How To BUY Your First RENTAL PROPERTY The Right Way! - Real Estate Investing 101

real estate is one of the best places to invest your money because when you invest in real estate you own something tangible that you can see feel and touch you get passive income through cash flow and you get tax breaks and in this video i'm going to be going over the 10 things you need to know when it comes to buying your first rental property what's up everybody i am just praying singh from the minoritymindset.com where money minds rethink rich real estate is my favorite place to invest my money because when i invest in real estate i can predict how much money this property is going to make me every single month after i buy this property and so when i'm buying real estate my goal is just to build up a number of properties that each property is paying me every single month if you can make 500 a month in profit from one property which is doable then if you have 10 properties that's 5 000 a month coming into your pocket in profit that you don't have to work to earn that's 5 000 extra every single month that you can use to spend on whatever you want i've been investing in real estate for about a decade now and i've seen real estate from a few different lenses because i'm a real estate investor i'm an attorney and i used to be a real estate sales person and in this video i'm going to be going over the 10 things you need to understand when it comes to buying your first rental property but before we get into that i need you to do me a quick favor and smash that thumbs up button below the 10 things that you need to understand when it comes to buying your first or your 10th or your 100th rental property is first the location because you probably heard when it comes to real estate location location location you cannot move where your property is so your location matters second is understanding the cash flow the finances how do you understand if a property is profitable or not what numbers do you got to look at third comes to actually negotiating the contract how do you find a good price how do you make a work how do you negotiate that four is inspections what kind of inspections do you need how do you make sure a property is good and that it's not going to screw you over after you buy it fifth is financing how do you actually get the cash to buy the property six is the legal side because the last thing you want is for your attendant to sue you because they slipped and fell in the bathtub because it was too slippery when it was wet true story seven is renovating the property how do you renovate it and how do you get the best return on your money eight is actually finding a tenant and renting it out ninth is making the property passive that way you don't have to physically work to get this cash flow and number 10 is if you are ready to sell the property how do you sell the property and not pay any taxes legally let's get into number one starting with the location when you're looking for a property before you go out and you actually make an offer and buy a rental property the first thing you want to do is look at a bunch of different properties you got to look at at least 10 properties before you make an offer on one because if you're just starting off you're not going to know what a good location is or what a good property is or what a bad one is and so you want to just start walking through homes and start walking through neighborhoods one of the easiest things that you can do to determine if a property is in a good location or a bad location is just walk the neighborhood walk through the streets is there something nice are the homes boarded up are they burned down or is it nice are your neighbors taking care of the landscaping is there money coming into the area or is the money and businesses moving out there are three big things that you want to look at when it comes to finding a good neighborhood or a good city to invest your money in crime the flow of money and the city laws there are a bunch of tools on the internet that you can look at to see what the crime is in the neighborhood that you're looking to buy in if you see that the crime is increasing that's not a good sign because when you buy a property this is something you're owning for the long term right when you're investing in real estate this isn't a six month play or a one year play you're investing in real estate for a long time because you're going to own this property and you want this to pay you rent for years into the future and if you're buying a property in an area on the verge of a downturn then your investment is going to be more of a headache than it is a cash cow when you're looking at the flow of money what you want to pay attention to is are businesses coming into this area this neighborhood and the city we're investing or is money flowing out the easiest way you can determine this is just by going to your city hall and asking them what new developments are coming in and what new building plans do they have for that area if they don't have much or if you see that this building development is going kind of somewhere away from where your property is that's not a good sign this one is huge i was in contract to buy a home and i went to the city and they told me that there was this vacant plot of land that was nearby the home that i was buying and walmart was coming in and they had plans to develop a walmart supercenter that was good news for me because that told me that money was flowing here if walmart was willing to open up a store less than a mile from my property that means there's going to be more jobs coming that means there's going to be more retail stores coming because anytime you see a walmart super center pop-up that means you're going to have more stores pop up in front of it and on the side of it because walmart drives a lot of traffic so if there's a lot of money coming in the area that means property values are probably going to go up rental values are probably going to go up because there's going to be more demand for the area because there's more jobs and more businesses coming so is the money flowing to the area or out because the money's flowing in then you can buy this property today and you can expect rent prices to hopefully continue to go up because now there's more money and jobs coming into that area and then you want to take a look at the individual city laws itself because what you're going to see happen is some cities are more tenant-friendly and some cities are more landlord-friendly a