Expected Air Date: 11/05/18
Hello everyone. Today we are starting a series about rental properties and you. Why to do it, how to find them, how to buy them, how to fix them, and how to manage them.
How to contact us
Twitter and Instagram @FlippingAmerica
We now have a profile at houzz.com for what it’s worth.
Call our National Comment Line: 404-369-1018, ext 1. Leave your message or your question.
- Lunch with me every Wednesday.
- Flipping America App is in the app store. You can listen to the show, read the show notes, and the entire catalog of shows is now available to you. It’s a free download and there are no upsells or in-app purchases. Free to download, free to listen. Go ahead and give it a try and drop me a line and let me know what you think.
- Want a quick analytical tool to tell you how strong a potential fix and flip deal is? Download the Property Grade app. You answer 10 simple questions about the property and the app instantly tells you what you can expect to make, your return on investment, your return on cash, and then the program gives the project a letter grade using the proprietary Flipping America Investment Property Grade algorithm.
Topic: Why Own Rental Properties
- Cash Flow
- Buy with Equity
- Force Appreciation – more Equity
- Market Appreciation
- Tenant pays off mortgage
- Tax Advantages
- Ownership expenses
- Business expenses
- Inflation Hedge
- Demand for Product
- Consistent Income regardless of market or economy.
Comment Line calls and Questions
Call 404-369-1018, press 1 and leave your message!
email@example.com Tell us where you’re from!
- Al, Las Vegas, “Am I better off buying materials for my rehab at [one of the big box stores] or should I go to the local lumberyard and building supply?
- Karissa, Milwaukee, WI, “I bought two rental properties a couple of years ago following the 1% rule. In order to get that price I had to buy them in an area that makes me a little nervous, but I thought at the time, ‘people live here, why wouldn’t someone want to rent here ya know?’ But I’m not making money. I’m losing money. It’s taking all of my extra income just to maintain the houses and fix them back up after the tenants move out. What am I doing wrong?”
- Evan, Indianapolis, IN, “I couldn’t make it to FlipStarter. Did I hear you say it’s in video format? I couldn’t find it on your website.”
- Winifred, Villages of Ocala, FL “My husband only wants to use the cheapest paint, the cheapest carpet, the cheapest fixtures and cheapest everything in our investment houses. He says the tenants don’t care and wouldn’t appreciate better things. He also won’t do anything about controlling bugs or termites. He says that’s the tenant’s responsibility and it says so in the lease. I know we don’t want to put the finest products in our houses, but it seems like we ought to be better than the cheapest. I’d like to know how you handle this.”
Motivational Thoughts for the day
“Even if you are on the right track, you’ll get run over if you just sit there.” – Will Rogers
[0:16] America the show that teaches you how to make money in real estate wherever you are whatever your situation there is an opportunity for you flipping America is sponsored in part by American IRA
founded by investors for investors on the web at American Ira. Com,
and by Braswell Capital Solutions commercial lending made easy on the web at Braswell Capital solutions.com,
and now you’re sad flipping America guy Rodger Blankenship,
today we’re starting a series about rental properties and your relationship with them why should you rent them how to find them,
how to buy them how to fix them how to manage them and,
we are not going to neglect the short term rental is going to be a series is going to cover several shows and you know we may not do it in the straight line because sometimes other things interrupt the schedule but over the next couple of weeks we’re going to
kind of give a thorough rundown on rental properties in today we’re going to do part 1 why I own rental properties,
hey I’m Rodger Blankenship the flipping America guy and I teach people how to make money in real estate.
[1:31] That are on the show we don’t encourage everyone to drop what you’re doing and start flipping houses but we do encourage everyone to consider real estate as a part of a balanced Investment Portfolio and to that end,
we are absolutely dedicated to bring you the best information news statistics Trends styles
whatever it is we can do to help you understand the market the techniques and strategies,
to be involved in real estate investing you don’t have to be out there doing it there are three ways to make money in real estate you can be out there buying and fixing up and reselling for profit,
that doesn’t have to just be houses it can be hotels or commercial buildings.
[2:11] You can also be buying to hold a known for cash flow and that could be a number of different asset classes as well or the third way to make money in real estate is to invest your money
with people who are doing one of the other two things and you can do that through Real Estate Investment Trust private Equity Funds and all those are two things down on this show we have discussed the fact
that are flipping America we have started the private Equity Fund if you are an accredited investor then you are eligible to speak with us about it
private Equity Funds give the opportunity to make really incredible Returns on your money compared to the other things in the market
they do come with some additional risks and you must be a sophisticated professional investor is an accredited investor in order to even have that first cup of coffee talking about it but if that’s you.
Feel free to drop me a line Rodger at flipping America network.com Rodger at flipping America network.com and.
Get back in touch with you right away now if you have questions about real estate in general.
[3:15] Or real estate investing please send those questions to questions at flipping America Network,
how come I know some of you are sending your questions to Rodger at flipping America network.com
don’t think you’re getting away with it because if it’s a general question is something that somebody on the staff team is going to handle I’m just going to forward it on over and over to them anyway alright so appreciate,
but then hey thanks for all the kind words and really I just it’s so gratifying when I’m out and about and somebody comes up say hey I heard your show on whatever topic and really got something out of it
I appreciate that love to hear that so you can go ahead and write me all those emails you want to but if you do have a question sent go instead of the questions at flipping America Network
how come so the question gets in the right hands are in the hands of the right people write them they’re getting now if you don’t want to email your question but want to call in you can it’s 404-369-1010.
