0:00
All right, we’re back. So we’re going to be going into the analyzer here. And this is another thing that drives me crazy about most education programs is they’ll give you like this presentation, and then you’ll have to pay like five or $20,000 for this analyzer, and then it’ll just be a total sales pitch for the whole day. And we’re gonna just work our way backwards and cut the crap that let’s get into this analyzer. So, as Dean was mentioning earlier, right, you got to trust people who you’re working with, and they’re going to send you these performers and I don’t trust people. I’m going to run the performer through my own analyzer and do it myself.

0:49
And

0:52
what you’re looking for is like you know, these vacancy rate, occupancy expenses, property taxes, etc. Go on. This is analyzer and spreadsheet. Also you can input all these other intangibles That’s hard. They’re more like statistics. And this is what makes real estate investing difficult because it’s not like you’re investing in a commodity. commodity is like gold or silver. But it’s also like, you know, Apple stock one apple stock is the same as sort of same as another stock. But real estate, no houses the same. It’s all in different markets. It’s all in different sub markets, all different blocks, right, you can buy the wrong house on the block. So let me switch your screens here. And we’re going to play around with the analyzer a little bit. Here it is. Actually, what I’m going to do is I’m going to put this in the chat so if you guys want to play along with it, you guys are more than welcome to and I do believe you guys can right click and download it on as it Sell your site to, or save it as a Google document in your own account. But there it is. So a lot of this in the beginning is just keep track of what you’re putting in here. The important stuff that it starts to pull from is on line 11 here the purchase price, because that is what is used to drive a lot of these gray lines right here. So the purchase price and the projected rents are probably two of the most important things. And we probably didn’t mention it, we probably glazed over it. But the biggest thing in terms of rental properties is this thing called the rent to value ratio. So this is super basic for some but for if you’ve never heard of it before, it’s totally mind blowing. And I didn’t know about it. When I bought my first property. He said he didn’t know about it. You know, I think he knows This going in, you’re a lot better than most, but you take the monthly rent divided by the purchase price. So in this case you go 1000 divided by $95,000. And you get this front to value ratio here, what you’re looking for is the rent to value ratio to be over 1%. That that is just a good level to be up around. I would say that if you’re under point 9%, you probably won’t cash We’ll see. And this is just every situation is different. But just as a quick and dirty, you can quick quickly look at a property look it up on Zillow. Zillow is not the best resource of course, but if you’re within a range of confidence, there may be plus five or 10% either way on the pricing. So you quickly plug it in and see if your your rent to value ratio is over 1% and you move bought in doesn’t mean that you’re good, but it means you at least you’re kind of moving on after the first date. So this is a dating process. So, you know, a lot of us that live in primary markets, you might live in Seattle and, you know, a new house or decent house, it’d be half a million dollars, you might only get 2500 $3,000 a month for that. That’s a half a percent rent to value ratio, that ain’t gonna work. That’s not gonna work. I mean, look, you could be a investor that goes after appreciation. But I left that train a long time ago. I don’t invest for appreciation. The number one rule of investing is don’t lose money and ensure that by investing for cash flow a lot of places in fact are worse. And that’s why I read I don’t buy houses to live in Iran because I can get a heck of a lot of house for for rent because nobody Nobody thinks like how I do. Nobody thinks of this way. So that’s why there’s less people renting on the high end. So I can get a million dollar property and only paid 2500 $3,000 a month. That’s point two 5% point 3% rent to value ratio. But getting back to the analyzer here, you know, this is the first step. But once you find a property that needs that you put it into contract. And, or maybe even before that, you start to play around with these numbers, right? I have a lot of assumptions and here are default values. And you can read through the notes here on what are the rules to come about at least get a first first crack at guessing at some of these expenses. These expenses are like taxes, insurance, property management fees.

5:52
The listing fees you have to pay for these guys vacancy maintenance, repairs from a high level Let’s just say your rent was $1,000 I’ll use my fingers because it’s super easy here. 10% is going to go to repairs 10% you should probably put away to cap x or big capital expenditures like putting money away for having to repair the roof or paint the house or repave a driveway or do something big like that. Another 10% is going to your property manager. And I would say another 10% just assume that shits gonna happen, right? Your tenants going to move out, you might go through a few months of vacancy. So that leaves you with like $600 left. And from that you have to pay the PI and that you can calculate pretty easily by kind of guessing the interest rate with a mortgage calculator. And that’s usually about 400 500 bucks these days. And that’s how you come up with a couple hundred bucks in this sample example for cash flow. The biggest mistake most people make is like, yeah, my my mortgage is $500 and my rent is $1,000 I’m cash flowing 500 bucks, no way, Jose, you’re only cash flowing $200 by my quick math right there. Again, that’s a difference between sophisticated investors that know how to run the numbers. And, and most investors, I’d say 80% of them again think like that. So I would say like take a look at some of these footnotes here and how you can come up with these numbers. But as you go through the due diligence process of putting the property under contract, you’re getting you’re actually figuring out what the exact taxes are. You’re getting the insurance numbers from your insurance agent. Again, they we can provide insurance guys votes for you guys, who are the people that we’ve used in the past. So it’s not like you just have to create recreate the wheel, you just have to send an email or phone call.