tenant-friendly city is going to make it very hard for you as a real estate investor or a landlord to kick out a tenant that's not taking care of a property or that's not paying you rent and so you want to pay attention to that because if you are investing your money you want to be in a city that is more landlord friendly ideally because if somebody is not paying you rent you want to have the ability to kick them out without facing a whole bunch of road blocks and a bunch of hurdles another thing you want to pay attention to when it comes to city laws is how strict is the city when it comes to city inspections now there are certain cities that i just avoid buying in because they have these super super strict standards and they will find you up the you know what if you have grass that grows two inches or they're gonna charge you a 200 permit fee if you got to change the batteries in your smoke detectors i've already dealt with the headache and i don't want to deal with it anymore so when i invest in properties i'm looking at what the city laws are and the best way you can figure this out is just by talking to real estate investors or real estate agents in your area that are familiar with investment properties and so if you're looking at properties talk to a real estate agent because they can help you find some and if they're actually familiar with real estate investing they should understand how these city laws work so they can guide you and help you find areas where you won't have to deal with all the headaches when you're investing in real estate you have to be thinking for the next 10 years because you cannot move the property's location i mean if a home is beautiful that's nice but if it's in a really bad location the niceness of the home doesn't make up for the bad location one of my real estate teachers used to tell me find the worst home in the best neighborhood because the neighborhood is going to help drive up the home value and the demand for the property if it's a good home and a bad area it doesn't matter you're going to have a really hard time making a profit on it but if you have a bad home in a good area now you can be sitting on a gold mine because you can renovate the property and you'll still have demand for people wanting to live in this home because it's in a good location sometimes that means you'd be better off paying a little bit more for a home on one side of a street than another side of a street like i was looking at buying a home in a city where they had a highway cutting right through the middle of the city but on one side of the city these homes were about 20 percent more than on this side of the city but what i saw by talking to the city hall was that there was a lot of new developments coming on this side of the highway and there was a lot of businesses moving out of this side of the highway so it's the same city and we're talking about just on one side of the road but i decided to buy here even though this cost me 20 more because i saw that there was money flowing in this area over the next five years rental prices here went from about 850 a month to 12 to 1300 a month while rental prices here dropped just because everybody wanted to be on this side of the road not this side of the road so you got to understand why a location is so important because it's going to play a factor into how much money you make over the long term once you narrow down what cities and neighborhoods you want to invest in and you start looking at properties that's when you got to understand when do the numbers make sense how do you analyze the finances of a property i'm going to get to actually how you get the cash a little bit later in this video let's talk about understanding the numbers first i like to be conservative when i do my financials because i have no problem if i run my numbers and then i make more money than i thought i was gonna make but i'll be a little bit more disappointed if i make less money than i thought i was gonna make so i like to do my numbers accordingly so the way i look at it is first i take my rental income whatever money i think i'm going to make and if you're working with a real estate agent they can help you figure out what your projected rent will be and then you want to subtract your property taxes your insurance your maintenance because you're going to have maintenance if you own a property then your management costs because you want this to be passive and then your vacancy because your property is probably not going to be leased out every single month you subtract these from this and then you're going to have your net income so let's run through an example if you wanted to buy this property that was a hundred and fifty thousand dollars what would the numbers look like so if i bought this property for 150 000 i should be able to rent it out for something like 1400 maybe a little bit less maybe a little bit more depending on where you live but let's assume 1400 so taxes property taxes i like to estimate around two percent of the property price so if we're looking at a hundred and fifty thousand dollars that's three thousand dollars of property taxes a year and that is right around two hundred and fifty dollars a month for property taxes then insurance or a hundred and fifty thousand dollar property something around a hundred dollars a month in your property insurance landlord insurance then for maintenance i like to be conservative and i like to estimate ten percent of my gross rental income hopefully my maintenance is going to be way less than that especially if i buy a property and i renovate it after i get the property renovated hopefully my maintenance is going to be close to nothing but i want to be conservative so if i do 10 of that that's 140 a month in maintenance management fees i like to estimate 10 for management fees now i pay way less than that because i have a number of properties and so i worked out a deal with my management company i'm paying close to 5 in management fees but if you're just starting off you might be paying that seven to ten percent range so if you want to be conservative that's another 140 dollars in management fees and then vacancy i like to estimate one month of rent a year in vacancy because your property might not be tenanted all 12 months of the year somebody might move out and so you're going to have a period of time where you're going to be leasing the property out and not making any money so if i'm not making one month of rent out of the year that means that's another 116 or so that