[4:14] 18 and no the show is not recorded live it is,
pre-recorded so we deal with your questions and then we get to them as we can and if you want to leave a comment for us that’s fine also if you have a difference of opinion about something that we talked about
that’s fine also we welcome the difference of opinion we we appreciate the fact that almost everyone who calls in with a difference of opinion
refrains from name-calling and we appreciate that because we really don’t get into ad hominem attacks here on this show
that’s not her style we leave politics and controversy out of it we’re here to inform educate and somewhat entertained as much as you can be entertained about real estate,
alright so we do understand our limitations here thank you Clint Eastwood okay how to get in touch with this you can find us on the web at flipping America net worth,
come find us on Facebook by looking up flipping America media
you can follow us on Twitter and Instagram at flipping America we are on YouTube we are on LinkedIn we are on all kinds of social media Google plus whatever and some places you wouldn’t think to look
look like I don’t know why we have a profile that house.com and I keep saying that because I’m hoping somebody from houzz.com hears that and calls back and tells me what good the profile is doing it.
[5:32] We’ll see alright.
Hey if you’re in town on Wednesday if you’re ever in Atlanta Georgia on a Wednesday and you’re wondering what to do then
think about coming to have lunch with me the flipping America guy we’re doing lunch somewhere every Wednesday right now we tend to go to Huey luey’s Mexican restaurant on Roswell Road in Sandy Springs were there from 11:30 to 1 talking real estate and having some.
Chips and salsa because that’s what we do.
Now we’re about to outgrow the room we may have to go to a different place but for now and I think locked in through the end of 2018 we’re going to stay at Huey luey’s we really appreciate the people at Huey luey’s and and Jeff our server their does a great job
so it it’s good just to go to the same place and you know I don’t have to look at the menu anymore I already know what I’m getting all right.
So that’s every Wednesday couple of other announcements if you missed flip started this past weekend while all I can say is you missed it.
You know it is coming back again will be back in Atlanta sometime in the spring with the next flip starter and we are already planning to do some along the I-95 Corridor before Springtime in,
as soon as those dates are set will let you know,
you can download this app the flipping America app in the app store it’s always free no in-app purchase no upsells no nothing it’s always free you not only get to listen to the show as a podcast but.
[6:56] You have access to all of the notes and you’re going to want the notes from Today Show because I’m lining you up with seven or eight really helpful articles on rental properties it’s not exactly news its resources but they’re all there.
[7:09] And they will stay there in the notes as long as the app is in the App Store and we don’t have any plans to ever remove it
and then we got another app called of the property grade app if you’re looking at flipping properties and you want a way to evaluate one versus another all you have to do.
Is know your numbers and answer 10 simple questions about the property and using the proprietary flipping America algorithm it will
give you a property grade that is a letter grade and we all understand letter grades.
Okay so that’s free in the App Store as well alright coming up in a few minutes we’re going to talk about why I own rental properties
but before we do I want to try to get to some questions that have been just kind of sitting here waiting for us to get to him so I’m going to go I’m going to do this at least a few of these questions that have a little age on want to do them first,
and then we’ll get on with the rest of the show Alf from Las Vegas am I better off buying materials for my rehab at
and we’re going to set it to what you said there with one of the big box stores are should I go to the local lumber yard and Building Supply.
[8:21] That’s an interesting question and I don’t know that a lot of people are thinking I’m and I’m wondering what your motivation is maybe you’re thinking you’re going to get some better service and or something at the look,
lumber yard and if you think that you’re probably right you know
I don’t have anything against the big box stores I really don’t I have noticed that they sometimes have very knowledgeable and experienced people.
Working there and serving our needs I’ve also noticed that sometimes the people there are lacking a little bit in that training
and no matter what time is always if I needed something special to you if I need something that’s a little unique or if I’m looking for a a a combination of nuts and bolts and hardware and I need a suggestion on how to put something together in my shop I’m going to go to the local hardware store.
And it may have a three letter name and may have some more letters in the name but it’s not exactly a big box store I go there because those guys know their stuff with their Hardware.
And they usually can tell me some things that I don’t know and then you know I don’t find that kind of help in the nuts and bolts department at the big box stores
okay that’s just me now when it comes down to as far as doing your rehabs we go where the prices are.
[9:37] And the big box stores wants you qualified to be over at the pro desk and getting those discounts that come along with that their pricing is very competitive with everyone else but if the lumberyard
has more aggressive price and the local guy can can take it then can deliver will use them.
The answer is we don’t really care that’s what we do now Las Vegas is not a small town.
[10:09] If I were in a smaller town and had to choose between the local lumber yard the guy that I know and hang out with and
go to church with and maybe have a beer with and for whatever I might patronize his business just out of that support and that friendship even if it cost me a few extra dollars
rather than driving you know 10-15 miles down the road to one of the big box stores it’s always a personal decision and there’s always.
