Guide to Buy Your First Rental Property

listen if you're subscribed to my channel at some point you are going to be buying real estate and hopefully doing it the right way and making millions of dollars if you think you're ready to buy your first rental property there's seven questions you have to know the answer to because guess what today i'm buying this house and i'm going to tell you right now i know the answer to these seven questions so i'm about to make a pile of money today's video i'm going to share these seven questions with you and if you can answer them the right way you're actually ready to buy your first rental property [Music] i'm turning dreams into reality yeah it's one are you ready today's the day today's the day my friend today's the day when you might be making a pile of cash on your first rental property and if you've been subscribed for a while if you've watched my stuff if you've read books you might be thinking you know what chris i think i'm actually honestly ready to buy my first rental property i'm ready i'm ready i'm ready i'm ready but you know what i got a little test for you it's a little litmus test for you to actually know if you're ready because in today's video your guide to buying your first rental property i'm going to ask you seven questions and your answer to these seven questions honestly will share and show whether you are or are not ready let's make sure we're actually on the same page what actually is a rental property is this like a commercial property is it a condominium is it a townhouse is it a single family home chris what do you actually mean by rental well according to investopedia residential rental property refers to a home that's purchased by an investor but it's inhabited by a tenant on a lease or other type of rental agreement residential property is property zoned specifically for living or dwelling for individuals or households it may include stand-alone single-family dwellings to large multi-unit apartment buildings bottom line is you're about to buy some real estate you're planning on holding it for a while you've got to rent it out to a family or for a tenant so that you can actually make some money and hopefully a profit question number one if you want to know if you're actually ready for your first rental property you got to ask this question have you paid down personal debt you don't have to be debt-free you don't have to have paid off student loan debts but there's a certain amount of debt that you should have paid off if you're actually going to go deeper into debt and actually buy residential property because when you own a rental guess what you're doing you're going deeply into debt and you need to make sure that you don't have too much oh too much that's too much oh caution is key my friend if you're brand new to the game because if you have student loans unpaid medical bills or children who attend college soon then purchasing a rental property may not be the right move for you there's a little bit of a mathematical equation that you should do however if you want to know if your debts are properly aligned this actually comes from king harbor wealth management i agree with it they say it's not necessary to pay down debt if your return from your real estate is greater than the cost of your debt this is a calculation you need to make for example let's say that you're going to be buying this nice house right here it's great it has a roof and it has a front door you see the lock this house right here costs two hundred thousand dollars you're buying it as a rental your mortgage on this property is going to be one thousand one hundred dollars a month and the question is should you take on an eleven hundred dollar a month liability well check it out you're actually going to be renting it for sixteen hundred dollars a month and after you pay property management and some other things even though it looks like there's gonna be five hundred dollars of cash flow right i'm receiving sixteen hundred dollars a month eleven hundred goes out the door for other costs i have five hundred dollars but then you decide that hey i've got a property manager and whatnot i'm actually going to be keeping 330 a month you might have other debts in your life but buying this house is actually creating a positive cash flow you are better off this month for owning this property than not owning this property and so based on this math and definition yeah you should actually buy the house however if you buy this house and there's not really going to be a positive cash flow and you're straddling other debts it's probably a bad idea to buy this house question number two are you going to buy real estate in the proper location have you ever heard that adage that with real estate it's all about location location location well in the city where you live or where you're planning on buying real estate you should be aware that there are rougher sides of town sometimes the properties cost the same in both neighborhoods but guess what i want to actually invest in the place where the people make more money have better job stability because on average the more they make the better they take care of the real estate so for example you should be looking at growing population low property taxes decent school districts plenty of amenities low crime rates increasing job market i've got a document that i refresh every year that basically looks at the 324 markets around the entire united states and then i say what are the top five if i go into those markets i'm actually going to make more money because they're going to actually have more amenities lower crime rates they're going to have increasing job markets that's something important that you should look for when buying a rental property a lot of people that get fixated and say i just want to get a good deal on this house i'm just telling you if that house is not in the right zip code or if it's not on the right side of the railroad tracks i'm not buying it by the way if you want to know exactly what you should look for in getting the right market you can get a free copy of this just click the link below and my team will put it in the mail and drop it to you and it will show you exactly which neighborhoods i will invest in and then the ones that i want question number three when you buy this house someone's got to put some money down to get it it might be yours it might be a partners here's the question have you secured a down payment i'm not talking about even the loan like pre-qualifying i'm talking about there's hard cash that you've got to put down on the