If there's one truth we hold to be self evident about real estate investing, it's that it doesn't happen in a vacuum. There's a constellation of individuals just like you looking to build financial freedom through rental properties, and the majority are eager to swap insight and belong to a community of like-minded investors.
Check out this investor profile on Sarah Park, a former Senior Product Designer at Roofstock, for a look at how she picked her first investment property. Sarah is based in the San Francisco Bay Area and has purchased one investment property on Roofstock so far.
- Address: 4317 Park Forest
- Market: Memphis
- Year built: 1975
- Sale price: $95,000
- Current rent: $1,100
- Annual net cash flow: $2,862
- Gross yield: 13.9%
- Cash-on-cash return: 10.6%
- Cap rate: 8.4%
- Appreciation: 1.8%
- Estimated total cash return in 5 years: $23,534
1. How did you go about your investment property search?
A lot of reading, late-night bonding with the internet, and coffee meetings with investors who already successfully invest in out-of-state rentals (because I definitely cannot afford Bay Area homes).
I like to learn from others' mistakes and successes, so I read and listened to as many real estate investor tales as I could get my hands on (mainly from sources like BiggerPockets). It took me about six months of after-work researching and reading before I decided to buy my first rental. Books are my best friend. Here are some of my favorites:
- “The Millionaire Next Door” by Thomas J. Stanley Ph.D.
- “Set for Life: Dominate Life, Money, and the American Dream” by Scott Trench
- “What Every Real Estate Investor Needs to Know About Cash Flow” by Frank Gallinelli
- “The Book on Tax Strategies for the Savvy Real Estate Investor” by Amanda Han and Matthew MacFarland
2. Did you have a set of investing criteria? What elements were the most important to you?
I cared about cash flow, the market, current rent vs. property value (I used the "1% rule" as a quick gauge), and estimated cost of repairs — both immediate and ones that would have to be addressed when the property turned (leased to new tenants).
This helped me understand how much cash I needed to have on hand immediately, as well as how much I would need for reserves to cover turn costs down the road. The great thing about Roofstock is that most properties have full inspection reports disclosing estimated repair costs next time the property turns, which is extremely handy.
3. Tell us about your property and how you ultimately chose it
I initially narrowed down my search based on markets: Jacksonville and Memphis. But in the end, my decision was ultimately driven by return metrics and less by location. The property I found had an 8%+ cap rate and first-year net cash flow of close to $3,000. I knew it would get taken off the market quickly, which motivated me to act fast and make an offer!
I also liked that the roof and HVAC system were in good condition with 5+ years remaining life. Those are big ticket items and being able to view the inspection report on Roofstock gave me added peace of mind.
4. What do you like about the Memphis real estate market?
With single-family rental properties ranging from $80k-$150k, it was a market I could enter more comfortably as a new rental investor. Of all the Memphis investment properties I looked at, I liked the acquisition price-to-rent ratio and the potential returns, given the market rent.
>>Related: Market spotlight on Memphis
5. What lessons have you learned along the way?
Taxes! I had the biggest tax return thanks to the all expenses and deductions I was able to claim. I'm sure I left more money on the table because of my inexperience, but I plan to educate myself more on taxes before next tax season. I also plan to work directly with a CPA next time I do my taxes. I never thought I'd find myself so excited to learn about taxes...
6. Any additional advice for first-time real estate investors or tips you'd like to share?
For first-time investors: Trust the experts and others who have more years of experience in a given market, rental investing, etc. than yourself. At the time, I had zero years of experience in analyzing a home's quality, so I knew it was silly/useless of me to visit the property in person and attempt to inspect the home. I wouldn't have known what to look for.
Just remember to pay attention to the numbers and reports created by experienced inspectors. And ask questions! I personally found people in the industry very open and willing to share their knowledge.