A little bit more to consider than price and I think I’ll that’s why you sent the question because you are thinking a little bit more than just pure price,
Carissa from Milwaukee Wisconsin says I bought
two rental properties a couple of years ago following the 1% rule in order to get that price I had to buy them in an area that makes me a little nervous
but I thought at the time people live here why wouldn’t someone want to rent here you know but I’m not making money I’m losing money.
It’s taking all of my extra income just to maintain the houses and fix them back up after the tenants move out what am I doing wrong.
[11:17] All Chrissy please don’t blame yourself probably the only thing you’ve done wrong here is listen to some Guru and blindly follow a formula.
1% is a good rule.
1% is you know 888 can put you in a good place but there are other things to consider than just that percentage of return and we’re going to get into this in a lot more.
Over the next few shows as we talked about rentals and rental properties but I do want to answer your question directly you’re probably not doing anything wrong,
that’s the only way at 1% property is ever really going to cash flow,
is if you get tenants in there that are going to stay at least 3 years and that it’s kind of hard to find that in areas when you buy,
when you buy a property like a duplex for example where it’s designed for people who are on their way somewhere else you know it’s going to be a short-term thing and with apartments and duplexes it’s okay because they’re smaller and they tend to be easier and quicker to.
To fix back up with single family homes is a little bit more of a challenge because it’s a bigger house and if you have to paint it.
Then you’re going to pay you know something about a dollar and a half at the best for repainting the interior but I learned half a square foot.
Are we painting the interior so I you know what that means it means we got a heart break I’ll try to answer the rest this question just a minute.
[12:52] Have you ever seen one of those Fix and Flip TV shows and thought to yourself I could do that or even better I’d like to do that.
But there has to be a way to get started that’s what we will do for you at flip starter flip starter is our 8-hour course designed to give you all the information you need in order to get started in the business of fixing and flipping houses on Roger Blankenship.
The flipping America guy who is fixed and flipped more than 800 properties over the years.
I will share with you the tools I developed for use in my own business the strategies the management techniques and the systems are used to build a business that was flipping a hundred properties for year.
What would it feel like if you could quit your job and not only work for yourself but own a business that will ultimately provide you with more income and more free time.
[13:38] My goal is to train the next generation of real estate Millionaires and I want you to be one of them.
Find out more at flip starter event.com call Bennett and I attended Roger Blankenship split starter in April of 2018.
I thought it was amazing I took pages and pages of notes and I just want to recommend that you go to it because in my opinion,
information that he gets on contractors alone makes it worth the price but that’s not the only thing that he talks about I highly recommend that you attend his flip starter it’s worth every dime.
[14:25] Okay we are trying to help Carissa feel better about these properties she bought,
and I just to recap in case you just joined us she bought them using the 1% rule there in a little bit of a sketchy area in Milwaukee Wisconsin that’s my word not hers but she said she’s a little nervous to go in that area so that’s probably what that means maybe not the best part of town
but she’s not making any money and she wonders what she’s doing wrong
and my answer was you probably not doing anything wrong you just bought something that is going to be difficult to actually make money with
and you’re only hope to a really truly cash flow a one percenter is to have someone that stays in there for 2 or 3 years so you don’t have to fix the property back.
Because once you have to fix up a single-family house you have just eaten about a Year’s worth of profit and so if someone moves,
Forever Yours were the cash flow put it that way if someone moves out after a year Well there goes all your cash flow and you’re really not going to make any money.
That’s why I I just chuckle when people read a book and say hey if I can buy a house that cash flows $250 a month and I get 10 of those I can quit my job.
And I’m thinking no you can’t.
[15:38] If you do that then someday you’re going to have some properties that’ll be worth something but don’t quit your job.
Not that way if you had 10 free and clear properties in a modest lifestyle then you might be able to quit your job but that’s a whole different thing.
[15:55] Now for you Carissa I know that you really,
probably want to know more than what you’re doing wrong and I’m saying that your you may not be doing anything wrong but you want to know what’s a Way Forward here is a Way Forward you’re going to struggle for a year or two
there’s just nothing to do about,
and what do you have to hope is you have to hope that there is some sort of improvement or gentrification coming to your neck of the woods the neighbor you hope that the neighborhood is going up not down I will buy,
in a little bit of a questionable area if I think the neighborhood is improving if I think the neighborhood is on its way down I’ll just avoid it,
I won’t even tempt Myself by looking at deals in an area like that so let’s hope Carissa that you’re.
30 values are going to come up and creep up at least let’s hope that they’re not going down.
Because of the cost of living and because of higher interest rates and what that’s doing in the end the way prices are going in the real estate market and the cost of housing is inevitably going up
over the next 12 months you will be able to probably raise your rent rates a little bit not a lot.
[17:08] But you know it could be as much as three to 5% which is kind of with you know the rate of inflation and and that’s where the thing so let’s say for example you if you have a house that you’re renting for 7:50 right now
at renewal you may be able to bump it up this 775 but.
What you can say to the tenant is if you’ll stay if you’ll sign another year’s lease we will leave your rent at 7:50.
[17:37] Until you find ways to here’s what you doing you’re finding little things that you can do to increase your cash flows and you’re also finding other things you can do to decrease your expenses so you’re giving them motivation to stay.
Now I don’t know the specifics about your numbers but.
