The 5 Golden Rules of Real Estate Investing

what's up you guys it's Graham here so I'll just get right into it these are the five real estate investing tips to live by and keep in mind and this is coming from somebody who owns five investment properties already and someone who's been in real estate now for almost a decade it'll be almost ten years in April and that just seems crazy to me so anyway these are some of the most important tips that you should keep in mind any time you're investing in real estate the first one is that you make money when you buy and this is absolutely crucial when it comes to investing in real estate you either need to be buying into equity or buying into cash flow or maybe just a combination of the two don't do what everyone else does which is buy something at market value for market rents without allowing yourself any room for improving these things and therefore also improving your investment like I said earlier I own five properties and every single one of them was bought with significant upside in both cash flow and rent and I think I mentioned in a previous video I've made several hundred thousand dollars just the last year in equity alone this gives you a huge safety net and a lot of wiggle room in case anything goes wrong you overspend on renovations maybe you've miscalculated something or maybe this is the market ends up going down if you're buying into a significant amount of equity or cash flow it almost just eliminates the majority of your risk going into that investment and this doesn't mean that these deals are ever easy to come by because the truth is they're not the thing is everybody else is looking for the same good opportunities and investments as you are so it's gonna be something that's going to take a lot of time a lot of searching patience and perseverance to actually find something like this even for me as a real estate agent who's checking the market tons of times a day I don't have a life besides looking at real estate it took me six months to find a deal with enough upside that I can buy into where I knew I can make money but when that magical moment hits when you can buy into a lot of equity when you could buy into a lot of upside and cash flow you can make a ton of money by doing so keep in mind this doesn't always mean that you'll just need to buy something under market value you could be also buying into something with just immediate great cash flow instead or you could buy into something where you can strategically remodel it to improve rents and therefore improve your investment at the same time but ideally there should be some type of upside when you go and buy the property and either buying into immediate buying into immediate cash flow or being able to do renovations to improve those and therefore boost up your investment the second rule to live by is to never fall in love with your investment and this is something I see way too many people doing they initially go out and start looking for the perfect investment but then fall in love with a home because it's super charming it's got a lot of character maybe it reminded them of the home that they grew up in despite it being just an absolutely money-sucking terrible investment but hey maybe the property just has a really good vibe to it right or maybe it's just a really cute neighborhood point being this is an investment it's a business it is not a romantic comedy you just can't ever get emotionally attached to a property that you're going to be investing in for the purposes of being an investment now this is a tough one for some people to do if they're naturally just sentimental and emotional about their decisions now it's one thing to trust your intuition and to trust your gut about something but it's another thing entirely to ignore all the red flags all the really bad P&L statements all of just the money sucking negativeness of a property because you feel good about the property and because you're attached to it ideally you have to be completely detached and unemotional about what you're buying some of the best investors that I've ever met and seen don't give a sh about the property they don't care at all they will look at it on a piece of paper and determine exactly what it's worth to them and what they're willing to pay and if it doesn't work out they don't care they feel nothing at all they turn the piece of paper maybe they crumple it up and then burn it and then they move on to the next deal with absolutely zero emotion whatsoever now I'm not saying you have to be that emotional investing in property I am somewhere in between I don't get emotionally attached to properties but I do really care and I do trust my intuition and my gut a lot of the times so you don't need to go that extreme but you can still trust your instincts at the same time and do what's right but with the intention that this is an investment and it doesn't matter if this home is the one or the cutest home ever or just the best ever and this is it and you can't lose it because they've heard it all before it's an investment at the end of the day what really matters the most when you're doing this the whole point of doing this is for money it's all for money you're making an investment for money you should not get attached to your investment because that will cloud your judgment when it comes to making money the third rule to live by is to have a bigger picture with a laser-like focus when it comes to investing in real estate it's a very localized economy and every single city is going to be different don't get too caught up with headlines and national trends because at the end of the day real estate is really such a micro economy every single property in every single city is like its own little investment opportunity think of real estate almost like stocks every single stock is going to be different you can add the same stocks in the same sector and one is going up and the other one is crashing to the ground think of real estate investing a little bit like that and it's the specifics of every single property in every single investment that really makes the most difference even though the markets cantrell economics in terms of going up overall and down overall like I said every single city is different like I can tell you in the Pacific Palisades here in Los Angeles new constructions are having a difficult time selling because builders have built so many of them there's so much competition and now they're competing with one another for the limited pool of buyers whereas 20 minutes away in Inglewood a new construction will sell dramatically over asking and multiple offers because there just aren't that many of them and they sell at a premium keep in mind same overall city 20 minute difference apart two totally different markets real estate is such a localized investment in your market we'll have opportunities going on outside of everything else so it's really important that you make sure to do your best to find those deals and then hold them now of course you can also follow wider data and trends this will have an overall impact on the economy and who's buying or selling but at the end of the day when it comes time to invest it's so important that you have a really laser-like focus on the area that you really want to invest in because that area will