The Allure of the First Property

How to Replace$70k_year-19.png

I speak to a lot of new investors, and there’s one mistake I see them make on a regular basis. Many investors think they can self-manage their properties when they first get started in real estate. This is a giant mistake—I call it “the Allure of the First Property.” If your plan is to grow your portfolio, you’ll want to place this job into the hands of professionals.  

More often than not, these investors are simply looking for ways to save a few bucks and bring home more money. But a smart investor will build in the 10% property management fee to their ROI formula. For instance, if your property rents for $700/month, you can expect to pay $70 to your property management company. Let me tell you, it’s well worth the $70.

I've seen this scenario play out time and time again. Investors self-manage their first investment, then buy their second rental property and they decide to play landlord again. Maybe they had a great experience with the first property, but it almost never works out once the second property is under their belt.

Even if you were to luck out and get fantastic tenants the first time around, chances are the next tenants won’t be so great. If you’re not experienced, you won’t know how to properly screen your tenants and get the right person in your rental. Not to mention, things just get out of hand once you have multiple properties. It’s more tenants, more toilets, more repairs, and generally more to worry about.

Being a landlord is a full-time job. You should always think ahead, and play the long game with your properties—that includes reaching your Freedom Number. What seems easy with one property quickly becomes a nightmare while trying to juggle 15 or 20 properties. 

Rental investing doesn't have to be hard. Plan from the very beginning to hire a property manager and put your passive income on autopilot! 

The Best Neighborhoods for Real Estate Investing

3.png

If you're new to real estate investing, I know it can be confusing to nail down the perfect rental market, and then the perfect neighborhood! My personal strategy is to purchase my properties in C class neighborhoods. The properties can be acquired for cheaper than B neighborhoods, and the rents are comparable. Therefore, the return on investment is higher. Simply put, it’s a better value. Remember, that’s why we do what we do! It’s all about ROI.

A lot of people worry about the quality of tenant in a C neighborhood, but truthfully, I rarely have issues with my tenants. These are hardworking, blue-collar Americans. They are satisfied with the homes that my team renovates. The neighborhoods are quiet during the day, because the tenants are away at work.

Not to mention, I don’t communicate with my tenants anyway! All of my properties are in the hands of effective property management teams. Should a problem arise, the property management team handles it quickly and professionally.

It might seem counterintuitive, but A neighborhoods are typically the neighborhoods that have problem tenants. Those tenants have higher standards, and are more likely to complain about insignificant details.

If you want to know more about C class neighborhoods, check out my property tours on YouTube! I'll walk you through some of my favorite neighborhoods, and show you exactly what to look for in the perfect rental market! 

Interested in picking up your very own C class property with high ROI? Let’s talk! Pick a 30-minute time slot that works with your schedule, and we’ll match you with a great property!

If you're new to real estate investing, I know it can be confusing to nail down the perfect rental market, and then the perfect neighborhood! Here's my strategy.

Don't Fall in Love with Real Estate

How to Replace$70k_year-8.png

So you're ready to become a real estate investor, and you're picturing it now: a cute little bungalow nestled into a picturesque neighborhood. You've started brainstorming paint colors, and picking out shrubbery. I'm going to have to stop you right there. This is the WRONG approach. 

It doesn't matter what the house looks like. It doesn't matter what the paint colors are. It doesn't matter what the hardware on the kitchen cabinets looks like. None of that is important. Why? It doesn't bring you closer to financial freedom, period. 

Here's a little secret that only effective real estate investors understand: don't fall in love with real estate, fall in love with ROI. It doesn’t matter what the house looks like. All rental homes are simply four walls and a roof.

Houses in the best rental markets in the US rent, regardless of if they're cute or not! Our goal is to create a safe, solid, and comfortable home for our tenants. We aren't shooting for something that's Pinterest-worthy. 

Real estate investing is a business, and as a business owner, you'll have to look out for your bottom line. ROI is the most important metric. Keep your focus on the numbers, and you'll be well on your way to financial freedom! 

