What Most Rookies Get Wrong When Picking a Rental Market (Rookie Reply)

0:00Ashley Kehr:You're ready to start investing, but now you're staring at the decisions that can make a first deal feel real. Where should I buy? How do I know what the repairs will cost? And should the house I already own become my first rental?

0:13Tony J. Robinson:Today's questions come straight from the BiggerPockets forums, and they're all about turning beginner questions into an actual buy box, budget, and the next one.

0:27Ashley Kehr:This is the Real Estate Rookie Podcast. I'm Ashley Kerr.

0:30Tony J. Robinson:And I'm Tony J. Robinson. And with that, let's get into our first question. So question number one today comes from Evan. And Evan says, I'm 24. I'm new to real estate investing. I was raised to live an ordinary life, but I've realized that's not for me. I just don't want to spend my entire life working nine to five. This year, I've been learning a lot about real estate investing, and I'm getting close to being ready to jump. I have$130 ,000 saved, which by the way, Evan, congrats on having 130K saved at 24 years old. I want to house hack with a duplex, triplex, or quadplex. My goal is to live in one of the units for cheap and possibly free if I can find the right deal.

1:11Tony J. Robinson:That way I can save a lot more money for my next deal. I'll get experience landlording, and I'll have time to learn more until I'm able to purchase my next deal. I understand how to analyze deals. That said, I'm struggling with picking a market or sub market around the Atlanta, Georgia area. How do I analyze markets and sub markets and choose one from there? Fantastic. And again, Evan, 24, asking all the right questions. 24, I think I just graduated from college. So I was like broke basically. So the fact that you're there with 130K is amazing. I think before you can even talk about like market or sub market around the area.

1:50Tony J. Robinson:It's what strategy do you want to layer on top of the house hacking? Because house hacking by itself is kind of almost like an acquisition strategy. But within a house hack, you can do traditional long-term rentals. Within a house hack, you can do a midterm rental. Within a house hack, you can do a short-term rental. Within a house hack, you can rent by the room. So I think trying to decide which of those strategies or maybe even a mix of those you want to layer on first will then help you dictate, okay, which of those areas actually make the most sense for me.

2:27Ashley Kehr:If you decide to do midterm rentals, maybe being closer to some of the, you know, like hospitals, I don't know, the, yeah, the hospitals or like if there's like a business district or something like that, where a lot of the business professionals need to work.

2:40Tony J. Robinson:If you're doing short term, maybe you're closer to downtown where some of the nightlife is and things like that. If you're renting to students, I don't know my Atlanta geography very well, but I assume that there's a university somewhere in the greater Atlanta area. So maybe you're closer to the university so you can rent out to the students, right? So I think first deciding what strategy are you learning on top of the house hack that'll help you dictate which market or sub market makes the most sense.

3:04Ashley Kehr:And then from there, you can kind of filter the results by what is your budget? What's the price point? So are some of these neighborhoods markets, you know, out of your price range that you can actually purchase in? Are some of them actually on the lower end where maybe they're not great areas that you want to live in? And you're also going to look at the rents in some areas, even though the price point may be similar, can actually command a higher rent because maybe it's a better school district or there's a park nearby or something like that. And then also vacancy, looking at the vacancy rate in different areas.

3:41Ashley Kehr:Some rates have or some areas have more turnovers than others. And then also, if you are looking in like a market by a city, like most of my properties are in very rural areas. But one thing I would look at if I was more in a city or a suburb is the transportation and the commute. So, you know, we have, we call it the 219 that goes through, you know, the rural parts of it. And like the closer you are to the 219, you know, the more you can command and rent because it gets you right on to take you into, you know, Buffalo. So I think that, you know, looking at what's transportation and commute times will give you, you know, an idea of what's a better area to be able to get into because people will obviously want to have less of a commute.

4:29Ashley Kehr:And then also just tenant demand. Like, are you looking in neighborhoods where there's a ton of vacancy, a ton of rentals listed? Or are you looking where there's waiting lists at properties? So to get this information, like you can go to Rentometer, you can go to, you know, different software like TurboTenant has a rent estimator and you can kind of gauge what to get for rent and what properties have recently, you know, been listed for and what they rented for. But one thing that I think you should actively be doing when you're doing this market research is calling other landlords or apartment complexes in the area or Googling them if they have websites and looking at how many properties they actually have vacant.

5:11Ashley Kehr:So I was driving through a town that I really, really like, and they have a ton of apartment complexes in this town. And there were signs out front that I have not seen in so long that said two bedrooms, half, half, let's see, how did they phrase it? Half rent for your first month or something like that, where you move in, you only have to pay half of the rent for the first month, and then you pay the full price going forward. And I remember there was years when, you know, it would be like get three months for things like that. But just to see that, that shows me that they're not filling apartments because they're offering this where, you know, another town where I have properties and we have waiting lists of people that are constantly contacting to to get into properties.

5:59Tony J. Robinson:So you got to pay double the month, double the rent on month one to get into some of these other ones. Right. Okay.

6:04Ashley Kehr:So I think the lesson here is to find your market and look at the criteria, analyze each of those neighborhoods, but also to understand what strategy you're going after because that strategy will actually pull more weight into what market or neighborhood you depend on. So coming up, once you've picked the market, how do you walk a property and estimate what it will actually cost to make it rent ready? That's coming up right after this.

