Episode 082 - 7 Rules of Purchasing Your STR Property
May 04, 2020
SHOW NOTES & LESSONS
When it comes to purchasing your Short Term Rental Property, Michelle's got 7 Rules you must know about the numbers.
#1 You make your money on the Buy: Meaning you never buy "hoping" the value goes up. You must make your equity when you purchase the property by buying it for the right price in the first place. Don't expect to make it up later.
#2 NEXT! If the numbers don't work, Next. If the location isn't right, Next. If the seller won't budge on the terms or the price, Next. There's always another property. Don't hang on to this one like a dog with a bone.
#3 Never buy a property that's in perfect condition...unless you can still get it for 30% under the ARV. Remember Rule #1: you need to make your money on the Buy. Very rarely will you find a seller with a property in perfect condition willing to discount the price of that property. Therefore, don't focus on properties that are turn-key or perfect condition. You'll more than likely pay too much.
#4 Know your ARV: After Repair Value. You can use a trusted Real Estate Agent or find the "solds" over the last 6 months of comparable homes in the same neighborhood in excellent condition. ARV is what a home in great condition, updated, and ready to move in, would sell for.
#5 What are your Repair Costs. When you walk through the property with your contractor, have them help you figure out the exact costs to get the property repaired, updated, and up to par. Don't forget to add a little cushion for surprises that could arise.
#6 What's your MAO: your Maximum Allowable Offer. This is the absolute most you are willing to spend on this property. Most people would subtract the cost of repairs from the ARV - this is a mistake. You must take off 30% of the ARV in order to have ample equity in the property in order to get a loan on the property and pull your money out.
Therefore: ARV _X .70 = Your "All in Number." This means that the price of the property, all the closing costs, all the holding costs, and all the repairs should add up to this number OR LESS.
#7 Know the Long Term Rental Prices in the neighborhood for properties like yours. If you can, use the 1% Rule: if the property is listed for $100,000, then the Long Term Rental Prices should be $1,000 a month. Use the LTR to make certain you can Cash Flow the property if the SHTF. Can you pay your mortgage, taxes, insurances, HOA, and maintenance with a little leftover to put in your bank account if you had to put a Long Term Renter in the property? This is your final test.
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[00:01] Over the last two centuries, nearly 90 percent of the world's millionaires have created their wealth through real estate. Here to tell you how you can ride this wave with less risk and less capital while creating greater income, is your host, best selling author and Speaker, Michelle Russell.
[00:21] Hi, this is Michelle, the Master of Money Mindset, and you are listening to the Short Term Rental Revenue Podcast...
and in today's episode,
we're going to be talking about numbers, numbers, numbers, all the numbers it takes to buy buy buy because right now everything is on sale. It is the best time, the best time in a long time to pick up some properties. There are people freaking the F out and Jeff selling everything they can. You go into the Facebook groups with short term rentals and their people selling their leases, trying to Sublette places, trying to sell their real estate properties, trying to sell her furniture like it's crazy. This is it. They're dropping it. You're going to be picking it up honestly. Best time. Best time. What did Warren Buffet say? He said. When people are greedy, be fearful. And when people are fearful, be greedy. Well, I don't believe in being greedy, but I definitely do believe in picking up a bunch of opportunities. It's like a big white sale at the beginning of the year. You're like,
Let's go shopping. This is the time to go shopping, baby, So we're going to be talking numbers. But before we start talking numbers, I want to remind you that today's program is brought to you by audible. You can get your first audiobook for free by going toe audible trial dot com forward slash str revenue That's audible. Trial dot com forward slash S t R Revenue and pick up your first book and a 30 day trial for free. Right now, the books I am reading, I'm just going over more and more real estate stuff. I'm going back and reading some old favorites and some new favorites right now I'm listening to Garrett Gunderson, honestly love his books, but I'm listening Teoh killing sacred cows again. It's an older book. I think it was written, I don't know, five years ago or something like that. But I listen to a five day weekend and I'd never listened to that before. And so I thought, I'll go back and re listen to killing sacred cows. And then I was reminded of, you know, just a bunch of really great real estate books. I was like, OK, I'm gonna read an old one and a new one, the old one and a new one. And so I've just been flooding my mind with real estate, real estate, real estate because right now is such a great time. People are freaking out, and this is the time that you want to grab some opportunities. Now, don't just buy to buy. You wanna have a plan? Okay, So when people are selling everything and they're fearful, you should be able to get some really great deals, the price of real estate is probably going to start dropping. But remember, as long as your cash flowing these properties, you should be able to make money. And when you're buying them, you're buying them based on long term rental prices, not short term, right, But then you can turn them into short term once you get them and make a lot of extra money. But you want to make sure in case the shit hits the fan again. And we have to go into the long term that we can be making money even with long term prices. And right now we're buying with a discount on those long term prices. So, for instance, let's say in an area the rents are going for $1000 a month. We're actually looking like what would happen if that price were to drop 10% or even 20%? So what if instead of $1000 month, we could only pull in $800 a month? So we're being really, really conservative about the money that we would be pulling in on long term rental. We're just low, low, low balling these prices because, hell, we don't know. We don't know what's gonna happen, Dewey. And they know something is happening now, so they've got them discounted and we know could get worse so it could get better. Who knows? So just in case it gets worse, we want to make sure that we can cover assets, right? That's what we're doing. So we're going to talk today about some of the ways that we buy properties and the way that we run numbers. I want to preface this with the facts that number one, This