is in your buy box

The purpose of viewing ads every day for two to three months is to allow you to determine what an “average offer” looks like in your buy box. Once you understand what “average” looks like, you can find great offers.

Zuber specifically looks at cash return. It is basically the annual return the investor makes on a property compared to the amount spent on the property during the year. It compares the money you invest to the money you withdraw and is an easy way to measure profitability.

To determine the cash yield, take your estimated annual net cash flow (this will be your rental income minus your mortgage and other maintenance expenses) and divide it by the amount of money you plan to invest in the property. property that year (this could be your down payment or the purchase price of the house if you bought it with cash).

An “average offer” is different depending on the market you are in. Your job in the 60-90 days you spend analyzing your buy box is to figure out what the average means in your specific market.

“In my opinion, you can’t write an offer until you learn what the average is,” Zuber said. “Because once you know the average – let’s say it’s 5% – then you can be sure to write offers that produce 7% or 8% or 9% cash-on-cash. The magic of this business is simply to achieve above-average performance.”

4. Write interesting offers

Zuber defines an “excellent offer” as anything that will produce a cash-to-cash return 2-3% above average.

Using the example above, assume the average cash return in your market is 5%. This means that many will return 7-8%. To arrive at this number, Zuber works backwards: “At what number should I write the bid to produce a lot? »

Currently, he makes about two offers a week.

With people interested in buying a home, now is a great time to make aggressive offers, he said: “I’m always on the lookout for motivated sellers and they’re hard to come by. The only time you can find them is when the competition is leaving, so I’m excited for what’s to come. I’m willing to write lots of offers and will close on every good deal.

When you focus on making the numbers work for you – getting a great cash return – things like rising interest rates don’t matter as much, he added: “I Doesn’t matter whether the interest rates are 7%, 9% or 11%. It’s just a variable on your spreadsheet.”

If you add your cost of capital, property management fees, and all of your other expenses, and at the end of that calculation you still have positive cash flow, that’s a deal to consider.