Buying Your First Rental Property | Real Estate Investing Basics

hey everybody it's ken macro here i'm here with my good friend david demers hey david hey ken how are you guys are gonna get to know david so the reason why i wanted david on the podcast was a couple reasons one um he helped me write this book the abcs of buying a rental property which is going to be coming out but more importantly i'll let david go into his background a little bit um so david is can write and as you guys know i try but i'm not as good as david so david helped me significantly on this book um and is a a big reason as to why uh you guys are going to enjoy it so one i want to honor you for that because i think you just did a great job on this but really the reason why i wanted him on guys is because when he and i met he didn't own any rental property no i didn't in fact i owned my own house and i owned uh i owned it outright and i had achieved what i thought was the american dream and that is to get your mortgage paid off right so anyway more on that you guys are going to love the story because what he did which will blow your mind was he bought some rental properties and he's now making more money than he ever thought just from the process of writing this book so before we get into the details which i know you're gonna love uh david why don't you talk to them about like a little bit about your background because i know you journalism you taught at the university level and you've had a and you had a publishing company and you know you've been kind of entrepreneurial academic and you had an interesting very good career uh but let's let's uh tell everybody about it yeah i went to school got majored in journalism and sociology and i ended up working as a journalist for a number of years and then the pay wasn't really great in that field that it's a little better maybe today but there aren't that many jobs available so i got out of it ended up in marketing research and then eventually i got my phd and ended up teaching getting a professorial position at various universities including uh washington state university and i worked until i retired when i was 59. and you were teaching literature right i was teaching journalism mass communication sociology of mass media stuff that at the university level sometimes is fun yeah and today of course the meetings in the news all the time but uh and i came out here to moved out here uh right after i retired with my daughter to to the phoenix area and i wanted to i said well i could pick up you could use a little extra money so i applied for a job that you had advertised for and i had no idea what i was getting into and uh and the first time i met you uh i'm you know an academic and academics are very skeptical about a lot of things so you you you and your staff peddled uh your story and what you were looking for and all of that and i said sure sure well i did go out and i read a couple of your books the ones you've done on real estate and i don't know why i reacted so favorably to it but i just said my god i should have gotten into this 30 years ago right right so here you were uh retired here in arizona um owned a home free and clear mortgage paid off no debt had an incredible daughter that you're trying to push through university as well um and i know you're super proud of her and um and so here you were and then you come into our shop and you're like who is this knucklehead right he's got he's involved all his real estate and it's cash flowing and you know honestly i mean now we've known each other for a while and i remember you telling me that you're like i didn't think it was true right at the beginning what's that oh you mean uh well what i i was very skeptical when i came in and when i read your stuff i actually immediately uh thought it was great i said this guy is onto something now i know why everybody's making money in real estate why i didn't because i hadn't read anything that really gave me a a good idea on how to do that right and so for all you out there whether you're you know what no matter what age you are i just want you to know that here's proof there's hope right because you guys are going to be blown away by his story of what he was able to do while we were uh writing this book and obviously you know i um him and i were talking about it as he was going through the process but he did it on his own and it was all his efforts based on all this research and so what we did which you guys will love is while we were writing them first of all the the idea for the book was always because every email i get and and uh all the communication that we get usually is how do i start that's always the question you know everybody wants to know how do i start and how do i do it if i have a job or if i'm retired or whatever but it's never too late to start i believe don't you agree well yeah i mean in a short period of time i've made a fair amount of money it's the it's probably the only investment i've ever made that's really paid off yeah so i can't wait to go into that but so anyway so we're writing this book and he's helping and we're i don't know three four or five chapters in maybe and then you find a deal and then you close on the deal and you know we're talking about financing we're talking about down payments we're talking about you know renters and sellers and markets and all the things that you would expect would be in this book the abcs of buying rental property and then he ended up buying it and ended up being super successful and so i was like we just need to put your story in there right because you are proof of somebody who literally had no real estate and through the process of helping to write this book bought a bunch of real estate and and here you are with a ton of cash flow hey guys it's ken macrae well over the years people have asked me how did you start how do you start and how do i start and so i wrote this book it's the abcs of buying rental property and this book is going to walk you through step by step starting at the very beginning and don't worry about if you don't have any cash and don't worry about if you don't have any knowledge just read this book for 20 bucks you're going to get a lot of knowledge and you just have a little bit more than when you started and especially now when we're going through all this uncertainty financially having this kind of knowledge is going to be really really important and who knows when this happens again because it will happen again another downturn will happen again then you perhaps will be in a much better situation have some passive income like millions and millions of other people so so let's talk uh a little bit about you know your process david like you know when you obviously you were learning the concepts you read a couple of my books and so i really was impressed that you know in the first couple meetings you came in a lot more educated around real estate because when you came here you didn't have you know how to write you were way better than i could and then you started to learn as you're coming in right that was really really fun yeah it was uh i think the principle that really sold me on everything was the idea that you try to use other people's