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How To Analyze A Rental Property

SHOW SUMMARY:

In this episode, Larry shared different ways to analyse rental properties. He talked about some of the things you need to remember when working with rental properties.

SHOW HIGHLIGHTS:

  • Share Sponsor Winner!
  • Deal of the week
  • The higher the price of the rental property, the more difficult it is to get good cashflow
  • THE I.D.E.A.L (Income, Depreciation, Equity build-up, Appreciation, Leverage) investment
  • The BRRRR (Buy, Rehab, Rent, Refinance, Repeat) method
  • The 50% rule of thumb when analysing rental properties

QUOTES:

  • “The higher the price of the rental property, the more difficult it is to get good cashflow.”
  • “Real estate provides what is called The I.D.E.A.L. investment.”

RESOURCES AND LINKS FROM THIS SHOW:

SHOW TRANSCRIPT:

Larry: Hello, hello, hello. How is everybody doin’? Welcome to the BRAG show live on Facebook Live. Thanks a lot for watching. I really appreciate it. Thank you very much. As you can see Kandas is not here today. She is traveling with her family and she is out of the office, so I’m doing it alone. So, thank you guys for being on here. Let’s kinda jump right in. If you would like to get a free Investors Kit, call 877-LARRY-GO. In the Investors Kit, you’re gonna get a copy of my Getting Started in Real Estate Day Trading book, you’re gonna get a copy of my HUD Homes Half Off book, you’re gonna get a Filthy Riches video, a Day Trading Video and some other things as well about self-directed retirement investing. Also if you would like to win a copy of my Ultimate Buying and Selling Machine, this is the flagship course that shows you how to buy and sell houses the same day. It is a $1288 course, you can get it absolutely free if I select you as a share sponsor winner. All you got to do is share this video right now. And you might win. Who knows? It is not like we have hundreds of people sharing yet, so that’s awesome. David Lee, hey, from St. Louis. What’s up? What’s going on Dave? How you doin’ buddy? Thanks a lot for watching. Ben, hey, what’s going on Ben Stewart? How are you doin’? Our winner, our show sponsor winner from last week is Eugene La Branch and Eugene you won the Ultimate Buying and Selling Machine. All you got to do is email customerservice@larrygoins.com and claim your Ultimate Buying and Selling Machine. That’s it. That’s it. So, thank you guys for your comments down there. I really appreciate that too.

Let’s talk about our deal of the week. Guys, we get a lot of different deals, we do a lot of different kind of real estate and I’m a firm believer, the more tools you have in your tool box, the better chance to have of getting a deal, right? So I mean, we bought lots; we bought mobile homes, mobile home parks, mobile home in parks, mobile homes with lands, single wide, double wide; triple net lease properties; Dollar General Store; Joni’s restaurants; we bought about everything. The deal I chose for the deal of the week this week is not necessarily a homerun deal, but I want to share it with you because it is a type of deal where you can wholetail this type of deal. This is a house that a lady brought to me when she called off of our postcards and she is just like “I need to sell, I need to sell, I need to sell it.” Tammy, how are you doin’? Thanks for watching. “I need to sell this property.” She has a 3-bedroom, I believe it’s a one or one and a half bath burke ranch house in Vale, North Carolina and it is on 2-acre land, she has a barn, right? She has a barn on the property, the property needs no work. In fact, she said just seven months ago, she remodeled the house, right? But she needs to sell it right now. And she said she just had a realtor that come out, the realtor said that the realtor could list it and probably sell it for around $115,000 to $120,000. So, I got it under contract for $75,000. It needs no work, right? It’s been clear and she just needs to sell it and she didn’t want to wait around. So, I got it under contract for $75,000. It is not a homerun deal, right? It is not a homerun deal. All we are gonna do is put it on the MLS, advertise it, market it, it is ready to move in for eighty nine nine. It’s would you would call a wholetail deal, right? Our buyer is out of fix and flip investor, our buyer could be a landlord, but probably not. Our buyer is gonna be somebody who wants to get a good deal of a property that they’re gonna move into it, right? They are probably either gonna go get a loan or they’re going to just pay cash. It is in Vale, North Carolina and in fact the angel who works in our office, he has gone up there right now to take pictures of the property and to put out signs, to start marketing the property and the signs he is putting out says worth $1200, no; cash price eighty nine nine. So, anyway, yeah, there you have it. That’s our deal of the week. It is not a homerun deal but remember, you know, who can wholetail deals as well, meaning they are not really wholesale deals but they are not retail deals, they’re kinda discounted retail deals if you would know.

