Should I BUY Rental Property NOW? | PASSIVE INCOME FROM RENTAL PROPERTY INVESTING
My point that I want you guys to all recognize is every opportunity doesn’t have to be viewed as you know, I need to get a great deal or I need to do 80% of ARV minus rehab minus wholesale fee. You don’t need to always stay that stringent in your model, you need to be dynamic.
Yo, yo, welcome back to The Science of Flipping Podcast. I am your host, Justin Colby. Now we all know that the real estate market is shifting real time. But I am still looking to buy four, five or six rental properties at top of market. Let me tell you why. All right, guys. So we are all very, very aware that the real estate economy is shifting real time. Markets, like Phoenix in Nevada are usually the first to take the major adjustment, right? So I have a lot of friends in the Phoenix market as I’ve been investing there for roughly 15 years. So because I know that the Phoenix market is usually the first to jump up and fall down. I’ve been pretty cautious over the last two, three years in the Phoenix market, I’ve only flipped a handful of properties in the Phoenix market and it was because I knew those properties were going to be great.
Now I got into the Phoenix market primarily way back in 2007. Because I knew the price point of that market was way better than the market I came from, which is the Bay Area. Now for that reason, I always knew that it could be a great rental market, it could be a great flip market, and obviously, wholesale. Well over the last couple of years, finding a good rental in the Phoenix market has been really, really difficult. I mean, the numbers have just been getting worse and worse and worse to the point where I really just don’t even look at the Phoenix market to buy rentals at anymore. Now, it doesn’t mean there aren’t good markets to buy rentals. In fact, just last year alone about 14 rental properties in Alabama and Oklahoma. Now those are two good rental properties. And right now I’m shooting this episode, because I’m going to be looking to buy anywhere from 4 to 12 rental properties in Charlotte, North Carolina. Now that market also has had a lot of appreciation. But let me tell you why I’m looking to buy these homes at the top of the market, even in the middle of a downward shift. The answer is It’s just math. Now the secret to why this actually is so appealing to me is not just even the math, but it’s because I’m going to do a creative finance deal with these homes. The seller is someone that I’ve talked to that I’m looking to negotiate them to leave their loan in place. That’s why it is just math, because if I were to go out and buy these rentals right now, in July, as I record this episode of 2022, the interest rates are at a high, I don’t want to go buy a rental when I have a six or maybe seven or 8% interest rate to buy that home. But if I can go in and keep the loan in place, the seller bought these homes roughly two to three years ago. And I believe they’re at a 5% interest rate, I’m asking for the mortgage statements, now I’m gonna have a lower interest rate. And the last two or three years, he has been primarily paying heavily in the interest side, not as much in the principal side of the loan, which is great for me, cuz in the next two or three years that that line starts to cross over. And I’m going to actually be the one paying more into the principal, and less into the interest. So I’ll keep the interest down, which is roughly about 5%. Again, if I were going to go to a bank or you know, try to go get one of my own loans, I’m going to be looking at 6, 7, 8 percent for an investment property. So this really makes a lot more sense for me, the owner is open to it, we just need to structure some more terms, I believe what we’ll do is we’ll do some level of a five year balloon on this loan. That way they can get out from under it, and I’m bringing the cash to the table. So what does that mean? Well, that means they are looking to get the equity out of the home. And I’m okay with that meaning I’m not really going to be walking into a bunch of equity I’m going to be buying at relatively market price. I’m also going to be giving them the equity that they have in the home as long as they’re willing to keep the principal in place that I just discussed. So I’m roughly going to be bringing let’s say $200,000 Is my offer to the closing table. I will take ownership of the home and they are going to keep their loan in place. In a market like today as the market is changing. I’m more than willing to pay a higher price and I’m not saying I’m overpaying but I’m definitely not getting a deal by any stretch of the word. But I am getting a deal for me. I preach this all the time. I’m here to create 100,000 dynamic real estate investors. And what that means is, you aren’t just a one trick pony, you’re