is just how we do it. It's just a suggestion. I mean, you don't have to take our suggestion, and it's not like our area is the best area. We're doing it in our area. It mean not work in your area. You might be in a really great area where the prices air staying stable, or you might be in a worse off area where the prices are dropping lower and you can be even more aggressive. The thing is, real estate is one of those things that when you invest in it, it's very subjective. Everything is different. Every property is unique. Every offer is unique. Everything is unique about it. By all means. There's a lot of guys out there who are multi multi millionaires teaching people how to do things. But I'm going to tell you right now that it's not a cookie cutter world. It feels like it should be, but it's not, and every time you go out there. Every situation is going to be unique. There are things that you conduce you in real estate that are very cookie cutter. You know, your marketing can be very cookie cutter. I mean, you can You can do some things over and over again, but your results are going to be very different. Robert Kiyosaki used to say, Look, you can't do things exactly the way I did them because you're not going to get deals presented to you in the very exact same manner. It's the same with anyone. People and their situations are unique and your situations and you are unique as well. So every house you find is going to be different than every house I find, even if they're the same sort of condition, even if they're the same sort of price. What I buy my properties for and what you buy your properties for are going to be very different things, and it could be good or it could be bad. I can get a bad deal, you can get a bad deal. It doesn't really matter. But there's so unique that these air just guidelines that we use. Last week, I talked about the berm method. That's such a great method, and it works for the most part in our market, but not always. So I want you to just remember one thing. You make your money on the by and that is consistent. That means that you need to get every single property you buy for the lowest possible price. Now we had Chris on the show and she was talking about her dad. Her dad will over pay for properties a lot because he likes buying real estate and it drives Curtis crazy because she's a total numbers gal. And the thing is, he is a wealthy millionaire multimillionaire. And so he can do that. You and I, we have millions sitting in our pocket that we can just go and blow right? So we want to get the best deals we possibly can. So I want you to remember, you make your money on the by. You never buy a property hoping that it's going to go up in value. Most likely it is, but not always. You don't know what's gonna happen. There could be a pandemic or something, right? Things that we never foresee happening when those things happen. If you buy it for the right price, you're not going to be stuck. One of my favorite teachers, when I was in Rich Dad was adult Dareus. He was a little guy from New Zealand, absolutely loved him. White hair and Gulf. Bought a house a day, using somebody else's money for an entire year, one house every single day for an entire year. And actually, I think he bought more than 365 that year. But he always used other people's money, and he always got the best deals. And guess what? He never sold a property in that whole time. All his properties he was accumulating, he was accumulating them for cash flow and to build up his wealth reserve. Now there are people who buy toe hold, people who buy to flip, people who buy to fix and flip, people who buy too turn into short term rentals, right. You have to have a plan, but each property, when you look at it, is gonna have a unique outcome just for that property specific for that property. So you might take a look at a property and get a really good deal on it, but it's not in a good area to do a short term rental on, but it's in a fantastic area for a long term rental, so it might be a buy and hold situation. But, ah, hold four long term rentals. You'll be able to know you will start to get so good at your property. Bind that when somebody presents you with a deal, you'll say, You know what? This is not a place I would like to hold a property at all. This is definitely a lip, but can I fix it up and flip it and make some money off of it? If I can't, then I'm just gonna wholesale it to somebody else and pass off this deal to someone else. So each property is unique. You just have to start doing and and that's the hardest part. I think for anyone is they love listening to real estate. They love reading books about real estate that you love watching shows about real estate. But doing
That's a scary situation, right? I don't know if I want to do that. I could lose a lot of money. I might get phone calls in the middle of the night where I gotta fix toilets. I remember people always saying that and I was like, That is the stupidest thing. All you have to do is call a plumber. If somebody calls you in the middle of the night called Plumber This plumber, they can come and fix a toilet in the middle of the night. What the hell Why did they use this? Doesn't make sense to me. But the best thing about real estate is that it builds wealth. If you do it right, and doing it right means buying it at the right price. So today we're going to talk about numbers and we're gonna use different scenarios. And obviously all of these we've pulled from our repertoire of buying properties. But like I said, every single situation is unique. Every situation is different. Every single house is unique. Every single house is different. So when you look at a house that you want to buy for a short term rental, you better make sure it's in a location where there are short term rentals allowed, right number one can you better make sure that it's in a good location that's close to whatever you got going on in your town. If you're in a beach town, you want to be close to the beach, maybe even walking distance or closer than that. You don't want to be too far from the beach. If you've got a theme park that is close to you, you want to be close to that theme park. You want to have a nice, easy drive or it's not too complicated where people are going to get lost. If you've got shopping nearby or hospital or university, you want to be close to things right but not too close to traffic. You might want to be close to airports in some situations and farther away from them. In others. You've got to find out what's unique in the area you're looking at, and where are the people looking to stay? And you can do that usually by looking at a map of your city like just Googling map of your city, right, your town USA, as they say, and looking for hotels and looking for ends in the area and you'll see where the people are staying. Those are usually good B and B property