7:53
And then that kind of produces the how much cash flow you’re going to get. This one seems a little finicky. Do you want bugs, but that’s what we want, we want to like be really conservative on these expenses. So when shit does happen, you know, we’re, we’re still making money and when it doesn’t, you know, it’s a windfall

8:20
other things the that I put in here from line 47 to line 63 a typical closing costs, so you need to put down your 20% down payment. But don’t forget, there’s a lot of other fees and care some, you know, typicals for $100,000 purchase, these might have changed over but you’re gonna need an extra few thousand dollars in addition to your 20%. And I also will say like, you know, you might have a big issue that comes up, you might go through some vacancy, you might have to pay the mortgage without rent coming in. And you might get unlucky with a cap x item and here are the cap. Here’s a little mini cap x estimator here. You know, I’m an engineer. So I calculated lifecycle cost analysis, like the key, and I put down all the costs here to replace it. And these are just generalities, right. You guys are probably thinking, Wow, that’s a lot. That’s pretty cheap for a roof. But that, you know, this is how much this stuff costs. When you have $100,000 house, you’re not paying California or Hawaii prices. Here’s the lifespan of such assets. And then you break it down by what’s the cost per year, which is this divided by this. And then you come up with your cost per month. And that’s how we summed it all up to about 182 bucks. So trust me, it adds up. It adds up to a large amount, and you need to account for that. When you have your Performa here that goes into here. Yeah, green corresponds to the green here. In fact, it This should probably be even higher than 10% because it’s just calculating it $183 The overall theme is we want to be very conservative on our numbers so that we’re not getting surprised or pleasantly surprised by when things on the run these expenses. The second thing that I have all my students do is that we have them go through and just start collecting data points in a data point collector tab. So I have them go out and just get a bunch of properties and just start putting it in here. And this is how you start to learn what the watermark is in that market. So you start to just propagate all these terms, these, these lines here, and you start to build, you get to figure out where, how much what’s the pricing and how much rent Do you get on the big KPIs, which is the purchase price and square foot or bedrooms and bath and you start to get a feel and you start to understand where the rental value ratios are, because it’s rent to value ratios. Don’t follow a linear line like a straight line. It’s not always 1.1% or 1.0%, or point 9%. It follows it’s a kind of a curve. On the lower end, like $60,000 properties, you’re going to have higher rent to value ratios. A, someone who’s kind of nearsighted or inexperienced will be like, oh, wow, that’s a lot of cash flow, right? That’s better returns. But some have more experience as we were showing that last chart, maybe by 30 minutes ago. You know that those higher cash flow returns are better projections come with more headaches. And most investors who are experienced in the game, understand that yeah, that you don’t need to be making the best returns. You just want the best blend between headaches and returns. This is why like, you know, like something that I’ve changed my mindset on the past three months is maybe I’m not going to go in as many as classy projects anymore. Cash Flows a little sketchy because these suckers Don’t, don’t pay. And then most pay, right? I’m talking like, to me when I see people don’t pay, I’m talking about 10% of people, which is high. I don’t want to deal with it. I’m willing to take a little bit less cash flow for more reliability. And that’s how what I would suggest on my first single family home purchase stick with a Class B acid, where people you get a decent quality tenant and over $900 a month, even though your rent to value ratios aren’t going to be like 1.52%. And normally these days on $100,000 house that rents for about 900 1100 bucks. So I don’t think to in this day and age, you’re going to find rental value properties over 1.1% especially if it rents for more than $800 a month. But you got to you have to do this yourself. Right. I mean, you know if you had a young son, son or daughter, this is what you want them to do with, you know, finding someone who they’re going to spend their lives rest of their life with. I don’t know if they’re going to be as quite as weird and put them all on the spreadsheet like this. But this is what I want my students to be doing with rental properties.

13:10
I don’t know how many dates you want them to go on, but I want my students to get at least 20 of these things to get a feel for the market. And to be able to know when they’re getting pitched a sucker deal. And when something is a little bit better than the most. And as a turnkey out estate investor, look, you’re not going to get a steal. You’re buying this stuff sort of retail, but the key is just don’t buy a separate property. You know, that property that they’re all trying to unload to an out of state or multefire. And part of doing this is knowing where the water line is, and buying something that you want. At the end of the day. most investors realize that this all these properties are just commodities. It’s not like the anything special about this one or this one. It’s just kind of freaking out, you know, building a scatter chart. For those of you who are engineers are more inclined within Microsoft Excel, I’m sure you could highlight this column and this column and build a scatter chart and do all your sorts of stuff. But sometimes you just have to ready Aim Fire and just buy something and start there. I have a fix and flip calculator, you know, just for just for fun, I don’t recommend doing this. In fact, I’m not a huge fan of burst strategy. You hear a lot about this on the internet, the buy rent, refinance, or they buy rehab refinance. I don’t suggest most of my investors to do any more than $10,000 or rehab. It looks good on paper, like how most things typically start off the story starts like that, but it’s a lot of headache, a lot of risk. And basically you’re putting your hands and trust into some dude that look when when they run into Trouble, they’re gonna steal your 30 grand. Make no mistake about it. How many times they hear like people are like boasting? Oh yeah, I made I have gotten into a deal with no money down, you know I put all my equity because you know I did this bur and then you hear that and then a few years later you see the guy’s like, oh what happened, man? Oh yeah, that guy ran off my money. Well, I thought you knew you knew that you hung out with a guy when you went to Kansas City. You know it’s always the that’s always the story. Like I don’t I have a hard problem trusting people on the floor and like that the single family homes, I’ll do it with apartments, but only with JV partners as well kind of get that trust. So yeah, not a fan of burrs and that is my advice for higher pay professionals. If you’re under a quarter million dollars net worth Yeah, you might have to put in sweat equity. Like Dean was saying you Gotta trade time for money and sometimes you got to put in a little stress and effort to get that. Any questions for before I move off of the analyzer throw it into the question and answer box. But if you guys need a link to this, you can email me at simple passive cash relator I’ll get this to you guys. But I did put it in the question and answer box. Going once going twice, no questions moving back on to

