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What is the best way to invest in rental properties?

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In this webinar I go over the benefits or rentals and the best ways to buy them. They are an awesome avenue to retirement. I am an investor myself with 14 rentals and I have flipped over 100 houses. You can find much more information on https://investfourmore.com
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  • 1. By Mark Ferguson with Investfourmore.com
  • 2. What you will learn today  How to buy rental properties below market value  How to finance rental properties  How to figure out what a good rental property investment is  What about the other aspects of rentals?  Management, tax advantages, etc?  This webinar will be at least 45 minutes long with just the three topics above. But I will have time to answer questions at the end.
  • 3. My promise to you  If you stay with me for the next 45 minutes you will learn what a good rental is, how to buy them and how to finance them.  I will have time for questions at the end!  Yes, I am going to try to sell you something.  I created an investing program that will help you with everything we will talk about today  No hidden secrets, I offer personal coaching to those who want to do things faster or avoid mistakes  There will be a huge amount of usable info.
  • 4. Why are rental properties so awesome?  Cash flow is the best way to retire early  I make about $7,000 a month profit on my rentals  Rental properties also appreciate over time  I have gotten back my entire investment and rentals increased my net worth over one million dollars  Amazing tax advantages  You can buy below market value, which can’t be done in the stock market  Leverage allows you to buy more properties with less money and gives you greater returns
  • 5. Why doesn’t everyone invest in rentals?  It is not easy to get great cash flow and buy below market value  If it were easy, everyone would do it and the returns would not be that awesome for those that do  It is hard to save money, to get loans, to build a team and analyze deals  People are scared they will lose the money they worked so hard to save  This is not a get rich quick scheme! It takes time
  • 6. Who am I ? Own 14 rentals, bought my first in 2010 Flipped over 120 houses, currently have 12 flips Run a real estate team of 10, including 6 agents Created Invest Four More, a real estate blog with over 400 free articles (written by me).
  • 7. Three steps to a great rental property investment?  Buy for cash flow and not appreciation  Buy below market value  Get great financing
  • 8. 1. Why is cash flow awesome?  Cash flow is passive income, which what we all should strive for  As little work as possible for money that comes in every month  Money keeps coming in forever or as long as we own the properties  With the right rental properties you can build up enough income to retire much earlier than the stock market.
  • 9. Why is cash flow from real estate better than the stock market?  Stock market retirement calculators do not even have options for retiring before 50  You would have to save millions of dollars to retire early with the market.  Stock market calculators make you guess when you will die. What if you run out of money?  Returns not as high, expenses increase, market crashes?  Cash flow from rentals lasts as long as you own them and you never eat into the principal investment  Can retire from a much smaller amount invested.  $6,000 a month from less than $300,000 invested verses $2,500,000 to retire with the stock market. (Assuming I don’t live too long)
  • 10. Why is appreciation not as awesome as it appears?  Investing for appreciation is no better than the stock market – speculation  It is not fun to pay for an investment every month.  You have to pay agents and selling costs when you sell (10 percent of the value)  Have to pay taxes and recaptured depreciation when you sell  Negative cash flow hurts your debt to income ratio and your ability to qualify for more rentals.
  • 11. Can you predict appreciation?  My town is awesome!  People are moving in, high economic growth rate, great schools, prices have to go up! San Francisco for example  How do you know prices are not already at their peak?  How do you know the economy won’t tank in the US bringing your economy down?  How do you know the “big investors” have not already factored in all of these indicators?  Institutional investors and builders may have already pushed prices up higher than the economy can support
  • 12. Is it easier to predict appreciation in down markets?  Many investors knew the market was coming back after the crash  There are still markets in a downturn from the crash  Slow foreclosure process  While it is tough to know if a hot market will keep appreciating, it is easier to see how a down market can turn things around. Buy low and sell high, or buy low and keep forever.