One of the incentives that I have given and I always wanted to have a great relationship with my tenants okay that’s that’s something I’m always looking for so I try to give them a very competitive rent rate and treat them well now.
I’m firm when they miss and when they’re late they’re paying the late fee and.
I’m firm with him on things like that but.
[18:25] If I can find ways to give them a little bit of an edge for example and rents due on the first of the month if I have it in my bank account by 5 on the first of the month
and and I will give them away to deposit it directly many times then I’ll give them a blunt maybe a 20,
$25 a month discount and that’s a lot of money to a person who is renting your house so if you can.
Give him a discount for paying on time if you can give them an additional incentive for doing the little things like fixing the ice maker when it breaks or replacing their own light bulbs,
are plunging their own toilets you know anything you can do to give them an incentive to,
I hope you keep your costs down is worth a little bit of money so you’re finding ways to inch up your income and inch down your expenses and just hanging on for dear life for a couple of more years because in a couple years,
is there going to be some larger differences between your income and your expenses because if you have a fixed rate mortgage then you’re.
Outgoing cost you’re not going to change unless your insurance and taxes go up but they won’t go up as quickly as the rent does.
So sooner or later if you can hang in there they will be alright in the meantime.
[19:48] If you can’t hang in there then I would suggest that you sell them using a contract for deed or try to get another,
investor to take them off your hands and when you look at if your you said you were losing money
if you lost $5,000 on these two rental houses last year and it would cost you another $5,000 out of pocket just to get rid of them
then basically what you’ve done is you have also lost what you would have lost this year so.
[20:19] Maybe it’s worth it even if you have to write a check at closing to go ahead and get rid of them and try again and the thing to do is when you try again 1% rule is fine,
but look at some other factors look at the quality of the schools look at the stability of the neighborhood.
Look for boarded-up houses you know if there are none of those it that’s that’s a good sign you want to look for a little pride of ownership in the rest of the neighborhood do you don’t want to be in a in a
neighborhood that is exclusively rentals unless you own all of them yourself.
But you don’t know how the other landlords are going to be and you don’t know how you do know that out of a certain number of rental properties.
Somebody somewhere is going to not take care of a house and then you’re going to have a nice or and that’s going to affect the quality of life in the entire neighborhood
so there are things to consider than just the percentages and we’ll get into that in more detail over the next week or so as we talk about rental properties.
Evan from Indianapolis Indiana says I couldn’t make it to flip starter did I hear you say it’s in video format I couldn’t find it on your website will there that’s a good question Evan and thank you for bringing that
add to our attention and giving us an opportunity to share this we have taken the flip Starter video down from the website because we recorded this weekend and it’s updated it’s kind of an all new flip starter
now the last one was fine the one that’s there is fine in a good value.
[21:46] But we have a bunch of new slides and some new information and an exciting new format for the way the slides are put together and so we are redoing Andre editing and
maybe it’ll take about a week
but we will have the video back up there and I will announce it on the show but if you’ll check back in a week to 10 days we should have the brand new flip Starter video in.
The in the store on The Flipping America network.com site thank you Evan Winifred from.
[22:20] Villages of Ocala Florida says,
my husband only wants to use the cheapest paint the cheapest carpet the cheapest fixtures and cheapest everything in our investment houses he says the tenants don’t care and wouldn’t appreciate better things.
He also won’t do anything about controlling bug bugs or rodents or termites he says that’s the tenant’s responsibility and it says so in the lease
I know we don’t want to put the sign his products in our houses but it seems like we ought to be better than the cheapest I’d like to know how you handle this.
Alright Winifred that’s a good question and the way I handle it is slightly different than your husband’s and what I do is I put Quality Inn or quality matters and when it comes to carpet
I would tend to agree with him there’s not that big of a difference between the cheapest quality carpet and that you know you can get FHA financing for and
a better grade quality of carpet except for the price and carpets going to get red Kool-Aid stains on it no matter what you do no matter how much you pay for it
and even they stain-resistant carpets are going to get red and purple Kool-Aid stains on it it’s just going to happen and it’s not always going to be red and purple sometimes you’re going to be motor oil you never can tell and as much as possible I’m moving
my house is away from carpet anyway because,
I find other products to be more durable and Lasting and that we’ve been through the experiments with laminate floors and we have kind of settled on luxury vinyl planks.
[23:49] Because they are relatively inexpensive but much more durable than anything else we put in and you can get them to look like hardwood floors that have a nice look we even did one of our offices with luxury vinyl plank,
so and that’s something worth considering.
[24:04] Spell there are some things where I kind of agree with your husband you’re talking about rental properties and so you don’t necessarily need designer light fixtures and and
and faucets natural thing however I also don’t put in the ones that I know we’re only going to last a year or two
I’m go for a good quality middle-of-the-road faucet light fixture and not necessarily the cheapest of the cheap when it comes to
bugs rodents are termites we have a little bit of a difference of opinion if you don’t do something here in the South you’re in Florida where in Georgia and those of you that are listening up in the frozen tundra of the north you may not
know what we’re talking about here but if there are only two kinds of houses in the South those that have termites and those that are going to.