areas because if people are staying there, that's a good location. That's usually a really good indicator of where they are, is kind of like McDonald's. Remember how McDonald's paid their guys to go out and survey different towns and find out where the best traffic area was, where they could build these McDonalds? Well, guess what? Burger King and Taco Bell and all those guys. They didn't have to pay any guys to do that. They would just see where McDonald's was being built. And then they would say, Well, let's build around this area because McDonald's, they knew did the work. So you can let the hotels do the work for you because they're going to say, Here's the area where people are looking to buy. No one wants to build a hotel in a shitty location unless there along a highway somewhere in the middle of Timbuktu, nowhere right. You want to use other people's work in order to be able to buy. And if you're looking for a short term rental, which we are because this is a short term rental show, you've got to remember that it's got to be a place that's convenient for people to stay. What are they looking for? Why air they coming to your town? What are they looking to do when they are there? Figure those things out and you're gonna make a lot more money. And that's what you want to dio. Now you're going to come across some properties that are not superb for short term rentals. They've just might not be in a great area, but they might be good for long term rentals. And you may think about holding those properties. Those properties are really good. If you didn't listen to last week's show at the beginning of the show, I told you a way to invest and buy a property and then pull all your money back out. Guys, that's one of the best ways to use your money wisely to use other people's money to help you build wealth. You can use the berm method to do that, and you'll see how, over the long term, you're gonna build a lot of wealth by buying a property, all cash, fixing it up, putting a renter in there and then refinancing it. Point all that money back out and then doing it again. And doing it again and doing it again. If you can get to the point where you're buying a property a month, Holy Count. Think about this. 12 properties a year that you would be buying and holding and cash flowing. Amazing, right. You can build up your wealth so easily, but the thing is, you have to do it and there you go. I know it would be so nice if you could just think about it or watch a show on H G TV and just think about doing it. And it sounds good and it looks good. And, boy, those California properties air pretty easy. If you've got 3 $400,000 sitting in the bank, you can just play with. That's not really feasible for the majority of us. The majority of us don't have three or 400,000 just sitting in the bank, waiting for a shitty property in a good neighborhood to come along that we could fix up and sell right. So we have to use other methods, and I also want you to remember to go back and listen to Maria Giordano's interviews as well, because Maria and I talk a lot about negotiating, and you've got to be able to negotiate those terms in the beginning parts of your offer. You've got to negotiate well, Maria use always say, I think she still does that. If you're not embarrassed by your first offer, it's not low enough. If you're not embarrassed by your first offer, it's not low enough. So every time I make an offer, I think Can I make this offer and how do we feel about this? I feel pretty good about this. Nope. I need to be embarrassed. Needs to be so low that I'm almost embarrassed that I think that they're going to just roll it up in a ball and throw it back at me with a big f You. That's what I want. My. I want my offer to be so low that they're thinking of flipping me the bird. When they get the offer gets, it's just gone. F you lady, you know, if it's not that low, then it's not low enough because I want them to know all the things that are wrong with this property and how I'm going to have to invest a lot of money in to fix it up. I very, very, very rarely buy a property that's already fixed up and ready to go. Why would I? All the money has already been put into that property. I want properties that I confined that need something that needs something done. Pains and flooring and carpeting and countertops and maybe new cabinets and landscaping. I want things to do. Why? Because I can get it for a low price. Number one well under market. And I can put a little bit of money in there and build a lot of equity in that property. So the mawr equity I have at the end of a sale and fixing up a property, the better. I am looking to have at least 30% equity in that property. And why am I looking to have at least 30% after I've bought it? After I fixed it up, I want to have at least 30%. Tell me why you should know why. Because the majority of banks or anyone else they want to have a 70 30 loan to value. It's an LTV, so they want to make sure that there's equity in that property in case I defaults on it for some reason unknown to man. So if I default on the loan, they've got equity built in. And how much are they usually looking for? They're looking for 30%. They want 30% equity, which means I want tohave 30% equity when all is said and done. So that doesn't mean when I find a property and it's in shitty shape and it's after repaired value, which is an a R V, the after repair value of a property. Well,
doing some scenarios here, okay? And we're gonna use easy peasy numbers, which is going to drive you nuts because you're gonna say to yourself, because you haven't done a thing yet. What's to be it, right? You're gonna save yourself. Holy shit. There's no houses in my area that are $100,000 will. Then guess what if the majority of prices in your neighborhood are $250,000 take the numbers I'm using and multiply it by 2.5. That will fix it. Okay, so we're going to use easy numbers because we're going to make the math easy for everybody. Okay, so let's get started thinking about these numbers and writing these down. When you go and you're looking for a property, you're looking for property that needs some work. One of the reasons why is because when the property needs work and the owner knows it needs work, they're not gonna price it as high as everyone else where they shouldn't if they dio than next. OK, next people will constantly send me letters. I found this property bubble blah, and they want this much for what can I dio and I'm like next next? They want too much for it. Well, they're not willing to this, and they're not willing to that than next next. It just frustrates me so much that you guys will find one thing and you'll hold onto it like a dog with a bone. And it's like, Dude, if the numbers don't work next, if the property doesn't work next, if it's not in the right location next, it's like you want it to fit into your puzzle so damn