not just a wholesaler, you’re not just a flipper, you’re not just someone who’s gonna buy one rental, I want you to do it all right. I want you to have all the tools in there. And this would be a great example of a dynamic real estate investor, I’m going to buy a home, that works for me, because I understand my exit strategy. And that exit strategy is to not exit. This is a long term hold. Now with all of that said, because I’m going to hold this long term, and I’m going to refi his loan out in five years. Again, it comes down to the basic math, as long as I can net net in my pocket, after principal interest, taxes, insurance, maintenance, vacancy adjustments, and any minor repairs I’m going to allocate for after I can net in my pocket 200 to $300, a door, or more, I find that to be a good buy. I don’t have to go out and get my own mortgage, I’m able to have a lower interest rate as the time being because of the the loan that was acquired two or three years ago is lower, and I can get right now. I’m putting several hundred dollars a month in my pocket next after net, after I’ve already paid all of expenses. And I’m going to keep it in five years, the value of the home is going to be worth more than what I’m buying it for today, I’m going to be able to capture that equity, I’m going to refi his loan out and the interest rate will be lower than what it is today. And I can refi his loan out at any point I just have a five year balloon is I need to do it before five years. And it’s a long term wealth building strategy. That’s because I look at it that way. I have the ability to exit or not exit in this case, because I’m not in it for the quick income. I’m in it for the long term wealth.
So it’s important for all of you to really recognize one main thing is I’m not watching the market saying I’m not going to buy this because it’s it’s going to lose value right now. I’m looking at how can I look at that opportunity and maximize the opportunity, then that leaves me the opportunity to ask if they’re willing to keep their loan in place. You see, it doesn’t mean you need a smoking deal every deal you buy. You just need to make the deal work for you for what you’re trying to be able to do. I have a student right now I’ll tell his story. He actually is a real estate investor. He’s in my coaching program. He’s getting it or he just got his first deal done in the first 30 days. He’s actually getting a second deal contracted to sell as a wholesaler and he’s actually going to buy his third deal. His third deal is a duplex. And he said, Justin, I think I just want to actually buy this in house hack it. Here’s another great strategy that’s going to come along in droves. As the market is shifting, this ability to house hack is going to be incredibly important for real estate investors, meaning some might want to move in, so he is actually going to move in one side of his duplex, and then he is going to rent out the other side as he buys it. Well the numbers work out where essentially, he’s only going to be coming out a couple hundred dollars a month total, after all mortgage interest, taxes, insurance cost of living, he figures less than $500 a month for him to live in his duplex. That is amazing. He’s going to be able to build equity, he’s going to have essentially someone else pay the entire mortgage. He’s basically adjusting for all the other expenses. And that’s a great example of understanding how to maximize each and every opportunity, this is going to come along a lot. Even better if you have a way that like me, you’re able to even get the seller to do some creative finance structuring regarding these deals, it can really make it a no brainer moving forward every single opportunity you need to be looking at how can I actually start to get creative in this way, there is going to be a lot of opportunity for creative finance deals to be done. Whether it’s a sub to deal or rap deal, maybe even innovation where they just need to get it sold at top dollar. My point that I want you guys to all recognize is every opportunity doesn’t have to be viewed as you know, I need to get a great deal or I need to do 80% of ARV minus rehab, minus wholesale fee. You don’t need to always stay that stringent in your model, you need to be dynamic, really important.
So if this has given you any good ideas, even with the working leads you currently have or how to move forward in this market. I’m glad it has if you have make a comment below, make sure you are subscribed, smash the like button. I appreciate you guys, love you all. Thank you for all the love that you give me. Oh yeah. And I’m going to be speaking in Buffalo this weekend and then Milwaukee the weekend after that. Hopefully I can meet you guys in person if you are any of these speaking engagements. Come up, shake my hand. I’ll see you guys there. Peace.