i'm not getting so if i add these all up i got my calculator right here that leaves me with a net income of 654 dollars let me get my black marker so 654 dollars a month is what i'm making off of this property now this is assuming you bought this property with cash i'm gonna go over what happens if you bought this property with a loan in just a second but you're making 654 dollars a month with just 7 848 a year and you paid 150 dollars cash to buy this home which means you are getting right around a five percent cash on cash return a year now personally this is a little bit lower than what i'm looking for but this gives you an idea of how to run the numbers when i look at a property i'm looking for a minimum seven percent return on my money assuming i buy the property cash ideally eight percent but a minimum seven percent so maybe i'll have to get a better rent maybe i'll have to pay less money in management fees which i'm already doing maybe i'll have to see if i can get a better deal on my insurance essentially i gotta have more money every single month in order to make this deal worthwhile but what happens if you buy this property with a loan if you use debt then you might be putting down twenty percent of the home value 150 000 so you have to put down 30 000 cash and then the bank is going to give you 120 000 so now you have the 654 dollars a month that you have in profit but you also got to pay your bank and if you are borrowing 120 000 you might be paying your bank something like 560 a month which leaves you with just under a hundred dollars a month every single month in profit it takes about ninety four dollars a month in profit and this will be your total return down on your 30 000 cash investment to right around four percent so not the best return but again we're being pretty conservative here you should be able to get a little bit better rent here you shouldn't be paying this much of maintenance so you can probably bump these numbers up in reality a couple percent but i'm just trying to show you how the numbers work so anytime you walk through a deal these are the numbers you want to be looking at and you want to make sure you do this analysis for yourself because sometimes you're going to see sellers agents create their own performance to show you that you're getting this amazing return on this property that you're looking at but they might not include vacancy they might not include management and they might really low ball this maintenance cost and so all they're really showing you is your rent minus your property taxes minus your insurance and they're ignoring this half and so you want to make sure you're doing this performance yourself that we can get kind of a real idea of what the numbers will look like in your bank account not just what they look like on an excel sheet the last thing i want to mention about the finances is this return that i'm showing you is just the return you're getting every single year on the cash that you have to invest today this did not include property appreciation home prices going up or real estate prices going up that's just the icing on the cake when you buy real estate you want to make sure that this number makes sense for you if this number makes sense for you and the real estate prices go up that's even better if real estate prices come down oh well at least you're still making your rental profits here but the reason why your location matters so much is because now what you're going to see happen over the years is this top line rental number is going to go up while at the same time your expenses aren't going to change too much yeah they'll go up a little bit but they're not going to go up as fast as the rent as long as you're in a good location so what you're going to see happen over the years is the return that you're getting under cash is going to increase every single year that you own the property because you're going to sell rental prices go up with expenses not growing as fast which is why you want to own a property in a good location and then when it comes time to sell the advantage here is let's say the property value doubles to 300 000 in this instance you put down 150 000 and you doubled your money because now you're getting 300 000 when it comes time to sell here you only put in 30 000 and then you're gonna make another 150 000 in profit on the sale price because you only put down 30 000 and then you make another 150 000 on the appreciation of the property now when you find a property like where the numbers make sense now it's time for you to negotiate the contract because you want to make sure you get the best deal possible and the type of negotiating and the leverage that you're going to have is going to depend on what type of market that you're in if you're in a seller's market or property values keep going up and everybody's trying to buy a property then you're not going to have as much negotiating room as you would as if you were in a buyer's market when everybody is trying to sell their home and home prices are going down during these markets you can be super aggressive with your offers and still probably buy the home just because that's the market that you're in things that i do to find the best deals is one when i look at properties i'm not looking at the super nice homes i'm looking at kind of those medium range homes not the super bad homes and not the super great ones right in the middle range because i found those to give me the best returns and second when i try to find properties i like to find properties that are beat up either beat up physically or beat up financially in the real estate world they're called distressed properties i like to call them value-add opportunities essentially i like to find a property if it's physically beat up that is cosmetically challenged so i might have really bad floors the paint might be ugly the kitchen might be outdated the landscaping might be horrible when a regular person walks through this home they're going to be like oh my god this looks ugly and it smells i don't want to look at this and so they're going to walk out for me that's a great opportunity because now i'm not really competing against anybody to buy this home so i can buy this property way below market value and i can renovate the property and make it look brand new and then own this property at a huge discount below fair market value if you're looking at commercial properties or multi-family apartment complexes you can also find a financially distressed property which means you might