16:36
process. So

16:55
sorry, put the link in the chat box. My bad Trying to get everybody to use the question x or box enter in following directions. How do you question was how do you typically calculate property taxes. So there’s a slide in here where we go through due diligence. But from a high level, what you’re doing is you can go to the county website, and you can just type in usually they’ll have a GIS map, and then you can find out what the property taxes are. They’re sort of a, you have to be careful though, because if you’re buying a property where somebody just rehabbed it, and it was like 30 grand or 20, grand, six months ago, obviously the taxes are going to be less than what it will be when they reassess the taxes in the next year or two. So something to be careful about when we buy Texas as a huge, they’re super aggressive on taxes, because the expansion there and when we buy apartment buildings, we’ll use the assume that it almost doubles in the second year.

18:05
Is the rent to value ratio more flexible with boring interest rates in nodes? Yeah, well, yes and no, yes. Because I mean, you play around with analyze yourself, right? Do your own sensitivity analysis going, going to the buy and hold analyzer and play around with the interest rate? Yeah, line 19. Here. You tell me, right. And this is where I try and power my investors and like, Look, you figure it out. You tell me. I’ll, I’ll kind of spitball it here. And I’ll say, you know, with interest rates at all time loans. Like who cares? Like it doesn’t really change these numbers too much, in my opinion. Makes no difference if you’re paying three and a half or 3% It’s negligible. And I think I would caution when Pete when investors are like fixated on interest rates, and they’re like, Ooh, it’s gonna go down lower. I’m like, Man, you’re just another one of these guys who like kicks the tires on everything, and you’re just looking for some excuse not to do anything. And I say that because the guys who typically are fixated on those type of things, typically never do anything. And I’ve been doing this for a bunch of years now. And I can see, I see certain patterns and what people do and how their personality is and I see what translates to success. A nice, I don’t know what success for people do well, but I can tell you what certain things people do that will definitely lead to failure. And that is one of those things. Another thing is like oh, you know, people always get hung up on like the legal side. What kind of entity do i do and We’ll get into that a little later. But it’s just, I just want to plant that now. Like, there’s certain questions that are being hung up where the barriers, it could be a sign that it’s more of a mindset, mind shift or a reluctance to take action. Because taking action, let’s let’s be honest, like it’s, you can sort of some of a risk involved in it. And people don’t like to fail.

20:32
And, you know, you buy one of these properties, you underwrite it the right way, but somebody could steer h back. And then you just throw the computer monitor out through the window, and now you got to fix your own. You got a new computer too, but that’s just part of the game, man. I mean, we’ll get into the numbers, how much money you’re making and why it’s like way, way better, like I would see three or four times better than investing in the stock market. But you can there’s some risk involved in This is not for everybody, not for the faint of heart. financial independence is not for everybody. But for those people who were able to take a little bit of risk, but the key is mitigating your risk as best you can. And that’s the what we’re trying to do here trying to educate you guys. And underwrite these numbers the right way. So that when do think when things do happen, are like called mike tyson says everybody has a plan until they get punched in the face. You have some resiliency in your numbers, you kind of absorb it. And I think my my intern is going to try and join us later on. In a couple hours. He just actually went through this he had an H fac got stolen. And I was like, sorry, man. I don’t know what to do for you. I can lend you some money if you don’t have any money, but like, that’s just how it is. You know, you got to roll with the punches. And I’m like, yeah, you just got to buy more property. You got to get the steady state. You got to build up some scale so you can absorb this better.

21:58
All right.

22:02
So cash needed to do this again 20% down payment from a non owner occupied standpoint some of you guys have gone in with zero or 10% FHA kind of stuff no not on non owner occupied rental properties you don’t own you don’t live there. We are going after Fannie Mae Freddie Mac loans and that’s the gold standard. I don’t know why you with margins so thin these days with rental properties, like really you can’t do anything other than this and make this work. There are other lending options but to me You really have to go after Fannie Mae Freddie Mac loan because they’re backed by the government and they’re better terms that they make it so that just the terms work.