  • 13. How do you figure cash flow?  Most people underestimate cash flow  It is not simply the rent minus the payment  You must figure for maintenance and vacancies!  5 to 15 percent of rents depending on the age and condition for maintenance-depends on age, condition, type  5 to 15 percent for vacancies depending on location and type of property- depends on location, age, vacancy rates  Also need to figure taxes, insurance, HOA fees, monthly maintenance, utilities, property management
  • 14. Example of cash flow on a rental  Rental Property number 4  Bought for $109,000, worth about $220,000 today  Rents for $1,600 a month, I refinanced it last year and took out $50,000 in cash.  Rent $1,600  Payment $850  Property management $128  Maintenance $160  Vacancy $80  Cash flow equals $382 a month
  • 15. Why great cash flow helps you buy more rentals  The more cash flow you have, the more money you are making, the more money you can save  Great cash flowing properties will allow you to have a lower debt to income ratio, making it easier to get a loan  Portfolio lenders, national rental property lenders will lend based off cash flow, not possible appreciation.
  • 16. What properties have the best cash flow?  Many people assume multifamily are the best investment properties.  I prefer single family  Less maintenance  less expenses  longer term tenants  less vacancies  higher upside  more properties to choose from  Easier to sell  Market specific for which is better for you
  • 17. How much cash flow do you need?  I like to see $500 a month on my rentals that I buy from $80,000 to $150,000  I put 20 percent down, make repairs and buy below market value  A better judge is the cash on cash return  How much money are you making based on how much cash you have invested?  I like to see at least 15 percent cash on cash
  • 18. What if your area does not have good numbers for cash flow?  Not every market works well for cash flow  The more popular and more expensive an area is, the less cash flow it has  Buying below market value will help cash flow  Just because you do not see cash flowing properties for sale right now, does not mean they do not exist  It is possible to invest in different markets  My market has gotten too expensive for me to buy rentals in.  I am going to invest in new markets.
  • 19. How to invest out of your area?  Start close if possible – explore towns within a couple hours drive  Start where you have connections or family  Learning a market is the hardest part  Build a team  Realtor  Contractor  Property manager  Lender  Turn Key Rentals are another option
  • 20. Summary of buying with cash flow  I love to see appreciation and cash flow, but I do not count on just appreciation  Some areas have awesome cash flow, but little appreciation, others have awesome appreciation, but little cash flow.  There are areas that have both like Colorado did a few years ago. If you want to join my coaching program I am happy to share my research on different areas of the country and my contacts!  Wholesalers, Agents, Lenders, Other investors
  • 21. 2. Why buy below market?  Buy below market value and you make money as soon as you buy the property.  If you buy $20,000 below market value and the market declines. You are still in okay shape, especially if you invest with cash flow.  Buying below market allows you to sell if needed or refinance and take money out.  You can buy below market in any area. My market is super hot and I have 12 flips and I bought 5 rentals last year.  You can buy below market out-of-state as well. I am in the process of doing this in Florida.
  • 22. What does it mean to buy below market?  I want to buy at least 20 percent below market value after repairs.  I buy for $100,000 and a house needs $20,000 in repairs  I want that home to be worth at least $150,000.  $30,000 in equity and 20 percent below market value with my repair costs plus purchase price.  There is no advantage to buying for $100,000, making $20,000 in repairs and having a house worth $120,000.  Actually worse than buying a house already fixed up for $120,000.