That’s just fact of life termites are blind their brainless,
but they do have a way of finding wood and they just rode around in the soil until they find some wood and when they find it they go after it and they devour it from the inside out so you can’t tell by looking that you have termite damage
usually if you can tell you have termite damage by looking you got a problem.
But even in termites you know till they get into one board no stay in that one board they’re not real super adventurous they’re not going to go out and spread until they have completely devoured that one board where the path is easy so.
[25:32] You need to do something about your my protection and you don’t need to think while I’ll just put that off on the future buyer of the house because it’s it’s your house you know that,
it’s not the tenants house it’s your house and long-term damage can be done if you want to sell it down the road if there’s termite damage you’re going to have to repair then anyway and it’s cheaper to prevent.
Then it is to repair.
And that’s true of a lot of different things for me I like to make my houses as bug and rodent tight and proof as I can and do what I can to help keep the infestations down because it can only get worse
my folks will be back in May.
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[26:59] Larry Lucas and I’m a student in Rogers.
Mentor program and I’m happy to say I’m working on my very first house we see this house deal dating.
[27:14] Maybe $70,000 in profit but flipping America mentoring program is the only one that includes.
Financing your deals so the mentoring program does exactly what.
The contracts to do Rodger and Andrew and the other fellas in the team Tony have been super in providing oversight and guidance flipping America.
Has been the.
Vehicle that is allowing me to achieve my dreams and becoming a real estate investor.
[28:07] And Rebecca and Rodger Blankenship I teach people how to make money in real estate and it’s not just flipping houses although the show is called flipping America there are a lot more to real estate investing than just flipping houses course flipping houses,
even if you’re doing that it’s a means to an end because.
If you’re flipping houses all right I’m going to tell you guys something I said this before but not lately if you’re flipping houses you’re not really a real estate investor.
[28:34] I know that may seem weird if you’re putting your own money into it you’re investing in your own business flipping houses is a business opportunity it’s a lucrative business.
To be sure but it is a business opportunity and unlike a lot of other businesses and well it’s like a lot of entrepreneurial or solopreneur real businesses when you stop doing your thing.
The income stops.
[28:59] I consider it an investment if the income continues on even after you stopped working on it and so even then.
Rental properties it get you closer to being an investor and I’m going to I’m going to agree with the idea that you are an investor at that point because your money is doing some work for you but.
As long as you’re owning rental properties and you’re managing that process you got stuff to do you have some things to do and if you were to disappear Disappear Completely.
The money would eventually dry up because if the tenants do they could get away without paying the rent guess what they’re going to do I got to stop paying the rent so one way or another you’re going to be a little bit of a little bit involved in your rental properties but a whole lot less involved in,
you are in flipping properties and so you’re moving closer to wealth to Legacy.
[29:49] Two passive income and Financial Freedom once you start buying rental properties now without getting too much more into it let me just say.
That I’m going to give you now my
13 Reasons for owning rental properties you know I wish you could have been 10 but I thought of 13 I wish I could have been 15 so would have been kind of around number but I really couldn’t do that without getting a little repetitive and some of the things are little just too close to the fine
and I’m not all hung up on the numbers and 13 who cares if somebody thinks that’s a bad luck number 13 might be your good luck number for
only rental properties in if I can think of another one guess what the next time I do this talk it’ll be 14 but that’s what a guy right now.
[30:33] You know I am.
Did a show while back called 85 ways to make money in real estate I really wanted it to get to 100 but I couldn’t bend without getting repetitive but since that time I found another one so now it’s 86 so it’s really a non round number I don’t care what the number is
13 good reasons to own rental properties are 13 really good reasons and that’s more than 12 all right number one here is the number one reason for owning rental properties and believe it or not.
Most people who own rental properties never get this one they it just doesn’t happen for them.
[31:14] But the number one reason is for cash flow.
[31:17] Cash flow is it sometime just called mailbox money cash flow is money that comes off of your rental properties net all your expenses.
[31:28] And that net all your expenses is the part that many people Miss because when you are thinking about.
Renting or buying a rental property.
It is so much more than just thinking about what the rent is versus what your mortgage payment will be.
[31:50] You are going to have insurance you were going to have taxes.
You are going to have maintenance because it’s a property you are going to have repairs because there are people in the property.
Things are going to happen kids break things adults break things sometimes things just break trees fall.
[32:14] Things happen.
It’s part of life you’re going to have expenses and you pretend that you’re not is foolish and I know you agree with that but what a lot of people do when they start thinking about rental property is they.
Subconsciously pretend that they’re not going to have any of these expenses or they will paint a best case scenario for themselves with regard to the expenses.
I noticed that one of the things that I have done in the past and I see people doing it still is we tend to start talking ourselves into a property we develop some sort of an affinity for it and we.
make an effort to see it in the best possible light because we found it by golly and where it’s our deal and we’re going to make this deal work and and we hold on to it and we look at the Rose.
Colored glasses and try our best to come up with the best scenario and we’re really kind of organizing our life and our business around everything going perfectly you can’t do that.
You have to look at industry averages you have to understand that things are going to go wrong and it could happen to you it probably will happen to you otherwise.
You’re going to buy a property and like the young lady that wrote in earlier you’re not going to be making money you’re going to be losing money.
[33:40] Alright so cash flow number one number to buy with equity.
