Over the years, I've used almost every real estate investing strategy, and if you watched my latest video, I talked about them, from starting with fix and flips, to then doing buy, renovate, rent and refinances (BRRR), to just straight buy and holds, to then falling into doing a hybrid strategy of all 3, which I called the Buy, Hold, Increase Rents (BHIR) Strategy.
I talk in depth about this strategy in my video, 'How to Build Wealth in Real Estate FAST', but in summary, it involves buying small to large multi-unit properties, and even commercial properties, at below market value.
Why are the properties below market value?
Because income properties are valued based on the return the property generates.
If the properties income is low due to low rents; below market value rents, then the property will be valued based on the return the property generates.
A property generates rental income of $1,000 per month and has expenses of $800 per month, which means it generates a net income $200 per month; $2,400 per year.
By using the capitalization rate formula, which is:
Net Income / Market Cap Rate = Property Value
And we are to assume the market cap rate for this property is 6%...
The property would be valued at approx $159,000
However, if you were to increase the rents by $200 per month, the property would increase in value to approx. $199,000.
As you can see, this strategy can increase your wealth fast, and all you need to do is increase the income the property generates.
To help you analyze potential income properties using this strategy, I've created a spreadsheet that will analyze a properties income, and future income, so that you can see the potential profit a property will have.
It allows you to look at different scenarios of rents that when increased, change the value of the property, based on the cap rate, which you can also change.
As well, the spreadsheet also allows you too look at the properties Cash on Cash Return, which any smart investor is also going to look at.
This spreadsheet can be very helpful for when you are looking to purchase your next investment property.
Because it can instantly forecast the wealth you can build, if you buy the right property, that is, you buy a property that is below market value, due to the fact the property is generating below market rents.