So, let’s jump into the topic of the day, okay? The topic of the day is analyzing red bulls and actually guys, I do a lot with rentals. I buy a lot of rental-type properties that are either rented or will make good rentals, okay. Manny says, “He loved the way I keep the houses buying under a hundred thousand.” Man, I try to keep them under 20,000 if I can, right? So, I made a lot of offers today on houses and you know, I have made $5,000 offers, $10,000, $15,000 offers, but you are not gonna get them all, right? You’re not gonna get them all. But let’s talk on analyzing the rental properties, okay? Let’s talk about analyzing the rental properties and the thing you gotta remember about the rental properties is everybody talks about the cash flow, okay. Everybody talks about the cash flow and the higher the price of the property, the more difficult it is to get good cash flow. If you look out on a lot of the forms, a lot of the, you know, YouTube videos or BiggerPockets or some of those places, you look at some of those, they talk about getting 1% per month or 1.5% or 2%, everybody is chasing 2%, you are chasing 2%, right? Well, what that basically means is if you’re renting out a property, 1% per month, let’s say you have $100,000 invested in that property, if you are renting it out for 1% per month, that’s $1,000 per month. So, if you are renting it out for 1.5% per month it’s gonna be $1,500 a month, right?

So, the thing that you got to realize, the higher the price of the property, the more difficult it is to get close to 2% per month. Now, when you get into the lower-priced properties, you are picking up a property for $30,000, $40,000, $50,000 it is not that unusual to buy a property and have $50,000 in it and then be able to rent it out for 1.5% which is 750 bucks a month, that’s not unusual. You buy it for 50,000 or you have 50,000 in it, maybe you buy it for 35,000 and put 10,000 or 15,000 in it, you have 50,000 in it and then you are going to rent it out for 750 a month, that’s 1.5% per month. That’s actually pretty good. Now, the way that you make money on the higher-priced properties because let’s say you bought a property for $100,000 and rent is gonna be 1,000 per month, okay? That’s just 1% per month. However, if you can buy that property and have $100,000 in it, let’s say you put 25,000 down and you went and got a mortgage of $75,000, well your mortgage payment is gonna be X and then you’re gonna have taxes, insurance and repairs and maintenance, but you only gonna have 25,000 at your own cash invested in the deal. So, if you only have 25,000 of your own cash invested in $100,000 property, you can still make some decent cash flow, you can still make some decent cash flow. And it might even be 2% per month based on the leverage, right? Because I always say real estate provides what’s called the IDEAL investment, I-D-E-A-L that stands for Income, D for Depreciation which is a tax advantage, E is Equity build-up, A is Appreciation, the prices are going up, and L is Leverage. Real estate provides that, an IDEAL investment. You should write that down and remember it. I-D-E-A-L, real estate has five different things, Income, Depreciation, Equity build-up, Appreciation, and Leverage. Those are five different things, benefits that real estate gives you. Remember that, write it down and don’t forget it, okay?

So, if you are buying the higher priced properties you need to use Leverage. Now, I am 58 years old, I am not really looking to go out and buy $100,000 house and put $25,000 down and get a 20, 30 year loan. I don’t want to do that, right? So, at my age, if you are in my age or older or around my age in the 50s, you probably want to buy the cheaper houses and pay all cash. That way, you don’t want to have to eventually in 15, or 20 or 30 years, you know, it is longer but you don’t know, you don’t want to leave your family with properties that are leverage, right? That are leverage and they are gonna have to either sell just to pay off the loan or whatever. Do you wanna be able to either sell properties or do you wanna be able to leave them with free and clear properties, right? Free and clear properties.

Now, there is a lot of people out there that are building their portfolio right? And maybe they are buying property like $100,000 property, putting 25,000 down but maybe what they do is bought that property for say 60,000 and they go and put 10,000 or 12,000 in BRRRR and now they have 75 in it or whatever, they go in and refinance. It is called the BRRRR Method. You buy, you may use cash, you may use credit cards, you may use a private money, you may use hard money or whatever, right? What you have to do is you buy it and then you rehab it, right? You’re gonna fix it up, paint, carpet, you’re gonna rehab it so you can rent it out. You’re not gonna put like really nice carpet, you’re gonna rehab it to where it is going to sustain the wear and tear of a tenant, okay? So, you’re going to… that’s the BRRRR Method. You buy, you rehab, and then you rent, right? So, now that you bought it, you rehab it and you rent it and now what you do is you go get an appraisal and you refinance it, right? You buy, rehab, rent, and then you are gonna refinance it. I just mentioned, let’s say you got a property that you have 75,000 in but now you got an appraisal of 100,000, you can go get an appraisal of 100,000 and borrow 75,000, pay off your private money lender or hard money lender or whatever, just pay it off and then you got all your money back, you’ve got 25,000 in equity but maybe you have nothing in the property. I did that years and years ago, right? I would do the BRRRR Method before anyone even came up with the term, BRRRR. So, you buy, rehab, rent, refinance and the last R is repeat. Buy, rehab, rent, refinance, and then repeat. And you keep doing it over and over and over and over again until you build up a portfolio. Now, I’m in my 50s, I don’t want to go out and get a lot of loans of single family houses. It is one thing to do multifamily or commercial or things like that, but I don’t want to go out and get a lot of loans on single family.