That’s right we’re not going to go out and pay retail even for a rental property we are going to buy with Equity now.
As you know I’m actively involved in.
Property hunts while I am doing this show and we were about ready to go to start up the recording about 2 hours ago and I got an email from a contact
and list of properties to look at and it was an auction and the auction was ending soon
and so I dropped what I was doing wheelies is still set right here at the desk in the studio when we reviewed 1500 properties
to make offers on several and it looks like we may have won the bid on two more rental properties over in Alabama.
Now the the point about that is we did not pay anything close to retail for those properties and that’s what you need to do.
[34:41] Just because you want to buy rental properties doesn’t mean you want to pay retail for him you want to buy them with some Equity already built in and I I really am not talking about
it’ll pay a hundred thousand for a house worth 120 maybe you could consider that if the rents are 1500 and you don’t have to touch it.
Then your house is probably worth a little bit more than 120 but if you’re looking at numbers like that maybe so but I like to buy houses with a significant amount of equity already in them.
Why because I can and so can you you just have to look around a little bit.
[35:18] And be patient okay then there’s the opportunity number 3 2/4 appreciation which adds even more equity.
So we buy a property as-is where is for $60,000 that as is where is his worth $90,000
if we were to fix it up an updated and modernize a little bit it might be worth a hundred and ten thousand so we’ve just forced another $20,000 worth of equity into it by investing 10,000 into it
so we are.
Increasing our bottom line net worth that way through forced appreciation for speciation comes from improvements are increasing the income on a property then number for we have Market appreciation.
Market appreciation just happens naturally there’s nothing you could do about it nothing you can do to control it or to make it go away but it’s
going to typically run about 3 to 5% per year or if you look at a long history of rental properties if you hold a property for 20 years it’ll probably be worth twice what you paid for it.
So reason number 5.
[36:27] Do this as a little experiment go over to your local banker and walk in and see I’d like to borrow $50,000 to buy Apple stock.
And when the banker stops laughing say what are you laughing about Apple is one of the finest companies in the world is they they have a terrific amount of cash and and they’re strong and the Beautiful run and great products and all this and
you’re just going to be shown the door you cannot borrow money from a bank to invest in stocks.
[36:59] Turn around and go to another bank and say I would like to borrow $50,000 to buy a property.
They will say sit down let’s talk here we go fill out this paperwork and they are more than happy to loan $50,000 on a property if everything you know the conditions are are right as far as the property is concerned and the point of that is
was twofold really never one you just can’t borrow money to buy stocks and you can borrow money to buy real estate.
[37:31] I think the point number to hear is real estate is a much safer bet.
For the conservative Bankers than stocks.
[37:45] Think about it what they’re willing to loan on is what they’re basically risking their own capital on.
And other fine with real estate because why because well some of the other advantages were going to talk about but.
Here’s the thing you can control a $100,000 value for about $20,000 of your own money.
[38:11] If you took that same 20,000 and put it in the stock market you would have about $20,000 worth of value so that’s the power of Leverage.
[38:20] Number 5 number 6.
[38:23] So you have this debt and it has a payment but you have other people mainly your tenant paying off that debt over. Of time.
[38:33] So the mortgage payment is getting paid by your tenant you are able to borrow the money but then someone else is going to pay off the loan for you that’s cool.
[38:43] Number 7,
you have distinct tax advantages and I send an email to my accountant a while ago not sure he really wants to come on the show but we’re going to see if we can get somebody on the show to talk more intelligently about,
tax advantages that come with owning rental properties but I have to tell you.
And it’s going to confirm for you what a moron I have been I was in this business and I was buying rental properties for a you know several right reasons cash flow Equity appreciation that sort of thing I had no idea,
until I did my tax returns the first year that I bought rental properties that I was going to get to depreciate
those rental properties on the schedule and offset my income and reduce my outgoing taxes and in addition to that I have ownership expenses related to,
those properties that also can be deducted and business expenses because now I’m in the business of Real Estate.
[39:42] There are significant tax advantages for being in the real estate business
and I don’t want to get into any specifics because we give neither legal nor professional nor finantial advice on this show we just provide education and illustration and I want to encourage you to talk to your financial professional and your
tax preparer for specific.
Advice but just know there are tax advantages to owning real estate that you can get nowhere else number 8.
[40:17] I know that when you invest in the stock market your investing some of the best run companies in the world and I’m going to bet that most of them are run better than I run my own company probably.
But it’s like people are afraid to fly but they’re not afraid to drive their odds of dying in a car accident are much higher than in the flight but they.
Want to drive because of that element of control
when it comes to owning your own business and and owning your own real estate assets we have control over what happens with them we have control of when they’re sold we have control over the things that are done to improve them.
We have that measure of control and you just can’t take that away from us if we own real estate.
[41:01] We’ve got to see five more reasons to invest in rental properties but we’re coming up to a heartbreak,
and so we’re going to come right back with the next five and some concluding thoughts about why you should own rental properties be right back.
Not too long ago we did a one-day flip starter in Chattanooga Tennessee and low and behold one of my old College friends came out to the event his name is Peter Faulkner and here’s what he had to say about the event.
[41:32] Peter Faulkner here I send it a one day flip starter training session led by Rodger black.