property here's what you should know investment properties generally require a larger down payment than do owner occupied properties in other words an investment property requires at least a twenty percent down payment a primary residence you can usually get away with as little as a three percent down payment for example remember this house here two hundred thousand dollars i need a twenty percent down payment if i'm not buying it to live in myself and twenty percent of two hundred thousand dollars is approximately forty thousand dollars so ten grand twenty grand thirty grand forty thousand dollars this forty thousand dollars where could it come from where should it come from where shouldn't it come from this forty thousand dollars could literally be money under the mattress that you've just been saving for a while it could come out of a 401k maybe an ira this could come out of the stock market it might even be a business partner that supplies you with this money that's all okay on the other hand you should not borrow this forty thousand dollars to be a down payment on buying this house over here why there's a cost of money you see if you already have this forty thousand dollars saved up where you don't owe any money on it it's what opens the door to cash flow when you put 20 down on a 200 000 house you don't owe 200 grand anymore you now owe 160 000 and because you paid that money down that makes it easier to produce a positive cash flow like think of the extreme let's say that i gave them 200 000 and didn't even need a loan then all of the rent would be pure cash flow then i would be getting 1500 or 1600 a month of cash flow in this example so it's super important that when you come up with your down payment that you don't owe anybody any money for it because it means that your cash flow that you do have is honest true and if you've done it the right way it's enough hey chris so why why even do a down payment then why not just buy the house out right why not buy the house outright all right do you follow dave ramsey stupid do you follow dave ramsey stupid you could say chris i'm actually going to save up all of my money and i'm just going to buy houses cash do you know how long it takes the average person to save up two hundred thousand dollars so many years of their life that by the time they get a house and have fifteen hundred dollars a month cash flow they don't have time to keep doing that again and again and again in other words you and i we've got 30 or 40 years to work and we need that time to be spent productive and if you're only able to save up enough for like two paid off houses what is that three thousand dollars a month of cash flow when you are envisioning retirement were you thinking to yourself yeah i would love to retire and spend the next 40 years of my life on three thousand dollars a month probably not question number four do you have the right interest rate listen you got to get qualified from the bank but not all banks are created equal they have different programs some will say hey we'll give you the loan and the interest rate is going to be this high and the other bank says they're crazy i'll give you the interest rate at this level well guess what check this out the interest rate on an investment property is generally higher than a traditional mortgage interest rate for like your own personal residence if you do decide to finance your purchase you need a low mortgage payment that won't eat into your monthly profits in other words remember that example this house over here the amount of cash flow you have it's tied to buying a house at the right price it's tied to getting a good deal but it's also tied to this it's tied to the interest rate and did you know that interest rates are lower right now than we've seen in the last 50 years this graph comes directly from freddie mac check this out here your 30-year mortgage rates were sitting at around four percent and they have dropped all the way down to two point eight percent on an investment property that's going to translate to maybe a little over three percent in my world on having done 4 500 homes that's called free money [Music] i'm not sure there's no guarantee that in your lifetime in the next 50 years that we will ever see interest rates this low ever again in fact they frankly honestly can't go a whole lot lower than maybe like point something percent like something really really really so here's what it means you buy an investment property today you're locking in the cheapest money that's been available on the planet for 50 years and if you're like me you're thinking hey chris i do need your guide to buying my first rental property but more important i gotta go buy five more because your biggest regret 20 years from now i promise you financially will be why didn't i buy more you think you're ready to buy your first rental property but not until you've asked yourself this question do you have landlord insurance chris what's landlord insurance in addition to homeowners insurance which is required by the way when you buy a property because like if it burns down the insurance company has got to replace it the bank requires that consider purchasing landlord insurance this type of insurance generally covers property damage lost rental income and liability protection this is for people that say all right chris i want to buy this property but i'm afraid that the tenant is going to destroy the house i'm afraid that they might lose their job during this strange economy and they won't be able to pay the rent chris i'm afraid that something bad could happen on that property like what if they have a meth lab or they invite friends over that slip and fall and crack their head and humpty dumpty can't be put together again oh no again i think this is super smart for people that are going to lose sleep at night if you're new to the game and paying this extra twenty thirty fifty dollars a month will help you feel better then do it as long as you have the positive cash flow but for me am i going to spend an extra thirty forty fifty dollars a month for that kind of peace of mind i'm not i call this insurance this is frankly for people that are scared they may not actually be ready to get in the game of real estate because if you've been in it you know that even though these things can happen it's a part of the game and the amount that you'll pay in insurance will not justify frankly the positive cash flow that can cover some of these things more importantly if you actually team up with someone that knows what they're doing you're going to play the game like a pro