Want to learn more about purchasing high ROI rental properties in the best rental markets? We're ready to help you reach your goals! Click here to book a free call with our team. 

So you're ready to become a real estate investor, and you're picturing it now: a cute little bungalow nestled into a picturesque neighborhood. You've started brainstorming paint colors, and picking out shrubbery. I'm going to have to stop you right there. This is the WRONG approach. 

Exponentially Growing Your Real Estate Portfolio

How to Replace$70k_year-7.png

Smart investors know that if you want to rapidly expand your portfolio, you'll have to use leverage! I've watched investors go from one rental property to a robust portfolio in a short few years by utilizing a strategy known as the BRRRR Method.

Let's say, for example, your Freedom Number is 14. If your plan is to save cash and purchase properties one-by-one, it could take a while. Unless you happen to have a huge savings account or another means to cash, the BRRRR Method might be your ticket to financial freedom!

Here's how to use this strategy: 

Buy - You don’t want to just purchase any house. Don’t simply call up a realtor, and pay over market value for a house plus closing costs. You want to find a property below market value, so that you can add value in repairs. The purchase is very important in this process—buy low!

Repair - Repairing can be tricky, because you don’t want to spend more than necessary, but you still want to create a solid home for your tenant. It’s a balance. Don’t over-upgrade the property. You don’t want to take too long either, because then you aren’t making money from rent checks. Check out my video on how to renovate a rental property.

Rent – Get a tenant in there, so the property begins to produce cash flow. If you’re working with a professional property management team, they’ll take care of this step for you.  

Refinance – I suggest approaching a local bank. They’re way easier to work with than big banks on refinances. Local banks tend to have great introductory rates for refinances. Sit down with a banker, talk about the property, and let them know what your goals are. They’ll be able to match you with a great product that meets your needs. You should expect to receive 75-80% of the value of the home.

Repeat – Once you’ve pulled the money back, out purchase your second and third rental properties! Rinse and repeat!

That's it! I've watched many investors successfully pull off this strategy, and I know you can too. If you're ready to get started on your journey to financial freedom, we'd love to help! Click here to book a free, no obligation call with our team. 

Smart investors know that if you want to rapidly expand your portfolio, you'll have to use leverage! I've watched investors go from one rental property to a robust portfolio in a short few years by utilizing a strategy known as the BRRRR Method.

How to Evaluate a Real Estate Deal

How to Replace$70k_year-6.png

The ability to decide whether or not a real estate deal is profitable is crucial to your success as a real estate investor. If your investment breaks even (or worse, loses money) then you're not moving closer to your goal of financial freedom. There are a few different methods you can use to evaluate whether or not a deal makes sense financially. 

One commonly used method is the 1% Rule. The 1% Rule helps investors determine if a rental property will produce cash flow. Basically, when you purchase a piece of real estate, it should cash flow up to 1% of the purchase price every single month. 

To use round numbers, let’s say you purchased a real estate investment for $100k. Following the 1% Rule, that property would need to produce $1000 in rental income every month. This is a simple tactic used to ensure that your expenses will be covered.

Personally, my main focus is cash flow, so 1% isn't as sturdy as I'd like. That's why I use an incredibly conservative ROI formula. ROI is a formula used to evaluate the performance of an investment. ROI is the way you can measure how much profit a property is accumulating. Typically, ROI is calculated by dividing the net profit of investment by the amount of money invested.

But I like to take it one step further. I always subtract 40% of my annual rental income to account for vacancies, repairs, or expenses that could occur throughout the year. You might think that sounds like too large of a portion, but it gives me peace of mind. I don’t have to worry if something goes wrong at my properties. If a furnace goes out, I want to know that the money is there to replace it. Expenses are inevitable, so I like to prepared. 

Regardless of what method you choose to evaluate your real estate deal, make sure your focus remains on the end goal: financial freedom. 

The ability to decide whether or not a real estate deal is profitable is crucial to your success as a real estate investor. Here's how to evaluate a real estate deal.