And I was amazed to see what has happened in Rogers Live from the last $15 plus years flipping over 800 house.
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[43:20] Okay we’re back we’re talkin the 13 Reasons my 13 reasons why you should own rental properties number one
I’m going to do a quick review never one cash flow number to buy with Equity number three Force appreciation number for Market appreciation number 5 leverage number 6 the tenant pays off the mortgage number 7,
tax advantages number 8
control and we are down to number 9 number 9 is stability when you’re looking at the volatility of the stock market and you look at the the relative stability of Real Estate
this is something where you just got to park some money you’ve got to have some money in real estate because in 2006 you could have owned
a million dollars worth of shares in one of the most exciting companies in America
the Lehman Brothers shearson Lehman Brothers and its investment firm they are on top of the world but by 2008 what would your million dollars be worth,
nothing same thing can be said of Enron in any number of other publicly traded companies whose value ultimately went to zero real estate.
[44:26] Never goes to zero I know we had the Monumental once-in-a-lifetime crash of 2007 Nate I understand that I was living through it and investing in it.
At no time did real estate values go to 0 you may have lost money but you didn’t lose it all.
You may have found yourself unable to suddenly cover your debts but those debts were covered by the value of the property the value of the property.
Was probably less than it was when you borrow the money.
But it never went to zero the world didn’t come to an end and the Earth didn’t become valueless.
[45:13] And if you can just get your brain wrapped around this if you look at the a chart that shows the
growth curve in the value of real estate and you look over the last hundred years you’ll see some blips and you’ll see a little bit of up-and-down movement there but if you average it out you see a general movement.
And around the 5% range.
Increasing value year-over-year for a hundred years and we had the dramatic drop of 2006 7 and all the way through 12 and the dramatic the equally dramatic recovery from
2012 at the low point to 2017 and.
What we are now is back on track with that gross average over the past hundred years so the stability of real estate is undeniable.
Number 10 it’s a hedge against inflation as inflation decreases your buying power.
The value of real estate will increase along with inflation and so your equity and your steak will increase as well.
Number 11 insurance I don’t know that you can really buy insurance to protect other forms of investment.
But you can buy insurance to protect your real estate if the structure burns down you can have it rebuilt.
[46:43] Back to you might end up with something a little bit better but that’s no reason for burning it down Lester okay alright I’m just playing I don’t really know anybody named Lester.
Nothing long time.
[46:55] All right the demand for the product this is probably one of my biggest reasons for wanting to own real estate.
[47:04] And you know one of these.
Most common Maxim’s when you’re in the sales business is the key to sales is having something that people want to buy.
[47:17] And of course that’s true if you have something that people are falling all over themselves to buy you’re going to sell a lot more and so therefore you have a chance of looking like a heroic salesperson and so all you have to do is have a,
decent house in a desirable area and you’re going to look like a shrewd real estate investor because there is a demand for your product.
And last but not least is reason number 13 for owning a rental property.
Consistent income regardless of the market or the economy that monthly check is going to come in,
now if the market goes in the tank your tenants leave and you have to reduce rents to get people move into the property then it is what it is but you still have consistent income.
Regardless of what happens in the market or in the economy it may not be as excited or
exciting or as flashy as some stock Investments it’s not going to be as lucrative as.
The Eno one in however many thousands of venture capitalist things actually take off and become billion dollar companies it’s not that kind of gamble it’s not that kind of exciting it’s just steady.
But slow and steady wins the race remember.
[48:39] So we talk about why to own rental properties let’s talk a little bit about how we had question on the show earlier about the 1% rule she brought up to 1% rule
and I like the 1% rule but it’s only one of the ways to look at buying a rental property in some of you may be wondering what what is the 1% rule I’m going to give you two rules right now in the few minutes that we have left on the show two rules for buying rental properties in
one of them represents a terrific deal I call it the rental awesome formula
and the other one represents a pretty good deal I call that the rental okay formula and that would be the one percenter the other rule.
And the rental awesome is simply this it is rent monthly rent times 60.
[49:20] And if you can buy a house for the monthly rent times 60.
You are going to be okay let’s think about that if the rent on the house is $1,000 a month.
And you paid 60000 for the house
you are going to be alright let’s talk about that in terms of cash on cash return and I pick these numbers because the math is kind of easy and also because I’ve done it a bazillion times and I
I know it by heart now if you rent the house for $1,000 a month your annual gross income if you had it rented all year long is $12,000.
You take from that.
The standard 25% expense ratio that Banks apply to single-family rental properties my experiences.
That’s because when I was younger and listen to the gurus in my life I bought properties in areas where I wouldn’t want to be seen at night or.
Little bit nervous in the daytime and you know so I have a little higher turnover little more expense then then others and I’ve getting I’m getting myself out of those properties as quickly as I can and moving onto better types of Investments.
[50:37] Let’s go with 25% because that’s what the bank for you so 12000 minus 25% 25% is $3,000 now you’re down to $9,000 $9,000 return on a $60,000 investment.
That is a 15% cash on cash return net that is terrific.