Hey, Alan, what’s up buddy, thanks a lot for being on. So, I don’t wanna do that, right? But if you are younger than me, if you are younger and you want to, you know, you want to build a portfolio, you don’t mind going into debt, you can use the BRRRR Method and also the last thing I want to mention is there is a good quick rule of thumb in analyzing rental properties, okay? There is a good quick rule of thumb. Now, this is gonna be probably a little more conservative, but especially if you are brand new, I want you to be a little more conservative and it is called the 50% rule. Okay, the 50% rule.

So, when you are buying a property, whatever the income is coming in, you can count on 50% of that income as being cash flow, okay. 50% minus taxes, insurance, repairs, maintenance and mortgage, right? So, I wanna make sure that you are conservative especially if you are brand new and starting out, especially if you are brand new and starting out. Now, if you go on a lot of forms and things like that, man how much is the quadruplex, a quad in my area? Well, there are some out here and you can get better cash flow and a better bang for your buck if you buy a duplex, triplex, quad, or something like that, but I try to be very conservative in my numbers. So, I do like the 50% rule, but you can find properties occasionally, it is rare occasionally, you can find properties that are getting you 2% per month in rents. Now, bear in mind, those are gonna be cheaper houses, right? You are not gonna be able to find 100,000-dollar house typically that you can rent it out for %$2,000 a month. That’s not gonna happen. In the normal real world, there are exceptions to everything. Somebody is gonna always say, well Larry I just got up on a house for 100,000, I get 2400 a month, right? It is very rare. It does happen but it is very, very rare, right? Most of the time when you gonna get close to 2% per month in rents, you are going to find out that it is in the lower-priced houses. I will also tell you this, when you rent the BRRRR Method, how long do you to wait in order to refinance? Man, that is a great, great question, right? You have to show the bank the rental contract. Yes, you will show the bank the lease, right? You’re gonna buy it, rehab it, rent it, and then once you get the tenant in there and get a couple of months into it then you can go in and refinance it. And the bank will allow you to count I believe 75% of the income to the mortgage payment, I believe it’s 75%, it maybe a little up to that. But you can count up to I think 75% of the rental income toward the mortgage payment. So, how long do you have to wait? You typically gonna wait about 90 days, right? It depends on the lender though. There’s a lot of lenders out there that specialized in working with just real estate investors. And yes you will have to show them the lease. They wanna make sure that you have rental income coming in on the property. That’s the whole purpose of getting it rented to be able to count an income and the debt ratio. So, think about that 50% rule. In the cheaper houses, you can get up to 2% occasionally even more like right now, and I’ll probably talk about this deal of the week next week but I just got 8 houses under contract. I just did 8 houses under contract and we are selling them, all 8 as a package, they are all rented out, the total rental income is over $2800 a month. I think it is twenty eight ninety five or twenty eight forty five or something like that a month. Now, at 2%, that’s gonna be 140,000 right there. At 2% 140,000, right? That I could sell those properties for, 140,000 so I’ll probably talk about those as a deal of the week next week.

So, I hope this really helped in being able to understand how analyzed deals. I’ve got about 3 openings right now for our partner program, my partner program is where I work with a few select students and partner on deals with them. There is an upfront fee for it, but I’m gonna work with you one-on-one to get your marketing going, your systems, processes and procedures in place, so literally within a week or two, your phones start ringing off the hook and you start getting deals. I had an event here in my office three weeks ago and since then I have had two people got 3 deals so far in the last 3 weeks since they left my office. So, if you wanna hear more about that and learn more about it, go to larrygoins.com/apply and apply to work with us as a partner and we partner on deals and my portion of the partnership goes to charity. I don’t even get that, okay. I don’t even get my portion of the partnership. Part of it goes to you, part of it goes to charity, right. So, if you are interested in that go to larrygoins.com/apply and please like Manny says, share this video right now for a chance to win a HUD Jumpstart. The HUD Jumpstart is my home study course that teaches you how to buy and sell HUD houses for pennies on the dollar.

So, guys I really, really appreciate you guys being on. Thank you so much for watching. I really hope you got a lot out of this and please share the video and check us out, larrygoins.com and we got a lot of other free training and make sure that you write us a review on iTunes if you don’t mind, we would really greatly appreciate that as well and next week Kandas will be back in the office so we will be back together and do the BRAG show and remember go out there and be rich and generous. So with that, thank you guys for watching. I really, really appreciate it. Thanks everybody for being on. Make sure you share this. See you later.