which means you're going to put the right people in the house and you've got your data that will show you what worst case scenarios can be like i've got different ways of actually mitigating this i am not tearing into my cash flow for this two more questions to go to know if you're really ready to buy your first rental property here's question number six do you know your legal obligations the moment you put a tenant in that house you actually have local laws that you need to adhere to check this out rental owners need to be familiar with the landlord tenant laws in their state in their area these include tenants rights your obligations regarding security deposits lease requirements eviction rules fair housing and more in order to avoid legal hassles for example there are some states and there are some districts that are what you might call tenant friendly and what that means is that if the tenant falls on hard times they can't actually pay the rent then that local city might say hey we've got an ordinance you can't kick them out of the house for like six months and if they're a professional renter and file this paperwork it'll buy them six more months and all of a sudden you're thinking you mean that i own this house for a year this person is living for free because they know like all of the legal loopholes yeah that is actually a real thing so you should be familiar with the law's land i don't want that to like scare you the reality is you need to be aware you need to be educated for your area and then you need to make sure that you are prepared to know how to combat it never stop me from investing and then of course there's the most important question of all question number seven do you know your return stands for roi a return on investment you're about to buy property it's not just about a cash flow you're about to lay some serious dough out and you got to ask and know what is coming back to me and is it enough for example check this out see this 200 000 house i put 20 down i lay out 40 000 but you know what closing costs and and maybe having like a buffer in my account let's say that my total real obligation on this property is 50 000 now 50 000 is not a lot it's not a little it's just a sum of money i want to know in terms of a percentage what am i getting back check this out let's say that you buy this property you put 50 000 laid out boom boom boom boom boom and all of a sudden you want to know how much money am i getting back well you buy it you put a tenant in it and then all of a sudden you get income flowing back plus you got your expenses but at the end of the year guess what you're left with 10 000 in profit that means after you paid all your expenses there was ten grand left over ten thousand dollars is a fraction of fifty thousand dollars in fact it is twenty percent of fifty thousand dollars your return on investment this year if i put fifty thousand dollars in for this long long-term hold and i got 10 grand back this year that means that i earned 20 on my money let's just assume that the next year you earn another 10 in fact in the third year it's another 10 000 and then ten thousand dollars and then in the fifth year it's also ten thousand dollars you added up ten thousand ten thousand this all adds up after five years to fifty thousand dollars i started with fifty grand i bought the property and i made 50 000 on top of what i put in i've gotten a 100 return on my money and it happened over five years so i need to take a hundred percent divide it by five and that means that i've been earning 20 per annum on this property now by the way is 20 impressive i think for an amateur someone who's a newbie i think that they deserve an award would i do that deal it's not enough money for me whoa whoa whoa chris you wouldn't do that deal don't get me wrong 20 is a good roi especially when you compare it to for example seven and a half percent out of the stock market or maybe you put some of your money in bonds and earn three or four percent maybe you put your money into a 401k or ira and earn six or seven percent yes 20 is better than that but at the end of the day i'm a professional i've done a billion dollars worth of real estate and i have standards if i'm going to do a deal i want to earn the most money so what is my standard when i buy real estate i need to be earning 25 a year on my money that means that it compounds at approximately doubling my money every third year why do i like that well if you're like most people out there and you're gonna work for 30 years that means that if i'm doubling my money every three years that means i can double it 10 times over 30 years and if you do that in the game of real estate you will wind up rich you should be a multi-multi-millionaire but a lot of people don't know how to get that standard which is why i've written for you the real guide you see today i shared my seven questions to help you get ready for buying your first rental property but if you're gonna do it you can also do it at a pros level this document beyond those seven questions actually shows step by step where i invest how i invest and basically how i guarantee myself at least a 25 roi because last year my actual was a 20 annual roi and this year with this crazy pandemic i'm doing well over 30 so you better believe that i am out there in force buying as much real estate as i can there's a lot of people who are afraid they're scared and they're thinking to myself i should buy some landlord insurance instead you should be saddling up with an expert a pro someone that really knows what they're doing and whether you do that or not at least get the pros guide to doing it the right way hey if you've subscribed to my channel i'm already your mentor but you should get your mentor's handbook on how to do real estate the right way so if you haven't picked up a copy of this make sure right now you click the link below grab your free copy my team will pop it in the mail and we're going to help you on top of that though you might actually want to know chris show me an action hands on what does it actually look like to make a 25 annual roi it's pretty dope and if you want to see what it looks like check out this video i actually take mr rice and his wife by the hand and step by step help them buy five properties over a six-month period of time let's just assume for a moment that you're gonna buy this house right here that's a barn door second let's try that again

Channel: Kris Krohn

Views: 453,157

Keywords: Kris Krohn, Limitless TV, Real Estate

Id: YtEia5b0__A

Length: 19min 46sec (1186 seconds)

Published: Wed Dec 30 2020