money as much as possible in order to invest in real estate and that what does that mean it means when you buy a property you try to put down as little as you can on it so you leverage that purchase it's about leveraging that's how people get rich in this business if you have limited resources you leverage as much as you can so you try to put down as little as possible make sure of course you're getting income and other sources of finances that can pay all the bills and all of that but it was not as hard as i thought although like anybody investing a lot of money i i had to mortgage my house and i had i owned that thing outright yeah i took out a refinance mortgage on it and that was a scary thing but i had confidence because i'd read some of your work and it all made sense to me and i thought uh why not i would i did it partly for my daughter and you created a company for that uh and by the way guys this is a guy that's owned um rental property for how long a year almost a year almost a year okay so i mean look at everything he just said that's one in one year uh and obviously that's not just from reading but from doing and we're gonna get into that in a minute but i know one of the things that you kept talking about in the beginning were on my first book the ten myths you know um what were the those really jumped out at you i remember you know the different types of myths yeah well one of the one of the myths is that you have to have a lot of money to invest in real estate and you know it doesn't hurt to have some money in order to get started and all but there are lots of ways to raise sources of revenue and especially if you're a little older and you have some retirement assets and other things a lot of times you can borrow on those in order to raise the assets as you pointed out i'm i'm just writing up what i've learned from you and reading the literature and that kind of thing and then the other thing is that the key thing that most lenders want to see is income do you have enough money to cover the mortgage and if you're able to cover that and usually they want about they won't give you more than 40 percent of your income for the loan but if you're able to cover that even a person with a income of 35 000 dollars that has low debt has the potential to be able to borrow and get the money that they need in order to buy rental well you're proof of that right so let's let's talk about that you know because one of the probably the scariest thing for you as we were going through this process together was the down payment which is what most people i would imagine that's got to be the scariest thing because that can come from you know an investor it can come from a family member it could come from a more you know from a refinance out of your home can come from your savings it doesn't really matter where it comes from but it's still scary right because it's really not about the money as much as is the uncertainty right yeah so what was going on with you during that time because i know we were talking a lot well my situation is maybe a little bit different than many of your viewers out there so i was retired and i had limited income and i was doing fine i didn't need to live off of a lot of money or anything so my thing was when i when i went to buy the property my income wasn't high enough to qualify me for putting down a down payment and they would cover the rest so what i did i had a lot of equity in my house and so i ended up borrowing a hundred and forty thousand dollars uh and i ended up using all of that equity imported into the house now as you have pointed out when you get equity in another property what do you do with it you don't let it sit around and waste away like that that's a that's debt that can be used to your advantage that becomes an asset not a liability right so i am now in the process of buying my next property and i'm using the equity in the one that i own right now in order to get the next property so so here this out guys so he took money out of his primary residence which is a risk and then he invested that into the what was the price of the first property 140 000 okay so he paid all cash right so no debt this is a strategy and then he as we were talking i said so now what you do is you take a loan against that property uh for the next property so these are called cash out refinances guys so he cashed out of his home which is his which was equity and its income that he already had then he took a refinance out of the 140 property that he already bought and he's in the process of buying another one right right and now the great thing is this once you have your rental property for a year most lending institutions will allow you to count some of that income up to maybe 70 or so so now when i buy the next property they're going to count that income well that now allows me to i can probably buy a more expensive property next time around if i want but now i have more income coming in and then it builds again that second property after a year will produce income and that income then it adds on to everything else and you see it just keeps mushrooming and over time as kenneth points out in all of his books you leverage other people's money and you put down as little as you possibly can you make sure you can cover all your debts and all of that and i'm telling you it's a it's the safest way i read through a lot of material to write help you write this book it is absolutely the safest way to invest if for the long haul and to build a real uh what financial independence over the long haul i don't know of another way that's safer stocks aren't safer well you tried all those ways oh i've been in all those things yeah so as you were going toward retirement i'm sure you tried a whole bunch of things what are some of the things that you were doing along the way before you retired i had retirement funds and they were in the stock market i had them pretty aggressive especially because i didn't really start collecting any retirement until i was 38 after i started working as a professor and so i had all those and yes those did produce a return as we point out in the book uh stocks produce about an average for since 1940 they produce an average of 6.6 return per year and that's not bad that's not bad but but property we did the numbers for uh real estate and rental properties and all of that and the average return for since 1940 for uh rental properties in just a single family a little rental property home is 19.2 percent per year and there's just no comparison between the two so here you guys just need to hear what he just said so uh first of all if you haven't figured it out david loves numbers he loves statistics and these are all in here in graphs and charts and so everything that we're talking about here is in this book you will see it when it comes out and what he did because from his own experiences he tracked stocks versus real estate in this book right and that's what we're talking about here is he went back and looked at actual returns on real estate actual returns on stocks and and mapped them all the way through we've got charts and graphs and tables in here that he's done he you did that all on your own without even