have a 20 unit apartment complex and this apartment owner this real estate investor doesn't know how to manage the property and this 20 unit apartment complex has nobody paying the rent and it has a lot of vacancies and so this is financially distressed because this apartment owner this real estate investor is losing a lot of money and so they just want to get the property off of their books so they're willing to sell it at whatever price because they just want to get rid of it if you are an experienced investor and you have the right team then you can come in and buy this property and turn it around and make a much bigger profit because now you're buying this property for way below market value the key for any of this to work is you got to put your emotions on the side and you got to focus on the numbers so many people get caught up on the emotions because they want to invest in a cute home but when you invest in a cute home you're going to have q profits if you really want to make the money you got to invest on the numbers right so if you're looking at a property and it's ugly it might not look nice but you can turn this property around and make a lot of money on it if you look at the numbers when i was first looking at properties back during the 2008 crash i took my mom with me a few times and these properties were ugly i mean they were beaten up they had mold and mildew inside but they were selling for dirt cheap and i remember my mom telling me oh my god i don't want to be in here because these homes are so nasty i mean there was holes in the walls there were sometimes animals living inside so a lot of these homes are super beaten up because this was in michigan which was really hit hard by the 2008 crash and a lot of these homes were selling for five six seven thousand dollars and now today these homes are worth almost a hundred thousand dollars rented out for a thousand dollars a month but i didn't buy some of these just because i got emotional and i didn't realize that i could have turned these kind of like crap properties into gold mines if i just understood to let my emotions be on the side and understand the numbers this is where you got to understand that real estate investing is not for everyone i mean you got to get down and dirty and you got to work with a bunch of people you got to find the real estate attorneys the real estate agents the real estate contractors and the property managers and so you got to find these people work with them and really understand how the process works if you're not interested in that then it's gonna be hard to really be a successful real estate investor i mean yeah you could just throw in money and find somebody to go find you the deals and do all that but you're gonna get a lower return because you're not willing to go out and actually find the deals and maybe renovate them you don't have to do single family homes you can do much larger apartment complex and you can do more commercial properties but if you're not willing to go out there and put in the work you're going to have to pay the price for that in lower returns now there are alternatives with things like real estate crowdfunding where now you can just invest your money and get exposure to a real estate fund that we don't have to deal with tenants or property managers or any of that so if you want to learn more about that our team put together an article that breaks down how you can invest in real estate without actually buying physical real estate if you want to read the article it's on our website the minoritymindset.com and i'll link it for you in the description below but when it comes time to negotiating the contract one thing that no matter what you are doing when it comes to price one thing that you have to have to have to incorporate is a property inspection contingency which says that you have the ability after you enter a contract to go through the property with your own private inspector or your city inspector and then you can decide if you want to continue buying this property or not it is so important and let's talk about it in number four not doing your proper due diligence and getting the right property inspections is one of the easiest ways to make a deal go bust i'm telling you this from experience there was one deal that i did it wasn't even a big deal it was a small home that i bought because a contractor that i was working with told me that this would be a great investment i purchased the property based off of his word without doing any of my own private property inspections and that single deal came around to bite me in the butt and it was one of the biggest headaches i had ever had to deal with in real estate i made a video where i talked about this in my worst real estate deal ever if you want to watch the video on youtube i'll link it for you in the description below but essentially if you have a property inspection you can take a private contractor private inspector and this person's job is literally to just walk through the entire property and make sure your property is not on the verge of falling apart so they're going to walk through and see the foundation of the property they're going to see how the roof is they're going to see the mechanical the electrical they're plumbing so they're going to go through the entire property and make sure the systems in the property are working because the last thing you want to do is buy a property and then find out you need a hundred thousand dollars worth of renovations when you only budgeted six thousand dollars worth getting a private property inspection is going to cost you a few hundred dollars and this is money you have to pay before you actually buy the home because as soon as you enter the contract you want to have the contingency period this due diligence period where you can inspect the property with your inspector and so you're going to pay this inspector a few hundred dollars and they're going to go through the property and they're going to give you a report which tells you everything that's wrong with the property physically and once you get that report you can decide if you want to continue buying this property or if there's a lot of repairs and renovations that need to be done you can tell the seller hey i need a discount on the price because right now they're kind of like on the hook because if you don't buy it then the seller has to start the selling process all over again and so you kind of have to make this decision as to if you want to negotiate how much or do you want to