22:49
Again, if you’re debt adverse, check out my article in Forbes, simple passive cash flow calm slash debt, the The big mental shift for sure. So three ways to measure profitability is cap rate cash and cash return rent to value ratios. And this dude over there looks a little confused, don’t worry. Kind of making it complicated, because a lot of people are able to do this. And I think that’s understand the numbers getting ingrained in it is the best way to mitigate your, your exposure. But I think it’s just new this stuff isn’t rocket science. It’s kind of simple, but it just takes a little bit of practice to get going through it. First metric cash on cash return. This is taking the yearly cash flow divided by the total invested cash. Investors like to keep this in mind because they’re trying to compare like Trying to compare different investments they want to know. All right, if I had put in $100,000 in this, how much money am I going to return? And how much if, if I put 100 grand into, say, a stock, right, how much money am I going to get? It’s a it’s an easy way to compare apples to apples and this is the calculation to do it. One caveat here as a rental investor, you’re making money four ways. And that’s through cash flow, tax benefits, appreciation, and principal reduction of debt pay down because your tenants paying your mortgage, you’re essentially paying your mortgage for you. And your, every month you pay your mortgage, you’re getting a little bit of equity there, a lot of its interest in the beginning, but a small portion is principal paid out which goes to your bottom line. But for purposes of cash and cash return, I normally just include the cash flow. But remember, that’s just sort of just the tip of the iceberg. One of the four ways you’re making money and we’re gonna dive into the numbers at the end It’ll kind of be an eye opener how much money you actually making. rent to value ratio as we said earlier is taking the monthly gross rent $1,000 in that circumstance and dividing it by the purchase price,

25:14
get you’re looking for something 1% or higher.

25:23
Another rule is the 50% goal. It’s a good general rule to estimate the conservative level of expenses. So if you’re able to bring in $1,000 a month in rents just assume that 50% of that $500 is going to go to expenses. And then the leftover should be able to pay your mortgage taxes, and insurance or pie. And again, I’m repeating this again, because 80% of investors make this mistake they think $100,000 rent with a $500 mortgage equals $500 Cash Flow, it does not. You’re using the 50% rule, it’s 1000 minus 500 minus 500 equals no cash flow,

26:16
calculating the net operating income or noi. Now, this is taking the rent minus the bacon c minus the operating expenses. And this is a little this analyze a little bit less important than a cash and cash return and the rent to value ratio. So this goes over your head, you know,

26:35
I wouldn’t worry too much about it.

26:39
And then, calculating the cap rate is calculated by taking the near yearly net operating income and dividing it by the purchase price. So that’s in commercial real estate. This is how you determine the purchase price or the market value of a property. But for what we’re talking About the day is more residential properties and residential properties the value is based on comparable sale or comps. So it’s based on what what similar properties have sold near that location or wild ass guesses and emotion. And that’s why I don’t really like single family homes because it can be you can. It’s too emotional. I don’t like emotion. And you can get lucky that’s for sure you can find an emotional retail buyer falls in love with the kitchen and wants to buy it and overpay. But I would rather force appreciate a property. Like for example, on our apartment last month, we rehab 60 units and we got a $200 rent increase for each of those units. So we created

27:54
we just do my calculator here. We did six

27:56
units times 200. That’s 1200 dollars. A month. So per year times 12, we created $14,400. of extra revenue a year. Or in this case, let’s just call it increased to net operating income noi. So if I divide that by a cap rate of point oh six, so 14,400 divided by point 06, we created $24,000 of value right there, we we increase the purchase price, or the market value of our apartment by just that much just in one month. That’s the power of force appreciation and commercial real estate. Of course, on these single family homes, you’re doing it more on the comparable sale, which doesn’t quite agree, but the same premise is there, right? Like that’s why people like to improve the value and put money into properties. And essentially, this is the fix and flip model. But I’m not a big fan of the fixing foot model because there’s so much time and effort And you really need to be local and hands on, as opposed to passive and remote. One of the biggest mistakes I see most investors make is this, they don’t understand this concept of return on equity. I here’s a crude drawing that illustrates what’s going on and you can read more. It’s a passive cash flow calm slash returns. But on my initial phone consults with new investors when I onboard them, I would say half of the current investors make this mistake, they have properties with a lot of equity in it, which is not what you want to do. You want to have prudent leverage on your properties. And I’m kind of for shouting a little bit but a lot of times when these rental properties when you add up your cash flow, your mortgage pay down your appreciation, and your tax benefits. You’re making pretty good returns you’re making like 30% on your money in the beginning, but as the property appreciates, creates, you’re paying down your mortgage, you have more equity and you know, again, the return on your cash on cash return or your return on equity is calculated by the purchase price or the how much equity you have in the denominator of deployable equity. And in the numerator on the top you have how much money you’re making and your cash flow. So over the years, this goes down. What most investors fail to do is they just ride the wave all the way too. They’re almost making less than like 5%. So I had a landlord where I was in a million dollar house, they owned it outright, he had no mortgage on it, and I paid them $3,000 a month. And let’s assume that I was really good on the property and there was low expenses. Maybe they made, you know, $2,000 a month on that. That’s like point two 5% return on that. vestment that’s, that’s horrible. They might as well be in a savings bond with all the headache and liability that they’re going through smart, sophisticated investors, what they do is they, they monitor their return on equity. So that’s how much money they’re making divided by how much equity they have into the deal. And at some point, it’s different for everybody. They sell the asset, or they do a refinance and they pull the equity out and they buy more assets and they keep writing the C curve down again and again and again. My personal rule of thumb is like once they get around 15 20%, I really leverage and I go into the next asset. And this is what sets apart the pros from the mom and paws. Mama paws will ride one investment or maybe two all the way down to making maybe less than five or 10%. their net worth is not growing that much I encourage you guys to be more of a sophisticated investor and use debt prudently. And keep flexing out of your investments and Ryan to see curve because really those of you physics majors or engineering majors, you guys know it’s all area under the curve is what equates to network and we’re trying to maximize that. Of course, you know, some people would say, Oh, you guys are being crazy you guys take on too much debt. Well, we mitigate that by making sure that the investments that we do by cash flow on a monthly basis Yeah, we have debt, but we can service that that pretty confidently