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10:10Ashley Kehr:All right, so we've talked about choosing the market. Now let's talk about the part that a lot of rookies need to do when they finally tore a property. And that's where they need to estimate repairs. Our second question comes from Charlie Bemis. Okay, Charlie's question is, what's the best way to estimate repairs to make a property rent ready? Is this something you pick up more over time or is there a good system a rookie can use to accurately estimate these costs? First thing is, gotta plug the book on Estimating Rehab Costs by Jay Scott. You can find this in, it's like the Bible of estimating repair costs.

10:46Ashley Kehr:And you can find this in the BiggerPockets bookstore or in Amazon, Barnes and Noble, but it walks you through how to estimate all of these, but not only that, but like, what are the actual things that you should look for in a property to even begin estimating? The second thing to this is to look at apartments. If you're making this into an apartment and want it rent ready, what do other properties have in the area. So do they all have vinyl plank flooring? Are they all perfectly painted? Do what kind of countertops they have? Because you want to make sure that your property is at least comparable so you can get market rent.

11:23Ashley Kehr:So maybe there's things that don't necessarily need to be repaired, but maybe need to be improved. Tony, your first long-term rental, it was, you had to do a big rehab on it. How did you kind of navigate how to estimate those repairs?

11:40Tony J. Robinson:Yeah, honestly, it's a process that I still kind of leverage going into today. Like if I'm going into a new market, I want to understand like, hey, what does it take to renovate something? But what I did on that very first deal, I was, you know, I'm in California and the property was in Louisiana. I needed basically a full renovation. I talked to my agent. I talked to my lender. And I said, hey, give me some recommendations for contractors that you know in this area. They both gave me a list, reached out to both of those folks. and before I did anything, I just showed them, hey, here's the kind of comps that I'm trying to mimic in this market.

12:14Tony J. Robinson:Here's a property that I'm looking at. Just give me a ballpark on what you think it might cost to be able to get from current condition to this ideal end state. And from those different contractors, without them even like walking a deal or doing anything like that, they were able to kind of give me a ballpark rough estimate. And it's even better if maybe you can give them like, Like, hey guys, price per square foot for like a light cosmetic rehab, for a down to the studs gut renovation. Like, are there some ballpark price per square foot that you can give me as I'm looking at these deals? And then obviously I think, you know, the final step is if you do have a deal that you're moving close on, pay the contractor a couple hundred bucks to say, hey, can you go walk this and give me like a full bid?

12:55Tony J. Robinson:I don't know if I'm going to move forward. I want to be transparent with you, but I'll pay you for your time, right? Go spend a couple hours here. I'll give you a few hundred bucks and just give me like a full itemized bid. And if you can get a couple of those, that's really going to help you dial in those numbers. But for me, Ash, it was like, hey, here's a subject property. Here are some comparables. Give me a ballpark. Okay, can you give me a ballpark? Maybe generally speaking for like a super light cosmetic rehab down to the studs. So I've got a range there. And then once I've got a deal that I really like, hey, can you give me an actual bid?

13:23Tony J. Robinson:And those are the kind of the three steps that I've used to give me confidence going into different markets.

13:27Ashley Kehr:One thing that I do every time I walk a property, I don't do this until I actually have it under contract, but it's not a bad thing to do before you even make an offer on a property. As I take pen and paper and I walk the property room by room and notate things that I just see with my eyes, even if I don't know what it would cost to repair or how to even fix it, I mark it down like, oh, there's a crack in the drywall, the handrail on the stairs that can move easily. It's not sturdy. like I just go room by room and look at everything like there's not enough outlets in this bedroom there's literally one for a whole bedroom we need to add more outlets things like that and I just put it all into a list and then I go and I go on my computer and I list it all out and type it all out nice and neat and then I send it to my contractor and then he takes that list and he walks the property and then he gives me you know calls me as he's walking it and say you I would actually not change this or I would change this or the way you want this is going to be expensive.

14:32Ashley Kehr:Let's try it this way. And then we kind of tailor the scope of work to actually fit what we think both agree on will be cost effective for me, but also make out for a nice property. And then from there, he goes in and writes out what the cost would actually be for the property. So that's not necessarily you estimating on your own, but you can pay a contractor for their time to come and walk a property with you. So I think what Tony said is like leveraging, you know, other people to actually tell you what the repairs of estimates are going to be is one of the greatest advantages of real estate is that there are a lot of experienced people that can actually tell you, you know, what the answers are, what the costs are to different things.

15:18Tony J. Robinson:Yeah. Last thing I'll share with you on this piece is just like how to find those folks. Obviously, I love referrals. If you can talk to someone who's worked with that contractor before speaks highly of them. Great. But also just like keep your eyes open as you're driving around your town. And I pulled up my phone because I have an album on my phone of just it just says contractors. So if I'm ever out somewhere, whether I'm driving or I see someone in my neighborhood, and they've got like one of those, you know, either their number or their sign on their truck, I'll just take a picture of it, even if I never call them.

15:44Tony J. Robinson:But I've got a painting company in here. I've got a handyman. I've got residential and commercial contractors to do a little bit of everything like, and these are just all people and I'm just like scrolling through my phone of a bunch of trucks that Tony's seen as he's been out and around town. You can then go call and say, hey, I saw the number on the side of your truck. Here's your property that I'm looking at. Can you give me like a ballpark quote, right? So that's an easy way to start building that database of folks as well. All right, we're going to take a quick break, but when we're back, Ricky is looking at the home they already own and asking whether to keep it as a rental or sell it to buy the next place.

16:17Tony J. Robinson:We'll walk through that decision when we're back after a quick word from today's show sponsors.

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