just walk away from the deal or do you want to accept the deal as is in addition to getting your own private property inspection you also want to consider having the city come out and have them do a city inspection because most cities require you to register your property as a rental so you're going to have to work with the city hall and tell them that you want to rent this property out and they typically are going to come out and do their own inspection and make sure that the property is livable and does not any major issues if you do a private property inspection you should find all the major issues but the city might tell you something that you didn't expect or they might make you do things that you didn't know you had to do so you want to talk to the city early on and you want to know exactly what your costs are going to be before you actually buy the property that way you can do your financials and your numbers based on what your actual costs are going to be so before i buy rental property during this due diligence period i do three things first i get my own private inspector to go out and walk through the property and tell me what's wrong with it then i like to have the city come out that way the city can tell me what i need to do to get this property licensed for rental and third i'm going to have my contractor go through the property that way i can show him a private property inspection the city inspection report and then whatever renovations i want to get done that way i can see what my total cost will be to get the property renovated and ready to go before i actually buy the property so i can look at the numbers now one little caveat i want to give you is any time you get renovations done chances are it's going to cost you a little bit more than what you expected so just kind of budget that in there and understand that because almost always you're going to pay more than what you thought to do the renovations once you find a property that passes your due diligence now you got to get the cash to actually buy the property this isn't something that you want to start after you enter into contract to buy the property if you're talking about getting financing or getting cash you got to know how you're going to get the cash to buy the home before you even start looking for homes but now is when you got to get serious and actually get the cash to buy the property and when it comes to getting the cash there are three ways that you can purchase real estate you can buy a property all cash if you have enough money in your bank account you can use equity partners so if you want to buy 150 000 property you and two other people might front 50 000 each and now you three are equal partners in this property and you're going to share in the profits in the rental profits and when it comes time for you to sell the property assuming that you make any money and then you can use debt where you can borrow money and pay this money back plus interest and the way you can get this debt is through a bank or you can do a land contract which is when the seller of a property gives you the cash to buy their home if you're like most people and you don't have all the cash in your bank account to buy a property then you're going to have to do one of these two and these are two things that you want to start preparing for before you actually start looking at properties because you want to make sure you have the cash ready when it comes time to actually close like if you're going to go get debt and you want to borrow this money from a bank your bank is going to want to see income statements for at least the past two years so they can see if you have stable income they're going to want to look at your credit score if you want to get the best rates you want to have a minimum of a 760 credit score and they're going to want to see your experience and your reputation so the bank wants to see that you are a safe investment for the bank's money a land contract on the other hand is when you want to buy this property right here and you tell the seller okay i want to buy this 150 000 property but i can't qualify for a loan either i don't have a good credit score or i don't have enough income to show the bank or whatever i can't qualify for a loan from the bank and so i will give you the seller 10 000 today and in exchange you hold back a note alone for the remaining 140 000 so the seller will only get 10 000 today that's what you give them and then every month after that you're gonna pay the seller interest on this hundred and forty thousand dollars and so the term typically on a land contract is usually five to ten years it's not usually a thirty year term like you see with banks because these sellers wanna get their money and the interest rate you're gonna pay on a land contract is typically higher than what you're going to pay if you got a loan from the bank because the seller understands that if you could get this money from a bank then you wouldn't be asking the seller for a land contract so a land contract is an easier way for you to get money but you got to pay an extra fee for it and one thing that people like to do is maybe you can go buy this home use a land contract to get it and then once you're ready you can go to the bank refinance this home that way the seller can go out of the picture you pay off the seller and now you pay this lower interest rate to the bank but the thing you got to be aware of here with refinancing is if property values go down then it becomes harder for you to refinance so you just got to understand the risk and the thing about debt that you have to understand is the more debt that you take on the more risk that you take on so i want to make sure you understand that when you're buying this property you're buying cash flow you're not just buying a headache and so you don't want to take on too much debt this is one of the things that people get really excited about in real estate is there's a whole industry of people promoting the no money down real estate where you might do something like buy this hundred and fifty thousand dollar property where the bank is going to give you eighty percent they'll give you a hundred and twenty thousand dollars and they'll say get the other thirty thousand dollars from the seller through a land contract so the seller gives you thirty thousand dollars because they don't need all that money today you pay it off over time and then the bank gives you the other 120 000 so you bought this property with no money down and now hopefully you can