  • 23. How do you buy below market?  MLS  REOs and short sales  Traditional sales and estates  Auction sales  Off market  Direct marketing  Wholesalers  Auctions
  • 24. Can you get deals from the MLS?  Deals are available on the MLS all the time  Acting extremely fast is the key to getting deals  Have an awesome agent or be an agent  Agent should be able to act very fast  Agent does not have to be an investor  Agent does not have to sell hundreds of homes  Agent does not even have to be knowledgeable about investing  My last deals from the MLS  ARV $380,000, purchased for $180,000, $70,000 in repairs  ARV $195,000, purchased for $114,00, $30,000 in repairs
  • 25. How you spot motivated listings?  I act fast on great deals on the MLS, but some sellers are motivated even without a low price  Look for key words in the MLS Description  AS-IS  Needs TLC  Will look at all offers  House needs work or needs cleaned  Look for fast price changes  5 days on the market and they lower price is an awesome sign  Look for aged listings from banks and HUD – over 60 days
  • 26. What are the best deals on the MLS?  HUD or Foreclosures  Foreclosures or REOs can be a great deal, but banks take a while to respond. They are not wanting to dump properties as quickly as possible with no regard to price.  They do not sell their listings before they are listed with an agent.  You can get great deals if you know how each bank works and how HUD works. Very tricky bid system.  They give priority to owner occupants  This is my specialty, I am a HUD and REO listing Broker
  • 27. Buying other types of listings  Do not ignore traditional listings  Estate sales  Very motivated sellers, many times take low offers  Houses that need work  Some sellers destroy their homes or never fix them up  Short sales  Can be a great deal, but can take months to complete  Act very fast on these deals and you can get them before other investors make an offer
  • 28. Rental Property 16 • Listed for $92,900 • Made offer same day for $92,900 • No inspection • Cash, but I used financing • Three other offers received • They accepted mine with no highest and best and no counter • House was rented for $1,100 with $2,000 repairs and worth $140,000
  • 29. Auction sales  Some are on MLS and some are not!  Hubzu  Homesearch  Williams and Williams  Hudson and Marshall  Some auctions require cash and some do not  Some auctions take highest bid and others will negotiate  Some auctions allow inspections and some don’t
  • 30. Trustee Sales  County foreclosure auctions  Be very careful  No title insurance  Must have cash at the sale  No guarantee you are buying first loan  Back taxes, water, HOA, liens  Cannot see in the house in many cases  Can be very competitive!  My last deal: ARV $175,000, purchased for $105,000
  • 31. Off-market properties  Driving for dollars  Look for vacant homes and contact owners  Direct mail  Send letters or postcards to absentee owners  Bandit signs  Place signs in areas you want to buy in  Websites  We buy houses for cash  Wholesalers  My last deal ARV: $180,000 purchased for $55,000
  • 32. How to get your offer accepted  Cash offers  Does not have to actually be cash  Hard money, portfolio lender, private money  No contingencies  No inspection, no appraisal, no loan conditions  Can still cancel, but might lose earnest money  Need to be very experienced to use these techniques  Higher earnest money  Short close date
  • 33. Summary of buying below market  This is why I have been so successful. Anyone can pay full retail for homes.  It is not impossible even in a hot market. You must learn your market and learn how to find deals.  You must be an agent or have an awesome agent or use direct marketing  Do not rule out the MLS or rule out non REO or HUD listings.  I cover all of this in detail in my coaching.
  • 34. 3. How to finance your rentals properties  Debt used to make money, will make you even more money if used correctly  Cash is not always the best way to buy  The more flexible debt you have, the safer you are  Don’t get “stuck” buying with cash  There are many ways to finance properties, it is not as hard as you think.
  • 35. How much money will you need?  Typical rental property will require 20 percent down  Many banks will want to see 6 months of reserves in cash on top of the down payment  Principle, interest, taxes and insurance for all mortgages  If you have $3,000 of mortgage payments a month the bank will want to see $18,000 on top of the down payment  There are many ways to buy with less down  Owner occ. Refinance, HELOC, Private money, etc.
  • 36. Why not buy with cash?  I have many investors I work with who bought with cash and now they can’t buy anymore houses.  When you buy with cash it is not easy to refinance, especially if you are retired, self-employed or have high debt to income ratio.  These investors were stuck because normal lenders would not refinance for any amount!  I helped them find lenders who lend on common sense and not debt to income ratios.  If you use loans to begin with you will not run into this problem later on.
  • 37. Returns with Cash?  When you buy with cash it decreases your returns on great deals.  Cash flow is less on one property paid for with cash than three good rentals bought with leverage.  Below market 20k verse 60k  Cash flow $800 a month verse $1,200  Equity pay down $0 verse $3,000  Tax savings $1,000 verse $3,000  Appreciation! 3 properties verse 1!  $80,400 versus $30,600 without appreciation!
  • 38. How risky are loans?  When you get great deals that cash flow, it is almost less risky than cash  No liability issues from tenants looking to sue  More properties equals more diversification and less risk  One property going vacant doesn’t kill cash flow  One property needing work doesn’t kill cash flow  Different neighborhoods appreciate or depreciate at different rates  The more properties you have the more cash flow you will make, the more diversification, the safer you are.
