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R.O.I. Is THE Most Important Thing When Buying Rental Real Estate | Investing for Beginners - YouTube
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what is the most important thing to look
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at when you're investing in rental real
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estate that's today's video let's dive
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in hey there I'm Clayton Morris I'm the
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founder of Morris invest of a long time
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real estate investor and today I want to
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talk about the number one thing the
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thing to look for when you're buying
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rental real estate and that thing
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drumroll please is return on investment
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also known as ROI to me nothing else is
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as important as return on investment I
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talk to investors all of the time who
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owned a property they lived in and then
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they moved away and they kept it and
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they're renting it out and I first thing
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I asked them is what is your ROI and
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they say I don't know if you don't know
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chances are it's either negative or very
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very low for me I don't buy a property
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unless I can get between a 10 and 12
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percent net return on investment that
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means gross is going to be over 20%
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usually that is a very important number
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so return on investment simply means the
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cash I'm putting into the property
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how much cash am I getting back from
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that investment
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how much cash flow am I getting every
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month is that covering what I'm you know
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what I'm paying either on a mortgage
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monthly loan or do I own it free and
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clear but what is that return on
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investment now I have a very simple
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calculator I'm giving it away for free
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it's below this video it's a free ROI
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calculator you can download it and use
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it to figure out rental properties that
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even if you're buying them through us at
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Morris invest or any rental property you
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might want to make sure that the ROI is
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incredibly high so return on investment
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is the number one thing because all of
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the other factors flow into ROI right
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vacancy rate which is incredibly
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important but vacancy rate is built in
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to ROI right crime and so therefore
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vacancies and employment and if I can't
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rent the property and is it sitting
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vacant because there's so much crime and
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there's no jobs and all of those other
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factors
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into ROI you see it's like an umbrella
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it catches everything so if I'm not
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getting the proper cashflow in a
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property then that means my ROI is low
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and therefore I'm not going to want to
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buy that property let me give you a
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simple way to figure out ROI here's the
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formula it's a very quick and dirty
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formula for you to dive into when you're
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evaluating a rental property and of
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course if you're looking at commercial
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properties there's other big indicators
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and there other things you want to look
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at but just for the sake of this video I
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want to explain ROI on simple terms you
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take the monthly rent okay seven hundred
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dollars a month
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multiply that times twelve twelve months
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right and then we're going to take out I
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personally I know I go crazy I'm really
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conservative with my numbers but I want
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to take forty percent out of my formula
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so seven hundred times 12 gives me a
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number multiply that times point six
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that is going to take out forty percent
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okay that is a number now I'm going to
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multiply that I'm sorry I'm going to
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divide that now by the all-in cost of
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the house that I just bought them so
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$40,000 house which is typically what
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the houses that I do and there you go
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right there is my ROI number right there
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that's a phenomenal return on investment
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right
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so if that number is shakes in different
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ways let's say the rent is lower and the
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cost of buying the house is higher where
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your ROI is going to go down there are a
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number of other indicators right maybe
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expenses are higher maybe your taxes are
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higher all of those things are built
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into my formula very important to look
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at ROI when you're considering the
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purchase of a rental property
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to me almost nothing else matters I
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don't care about four walls you know the
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walls or the roof four walls at our roof
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that's a house right the main thing I
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care about is return on investment do
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not fall in love with real estate fall
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in love when you are alive and you'll be
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a successful rental investor I'm Clayton
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Morris please subscribe to the channel
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here we have tons of great resources and
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tons of great playlists to help you
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figure out your journey and rental real
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estate investing and as always you can
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leave comments below this video any
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questions you have I always jump in and
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engage with our audience and please
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share this with someone you know is
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interested in rental real estate please
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we'll see you back here once again we
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always do videos multiple times a week
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and I'm excited to share these with you
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every week have a great one everyone
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bye-bye
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