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The difference between two real estate investment strategies.

What it boils down to is how long you’re looking to wait and what is your primary motive for investing in real estate. If you’re looking to have more control over the investments you make I suggest to go for cash flow. Cash flow investment strategy allows you to reduce the risk of market fluctuations and real estate price drops. You have a more or less predictable monthly income which stabilizes your cap rate and sort of gives you a guaranteed number before you go into a deal. That is because you know how tenants are paying for your property before you purchase it so that number is more or less fixed. Secondly if the tenant were to move you could still get tenants at the market rate which should be similar to what the previous tenant were paying. The expenses should also be pretty deterministic before you go into a deal. If the property doesn’t suffer from major problems like foundational issues or needing a new roof, etc. then you can be more assured that the expenses will not spike suddenly and this helps stabilize your cap rate.

With appreciation strategy you’re looking to increase your property value by waiting for the market to move. This I compare to gambling specially if you’re not looking to hold on to that property long term, anything more than 5–10 years. Appreciation is uncertain because you’re waiting for the forces of the economy to act and that goes into the realm of study of macro economy, which in my opinion is very subjective and a non-intuitive or even counter-intuitive field to understand. In addition to a long term strategy appreciation could also work if you get into a very good deal at the beginning when you purchase the property. This of course also applies to cash flow strategy, but it can yield more rewards in the appreciation case as typically the investment figures are larger.

Cash Flow Vs Appreciation - Make It Or Break It In Real Estate

How To Score A Fixer Upper

A discussion about the BRRRR real estate investment strategy and its endless benefits.

When we talk about real estate investing there is not a whole lot of other strategies that can be as powerful as BRRRR. Buy Rehab Rent Refinance Repeat is probably the end all be all of all types of investment strategies when it comes to real estate investing. It can exponentially contribute to your CAP rate and help you scale up very rapidly.

Here is how it works. Let's imagine you start with $50k cash, you then find a property somewhere in Midwest or the South where prices are not astronomical like they are here in California. You purchase that property for $40k and put in $10k worth of rehab into it. Maybe you fix the flooring and the roof and do some landscaping and electrical. You turn the property to a shiny property that can be rented at market price, this should relatively be an easy task specially if you have contractors you trust and can work with efficiently. Next you find a tenant and collect that $500/$600 per month market rent. Once you have a solid tenant in place and the house looks great because of the rehab you put into to it you then go to a local bank and ask to refinance your property.

In many cases banks allow you to refinance up to 75% of the property value if you own it out right and sometimes even up to 80%. The refinance loan is usually at around the same rate as a normal mortgage so that means you end up paying a relatively low interest rate and if you have purchased your property intelligently you should be already making a nice cash flow property at 15%-20% CAP rate. So now that you have take a loan on a portion of the value of the property you won't be making as much money on that 75% because some of it goes to the bank, but that's Ok because your CAP rate is now calculated based on the amount of equity or cash that you still have in the property which in this case is 25%. So if you do the numbers now the current CAP rate is higher than before. On top of that you have liquidity which you can use to purchase another property and repeat the cycle.

BRRRR Strategy Refinance

You would want to start with a single family residential unit. A two or three bedroom single family house as opposed to a multi family property something like a duplex or triplex. This way you avoid the overhead of dealing with multiple units and keep things simple as you learn. You should also avoid commercial properties as your first step as they usually require more complicated financing methods and are just more involve more things to learn and are not a great way to get started.

The reason you should focus on a single family house is simple, there is only one tenant you have to deal with so when things inevitably break you only need to deal with that one tenant. There is less paperwork involved and trust me there is a lot of paperwork to deal with even with one property so you want to minimize that as you are getting started and learning the major pitfalls.
You will make mistakes in a fact, there is no avoiding the goal should to be lessen the impact of those mistakes as you get started so that why you should start with a small property to lower your risk and maximize your learn-to-cost ratio.

Another reason why it is important to start with a single family house is because worse case scenario you can fix problems that come up or hire a contractor to do it for you. The benefit of hiring contractors is two fold first if you want to separate yourself from your investment projects. That means you should set them on auto-pilot in order for you to be able to scale up in the future and truly benefit the passive income from those investments. Secondly and probably more importantly is the tax benefits. When you hire a contractor you can write off that cost against your rental income whereas if you were to fix the property yourself you would not be able to write off that expense.

Ultimately it is very important to outsource as much of the work of real estate investing as possible. That is why you should do your best to hire a property management company. I like to iterate this is not to be mistake with a property manager, because at the beginning when I was first getting started I always assumed it's an individual who will be taking care of your property for a fee. That is false. The property management is actually a team of experts who have managed hundreds of properties and have a network of contractors who they can tap into when something goes wrong quickly.

Property management companies can be your biggest asset when investing in real estate. A good property management company is absolutely an invaluable asset. They can help you with inspect of the property before you buy it. They can refer you to banks they work with if you need financing or need to refinance if you're using a BRRRR strategy (I talk about this in another one of my videos for more advanced investors). And as I mentioned they can help ease the pain of when things break but tapping into their trusted network of contractors.

The typical 10% property management fee is absolutely worth it specially if you're getting started in investing in real estate.
Do you need a lot of money to start? I highly recommend for those trying to get started in real estate investing to start with an affordable area. There are parts of the country where you cannot purchase a property for less that several hundred thousand dollars you should stay away from those areas. There are on the other hand many parts of the country where you can buy a brick single family residential for less than $50K! For example Memphis, TN or Cincinnati, OH or Detroit, MI to name a few.

Absolutely get started with cheaper areas before you work your way up to more expensive real estate markets so when you make mistakes they don't cost you as much.