  • 39. What are the different loans available?  Conventional  Great in the beginning with fixed rates, long terms  Local Portfolio lenders  Awesome for buying many houses, flexible terms, easier to buy when repairs are needed  Flip financing as well  National lenders  Hard money lenders  Long term rental property lenders  Private money  Awesome for building up quickly and getting great deals  Act like cash and then refinance.
  • 40. Conventional lenders  Great for first four properties  30 year, fixed rate, mortgages  Less than 5 percent interest rate  20 percent down  After four mortgages  25 percent down  720 credit score  No cash out refinances  After 10 mortgages you are out of luck
  • 41. Portfolio lenders  Local lenders that do not sell to secondary market  Credit unions, community banks, small banks  Terms and rates vary greatly  20, 25, 30 year amortizations  ARMs, some fixed loan options  My lender 20 % down, 4.5 % 5-year ARM, 30 year Amortization  No set limits on amount of loans in your name  Offer fix and flip financing as well  My lender 75 % loan to value, 5.25 % interest, 1 % fee  Can be tough to find! Ask for commercial or business lending
  • 42. National Portfolio Lenders  Large companies backed by hedge funds  No limit on number of loans  Lending guidelines based on property, not the borrower. Must have great cash flow  30 year fixed rate loans  6 to 9 percent interest rates  My coaching programs focus on helping people get the right financing – personal introductions
  • 43. Hard Money Lenders  Short-term financing-less than one year  High interest rates 10 to 16 percent  High fees 2 to 6 percent  Finance more than 80 percent loan to value  Finance some of the repairs  Very fast closing times  Great for the buy, repair and refinance model
  • 44. Loans with little money down  Buy as an owner occupant and then rent out the home after one year  3 percent down or less with some loans  Will have mortgage insurance and higher costs  Hard money loan to conventional refinance  Buy with hard money or private money  Finance purchase price plus repairs  Refinance the entire loan amount using a Fannie Mae loan  Possible to get money back after the refinance  Private money  Friends, family, co-workers, other investors  Fannie Mae Homestyle Mortgage  Finance part of the repairs for investors  Lines of credit, Refinance
  • 45. Summary of using financing  Better returns than cash  More diversification than cash  Finding local portfolio lenders will be key  Based on relationships and experience  Buy with less money down  Private money  Hard money  HELOC  Refinance  Owner Occupant
  • 46. Putting this all together to buy multiple rentals  When you buy below market you have built in equity  You can use that equity to buy more rentals with a refinance, lines of credit or 1031 exchange  When you have the right financing it gives you more cash flow and better returns  When you buy with great cash flow you can prove that you know what you are doing and are making money  This attracts more lenders and more investors if you want to use private money
  • 47. My rental property summary  $486,100 spent on down payments and repairs on 15 properties  Refinanced 7 of those properties over 4 years  Got back $268,000  Sold two properties this year  Got back $195,000 in cash from those sales (I will have to pay taxes on that, assume $160,000 net back to me)  $486,100 - $428,000 equals $57,100 total cash invested.  Making $7,000 a month and built up over one million in net worth with $57,100 investment.
  • 48. Why don’t more people invest in rentals?  Money  Most people cannot save enough or know about low money down options  Market  Most people do not know how to find deals or what houses are really worth  Financing  Most people don’t know all the options available  Management  You can always hire a property manager
  • 49. Where do you go from here?  Three action steps to take:  Learn your market better than anyone else  Talk to a lender and obtain financing ASAP, even if you have bad credit or no money  Start building a team  Agents, Lenders, contractors, property managers
  • 50. How can I help you invests in rentals or buy more rentals?  I offer a coaching program that covers everything we talked about and much more!  It is not easy building a team  It is not easy learning your market and what a good deal is  It is not easy finding the right financing  My coaching program gives you the information you need, the order to do it in and the steps to take to start taking action as quickly as possible
  • 51. Testimonials  I couldn't have gotten past thirteen units if I had not subscri
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