32:38
and this is the the progression that I have most of investors go on like, you know, you maybe you guys are at simple passive cash flow, zero point all go go to school, get a good job, and then you work at a job, save up some money, you start with some turnkey rentals. And then once your net worth grows over half a million dollars a million dollars, you start to get more involved in syndication. and less on turnkey rentals. And then at some point, for a lot of you guys, I’d say maybe five to 10 years is the point where you have to do this stuff to get to simple passive cash flow viewpoint all play pickleball in the middle of the day and find your passion or Iki guy and leave all that politics behind at work and all and all that nonsense. We just trading time for money. This is a typical property that you know, we’re encouraging people to buy is just your bread and butter, three bedroom, two bath, I’ve got a one bath here I prefer to two bath. Some people will say well, one bath is better because there’s less things to break, which is kind of true. But I’m also looking at from a perspective of like, I want to exit the property in maybe three to six years because, again, we’re we’re playing the strategy We’re after a while we have good equity in there, we’re going to cash it out and sell the asset, or maybe even go to syndications at some point, but it all starts, you know, starts with the first one. He’s trying to find in a better location and middle class 10 this is probably built in the 1980s.

34:21
Nothing special

34:24
total cash needed

34:27
on this property, and Ollie was a little cheap, cheaper than I’d like you guys. I liked you guys. Maybe like two times this may be $100,000. But let’s just go with the example. You know, $50,000 property 25% down payments and closing costs, you’re going to need 14 grand on this particular home. I would say this would be the bare minimum if you’re buying something that I would recommend anymore $100,000 house, maybe bump this up at 25 grands, what’s your bare minimum of what you need?

35:03
You can run some of these numbers to calculate your net operating income, gross rent $750 a month, you know, again on a $50,000 property, so that’s above the 1% rent to value ratio is actually 1.5 minus your vacancy, which normally I estimate that at 10% minus all your operating expenses or you see how this comes really dang close to that 50% or when you add these two up, so your net operating income is $340 a month and noi is what’s your cash flow before debt service or your mortgage? To find your cash flow, you take your net operating income minus your mortgage payment. And I’m sorry if you don’t think you don’t learn this way, like I never learned this way like in engineering school, they always show us these like see me Like non related formulas, I never understood it but apparently me that’s why they do it because most people learn that way. So that’s why I’m doing it that way. Cash Flow, reentered 40 minus 171 equals cash flow of $169 a month. If you use my analyzer, you don’t gotta worry of all this noi, what is an ally? Put it just plug and chug is hard enough. Why make it harder? Some more calculations. Examples. Here was the rent to value ratio was 1.6. Actually, it was the cash on cash return you made 20. About two grand a year on your initial investment of 14,500 with cash on cash was 14%. And this doesn’t include mortgage paid down appreciation or tax benefit. This is just what you would what the investment kicked off, of course the equity is building up in the asset, which is what’s not being accounted for some examples to how do you verify like the biggest drivers are the price and then what is the assume rents, I like to use a tool called rent meter. There’s a free version, there’s a paid version, you can check out my website, simple passive cash flow calm slash rental meter. I think there’s like a link for some kind of a deal in there. On students, I can run free reports for my students with this if you’re so inclined, but it gives a pretty good start, you know, tells you kind of where the rents are for that property. in that market, you know, high medium low, so it gives you a good range, but nothing really beats pulling it up on you know, Facebook marketplace and kind of seeing something that’s similar. That’s right next to it, and you got to make sure that it’s on the right The street side of the railroad tracks etc. And I would say nothing also replaces just getting a estimate from your property manager. Of course things do go wrong. There’s a video on my YouTube channel of I’ve had maybe like six six evictions so far on my single family homes. And yeah, like I would say one out of every three evictions have ended up very bad for me like we’re talking five to $20,000 repair. So one of them of those the walkthrough on that

38:39
is here.

38:41
And I I don’t want to scare you guys. I mean, when I add take into that 520 thousand dollar hit into the track record for the whole few years, you know, multiple years of multiple properties. I still made pretty dang good money. That’s why I underwrite the deals with that analyzer and I, I make sure all like the cap x and the shit happens categories really fat because this stuff happens.

39:27
We’re going to do if you guys have any questions on that, type it into the question answer box

39:35
see where we are on time.

