Three Steps to Making a High Return Real Estate Investment

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There are two kinds of investors: those who make a high return on investment, and those who make a low return on investment. It’s important that you realize the importance of making a high return, and identify exactly how to make a high return on your rental property.

I spend a lot of time talking to investors. Most people realize the value of investing in real estate, but they just don’t know where to begin. I’ve heard from so many people who are otherwise successful, but they’ve made a real estate investment that isn’t profitable! If you begin by calling up a realtor and investing in the city you live in, chances are you won’t receive a high return.

If you want to become a high return real estate investor, there’s a foolproof strategy you have to follow. It’s nothing fancy, just a very straightforward number of qualities you need to look for in an investment.

  1. Find wholesale properties. If you purchase a piece of real estate at market value, it will be increasingly hard to make a high return. When you stay below the market value, you’re going to receive high ROI. Buying rental real estate off market is key! 
  2. Find the right location. Purchasing properties in states like California or New York is going to come at a high price tag. Remember, the cutoff point for the rental value keeping up with the purchase price is about $125k. But to get the most bang for your buck, you still want to be below that amount. Don’t overpay for a property.
  3. Collect consistent rent. Whether you use my ROI formula or the 1% Rule, you need to run the numbers and make sure that everything makes sense before you purchase a property.

It's as simple as that! As long as you take the time to find the right property in the right market, with high ROI, you'll bring in consistent passive income for years to come. 

Don't want to do it yourself? Our turnkey properties will bring you double digit ROI! Click here to book a free call with our team. 

Financial Freedom Through Real Estate - My Interview on the Real Wealth Show

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What does financial freedom mean to you? Many people dream about what they would do if they won the lottery, or had a million dollars. While those scenarios are pretty unlikely, there's a realistic plan you can use to create financial freedom. 

To me, financial freedom simply means having your expenses covered. It means that if you were to lose your job, your bills would still be paid, and your kids could still eat. On episode 577 of the Real Wealth Show with Kathy Fettke, I talked about my route to financial freedom, and how you can replicate it. 

I also discussed the principles outlined in my new book, How to Pay Off Your Mortgage in 5 Years, how to use a HELOC to purchase rental properties, and why I don't invest in A class neighborhoods.  

Tune into episode 577 of the Real Wealth Show with Kathy Fettke to learn: 

  • What is the difference between a HELOC and a home equity loan? 
  • Where do I purchase the bulk of my rental properties?
  • What is the importance of having a mentor in real estate?
  • How does code enforcement effect investors?
  • How do you appropriately upgrade a rental property?
  • What types of neighborhoods are most favorable for investors?
  • How do you create true financial freedom? 
  • And more! 

How to Become a Millionaire Real Estate Investor

What does it take to become a millionaire real estate investor? I know that seems like a lofty goal, but more millionaires in this country have attained their wealth via real estate than any other source.

If you want to become a millionaire real estate investor, you have to remember that it begins with one property. All successful real estate investors began by simply purchasing one property. Becoming wealthy is actually a simple equation of adding to your assets column until you reach your goal. Wealth is just building your net worth.

I hear from so many people via email who want to become successful real estate investors, but they are overwhelmed by potential problems they might face down the road. It’s important to not get bogged down by those details.

In order to succeed, you have to start where you are today. Get that first property under your belt, then rinse and repeat! You have to release worry and limiting beliefs that are holding you back.

In order to become a millionaire real estate investor, you have to stop feeling sorry for yourself. You have to get off the sidelines, get out there, and take action! I know it’s attainable for you; you just have to start.

The 1% Rule for Real Estate Investing

There are many ways to evaluate a real estate deal, but one common method utilized by investors is the 1% Rule. This rule of thumb helps investors determine if their investment will be safe and profitable.

In real estate investing, 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, I like to go higher than 1%. My main focus in real estate is cash flow. However, 1% works for many investors that I know. It’s important to remember that the 1% rule is simply a jumping off point; it is not the end all, be all!

If you’re analyzing a property, you’ll want to be more thorough than just evaluating the 1% Rule. You’ll also want to take a good look at all the numbers involved, including ROI and cash flow. Here's my go-to ROI formula! 

There are many ways to evaluate a real estate deal, but one common method utilized by investors is the 1% Rule. This rule of thumb helps investors determine if their investment will be safe and profitable.

5 Things You Need to Know About Leases

Although you might think the topic of leases is rudimentary, having an accurate lease is an important part of any rental property investing business. If you want to create passive income and cash flow, there are certain mechanisms you'll want to have in place.