bad that you're so afraid to let it go as if it's the only one out there. There's a 1,000,000 properties out there. A 1,000,000 million's and million's of properties out there and you can find a better property. There's always another property. Don't get emotionally involved in properties unless, I mean, you're buying it for your own self, and then you know it's going to be your home. And you wanted to be, you know, something in your family forever and ever, and then go ahead and get all emotionally involved. But I'm going to tell you when emotions are high, intelligenceis low. When emotions are high, your bank account's gonna open up greater. You're gonna pay a lot more for a property you love. Then you are for a property that will work that these numbers are working on. And you need to think smart when you're buying real estate because you make your money on the by. Don't get emotional if the numbers don't work next. Okay, so I want you to keep in mind. Next. That's gonna be rule number two. Rule number one. You make your money on the by. Rule number two Next numbers don't work. Next location doesn't work next. Anything doesn't work next. We are not emotionally involved at all. Got it? We stay disconnected from the properties as rule number two. Keeping all that in mind, What's our third rule going to be? I never want you to buy a property that's already fixed up. I know that's a terrible rule to start with because a lot of you're going to say, Well, I don't wanna have to do a lot of stuff. Well, great. Then you better be able to get a damn good price for that property. And it's gonna be hard if it's already fixed up and ready to go. So how are you going to find a property that's ready and raring to go with everything looking fancy and free and fantastic? And how are you going to get the owner of that property to give it to you for 70 cents on the dollar? How are you going to get that owner to give it to you for 70 cents on the dollar? You're not, you're not. And you got to go even less because after closing costs and everything else right, you're not. So you need to look for properties. Rule number three is you need to look for properties that need some work. You have to find properties that need work, you have to find the deals. And the deals are always in the properties that need some work because that's where the negotiation iss, right? It's like a new car. Think of it like a new car. So when you are looking for a car to drive, you say, Okay, I want a Toyota. I want a previous I want a Prius V. You've picked out the car, the make the model that you want to buy. And once you've got that down, here is all the inventory you've got for what you want. So we're doing the same thing with our houses. We want a short term rental in this area, so we've narrowed it down. But where are we going to find the deals? Every dealer is going to sell a brand new Toyota at the same price or around the same price when it's got the same stuff in it. We've got to find the deals by looking for a used model. We've got to find the deals looking for something with a little bit of mileage on it, but not too much, right? So it's the same with a house. We've got to find a house not brand new and ready to go. But with a little mileage on, it needs a little bit of work. It's got a few miles. If it's got over 150,000 miles, we're going to say no because we're not gonna get much use out of it. So I've seen some shit houses unless it's, you know, like a 15 $20,000 house. I've bought $30,000 houses a few times quite a few times, actually. I loved buying those types of houses, but they always had a lot of work involved. But the bones were still there. The bones were good, the foundation was strong. So there's some things that I will go for. But you when you're first starting now, I don't recommend you go for full on rehab. I recommend you go for something that's got about 30,000 miles on it, Okay, it's used, but it's still in good condition. You can still get you some places, so that's the type of property you're going to be looking for. A used 30,000 mile car. Okay, have this is the type of house. So that's rule number three. Never buy fully fixed up. OK, so number four. So now that we're not buying fully fixed up, we need to know what the A R. V is. No, you're a RV. That's gonna be rule number four. The A R V stands for after repaired value. What is that house worth when it's completely renovated and totally fixed up? If you were to go through and look at all the houses that sold in that area, what were the prices? What were the prices on the four sales? Take a look at them. Look at what they looked like, right. Make sure that they had. The kitchen's were all down the bathrooms world on. Everything was all done. And that's gonna be your A R. V. So let's say, for instance, remember, remember what I said. If the pricing that I use as an example doesn't fit your location, multiply it. Everything multiplies really well. Okay, so we're gonna use ah, $100,000. So all fixed up in my location, this house would go for 100,000 and how much needs to be done on it right now? The next thing that we're gonna look at is what are the repairs needed. What am I gonna have to do to this house? To get it up to the value of a completely repaired and rehabbed house? Let's say we walk through and we're like, Oh, my gosh, the bathroom is in crap shape. We're gonna have to redo the bathroom in the tile and flooring bubble blah. We're probably going to spend in $100,000 market, maybe three grand, to get a bathroom up to par the same with the kitchen. When I walk into a kitchen and it's complete crap, I've been able to redo entire kitchens for less than 5000. Chris has the same. I know a few of you ask questions about how in the hell did she do a kitchen for $1500? It's easy when you got guys who are doing the cabinets and rehabbing cabinets and resurfacing them. It's not hard. Okay, you guys think that you got to go by top of the line stuff that you see in these rehab places where they put 30,000 into a place and you can totally do that? Yes, you can. But on the $100,000 house, you better not you better not because that's 1/3 of the price of that house. So if I've got $100,000 house, I know that I can probably spend about 10,000 fixing it up if it was in the worst shape ever. But my budget on that would probably be 5 to 8000 maximum. Get some Tyler's something would happen. Or maybe the appliances or something would push me up to the $10,000 mark. I wouldn't go much more than that, but I'm going to make a list of all the things in this property that need to be done. So now I've got the list of repairs and I know the A R. V. So the house is worth $100,000 super fixed up and all ready to go, right? And let's say I've got $20,000 in repairs, so I got 100,000 minus the 20 to fix it up, and that leaves as $80,000. Are you going to offer them $80,000 for that property?