always have its own individual deels where it's a good value outside of everything else my fourth rule when it comes to investing in real estate is to have a long-term outlook and also get a fixed-rate loan this is something that some people might disagree with me on and maybe they have a different approach maybe they want a shorter term fixed-rate loan and a lower interest rate and they're okay taking a riskier approach that is not what I personally like to do but my philosophy is quite simple it's just buy once and hold even though you might be able to get a much lower interest rate by getting maybe a five to 10-year adjustable rate mortgage which just means that your rate is locked in for that term you may as well if you plan to hold the property long-term lock-in the longest term you can now at a fixed interest rate especially while rates are overall still pretty low otherwise what's going to end up happening is that five to ten years from now your rate is going to readjust and I'm almost positive that five to ten years from now rates will be much higher than they are now if you lock in a 30-year loan now at a fixed rate you will at least know what your holding costs are for the entire ownership of that property if you lock it in for let's say seven years you can really only guarantee that your payment will be the same for seven years if rates shoot up dramatically after seven years you're gonna have to re-evaluate if that property is even worth it to keep and you're gonna be subject to whatever the local market is at that time and maybe it's not the best time to sell maybe something happened in the short term you have no idea but if your plan is to hold it you're gonna have to reevaluate at that time if it even makes sense to continue holding it because it totally depends on what the interest rate is getting a long-term fixed-rate loan really just mitigates your risk of maybe the markets going down interest rates going up and possibly forcing you to sell when you wouldn't ordinarily sell just because the interest rate is too high for it to ever make sense either way I really wouldn't recommend taking a short-term adjustable rate loan unless you're 100% sure that you're gonna be selling after that time if you know 100% you're only gonna keep the property for like seven years then sure don't get the 30-year loan get the seven to 10-year loan but if you know and you intend to keep the property for a long time but you just want the lower interest rate up front it's very short-sighted to think that way and there's a huge risk that interest rates spiked up and that severely impacts your cash flow once that happens and for the way I see it real estate is one of these markets where time in the market will outperform timing the market and then my fifth and final rule is make sure it cash flows now I am one of these investors that personally likes finding homes in underappreciated areas where I can go in by under market value add a significant amount of equity in an area that's greatly appreciating but this is pretty risky and in mitigate this risk with my first piece of advice which is make money when you buy it which is why I always buy into instant equity and many scenarios your market is not going to be like Los Angeles which just has terrible cash flow but insane appreciation so in many situations appreciation shouldn't be something that you'd count on but would more so just be a great bonus if it happens instead you should focus more on cash flow how much money you are investing and how much you're getting back every single month in return do not barely operate on a thin margin of cash flow unless you're making a ton of equity where you have the cash reserve to pay for anything that could come up while you own that property the biggest problem I see with a lot of people is that maybe they're barely cash flowing on the property maybe just like a few hundred dollars a month and then something drastic comes up maybe the HVAC goes out and it's five grand to repair that there goes a few years worth of cash flow if you're only making a few hundred dollars a month even if they've ended up making a ton of equity at the same time where maybe it doesn't really matter just making sure you have those cash reserves is so important and this is much harder to do if your property is not actively cash flowing so this is why I recommend focusing on cash flow first and then taking everything else into account later and just as an extra bonus here my sixth tip is don't be best friends with your tenant now I'm a really really nice landlord and when I first started investing in real estate I went out of my way to be like buddy-buddy with the tenants and just be that cool landlord that was a bad idea and it's often then that you end up getting taken advantage of and it's usually not even something that's intentional but this is something where they feel comfortable that if they have a money problem that he's cool we friends who let me slide a little bit on the rent if something comes up he's cool he won't worry about it because we're friends he'll fix this even though it's not his responsibility because we're friends and he's cool and he's nice this often puts you in a difficult spot between being a business owner and running it like a business but still trying to maintain a friendship at the same time and once you've opened up the friendship floodgates with your tenants it's very difficult to then shift back over to the business side of being a landlord and really putting your foot down without having everything just get messy in the process my biggest piece of advice here is to treat it as a business because it is a business be friendly to your tenants but do not be their friends make sure you stick to the contract and enforce it and this will end up saving you a lot in the long run so with that said I really hope this helps you guys and if you found it helpful if you want to see more videos like this if you've liked this video do me a favor hit the like button and also if you're not already subscribed what are you doing make sure to smash that subscribe button and also smash the notification bell so YouTube notifies you anytime I upload a video would greatly appreciate it and also if you're interested in real estate or becoming a real estate agent I have a course specifying everything you need to know about becoming a real estate agent if you're into that if you want more information the link is in the description as is a free Facebook group if you're interested in anything real estate related from investing on the wholesaling and real estate just click the description every everything you need to know is in the description thank you again for watching and until next time

Channel: Graham Stephan

Views: 175,179

Rating: 4.9231462 out of 5

Keywords: real estate investing, the 5 golden rules real estate investing, how to invest in real estate, how to make money in real estate, passive income real estate, real estate investing for beginners, real estate investing with no money, real estate investing audiobook, real estate investing 101, real estate 101, grant cardone, tai lopez, robert kiyosaki, passive income, real estate agent, how i became a millionaire, millionaire real estate

Id: 57tt-L-Xbj8

Length: 12min 35sec (755 seconds)

Published: Fri Feb 16 2018