Once you're making solid income from your first property then it's time to move into multi-family home, maybe a duplex, triplex or quad-plex. At that point you should have enough experience to make sure at least you are not going to make basic mistakes.

Real Estate Investing For Beginners 💁‍♀️

The truth about Ryan is that he is an entertainer not an educator. I've watched many of his videos and I always thought I didn't completely understand how he does certain things or how he solves problems he encounters, I felt shortchanged by the end of his videos.

The videos often end with you wanting more not because his content is so education, but because of the exact opposite. Because he never teaches you anything, but you think maybe in the next video you'll find the answer, but when you watch the next video you find no answer either and are presented with a completely new problem with no answer yet again.

I'm not taking away anything from the educational aspects of Ryan's videos. He seems to know how to nail it when it comes to production value of his videos and how to entertain his audience. But you shouldn't mistake that for the educational worthiness of his videos. I argue there is little to none educational value when it comes to real estate in his videos.

Ryan Serhant Is Not Who He Claims!

Just met an investor who spent $1,000,000 on a multi-family property in San Francisco. He bought it for $4,000,000 and sold it for $6,000,000.

San Francisco is one the most expensive real estate market in the entire country. Watch this video to find out what it's like to live in SF and learn more about this deal.

How To Flip A $4,000,000 Property In San Francisco

Vanguard Index Funds are a powerful to grow your wealth. Specifically using the combination of stock market and compound interest to achieve extremely high returns over several years.

By using a Vanguard Index Fund with VTSAX symbol you'll make 13.5% average interest per year. A well balance fund like that is the best way to guarantee consistency and high interest.

How To Make $3,000,000 With $100,000

What are those pesky "We Buy Houses" signs you sometimes see at the street corners or in front of houses in dire need of repair?

Those houses are offered by real estate wholesalers, people with no accreditation or license unlike real estate agents, wholesalers do not have to pass any type of exam or be certificate to practice. So how does wholesaling work?

Wholesalers usually send tons of direct mail to stressed or motivated sellers, usually due to financial difficulty or being unable to be current on their mortgage payments. Once they find a seller they try to make a deal to sell their house for well below market rate as the seller is motivated and cannot work with a real estate agent to property list their property they may accept the low ball offer. The wholesaler then turns around and reaches out to investors looking for deals on real estate forums and other places. Once a match is made the wholesaler makes their commission on the deal.

How Legit Are Wholesalers In Real Estate

Probably the most important number when it comes to real estate investing. CAP rate is the number that tells you whether you should invest in a property or not. Here is how you can calculate the CAP rate of any property:

First let's imagine you purchase a property for $50k cash. And you rent it out for $500/mo. To find out how much you make in a year from the rent you multiply the $500 by 12 or $6,000, which is your annual gross income. You then take that amount and divide by the amount you invested so $6,000 / $50,000 = 0.1 and finally you multiply by 100 to get the percentage, in this case 10% is your gross CAP rate.

But gross CAP is not what you're after because you also need to take into account the operating expenses for the property, things like maintenance fees, up front rehab costs, annual taxes, etc. So what most investors do instead of accounting for every single item that is an expense they instead subtract 30% from the gross CAP and call it a day. In our case $6,000 x 30% = $1,800 so we have $6,000 - $1,800 = $4,200 is your net annual income. So to get the net CAP rate you divide that number by how much you purchased the property for or $4,200 / $50,000 = 0.084 and to get the percentage you multiply by 100 so your net CAP rate is 8.4%

This number is super handy when you're looking at hundreds of property to decide which one to purchase. This greatly simplifies the math needed to do the calculations.

If you enjoyed this video please smash that like button. If you have any questions please leave them in the comments section below.

How To Calculate CAP Rate

To spoil the beans, they are:

Memphis, TN
Cincinnati, OH
Detroit, MI

I talk about what to do if you have $100k and looking to purchase a house. First of all don't buy a house you are going to live in. That is usually a bad investment strategy because the chances are where you live is not where the real estate market is the hottest. You need to find a location where you will cash flow.

The next step is to refinance the property you purchase so you can free up some of the equity you put into it, aka the cash. Most bank will give you a loan for up to 80% of the value of the property. These loans are typically easier to get than for example a loan to purchase a car.

Finally you can increase your CAP rate even more by waiting a few years so the ratio of the interest to principle goes down. This is an important factor because when you get a 20-year mortgage you in essence are paying it back even though you are cash flowing. So you divide the total amount you borrowed by 20 and you add that additional income to your CAP rate calculation.

3 Up and Coming Real Estate Markets

What are some of the major points to pay attention to when forming a partnership?

First make sure you have a legal entity in form of an LLC for example. This is vital to make sure if someone is coming after you they cannot take your personal assets.

The next big thing is to make sure in case of a stalemate one person has the ultimate decision making power. This is a bit abstract but the point is you never want to get into a situation where there is a stalemate, often times that is not good for either party involved.

Doing a 40/60 split could also work but that makes the intangible things harder to make fair. What I mean by that is if you're splitting the cost of maintenance or taxes based on a 40/60 ratio that is no problem there but what happens when you need to do due diligence on a property or you need to think about it rationally and see if it's a good investment? Well those are the things that are just as important as paying your taxes for example but they are intangible things that cannot be split 40/60 or any other way. That is why if you do 49/51 split that is basically the same as a 50/50 split so no one has less incentive in any area of the deal and everyone treats every deal they are involved in equally both on paper and in their head.

Pitfalls Of Real Estate Partnerships

Learn how to maximize return on investment and finding high CAP rate properties. As a software engineer I was always interested in real estate and knew one day I would be fully immersed in investing in real estate. I am currently working on a real estate startup in Silicon Valley. Prior to this I worked as an engineer on self-driving cars and helped build Twitter in early 2010s.

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