gonna offer them $80,000 for that property. Why? Well, first of all, when you bought that property. What were your expenses? Buying that property? What would they be? You'd have realtor expenses, closing fees. Probably all kinds of permits and things like that. There's a lot of stuff that's going to go into that in the holding Tuas. Well, holding means how long is it going to take you to do all those repairs? Let's say it takes you six weeks. You've got almost two months of holding, and if you're gonna fix it and flip it, then you've got how long is it going to take to sell it and then close on it? Right. And if you're gonna put a renter in there, how long is it going to take you to put a renter in there? And if you're gonna furnish it and get it up and running on Airbnb, how long is it going to take you to furnish it and fix it and get it up and running? Right? You've got holding costs. Was there cold holding costs? So you've got a lot of holding costs in there. So you want to make sure that what? What are we looking to have at the end of this? We're looking toe have $70,000. All in guys remember $70,000 all in. Not $100,000. All in. We want the property to be worth the $100,000 but everything out of her pocket. We want to be $70,000 all in, because we need at the end of this toe have 30,000 in equity, right? So we're not looking at the 100 minus 20 are. We were looking at more like 70 minus 20 and holding costs. So we're going to be looking to purchase this property well under $50,000. So I would be giving somebody a low asked price on this property. I really, really would. Because the lower price I offer them with my closing costs and my holding fees and fixing it up and putting that much into repair, I'd be asking for somewhere in the thirties, I really would. I'd be starting out somewhere in the thirties, and I know that will shock a lot of you. You're like Holy shit. It's like $100,000 house. And even with all those repairs, its around 80,000 it is for them. But I need to get a deal. I need to get a deal. Because if I don't, what am I going to do with this property? What happens if I pay $80,000 for this property? And then I put 20,000 into it. Now it's worth 100,000 to me. What do I do with that property now? I got to sit and hold that thing until it builds some equity and I can get a loan on it. So I don't want to do that. I've got to make sure that I'm buying that property for such a great price that I can get a bank loan on it right away when I'm done so that at the end of all of this once I get it fixed up and ready to go, and I have somebody come in and they do the appraisal on it and into praises for 100,000 that the bank can give me 70% of that, a $70,000 loan, and I'm walking away and putting money in my pocket. I'm paying myself off and putting money in my pocket with that 70 grand. So you bet your sweet but I'm starting in the thirties. I'm starting low because I need to have equity in there. And when am I gonna cut off and say no? I'm gonna go back and forth with this guy. I'm going to start it, like 32 or something, or maybe even lower. Remember what Murray is that start when you're embarrassed. You're like, OK, start where you're embarrass. Start where you're embarrassed, and then they might come back. They might get angry and they might come back. You're going to have to explain. Look, after I put 20,000 or more, because here's mine cost and you can give them all kinds of costs. Like I said, you can look at that kitchen and you can say I could get this done for 8000 right? But the majority of people, if they were to go in, they would probably put 15,000 into that. And they would do it probably all themselves. And they would pay a lot more for it than they should. Right? So you can use those numbers when you're talking to them. So you can say, Well, I'm gonna have to put 15,000 into the kitchen. I'm gonna have to put 5000 or more into the bathroom, you and your head. You have that $20,000 budget. You're going to tell them you have a $40,000 budget or a $50,000 budget orm, or because you're going to think of all the things that can go wrong and you're going to tell them all of those things. Here are all the things that they will probably have to put money into. You want them to know that you have to get the best price two. Because of all the money and all the time you're going to be putting into this property, it's gonna cost you a bundle, so you have to get the best price you can get. Now. If this price doesn't work for them, it doesn't work for them. And if it does, it does. There are some people. The price is just too low. They owe weighed more than that on it. You can't always win, right? A lot of people say, Well, how can you do that? People will have a mortgage. Not everybody has a mortgage. A lot of times when we buy lists to send out our mailings and our postcards and our letters to when we buy those lists, we make sure that we're buying lists with properties that have the majority of the principal paid off. And that's the reason because we know we can't over pay for a property we can't over pay for it. That's also a reason why some people decide that they're not going to send letters to people. They would rather work with probate or foreclosures or pre foreclosures or auctions because they don't want to wheel and deal with people. Banks are much easier to wheel and deal with than people because people have emotions tied to property is right. But there is a lot of reasons why people want and need to get out of a property. So don't let these numbers scare you or intimidate you or make you feel as if you cannot make these offers. There are a lot of reasons to get out of properties. When people are getting divorced, they need to get out of a property. Maybe somebody is sick. They need to get out of a property. We can't take on all their burdens and pay them more than we can afford. to pay them simply because we feel sorry for them. You know, the thing is, everybody has a number, and you don't know. Maybe the number they're thinking is even better. So don't think that you know exactly what number there thinking up. You don't know you're not them. You don't know what their motivation is for selling. Okay? And if it doesn't work next, that's all there is to it. Negotiate Next. You're gonna have a lot more nose than you're gonna have. Yes, it's because you need to get it for a really good price. That's why you're gonna have a lot more nose. That's why you also have to have a really good head in this game because you're gonna get a lot of nose. And if you take things personally, you will get worn out. But if you know ahead of time that you have to go through so many knows to get a yes, then you're just like game on. So it's gonna be No, no, no, no, no, no, no, no, no. And now yes. Yea, I went through my nose to get my ass, so we've got to let them know how much it's gonna cost. We've got to get them closer to our numbers. Okay, I know it feels really uncomfortable and it probably feels a little sleazy, but it has to work with numbers, have toe work. And if they don't, you're over paying