make a profit and if property values goes up that's all your money now while this sounds great in theory it also comes with the most risk because if your tenant stops paying or if your tenant damages the property you have no skid in the game and if you don't have money to take care of that and to cover your costs now you're going to be the first one to go underwater and get the property taken away from you by foreclosing on the property because the bank or the seller is going to ask for the property back so that is a tool and it can be a good thing but too much of a good thing can be a bad thing so if you take on too much debt and the economy slows down you're going to be the first one to lose everything now if you come to equity this is where now you're gonna have partners in the deal there's a couple ways that you can do this in some instances you're gonna see that you have doctors or attorneys these high income people who might have a lot of money but don't have the time to go and invest in the property you can go to these people and say hey give me 15 equity in a deal and we'll work on deals together so you go out you find the properties and you manage them and you make sure that they're profitable and this cash provider this rich person is getting 85 of all the profits you get 15 so you're managing the deal you don't have to put in any of your own cash but you get 15 equity or the alternative is you find a couple partners you want to buy this 150 000 home you all put in 50 000 each your equal partners in this instance and so every time you make profit with your rent you guys split the profit one third one third one third and when it comes time for you to sell the property you share the profits one third one third one third you can compare that to debt where in this instance let's say this property sells for a million dollars okay in this instance the bank and the land contract owner are only gonna get whatever money they were in contract to get so they're only going to get this 150 000 plus interest they don't get any of the profit here with the equity holders you only get a third of the profits because you only own a third of the property when you buy a property with cash then it's simple you're just using the cash to buy the property if you are a cash buyer here's a little hack that i've used in the past that you might like so if you want to buy this 150 000 home what you can do is you can go to the closing table and you can buy the property for 150 000 but one thing that you can do is let's say you're buying this property through an entity i'm going to talk about this in just a minute now instead of you depositing 150 000 into this entity and then buying this home what you can do is instead of you depositing it into this account you can loan this money to your account so now this entity that you own i'm gonna talk about this legal entity in just a second but you own this entity that owes a loan to you so now when you buy this property you still have to make loan payments and this loan payment goes back to you so now your real estate investment has more of an expense because you have to pay interest but all the money's going to you so you get a bigger deduction and the interest tax break now although i am an attorney i'm not your attorney so if you have specific tax questions or legal questions talk to a professional in your area this brings me to number six understanding the legal side of real estate which means you got to understand what an entity is a real estate entity understand real estate insurance and having a real estate attorney on your side so when i buy real estate i never buy real estate under my own name like i don't actually own any real estate i own real estate companies which own real estate so the way it works is like this this is me and you know we're gonna drop me a nice mustache i own this entity right here let's call it j as real estate so i own js real estate this js real estate might own this home right here i don't actually own the home directly because if i own the home directly and something bad were to happen let's say a tenant lived in here and they slipped and fell in the bathtub because they said the bathtub got too slippery when the water was on true story and then they sued me if i owned the property then they'd be able to come after me and my personal assets but if this property is owned by js real estate then the most they can get assuming that insurance doesn't cover this lawsuit the most they can get is whatever this entity owns and so this entity that i have in this case it might be an llc you're going to ask an attorney in your area for what's best but in most instances llcs are the best way to go this entity is kind of like a barrier or protection that protects you and your personal assets from lawsuits and anything bad going on with your property there's a saying in the real estate world that if you are a real estate investor and you haven't been sued yet then you haven't been in business long enough i mean this is just the reality of being a real estate investor especially in the united states because you can be sued for anything like i had a tenant sue my real estate company because they claimed that the bathtub was too slippery when the water was on i already made a video on youtube where i talked about this if you want to watch that and learn more about what happened i'll link that for you in the description below but this is where you got to understand okay what can i do to protect myself that way i can protect my personal assets and the way you can do that first is by creating this legal entity the second thing you want to do is have real estate insurance this real estate insurance is there kind of as the first shield before the entity because this real estate insurance is there to protect you from anything bad happening like if a tenant slips and falls or if the tenant sues you first thing they're gonna do is go after your insurance so this insurance is there to protect you from lawsuits and it's also there to protect your property because if this property gets burned down or something bad happens to the property that's where insurance is there to protect your assets so insurance is your first line of defense if the insurance fails or if they don't cover you for whatever reason this is where your entity is your second line of defense to protect you and your personal assets the third thing that you want to make sure you have on your side throughout the entire real estate process is a real estate attorney