39:39
All right, so we’re gonna kind of move into finding a deal here. So there are many ways you can find remote rental. Actually, not many, there’s only a couple ways. You can either go through a turnkey provider or a broker. But like Dean said, you got to trust these guys to some extent. But just know that you never trust a broker, for the most part, they’re there to sell your property, they get paid on commission. But you do want to find a broker who’s going to be more looking for the long term. And because they know you’re going to be a repeat buyer, assuming that they keep you keep buying from them is ideal situation. So some of the ways they’ll kind of screw you is they’ll send you these performance. And, you know, I’ve taught you to just take their performance, throw it out the window, and use my analyzer and kind of run the numbers and assumptions on your own. But on these performers, the traps are, they’re going to show the vacancy too low. So I use 10% for most of my turn keys and then maybe a little bit higher for more rock For areas 15%, they might use nothing or 3% or 6%. They’ll omit vacancy in the first year, assuming that they’re going to put in there assuming that they’re putting a tenant in there for you. I, I would probably put five or 10% in there even for the first year. And then they’re going to also have inadequate maintenance and capex, and I like to run it with at least 10% maintenance and then 10% capex and you can see and that even with 10%, cap x, he was still almost 50% of what when we use the cap x calculator of $183 a month, it was still less than that.

41:53
They’re gonna make the excuse. Well, we fixed everything up recently, so you should be good for another few years, which I don’t Quite by, I mean he’s he’s, again, he conservative numbers, you’ll be glad when he did it. There are cool sales guys, of course, they’re going to use the past years property tax numbers and these performers. You’re gonna, what you need to do is go to your County’s property tax records online, look it up for yourself. Figure out what the percentage like every municipality has some kind of weird calculation that they use, but it’s for the most part, some kind of percentage of the assessed value, because you need to make sure the value is what it used to be as a performing asset, not as the piece of junk, dilapidated property that it probably was recently. Maybe the best way of doing this is look for a comparable it’d be on the same block or in the in the area. Look up what that is, and then use that as your baseline. Most in in our group. The way I teach you guys is we work as a team here, where you have peers, you might know somebody has another property in Birmingham, and you’re just like, Hey, man, what’s your property value? How much is your taxes cool. I’m going to interpolate the numbers and figure out off of your property what it is so you get like a real time estimate. And they’re also going to inflate the the annual rent increases per year. They might assume it’s going to go up 5% every year and this is like another thing that we do on the syndication deals like we try and estimate for like 2% rent increases per year, which we feel is you know, it’s less than inflation, but I think you get into trouble some people will underwrite deals for three, four or 5% rent increases per year. Which I think is just too much. Yeah, you might have had it in the past. I mean, yeah, places like Arizona or Dallas have gone up like five 6% in one year, but you just can’t assume that’s going to happen. That’s the point. You just got to trust these guys. But I don’t trust anybody unless somebody in my network has worked with them in the past and has a good experience. So a general rule of thumb is when you go off of referrals,

44:27
you can buy these things through direct turnkey sellers. This is how I would recommend doing it because you, you, you don’t pay the marketing fee. There’s a lot of guys, especially with podcasts, you go through where they’re just the middleman. It connects you with the direct turnkey seller and then they mark up the property five to 10 grand. There’s a pretty there’s a lot of these guys like this. I know a lot of them. So I don’t want to name names. But yeah, I mean for you guys. I was triangle direct, the only problem with going direct is a lot of times you’re signing their contract and it’s not it may or may not be on official MLS transaction might be a private sale. So it’s difficult because if you have never gotten to the transaction, it’s nice to have a sort of fiduciary on your side in terms of a mortgage broker. But to me, a lot of if you work with a good turnkey provider, then most times they’ve got kind of your long term relationship best interests in mind. So they’re not going to totally screw you over on some faulty contract. But that also leads us you know, there’s all kinds of turnkey providers out there. There’s a there’s a lot of created every day and a lot of them troll on bigger pockets. Again, only go off for referrals.

45:53
My opinion

46:00
So, you know, here’s the more on the spectrum, like you can go and take the super passive part go through a marketer. there’s pros and cons there. You can go to the turnkey provider direct. There’s also a hybrid approach of using an agent because they have fiduciary responsibility to you. You’re going to pay a little bit Commission’s there I think. And I also think another con is like a lot of times these real estate agents, they don’t really know what a good rental property is. I mean, most agents are pretty affordable. Again, go off for referrals so you don’t work with one of them.

46:39
When you’re vetting a turnkey provider, here are things to take note of. Again, these are all things if you’re all doing it on your own operating in a bubble by yourself. To me, you kind of if you just kind of take referrals of other people

46:58
is kind of a moot point.

47:02
It’s kind of like when you’re you’re driving in a car, you’re at an intersection. You’re trying to make that right turn, but somebody has in the left lane, try to make a left turn. I don’t know about you guys, but sometimes I’ll just, if they’re making the left turn, I assume that they’re not going out in oncoming traffic. I’m just going to assume that they check. I’m going to go there. At least I get hit second. That might be dangerous. Some people may think that’s irresponsible. But look, I mean, you can do all your research on your own, but especially if you’ve never done this. You don’t really have that bs detector and people like it. Real estate is so much about marketing and posturing. There’s even I have trouble figuring out who’s legit these days. That’s why I really just try and stick to like referrals only people that I trust that I’ve made friends with, that are doing the same thing. I am, who they work with today That’s never, I haven’t really gotten burned with it. But I’ve definitely gotten burned when I just kind of just got mashed up with somebody and took a took a role.

48:13
Here is a spreadsheet I think I have in the share drive for students. But it has all these questions to ask. When you’re interviewing these turnkey providers or brokers, I would be very cautious of asking all these questions, because you might come across as very annoying to work with and think about it if a good operator turnkey provider or broker. They’re good. They probably have a lot of referrals coming back, as opposed to some random annoying investor who’s going to ask him 1,000,001 questions and expect you to teach them. Their job is not to educate. If they’re good and you want to work with them. They probably are not in the business, educating you That’s where we come in. We’re edging I mean, that’s why I try and do what I do. Where we try and educate the people that right we’re gonna try and stay out of the transaction and support you.