for the property and then you won't have a leg stand on doing this business. So again, we're not using the A R. V as our bases for buying, but we're using the A R. V as our basis for our loan. Okay, so that's roll number six is the RV is meant to get the loan price. The air V is meant for the loan price. So now we take our RV times the 30% right, or subtract that 30% equity that we want. We've got our 70% of the RV is our top budget. Subtract the cost of all the repairs and the holding costs and the closing costs to closing costs. If we're going to be flipping at one closing costs, if we're going to be holding it and any type of holding fees and holding expenses, any of the expenses that you can possibly think of and then some right because we always put a cushion. They're always like a cushion, just in case, because shit happens, right? So it's like, OK, if it's got 20,000 repairs, I'm gonna put 25,000 down, and then I'm gonna subtract that from the 70. I'm gonna have 45,000. So let's say that's all my holding costs. That's all my repairs. It's all my all my stuff, right? And then I'm going to start lower than that because that would be the maximum. And you've got to start lower so they can come up now. Yeah, they might say f you and walk away. They might not even counter. And that's okay. People get offended, especially if it's their personal residents. They get offended very easily, and you never want to tell people your house is a piece of shit. That's why I'm giving you this low ball offer because I'm gonna have to put a ton of money into it. And you don't want to make him feel bad, right? So a lot
the houses that I used to pick up with my dad, I would get on auction. I loved going to auctions. It was so easy. But you know what? Auction houses aren't as full as they used to be. So you do. What you gotta do is so now I've been working with Marie a lot because I've been calling her and she's like, Go lower, go lower. And I just need her in my corner to just give me that. Go ahead to go low. I know I'm not being emotional, and I know I'm being smart because I got to be able to bribe these properties for low. Now, what Chris was talking about was after we had a number in mind for the property that we bought, which was for sale at nearly 20,000. Maury, think, um, I came in super low, but when the guy countered back, he countered back at my top number. And I loved the property. So what did I dio? I let the emotions carry me away to just say Okay, fine. I'm not gonna argue with this. I don't want to lose it. And at that time, there were a lot of people bidding on these properties. So the crazy part is now. Now it's great, right? Because now people are holding their cash close to them, and they're not letting go of it. So this is a great time, a great opportunity. And there's a lot of people desperate, and you're more likely to find a lot more deals. And you're more likely to find right now a lot of deals from landlords who aren't making the money or who are scared, and they need to get out. So this is a really great time to use this scenario because you know what? The landlords, they already have been pulling the equity out of these properties for a long, long time, most likely, and so they've made it all back up and they're fine with letting it go for a little less. They might be a little pissed, but whatever they're like, you know what? I just want to get rid of it and have some cash in the bank, and there you go. So this is a fine time to be making these types of offers. It's a really good time, and if you need to get partner somebody who can coach you through the offer's you're making, get a friend and say, OK, here's the deal. I want to make a lowball offer. But sometimes I get a little scared because I don't want to offend people. And that's a real thing, especially for us. Nice people. We like people so much that we don't want to offend anybody. But, you know, it's like we're the kind of people who go into a restaurant. We get shitty service and we still leave 15%. What is wrong with us? I don't know. We got shitty service. The person was super rude, and yet we still tip them cause they got kids. And I don't know why you do that, but you know what? I don't do that anymore. I I don't now. I don't feel is bad. Now. I don't feel as bad making low offers and now I don't feel is bad, not tipping a rude waiter. So we've got to be that person. We've got to become that person if we don't have the balls to do it yet. We got to get a friend that helps us have the balls to be able to do that. So get a friend who can talk you through this. And every time an offer comes back and you get another call you call your friend and say OK, my mind set. The top offer I wanted to make was 50,000 and they came back at 65. And I started it 32 than your friend might say. Go up to 35 And you know, the person might come back at, you know, 50 or 55. Just keep going back and forth because, guys, you can do it. You can go peck him forth and actually the best deals I've ever gotten houses from. I went back and forth probably at least 1/2 dozen times, and sometimes it takes a long time. One thing I do know is when I go back and forth, I always put a 24 hour window on it. I wanted 24 hour window on my offer, and I want a 24 hour response because I have to get it going. My money cannot sit still. Money is meant to flow. It is currency is men to move. And so these long things where people don't get back to you for a week. People will do that. They'll play that game. How desperate are they? I'm not gonna answer back for a week. Well, all my contracts say they answer back within 24 hours or the numbers off the table. And so you need to do that to set time limits so that you can't be playing these games forever and ever. Amen. Right. Okay, so you've picked out your number. You know what your top dollar is now you're playing this game with him going back and forth, back and forth. It might work out, and it might not guess what? The majority of times it doesn't. Yeah, I know. It's reality. The majority of times you piss people off, they might not even reply back to you. But guess what? One out of usually about every 15 20 offers that I make will come back with a response and the result that I want. So I'm telling you right now, because you're like this won't work. And I'm saying, Yeah, you're right. It won't work. It won't work all the time. It won't work a majority of the time. It won't even work a very small percentage of. But even if it works of one out of 100 times, If you were able to buy a property for, let's say, 35 $40,000 then put the 20,000 into it to fix it up. Then you've got a property that all fixed up is worth 100,000. And you put 60,000 into. Is that worth it? Hill? Yeah. Hail, Yeah, it's worth it. It is absolutely freakin You know what worth it. It is absolutely worth it. Now, you gotta property worth $100,000 that you've got 60,000 in. So what do you do with that? What did I teach you last week? Last week I taught you exactly what to do with it. You paid 40,000 cash for it. You put 20,000 into it. You went and got it