from the minute you start negotiating deals in real estate you want to make sure you have a good real estate attorney on your side because they're going to help you review your purchase agreements they're going to help you review your due diligence they can help you negotiate the contract with your contractors and they can help you deal with city inspectors you need to have a good real estate attorney on your side i know they can be expensive but it's a small price to pay today that can save you a huge headache in the long run you want to make sure you have a good attorney that specializes in real estate you don't want to just get a general attorney i'm telling you this from experience because i am an attorney there's a lot of kind of complexities and little things involved in real estate so you want to make sure you have attorney who's very familiar with real estate not just a general attorney because they can protect you from huge headaches in the future now moving on to number seven once you get this property now you want to start renovating it and get it rent ready but you want to make sure when you're renovating it you're getting a good return on your money because you just don't want to throw all your money into these fancy renovations that they're not going to pay you any more money so the first thing you got to understand is what sells a home or what gets a home lease down that's kitchens and bathrooms if you do decide to make upgrades in a rental property those are the two places that get a lot of attention kitchens and bathrooms so if you do decide to make renovations look at doing things there the next thing you got to look at is the durability of your property because if you have tenants moving in and out of your property over the years then you want to make sure that the renovations that you do can last you for a long time because the last thing you want to do is constantly keep having to repair and maintain a property every time a tenant moves out so one thing that i like to do is have minimal or no carpet at all in a property a lot of my rentals actually have this thing called lamin planks on the flooring which is something that looks kind of like hardwood but it's not hardwood and it's also waterproof so it's durable and unlike a carpet i don't have to replace it every time a tenant moves out so it's easy to clean easy to maintain it costs a little bit more in the beginning but it saves you a lot of money in the long run because it's durable and it looks really nice in the kitchen one thing that i like to do is upgrade the appliances i like to put in brand new stainless steel appliances because people like appliances they're going to be using a lot and stainless steel looks nice and if you take care of your tenants and you make them feel at home then they're going to take better care of your rental property and they'll be more likely to stay there for longer an easy way to understand the level of renovations that you need to do in your area it's just about walking through all the rentals in your neighborhood or in your city around your property that way you can see what other real estate investors are using because the last thing you want to do is put in super expensive granite countertops when people are not willing to pay for granite countertops in your area so just walk through a few rentals and see what people are putting in and see what people are charging for rent remember your goal is to make money and so if you're doing renovations you want to make sure you're getting a good return on the renovations that you're putting in the property now once you got the property renovated it's finally time for you to rent it out and start making money now you can rent out the property yourself and you can show the property and do all that or you can use a property management company or a real estate agent i recommend using a property management company that way this whole process is automated and passive i'm going to talk about that in the next step but if you do decide to rent the property out yourself you got to understand what you got to look for when you're trying to find a tenant because when you find a tenant the last thing you want to do is you find somebody who says hey can i move it tomorrow and you tell them yes and then you just move them in and have them sign a lease because typically what you see happen is somebody who wants to move in immediately is also the person you got to kick out very fast you got to do your background checks on tenants so you can look at their credit score you can look at their criminal history and you can look at their past rental history typically i don't really care too much about someone's credit history because there are so many things that can negatively affect one's credit score i want to look at now your income how much money you're making are you consistently making money and what is your past rental history so i will call or i'll have a property management call your previous landlords and ask them how you were paying were you paying on time did they have issues with you if you're paying on time and you don't have a great credit score maybe you went through a divorce or something else then it doesn't matter as much i just want to see are you making enough money to support this rent and are you going to have issues paying this rent six months from now if you use a real estate agent or property management company to rent out your property typically they're going to take one month's worth of rent as their commission for leasing out the property this is a fee that they take in addition to their monthly fees so just factor that in because if you have an agent or a property management company do this and you're charging a thousand dollars a month they're gonna take the first month's rent a thousand dollars for getting your property leased if your goal is to be a real estate investor a true real estate investor then you shouldn't be spending all of your time managing your real estate your job and your time should be spent finding more real estate investments and finding more real estate deals that's why i don't manage any of my properties i have a property management company that does all the day-to-day work they find my tenants and i don't even know who attendance are all i see is a report every single month which shows which properties are paying what rent and what the rental income looks like and what the expenses are a property management company's job is to make a real estate investment passive for you so