49:14
But as much as like some some investors will come into our group and be like, Alright man, I don’t really care. I trust you guys. listen to the podcast. You seem like a cool guy. Seems like people have had success. Just tell me who to work with. I’m busy. I make over 200 grand a year. I got to go play with my kid. He’s something better hire, hire best use for my time is something else other than sitting on five phone calls sc 21 questions. So we can we we can do that we can help you out. We can connect you with, you know, everyone we’ve worked with in the past in that incubator group, but I still think that there’s some value to going through the process a little bit and hearing these guys out, having them teach this stuff, you know Live a different angle hearing the sales pitches, mostly just to get your bs detector accustom. I think it’s all part of the process. A lot of syndicator and syndication investors or credit investors million dollar net worth and above, who should be doing syndications. I’ve helped by turnkey rentals, just so they can learn this whole process. And they have a better understanding of it. And it’s kind of a, it makes sense because a lot of these guys are like doctors and, you know, guys who have been in schooling for years, they’re a glutton for punishment, they like to do things the hard way and that’s fine. They’re there in life. That’s why they get paid a high salary, because they kind of want to do it the right way. And the right way is kind of just go through the motions, you know, you It’s all a learning process, but the key is don’t spend too much time doing this. Keep moving on.

50:53
Certainly don’t spend too much time

50:57
trying to pick on the right market, but spend the time to talking to people building relationships with

51:08
the hybrid ways again, finding an investor friendly agent that’s going to go out and it’s kind of the best of both worlds they their boots on the ground, they know what you’re looking for. The problem is again, that they may not be too versed in what the rental grade stock is they may have experience working with homebuyers, which is very different from rental grade, working, finding stuff that is good for tenants.

51:40
Here’s some questions to ask again. I wouldn’t get too bogged down in these questions I would maybe get it all done in like a 1015 minute conversation don’t waste these guys time be very formal. Be quick about it. Show me mean business show them that you’re going to do your due diligence but not be a total squeaky wheel and the pain in the butt to work with, that’s the goal and then get their input on not really their business, but also I would say focus on getting their input on like the locations, the sub markets, where to buy where a good, good rental great areas, and make sure you skew the questions more towards what are good rental areas, not like, Oh, where are people moving with because you’re not buying those properties, right? You’re not going to buy in the class areas with the best school districts, lowest crime,

52:31
trying to find where’s the best value?

52:35
Moving on to lending. So there’s this big question on do you buy with cash? Or do you buy with a loan? I will 99% of the time see buy with a loan because that’s how you juicy returns. That’s how you’re going to get your returns up to 20 30% a year. People Buying, I don’t understand why people buy a cash, especially if your net worth is under like two, 3 million. You got to grow your equity you got to get played, you got to use leverage. But maybe on the one hand, if you’re if you ever really skeptic spouse, you want to be really conservative. You do buy with cash, the guys doing the first strategy, they’re rehabbing, they will buy with cash, because nobody will give them a loan on the property. But, as we said, I don’t really quite recommend the bur for more passive investors. So the lender is going to need these. There’s a lot of guidelines and he’s going to need to fit you into the Fannie Mae Freddie Mac box. A lot of that is determined by their your debt to income ratios. They’re looking for a certain number, this number changes all the time. But your combined monthly expenses need to be around 45 to 50% of the total debt to monthly income and this is where like, if you haven’t expensive house that you live in the big mortgage payment. This really hurts you. And that should be a clear indicator not do Don’t do that. Don’t buy a big house because it doesn’t put money into your pocket. I mean, it’s a big metric of the bank. The bank knows what to do. And this includes things like cars, your own credit cards. And the funny thing is like once you start to buy these properties, your debt to income ratios improved because you’re buying assets that produce more income.

54:37
So, where do you find this mortgage broker? Well, truth is anybody can do it. It’s all the same mortgages. They all every all the mortgage brokers out there kind of go on their computer and they go to the Fannie Mae Freddie Mac loans and they just, they just buy it doesn’t matter. A big bank like Bank of America, Chase Bank, small little boutiques But the main thing is you want to find a mortgage broker that has done like this remote investor stuff. And generally, you want to stay with the big banks. And the big banks, they’ll say a lot of stuff. And most times they’re working with residential people living in the house type of people and not folks like yourself. Look, if you guys want to shop around, cool, do it on your own. But like, I mean, most of the passive investors we just work with the same few guys will keep working with them because they’re proven. I mean, if you’re just going to take a handout, this is the one to take a handout on, just kind of work with proven folks that we worked at in the past and as simple as that. If anybody’s got any questions on that, put into a question answer box, but yeah, it’s pretty simple. One of the biggest things when you’re going to once you put in an offer, you’re going to do a home inspection. And this home inspection is going to ensure that you’re not buying a lemon. Now, when you’re buying a nice thing about when you’re buying it with a loan, the bank is 80% of the debt to the bank is doing their due diligence. So you actually buying said property is the title clean. So in a way, it’s kind of nice to have the bank because they’re they’re kind of checking that stuff. And yeah, maybe you should do that. But I don’t know how to check title that’s, I’m an investor. that’s, to me, I’ve kind of outsourced that to the bank.