How to Scale Up Your Real Estate Investing Business

How to Replace$70k_year-4.png

For most investors, the plan is to create a scalable, passive-income machine through real estate. But this requires realizing you simply can’t do it all yourself. It can be difficult to relinquish control, but it’s necessary for a successful business to outsource.

Deciding when to relinquish control of certain responsibilities in your business can be an emotional decision. For many of us, we care so deeply about our businesses, and are heavily invested in the inner workings. However, you cannot, and should not do it all. Scaling up often means stepping away. 

Here's an example: for years, Natali acted as the bookkeeper for our personal real estate business. There were many responsibilities that she covered in that role—payroll, spreadsheets, banking duties. As our portfolio grew, this duty became overwhelming for her. 

It came to the point that we had to take the responsibility off of her plate, and trust a professional. You might hesitate because you don’t want to spend a few hundred dollars per year on a bookkeeper, but it’s so worth it! A trained professional can actually save you money, as well as eliminate the headaches.

The same goes for taxes. As Tom Wheelwright mentioned on the podcast, if you are paying taxes as a real estate investor, you’re doing it wrong! We believe that outsourcing your taxes is crucial. You might think you’re saving money by doing it yourself, but a proper accountant can save you 10s of 1000s of dollars on your taxes.

You have to know when to let go, and relinquish control to the professionals. It can be hard to know exactly when the right time is, but if you’re beginning to feel overwhelm, that’s usually a sign. When you hire someone who is accountable and focused, it will make your business run much more smoothly, and alleviate much of your stress. After all, buy and hold real estate is supposed to be all about passive income!

In case you missed it, check out last week's blog post on becoming a hands-off investor! 

For most investors, the plan is to create a scalable, passive-income machine through real estate. Here's how to scale up.

7 Qualities of a Great Rental Market

How to Replace$70k_year-3.png

When you're searching for a great rental market, not just any city will do. And unless you live in a few select markets, chances are the best properties are not in your backyard.  So how do you go about finding a rental market that will produce high return on investment? Here's a checklist that I run through to ensure that I've found an effective rental market that will allow me to bring in cash flow!

  1. Vacancy rate. This is important because a vacancy has the potential to be your biggest cost. Tenant turnovers are inevitable, but you have to consider how long it will take to get a new tenant into the property. Every month without a tenant is a month you aren’t collecting rent. Your goal should be to invest in markets where properties are quickly and consistently rented. Personally, I like a vacancy rate of about 5%.
  2. Taxes.  I like to purchase my investment properties in states where property taxes are low, just a few hundred dollars per year. Remember, every expense comes out of your bottom line, and taxes are no exception.
  3. American-based infrastructure. I love average cities. Chain restaurants, long-haul trucking, hospitals, airports, universities, and distribution centers are all businesses I like in my rental markets. Think specifically about jobs that are not going overseas. Where there is job stability, you don’t have to worry as much in a recession.  
  4. Lack of flood zones. If your investment is located in a flood zone, you’ll have an additional expense—flood insurance. And if a natural disaster does occur, your investments are gone. I don’t like that risk, and I don’t like that added expense.  
  5. Affordable labor. I'm not interested in overpaying for labor. I'm able to find affordable labor by developing relationships with contractors. I provide my team with consistent work, and they work for a fair wage. It’s a win-win for everyone. 
  6. Low cost of homes.  Economically, it doesn’t make sense to acquire a rental home in a place like California. I can get the same home for at least half the cost in the Midwestern markets that I like. This way, I can purchase more investments and achieve that Freedom Number!
  7. Low crime rate. I want my tenants to feel safe in their homes. Remember, you can’t exclusively go off of crime data websites to get the full picture. Here are the five rental markets with the highest crime rates!

Don't want to get out there and look for the right market? That's what we're here for! You can learn more about our process here. 

How do you go about finding a rental market that will produce high return on investment? Here's a checklist that I run through to ensure that I've found an effective rental market that will allow me to bring in cash flow! | real estate investing | rental properties