[50:59] You really you’re going to have a hard time ever beaten that in fact if you get much better than that then you owe it to yourself to borrow some money on that property
so you’re not keeping your cash tied up in less efficient returns but that’s mats for a different day maybe when you’re in our cash flow Mastery course but just know that a 15% cash return is great
and so therefore Red X 60 is a great way to buy
a property now if you go all the way to the other end then you look at the 1% rule the 1% rule basically,
states that you want to be getting rent equal to 1% of your investment price now on the word about investment price
the acquisition price I call it or the investment price is a combination of your purchase plus your initial fix
when you’re looking at rental prices,
that has to be considered it’s hard to divide that rental fix up any other way it is spread across whatever term and don’t even fool with that,
if you’re buying a house for 90,000 you’re spending 10000 make a rent ready then your acquisition or your investment price is 100000 if you rent that out then for a thousand a month
you’re at 1% so you have a 1 percenter okay now.
What is the cash on cash return if a one percenter again you got this the $12,000 gross income you have your 25.
[52:25] Are you 25% expense ratio so 3000 so you have $9,000 return on a $100,000 investment that is 9%.
[52:36] Choke the difference here the ranges from 9% to 15% anywhere in between that is good right.
[52:45] Anywhere better is even better but anywhere between there is good you’re you’re going to be hard-pressed.
To get much better than a 9% net return on rental property in fact,
once you get up around 15 is where we’re going to want to talk to you about doing some more sophisticated things with your money and using leverage to.
[53:08] Do you actually want that return on your rentals to come down a little bit because you return on your cash will improve I know that doesn’t really make sense of if your first hearing it but these are the numbers.
On a it so if the house rents for $1,000 a month do you want to buy it for,
I thought you’d love to get it for 60 but if you have to go as high as a hundred for your All In
you’re generally going to be okay but keep in mind what I said earlier it’s not just about the numbers you want to make sure that the property is in an area that has decent schools and neighborhood stability drive through the area
take some time to look this over you can go
plug the address in that greatschools.org and it will give you a rating of the schools from 1 to 10 and you want something 5 or better why do you want decent schools
the people that are moving into your rental property are probably not going to put their kids in private schools so they’re going to be availing themselves of the public education that is there and.
[54:14] Most people who care want good schools for their kids.
And let me ask you this do you want people in your rental property who just don’t care.
[54:27] In that case you don’t want rental properties in areas where the schools are rated A2 or A3 you just don’t want to do that.
Do you want to you want to be able to move in you want them to like being there you want them to feel safe in their Community you want them to stay.
And so you owe it to yourself to buy a small low maintenance house in a stable community and plan on never selling it.
[54:57] That’s it.
[54:59] Get it with the 1% rule or get it for the rent by the springtime 60 or make it maybe make it a two percenter or maybe make it even better but buy it within one of those three and you have bought it right
so on Today Show we have given you 13 good reasons to invest in rental properties and we have given you.
A formula for buying properties that should guide you well.
The other things to consider when you’re buying the property is considered what the insurance is going to cost you and consider what the property taxes are going to cost you and make a plan.
To pay both of those.
If you are using leverage to buy the property you may not have an escrow account and I know for example here in Georgia all the property taxes come due in November so usually for my birthday which is coming up the 1st of December,
for my birthday I get to write a big,
do all the counties where I own rental properties because that’s when the taxes are due yeah some birthday present huh.
What you need to do is you need to discipline yourself to hold back that money
that’s coming into those rental accounts so you can make the insurance payments and you can make the property tax payments and you don’t get behind on those things don’t even use that money for your emergency fund considered not yours it’s not there,
because it belongs to your future if you use that money to buy a new set of tires for your car.
[56:28] Did you get to tax time and won’t have the money to pay your taxes then you’re going to start losing your rental properties and function don’t want to do that
you’d rather lose the car figure out a different way to put tires on your car if you’re that desperate and you might not have enough money to buy rental properties anyway but.
You’ve got to hold back some money for taxes and insurance the next thing you have to do is you had to create something like a sinking fund to start putting money away for the repairs that you know are going to be needed.
Right when you buy that rental house look at the roof.
[57:04] If you need to have it professionally evaluated if they tell you that there’s five years left of Life on that roof.
Get them to estimate the cost of the roof what would it cost to replace it.
And they say that the basement causes says $7,000 so let’s just say it’s going to be $10,000 what that means is in five years you’re going to have at least a $10,000 expense on that roof forgiven.
Some rate of inflation it might be 13 or $15,000 I would suggest that you want to come up with a plan to save,
$15,000 over the next five years that’s $3,000 a year so you can afford to put the roof on there when you need to
this is where so many people to get excited about making $200 a month they forget.
[57:55] Things in houses we’re out roofs we’re out water heaters quit working hvacs don’t last forever.
You got to find out how much time you have left on all of these when you buy the property and then take steps to save money so did you can replace them when it.
Happens because it’s going to happen.
[58:17] It’s just the fact of life that my friends is a way to purchase and plan and some reasons for doing it we’ll talk more about rentals when we get back together next time we’ll see.
[58:50] Will Rogers said even if you’re on the right track you’ll get run over if you just sit.
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Find them on the web at renewal fund. Net and is always your gift is tax deductible and very much appreciated in any amount friends we welcome your participation with the foundation for renewal.
[59:31] You’ve been listening to flipping America real estate investing for everyone if you have any questions about real estate send them two questions at flipping America network.com,
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