56:35
The bank’s not going to go on a loan. If it’s a if it’s,

56:38
if it’s a

56:40
you know, you don’t own clean title to it. Now, they’re not going to really make the determination if you’re buying a bad rental on the bad side of the town, or you’re not going to really get those rents to some extent they are but that’s not their job. That’s your job. Your job is to make sure that this asset you’re buying, are there things in there that’s going to break in the first three to 510 years that should get replaced now, and are there things in there that really needs to get fixed right away. So always get a third party home inspector, and you need to try and source this guy on your own. For the most part, I mean, you can go off of Yelp, or these review sites, because they’re kind of ubiquitous. You can use referrals. That’s where you kind of expand your network to other passive investors and kind of use their guys but my only rule of thumb here is make sure you get a you have a discussion with the home inspector and you say, Hey, man, like I’m not living in here, like 99% of your clients. I’m looking to have this as a rental. You know, so there’s certain things I don’t really need you to take your magnifying glass to. But there’s other things I do need and I need some help for you to they’re going to create a report for you that you’re going to have as a doctor document to be able to refer to and I have about there’s a bunch of videos I have on the YouTube channel and especially in the E course where we got we walked through this with clients and we kind of we review the the home inspection report and we make a punch list that doesn’t offend the seller it doesn’t piss them off, but in very respectfully goes after low hanging fruit or especially safety items. And it tries to get as much money off the table as we can to get you know, in the final negotiation stages, this is critical most investors leave maybe two to $5,000 of repairs on the table. And this is where I think you know this if you’re going to get a mentorship or any consultant on board this is the time to do it. This is critical I mean you’re leaving dollars on the table here and here it was was the YouTube video where we we kind of just walk through this but every reports different some some It drives me crazy. Like some of these reports are like, just horrible. It’s like, Dude, this is useless to me. Like there’s things to fix in here, but you didn’t give me the ammo. It wasn’t written up in a prescriptive way. And it just also caught like pointed out really stupid stuff. Like, you know, like this, oh, this brick out in the garden wasn’t level with this brick, like, I mean seriously, like that doesn’t help us at all, to be able to get as much repairs from the seller. And I don’t go into these deals unethically in terms of like you put in a low price that you cut or you put in a price just to retrain later or to negotiate later. I don’t really believe in that.

59:40
But there’s a certain level of you know,

59:43
buyers and sellers that they’ve been doing this for a while you kind of know what’s fair and customary and that’s what we try and go after.

59:55
So insurance

59:59
you need to protect yourself against major damages and lawsuits on insurance on your property. This

1:00:05
will be

1:00:07
mandatory per your

1:00:09
lender.

1:00:11
So it’s kind of nice it’s kind of like bowling with the gutter

1:00:15
blockers up

1:00:16
they won’t let you get a property without it. If you don’t get it the bug you about it. I we have a lot of referrals. If you guys need a referral insurance, let me know shoot me an email, I can connect

1:00:30
you with the folks that we worked with in the past.

1:00:34
But the only big thing on this is like do you do replacement value or actual value replacement value? You will that it’s a little bit more expensive, but on on like if something happened you actually get a lot more money back. Where’s the actual value? It seems like you’re saving a lot of money but you know, like you see something like a tree falls on your roof. And it’s like a 20 year old roof wall the actual value between Because it acid depreciates over the years might only be worth 500,000

1:01:03
bucks.

1:01:04
Right? Whereas the replacement value is the value to replace it brand new, or

1:01:09
might have been like 20 grand right there.

1:01:13
The other thing to think about is, what are you going to use for your deductible amount? That’s really the one of the big choices you have to decide is a rule of thumb. I usually tell people well pick a number where it kind of starts to hurt you, which can be anywhere from 1500 to $5,000 for most people and then go with a deductible two times that obviously, the lower deductible you have is going to be a lot more costly than a higher deductible. Some people like to over insure I, I personally like I mean, there’s like I said, there’s a part of risk to this thing and the more risk you take, the more returns you get.

1:01:56
And you can you can wear a bubble suit if you want when you

1:01:58
leave your house, but A lot of us don’t do that.

1:02:02
Here’s what I was kind of mentioning the replacement value versus the cost value. I would probably recommend most times just doing replacement cost value.

1:02:23
Guys from the, I think from the bachelorette,

1:02:27
toughest decision of his life.

1:02:30
But you know, this is I think this is where like your insurance agent, you know, they’re a salesman too.

1:02:36
So it’s just good to have

1:02:40
a conversation with them so you understand what’s in the exclusions. In the beginning, I just used my regular car insurance provider. But after a while after I scaled up I kind of moved on to more of a commercial insurance agent. The basic stuff your car, audio, audio or Auto home insurance. They’re not really built for rental property type of business. So it’s just probably better just to start off with a more commercial guy again, we have a guy we have a few guys we use and that’s the ensure you from, you know, people suing you and stuff like that. But we’re going to go into operating your rental after this little break and I’m going to bring on my property manager Rob now.

1:03:37
Hopefully he’s figured out how to jump on board

1:03:39
onto this the share screen. So we will come back in about five minutes and a little bit past the hour.