appraised. And now it's worth 100,000 because we knew the A R. V on it was 100,000. Right? So now it's worth 100,000 and you can go get a bank loan for 70% of that. 70% Now, a 70% loan would be a $70,000 loan on that. Right? So when you have the 70,000 and you paid out 60 you'd have 10,000 left over. Remember what I talked to you last week? That 10,000 is completely and totally tax free because it's alone. So you can take that $10,000 extra that you have and buy furniture, and you can turn it into a short term rental. Or you can put it in the bank of your business and put it towards another property. But you pulled out all of the money that you bought the property. For. Now, there's a couple of their ways to do this. If you're going to do a bank loan, we do something called bridge Mortgages. Now it's not all the time, but it's some of the time, and I always do it with a property that I'm going to hold for a long time. And let me tell you why, when you're working with a bank, they don't like to give you loans on properties that don't have any seasoning. So they want to see that you've had a renter in there for a while and how much rent you've been able to pull in. Even if you have rents in the area. Sometimes they'll take a look at that, and they'll make exceptions but there's still going to charge you a lot for it. Sometimes they won't. Sometimes they want you to wait an entire year to be able to get alone. When you pay cash for a property in order to get a mortgage on that property, they want you to hold that property for an entire years of that. They can see how much money that property pulled in for you before they give you alone. But if you get something called a bridge loan, a bridge loan is considered by mortgage companies to be a regular mortgage loan. And that's going Teoh make it super easy to do something called Refinance. So instead of getting a whole new loan, you're just going to refinance the loan that you already have, and you can get some really great rates on a refinance. So let's do a, for instance, on this. So let's say we have in our bank account the entire $70,000 that we need to buy this property right. It's $100,000 property when it's a RV, and in our bank account we got more than 70 so we're doing good. So instead of US pain the 40 or 45,000 let's just even it out and say we only paid 40 Okay? So instead of us paying the 40,000 to this guy for the house, we're going to get a business partner and they're going to give us the bridge loan. They usually do a 50 50 so we'll put 20,000 and they'll put 20,000. Okay, so we get a $20,000 loan, and sometimes those bridge loans are expensive is shit. Let's just say her expensive. Sometimes the interest rate is pretty high. It may even be a high as 10%. So it might be 10% on this $20,000 loan, and that's OK, because we're not gonna have it very long. We're going to take that $20,000 loan. We're gonna put our $20,000 into it to to buy it. So he paid the $40,000 in the closing cost bubble, boss, and now it's ours, right? But we got a $20,000 mortgage on it. We use 20,000 more of our money to fix it up and repair it, make sure everything is good. And now we've got to get it appraised. We go get it appraised and we refinance it. It's so much easier to refinance the property than it is to get a brand new mortgage on a property. So you already have alone on this. They're just considering this a normal refi, so they're going to get the appraisal done on it, and they're going to say, 0 70% loan to value, right, and they'll pull it out. They'll give you the 70,000. You'll pay off the guy that you owe the 20,000 to, and then you'll have another $50,000 you put 20,000 in to fix it, and you put 20,000 in to buy it. Remember, you went halves. Ease with a guy, and so you'll have an extra $10,000 again, totally tax free, because it's alone to reinvest and do the same thing over and over and over again. And maybe you want to just take that 10,000 and put some furniture in there and turn it into a short term rental again. This is the easiest and best way to keep doing this over and over and over again. So these
the numbers that we use and this is the way that we do it. We're taking our money and we're using our money. But then we pull it all back out and we do it again. That's the way to build wealth. That's the way to build this system. Okay. And another thing that we dio is that we make sure that we keep our businesses separate. So when we pull that out and we get the loan, we have a real estate rental property. We may have it in its own LLC, where we may have an in N l L C where we've got a bunch of hold property is right. But whatever L L c were holding it into, we've gotta deal with our short term rental company and are short term rental company is going to pay rent, toe are real estate property, and we're gonna run to different businesses out of it. So one is our real estate property, and that's going to get a rent from our other business, which is the short term rental being be Okay, so we've got two different businesses running out of there. What's really cool is we can make sure that the rent that we're charging our short term rental company is pain all of those expenses and giving us a little bit of cash flow at the same time. So that's what we want to look for now. When we looked at the numbers of this, that's another thing. Let's say again that our Air V was 100,000 right? So Lesson number seven is to know what the rental prices are, the long term rental prices. And I want my long term rental prices. I'm no, I'm old fashioned. I've been doing it this way for a long time, so I want my rental prices to be 1%. I don't want my prices to go much more than that. So if I'm buying a property for $100,000 I want my rent on that to be $1000 a month, Okay. And it's easy. I'm gonna take a property. If if a property is 300,000 the rent should be around 3000 month. Now, if the rent is 2500 I'm not gonna pay 300,000 for that property. That's just how I am. Maybe you're in an area were It's okay, but honestly, I still use those numbers. I've been using those numbers since the eighties and they still hold true. And the crazy thing is, I've heard a bunch of people in new real estate books, books that have been written in 18 19 6020. And guess what? There's a lot of old school people out there using those same numbers. The reason why is because it gives us the ability to be able to pay that back and then some, too comfortably pay the mortgage on those properties. And that's imperative. We have to make sure that we can pay it with a long term renter inside in case the shit hits the fan, and that's what we're doing. So that was another good reason to look at those numbers. Remember at the beginning of this episode, I said to you that we're taking a look and seeing if the rents were $1000 a month for that. We're looking and going. Okay. Could I still cash flow this for $800? And if I had a property with a $70,000 loan on it, I had to take out my taxes, insurance and a little cushion for maintenance and repairs. Could I still be making money and cash feeling that property? If