In my experience as a landlord and real estate investor, there are five big details you need to take into account when figuring out how to construct a lease. 

  1. What is the purpose of the lease? A lease a legally binding contract between the tenant and the landlord. Its purpose is to protect both parties. The lease lays out the obligations, including the length of time, rental amount, procedures for collecting rent and more. Be sure to check out our list of the 5 most landlord friendly states to learn about investing in states that have your back as an investor! 
  2. What is the difference between a lease and a rental agreement? The two are not interchangeable! A lease is a one-year contract (or other specified amount of time). A lease cannot be changed by either party, and is legally set-in-stone until the lease expires. A rental agreement, on the other hand, is a 30-day agreement that renews at the end of each month, unless either the tenant or landlord cancels the agreement. 
  3. Who signs the lease? Either the landlord or their property management company should sign the lease, as well as all tenants over the age of 18. 
  4. Who should create the lease agreement? In my experience, my property management companies are able to create a fantastic lease agreement. You can also work with lawyers, or find loose guidelines to use as a starting point online.
  5. How long should the lease be? Anywhere from 1-20 pages is an appropriate length for a lease. The more in-depth the lease is, the more protected you will be. However, don't confuse a long lease with a throrough lease! It doesn't need to be wordy, just comprehensive. 

As always, do your own due diligence before entering into a legal agreement. We are not lawyers or financial advisors, but real estate investors sharing our experience. What is your experience with constructing a lease? We would love to hear your thoughts on our video about leases! 

In my experience as a landlord and real estate investor, there are five big details you need to take into account when figuring out how to construct a lease as a landlord.

What You Need to Know About Landlord Friendly States

Not all states are equal when it comes to welcoming real estate investors. Each state has it’s own legislation that applies to rentals. You’ll want to take this into account before you purchase a rental property.

You should take the time to research how lease agreements, evictions, and security deposits are handled in any state you’re considering becoming a landlord. The implications of these laws can be substantial, so you won’t want to overlook this step.

For instance, what would happen if your tenant were to stop paying rent? Of course, you would want to evict them so that you could continue collecting passive income. Since you own the property, you would think that you would hold the power to make this happen quickly, but some states actually favor tenants more than landlords.

As you might know, I purchase most of my rental properties in Indiana. In Indiana, the legislation has no tolerance for renters who don’t pay their agreed upon rental amount. In Indiana, the eviction process is quick and painless.

Every state has variances is in how they handle these types of situations. Make sure you’re also informed on what the security deposit can be used for, and how long you as the landlord have to return the funds to the tenant.

As always, do your own due diligence before you begin investing. If you’re looking for more information on this topic, check out my list of the five most landlord friendly states!

Not all states are equal when it comes to welcoming real estate investors. Each state has it’s own legislation that applies to rentals. You’ll want to take this into account before you buy rental property.

The Benefits of Multi-Year Leases

I know many landlords who are hesitant to sign a multi-year lease. This is because if you sign a new lease every single year, you are able to raise your rent, and in turn make a larger amount in passive income every year. While I understand this way of thinking, I tend to take the opposite approach. 

Personally, I don't care about implementing an annual rent increase. When a tenant asks to sign a long-term lease, they’re telling you how much they love your house. They like and respect your property, and they want to stay put. I think that’s a plus!

Certainly there is money to be made in the small rent increase, however I find that tenant turnover is one of the most costly processes in the real estate business. As you probably know by now, I factor the cost of vacancy into my ROI formula, but tenant turnover can still be a hassle.

Think about it like this: a tenant turnover is like a double whammy. Not only are you forgoing rental income while your property is vacant, but you’re also spending money on the cost of the turnover. You’ll have to paint, re-carpet, and patch any drywall.

Let’s say your property rents for $700 a month, and during a tenant turnover, you don’t collect rent for a month. Let’s figure in the cost of repairing the rental while you find a new tenant, probably around $300. Total, you’re looking at about $1000. I would rather mitigate that cost by allowing a tenant to stay multiple years.

My experience has been that tenants that want to stay for a long lease are quality tenants. They pay on time, and they treat my property as if it were their own. To me, it’s worth it to allow a tenant to sign a multiple-year lease.

For more on leases, check out my new video, 5 Things You Need to Know About Leases! 

I know many landlords who are hesitant to sign a multi-year lease. But there are some benefits multi-year leases when you own rental property that you may not have thought of...