asking me and when i did it the whole idea is to try to provide the most accurate possible estimate of what will happen in the future if you buy a piece of property and the best estimate of the future is the past and the farther you go back the more accurate it normally is because you have more data it doesn't mean everything is going to turn out that way in the long run because stuff happens and we have recessions and downturns and all of that but even with real estate when you get a downturn in the economy or whatever you don't lose everything you know if the stock market drops fifty percent you lose fifty percent of your investment if a property gets hit like that you don't lose anything until you sell it so you hang on to it until the time is right and when the property goes back home right it's the safest way to invest i i've had that happen by the way guys i've owned stuff and it's gone down in value and i just hold it and hold it hold it hold it you know but all along i've had a tenant in there i had a mortgage and i've had all this stuff and it just covers you know as long as you're covering your expenses you're okay right yeah yeah that's right that's all you need to do if you sell then you're you know you're writing a check right but we didn't so um so let's talk a little bit about um you know because i i think one of the coolest things is you know the whole process you know obviously you got the you got the the first condo or first house in in phoenix and uh i remember you coming to me and said the lady doesn't want any of the furniture right remember that yeah this was unexpected i had i bought a property in sun city and as you know sun city is for people 55 and older and it's a place where a lot of snow birds come down during the winter time guys like us yeah yeah well i'm i'm in that category and they uh they come down there so it has some appeal and it has uh appeal for short-term renting as well and uh there's a lot there's a difference between short and long term but i inten originally intended to run it on a yearly basis on a month-to-month thing and have one tenant in there at a time and it was a gamble and i was nervous but what happened was within about a month i had nine months rented out in the unit for the next nine months they were all rented and i was like wow do you remember how much the income total on that was about 19 000 i think it was okay so keep this is important he buys a property within one month he has 19 000 in potential revenue already set for the first nine months right yep right so which more than covers all your expenses including your mortgage right yeah the mortgage is about eight hundred dollars a month so yeah and then the taxes and insurance and other you know some maintenance and things like that so you basically had all your costs covered within a month you knew you were gonna make money yeah and by the way don't forget there's two things one who the renters are paying down your mortgage that's an important thing to know because keep that in mind so he has an 800 mortgage a month but the renters are paying that they're actually giving him the money to pay it so his mortgage payments going and your principal is being eroded over time which is a massive benefit um and then also these people just like you would if you've ever gone somewhere and you've gone on vacation or you've stayed somewhere for any period of time we're creatures a habit we like to go back especially we had a good experience so now he's got a kind of built-in reoccurring revenue for the year sometimes certain sometimes not you know they might give you a deposit even for one year later i know i've had people do that right yeah so so he's got all the stuff and so all of a sudden he's going holy cow this thing's starting to make a little bit of money right pretty and the value that's where the values go oh the property values this stunned me i i did an analysis and found out that the last 20 years and sun city properties have increased about 7.6 right well what's cool is that you're already renting it you're out yeah i mean i'm amazed i'm amazed at how quickly people that's because sun city is a place of demand but what's really neat guys is that david goes into all the different things all the all the walls that you hit all the you know the resistance that you had around debt and around the equity around the tenants the tax piece it's all in this book right yeah all of it what i most liked about your story is that um you kind of had purpose around your daughter right so you set up this company and now you're teaching her right so why don't you walk through that because i think you know this is interesting this all happened within a year so now you've kind of got this purpose around her she's part of your business you're teaching her so why don't you just walk because that's the benefit of being a parent right yeah my daughter's 19 i'm a single dad and she's in college right now but i told her that she ended up getting a lot of scholarships so she had some i'd saved a lot for her college and didn't have to use it for that we put that to work a little bit in this property so that was good and i said it will return trust me it'll return more than what we were ever getting in the uh the stock market that we were invested in and all that boy has it unbelievable uh how much more it's returned in in the property so i wanted to help i wanted to say leave something for her when i pass on that she'll have an investment that she can that she'll know how to run how to operate and she can continue that because there's no honestly there's no safer better faster way to achieve financial independence as you pointed out then through real estate and i know it's a lot of people it takes a while to convince people of that but it is true yes there are risks but the risks are very minor compared to lots of other investments and you've done a probably cr i know you've done an incredible job of mitigating a lot of the risks i've watched you i mean you're super calculated very cautious very strategic you run the numbers before you do anything you ask lots of questions super thorough guys i mean hopefully you've seen that in this interview about how how he pulls these statistics and these numbers and all these things uh they're accurate and um so uh nice job yeah well thank you ken yeah i appreciate it oh enjoy working with you yeah it's been awesome so um so now you guys know the story around this new book that's coming out but if you want to know the rest of the story like paul harvey says you're going to have to buy it in late summer so david nice job thank you thank you ken you better appreciate it

Channel: Ken McElroy

Views: 136,878

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Keywords: Rich Dad, Entrepreneurship, Investing, Personal Development, Get Wealthy, Earn Wealth, Ken McElroy, Entrepreneur, Rich Dad Advisor, Success, Business, Self-Help, Coaching, Real Estate, Real Estate Entrepreneur, Real Estate Investing, Freedom, Lifestyle Business, Hustle, Buying Property, first investment property, getting started in real estate investing, rich dad poor dad

Id: a5RExfeU4UY

Length: 22min 39sec (1359 seconds)

Published: Thu Sep 24 2020