Here is a real estate investment hack you don’t want to miss out on.
Let’s talk about sleeper properties and how to spot them.
If buying a real estate investment was so easy, everyone would do it. I don't know where you are in the world, but if you live in Los Angeles, the last time I checked, there were 365 available income properties between two and four units. But guess what? Half of them have zero stated in the monthly income. But we know that's not the case.
I would argue that nine times out of 10 times, it's because the realtor or the seller doesn't want to be upfront about the fact that they have tenants in there that are paying below market rent. Did you know that the MLS allows them to just put lines through all that important information?
For a moment, put yourself in the buyer's shoes. You're a real estate investment buyer, and you're looking at properties available. If you have a couple hundred properties that state the monthly income and a couple hundred properties that state zero, you're going to look at the properties that are sharing their numbers up front right away.
If there's a lot of people looking at properties, that's competition. You want to look at the sleeper opportunity that not everybody's looking at. People aren't looking at those properties because a lot of work must go into researching whether something is even a deal. As a realtor, I'm going to share with you, my process.
Whenever I try to find these sleeper properties, I first look for properties that are in a decent location, this doesn't have to be an A+ location, maybe it’s in a C location. I look to see if they're near public transit and that they’re local jobs around. Where there are people, there are jobs and where there are jobs, there is money and people who can pay the rent.
The second step is to do a rental analysis to see what kind of income these properties could get. That way, when I look at these properties, I find the location and then do a quick rental survey. Third, I call the realtor and ask whether it is tenant occupied, what's the rent, and whether the tenants have been there for a long time. I then bring this information to my investor client and let them know that current owners have long term tenants in there that are paying below market rent. I present a projected income analysis and proforma rent and let them know that this property could yield X amount in income. Then we can decide what is a better rate for that property.
The majority of the time, those sleeper properties they're way overpriced because the realtor probably hasn't crunched the numbers and they don't know what the cap rate is. They don't know what the gross rep multiplier is. They don't have any of that information. It's up to your buyer's agent to do this homework for you to find the sleeper properties. There's a lot of steps that go into this, so if you are an investor buyer, you better make sure that your realtor knows how to run a projected income analysis.
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