they're going to take a fee every single month typically somewhere between four to ten percent depending on how many properties you have and then they're going to charge you one month's worth of rent to list out your property which is why you want to have tenants in your property for as long as possible that way you don't have to keep paying that listing fee but this real estate property manager's job is to really make it easy on you because after you find the property and you get it renovated you just want to hand over the keys to the property management company and let them do their job find the tenant and make sure that you get paid a good property management company is going to know how to screen a tenant they're going to have contracts and deals with a lot of contractors that way you can save money on your renovations and they're going to pay all their bills they're going to pay a property taxes that will all you have to do every month is just read your reports and see how much money you're making and let them handle all the work i think every new real estate investor kind of goes through the space where they're thinking okay i'm gonna make a thousand dollars a month from this property but why do we wanna pay this property manager a hundred dollars a month or ten percent of the deal i could keep the extra 100 a month in my pocket if i just manage it myself yeah you could make the extra 100 a month if you manage the deal yourself but now you got to spend the time managing the deal and making sure that all the bills are paid and making sure that your tenant is paying rent if instead of worrying about making the extra hundred dollars a month you worry about how do you create a new rental property and make a new stream of income for a thousand dollars a month then the 100 a month expense doesn't seem so bad so i want you to think about growing the pot not just worry about how you can stop saving these expenses because you as an investor don't want to be caught up in the game of managing you want to be caught up in the game of how do you find more investments and how do you create more real estate deals you want to think bigger not just smaller now you got this property you've been renting it out is cash flowing it's making you money every single month and now let's assume it comes time where you want to sell this property and you want to cash out because let's assume that you bought this property for a hundred thousand dollars and let's assume that now is worth one million dollars so now you have all this equity built up on this property and you don't want to refinance out of this property you just want to sell and you want to be done with it the advantage of you being a real estate investor is there are certain loopholes that you can use legal loopholes to sell this property and not pay any taxes right now so this loophole is called 1031. it's the 1031 exchange and essentially what it says is if you sold this property today for 1 million dollars then you'd have to pay taxes on your profits in this case 900 000 instead of you paying taxes on nine hundred thousand dollars which would be a lot of money what you can do is you can take all of this one million dollars and you can take this one million dollars and use it to go out and buy another real estate investment property a bigger property and now you don't have to pay any taxes on your profits today so you invested a hundred thousand dollars this property is not worth a million now you go out and buy a million dollar property and you don't have to pay any taxes on your profit and now you got more income coming in because you're not having income on a hundred thousand dollar property you have an income on a million dollar property and so you can have more cash flow more passive income and you don't have to pay any taxes on your profits this is not something that you can do in the stock market if you invested a hundred thousand dollars in the stock market today and your investments go up to a million dollars and you sold it and you use this million dollars to go buy new stocks that might be a good investment strategy but you still have to pay taxes on your profits so while you invested a million dollars you still have to pay taxes on your 900 000 worth of profits so if you don't have the money in the bank then you might have to sell some of your stocks that way you can pay your tax bill you don't have to do that in real estate because of this loophole 1031 which lets you flip real estate and now you can own bigger real estate without having to pay any taxes on your profits plus there's no limit to how many times you can do this like if you bought this property for a hundred thousand it goes up to a million and you sell it and you buy a million dollar property then you can take this million dollar property sell it and you can use your profits to go and buy a two billion dollar property and you can do that again and again and again so there's no limit to how many times you can do 1031 which can allow you to compound your wealth because i'm sure you've heard of compound interest and you don't have to pay any taxes but you could eat away at your wealth if you keep doing 1031. if you do decide to do this talk to a real estate attorney early because there's a lot of kind of little rules and details you got to follow in order to do 1031 the right way and you don't want to accidentally get caught with a surprise tax bill so make sure you talk to an attorney because if you want to do this you want to make sure you do it right if you enjoyed this video here's the video on buying a home that i think you'll love and while you're at it join our free finance and business newsletter and as always keep hustling like 9 out of 10 millennials say that they want to be homeowners but unlike what your cousin bunty says buying a home the right way isn't so simple if it was you wouldn't have so many home buyers regarding their decisions

Channel: Minority Mindset

Views: 579,783

Keywords: minoritymindset, minority mindset, minority123, jaspreet singh, rethink rich, financial education, financial literacy, rental property, rental property investing, rental property investing 101, real estate, real estate investing, real estate investing for beginners, real estate investing 101, real estate 101, investing, investing 101, investing money, passive income, investing for passive income, buy your first rental property, investing in real estate, rental properties

Id: my8SkUZQsNU

Length: 40min 12sec (2412 seconds)

Published: Thu Mar 04 2021