the rents were to go down to 800 a month, the answer would be yes. So that's perfect. That works out perfect for my scenario. Now what works out even better is when I look at this property and where the location is, and I know that my short term rental can most likely pull in 2.5 times what that rent is. It can be pulling in 2500 orm or as a short term rental, and that's awesome. His on busy months when is pulling in 3,504,000 month and the slower months it's pulling in 2500 month. Bingo. I'm gonna be cash flowing that you know what out of that property, and I want you to to. So here's the deal, guys. I know that these numbers sometimes seem unreal for people. It's only because they don't do um, it's only because they haven't been out there working it, and it's only because they're not willing to get the nose. Get the nose. There's a bunch of stories about getting the nose. Get the nose. You want to go out there? If you know that 20 or 30 of these properties, they're gonna be No. But then you'll get a Ah, yes, That's like somebody saying, Okay, just go through these numbers make this many offers, and one out of every 35 will be a yes. Then you look for the nose. You don't get sad. Every time somebody says no, you just check off the box of the 35 knows that you're gonna get right. So you make an offer making offer, make an offer. You go through the whole rigmarole of going back and forth with these guys. And then finally it they say no. Then check the box. No, that's one known. I got 34 more knows to go through before I get yes, and guess what? After a while, you'll surprise yourself when you first start, you might have to go through 100 properties to get yes, but the more you do it, then the next one might be 80 knows to get es, and the next one might be 15 knows to get Yes, and the next one is like 35. We still have a very high ratio of nose and you should have a high ratio of knows. You know why? Because if people are saying yes to, you're not making your offers low enough. And that is the gods on this truth. If you're getting yes after, yes, after, yes, your pain too damn much. That's the truth. When you list your property for sale and you don't get any offers on it, your property is either shit or your pricing is way overpriced. Because if your price is too low, you're gonna get a crap load offers on your house, and you can always tell it's the same thing. If you're getting too many s is than your price isn't low enough. You want to make sure you're getting knows, because then you know that you're offering low enough prices. And that's the truth. Nobody wants to tell you that, because it makes it seem hard. Well, guess what? Frickin real estate is hard. You're lying to you when you watch those shows and they make it look easy. It's not freakin ease. He I think you just want to swear and shake somebody and go. It's not that easy. If it was that easy, everybody would fucking do it. That's the truth. And everybody doesn't succeed in this because they don't have the balls to go through with it. It's just a numbers game. Pull your pants up, tighten your belt and go through it, man. It's like getting out there and getting punched in the face. Sometimes when you get a no feels like a punch in the face after a while, it doesn't. You're numb to it. So go out there and be that you know, that Irish fighter that you know, just keeps getting hit and then comes back up getting hit and comes back up. Be that price fighter, man. Just get the hit and then stand back up and say, OK, we're gonna do this again and again and again and again and again and again and again until I get my yes until somebody comes back and you get that property for the 40,000 because you know what that will happen, that will happen. You
no idea to. There are a lot of people who just want to get rid of properties. Price has nothing to do with it. Most Everybody goes out there when they think about real estate, they think that the price is everything. The prices, not everything. There are a lot of reasons to get rid of a property. And Chris kind of touched on that last week to when she was talking about her dad just getting really properties. It doesn't fit in the portfolio anymore. And there are a lot of times where Chris's dad has taken the loss. Sometimes real estate investors take the loss. Why? So they can write off other properties. So you don't know. You don't know? You think you know? You think you know what they would say, But you don't. You think you know why they would say it, But you don't. You're not them. You're not walking in their shoes. So stop making assumptions and just start working out your part of the deal. I want
think about this. What would you do if you couldn't fail? Would you go out and do it? Majority of people wouldn't. They really wouldn't because it's too damn hard they can't take the nose. They can take the rejection, and it's it's really sad because it's not rejecting you. It's rejecting the numbers in the terms, and there might be a really good reason why they can't. But you are looking for the people who can. You are looking for the ones who can't. So don't worry if it doesn't work out. It's no big deal. It really isn't. You just keep looking for those properties. You just keep making a bunch of offers and you've got to surround yourself with a really good team in the meantime, and so next week we're going to talk about the team. Great. OK, so that's the end of this week's episode, where we went over all the numbers and seven really great tips. But in two weeks, Holy cow. I can't even believe it's almost May. That's so crazy to say it. But in two weeks I'm going to be giving a great little webinar for free for everybody so that they can learn and set up your short term rental business to excel in this new market in the coming era of post Corona virus, right? So what I want to do is I'm gonna have a lot of handouts for you. I'm gonna have some free giveaways. Things you can download things that you can leave your guest ways that you can advertise and market your business. And if you go to our website, you'll be able to register for that and make sure that you are on that call and it's gonna be a 5 p.m. Pacific time, which is a PM Eastern time. This way, everybody can be there. Like I said, just go to our website and register there. You'll see it there for the webinar and hopefully you're on there all the time anyway, because there's some great information Awesome articles, award winning articles, as a matter of fact. And there's a lot of good free downloads for you, so I want you on our site all the time. And if you can please, please go to iTunes or wherever you can leave a review for our podcast and leave us a five star review. We love to get your five star reviews. Remember, we also have that live area on our website where you can leave a message, and if you want, you can leave US permission to to use your voice and ask your questions and we'll put you on the show. So thanks for listening today, Remember, next week we're gonna go through the team, but have a great day. God bless you. Stay safe, Go and grow.