- Matthew Tortoriello and Kevin Shippee say they use the 1% rule to decide if a property is worth it.
- They then rehab using durable material and limit options that would increase an electricity bill.
- Finally, they pick the appropriate mortgage and screen the tenant.
Matthew Tortoriello and Kevin Shippee are two friends who got together with a common goal: to build wealth through real estate. And that’s exactly what they did.
Since they began investing in property in 2008, they’ve owned more than 542 rental units, property documents viewed by Insider show. After selling some of their holdings, they now have about 200 units made up of mainly single-, two-, and three-family homes, and some commercial and retail properties.
They also have a company called Yellowbrick, a full-service property-management firm that operates out of Massachusetts and Connecticut.
After achieving success, they wanted to help others hit similar goals. They use social media, with the persona Two Guys Take on Real Estate, to teach their followers about the many ins and outs of being a real-estate investor.
In an interview with Insider, they broke down five key factors that they say need to be considered in order to be profitable. These tips might be especially useful now that home prices are soaring at their fastest rates in more than 40 years while rental prices rise at a slower pace.
5 factors for being profitable
Number one on the list is a tried and true method called the 1% rule, which means the monthly rent should be at least 1% of the purchase price to be profitable. This means you’ll need to do a bit of research on rental prices in the area you’re considering.
“It doesn’t always work, but it’s like a guideline to kind of quickly run your numbers and see if the property is worth taking a deeper dive,” Tortoriello said.
The second thing to consider is miscellaneous expenses. Not considering the small stuff can very easily put you in the negative, and this is a very common mistake many beginners make. Most people focus on the mortgage, interest rates, and taxes but forget about things like electricity costs or routine landscaping, Shippee noted.
Adding amenities such as a washer and dryer on-site could increase monthly costs substantially. Shippee adds that most states don’t allow landlords to bill a tenant or make the tenants establish an electricity account, so these costs will be on you.
“My favorite that people forget about all the time is water and sewer when they factor in their expenses on the property,” Shippee said.
The third factor is a property’s durability. If a property requires rehabbing and an investor plans on turning it into a rental rather than selling it, Shippee advises using durable material to keep maintenance requirements down. This means if there’s hardwood flooring, consider finishing it rather than putting in carpet because the former lasts longer.
Adding things such as a good bathroom vent and fan will suck out water and avoid mold. Putting in affordable tub clogs protects the drains, Tortoriello said.
Even when considering parts like faucets, Tortoriello advises investors to use materials that are better grade and have easily replaceable parts. Even if they cost more, they’ll save you money in the long term.
The fourth factor to consider is the type of mortgage that best fits what you’re trying to achieve, Tortoriello said. For example, if your goal is monthly cash flow, then a longer amortization would mean lower monthly payments and a higher profit margin.
Using online tools to calculate outcomes of various mortgage terms is helpful.
Also, consider a fixed rate, which will secure your mortgage regardless of inflation or future adjustments.
Finally, screening your tenants is very important because that will be your income source. This means thinking from your tenant’s perspective and asking yourself whether the rent is affordable for them based on their income. Checking court databases to see if there are any online records for evictions is another important step, Tortoriello said.