Rental Property Investing For Beginners

Hey guys, Lex Levinrad over here, and I just want to talk real quick with you guys about rental properties. So, basically I’m going to pose
a scenario to you And I’m going to show you
why people often make bad decisions when it comes to investing, and especially when it comes to investing in real estate So ,a lot of people think
that investing in real estate means going and buying a $100,000
house and putting 20% down and getting a mortgage for 80% and then having a little
bit of positive cash flow. While that is real estate investing, that’s not really what I teach. What I teach is how to get wholesale deals at wholesale prices. All right, so I’m going to
give you an example of that. Let’s say I came to you and I said, hey, you can buy this
property that’s worth $100,000 and you can buy it for $70,000. And let’s say for argument’s sake, you’re going to put $10,000 down and I’m going to loan you the other $60,000. So 70,000 purchase price, you’re going to put $10,000 down and
I’m going to loan you the $60,000 And let’s say the house is
worth a $100,000 fixed up, right, and it’s going to be a rental. So let’s say for argument’s sake, it’s going to be $5,000 to get it rent ready, you’re going to clean it up a little bit, a little bit of drywall repair,
you’re going to paint it, and then you’re going to advertise it, put a tenant in place. So, I show you the math on this deal. And I say, hey listen, so
you’re borrowing $60,000 and let’s say, for argument’s sake, your payment’s $700 a month, and taxes and insurance of 200 a month, so your cost is $900 a month. And you can rent this
property out for $900 a month. The vast majority of you
looking at that would say, well, why would I do that? You know, if I’m making $900 a month, and I’m paying $900 a month,
I’m not making any money. So, here’s where I’m going to show you the mistake that people make when they do these kinds of analyses. So, recall that I said
the house was worth a $100,000 you’re buying it for $70,000. So let’s say you put $10,000 down, okay, you borrow $60,000 from me, you rent it out and let’s say
you get $900 a month in rent. And a year goes by and during that year you had to fix a few things, maybe you had to fix the AC, you had a little plumbing issue, and let’s say you spent
$1,000 during the year. At the end of the year, you
would have $900 a month coming in, $900 a month going out, plus a $1,000 minus in the repairs. What most investors would do
in that scenario is they’d say, oh, well this real estate
thing doesn’t work, it costs me money, it’s a huge
pain in the you know what, and it just takes up a
lot of my spare time, and I just don’t want to deal with it. And then they’ll go out and say, I’m not interested in
being a landlord anymore. But here’s the way I look
at that same transaction, you fix the property up,
you put a tenant in place, you call up your mortgage broker, you get the property appraised, and the mortgage broker
appraises it at a $100,000, and the bank’s willing
to give you 80% of that and give you $80,000, let’s say for argument’s
sake, their fee is $5,000 So you’re left with $75,000. You owe me $60,000, you pay me back the $60,000 you have $15,000 left, right? Now, what did you put
down to buy the property? $10,000. And how much did you spend in repairs? $5,000 So you put $15,000 out and
you just got the $15,000 back. How much have you now
taken out of your pocket to buy that property? Zero. You now have a $100,000 house appraised with an $80,000 loan. You just increased your
net worth by $20,000. Now, next question, your
net worth went up by $20,000 but from a income stand
point we said you made $900, you lost $900 and then you
spent $1,000 in repairs. So you lost a $1,000 for the year. So, most people would say,
well, why would I do that? So, let me tell you why you would do that. Let’s say the mortgage
you put on that property was a 15-year mortgage, and the property doubles in 15 years from a $100,000 to $200,000, you would now have a
$200,000 piece of property that you own free and clear
with no mortgage payment. Let’s say the rent doubles in 15 years from $900 to $1800, that property now would be making you $1,800 a month, every month for the rest of your life. And when you moved on you’d
be able to give that property to your kids and they’d make that money for the rest of their lives. So, now go back to that initial set up and say why would I buy their property that rents for $900 and I get $900 back? And I think you see the answer. But it actually gets better than that. Why? Because the way real estate is set up the tax system rewards landlords for being property owners. So, what I mean by that
is the property taxes are deductible, the
interest is deductible, insurance is deductible, and
the maintenance is deductible, repairs are deductible, and even the depreciation is deductible. So on that $100,000 house,
current depreciation schedules, say you can depreciate it over 27.5 years, let’s round that up and
say it’s $3,000 a year. So, just in depreciation alone, you get a $3,000 per year tax deduction. So, if you’re in a let’s
say a 30% tax bracket, that’s a $1,000 in your pocket. All of the other expenses,
the property taxes, property insurance, interest, etc those are all deductible too. So, if you work on a
job, let’s say you make $60,000 $70,000, or $80,000 a year on a job, you’d probably have $20,000, coming out of your paycheck in taxes. Well by owning just one rental property the amount that comes out of your check in taxes will go down. So, you’ll increase your
net worth in year one by $20,000 with my example. You’ll have a property with equity, you will increase your tax deductions, and you will most importantly
be able to control a $100,000 piece of property with no money out of your pocket, because you put $10,000 down plus $15,000 and then you got the $15,000 back. Which means now that
you have that $15,000 back, a week later if I were to come to you and say, hey I got another
house you could buy for $70,000 and put $10,,, down and borrow
$60,000 you could do it again. And again, and again and again, in fact you could do it 10 times, before regular conventional
lenders will say, hey, not so fast buddy you’ve
got 10 rental properties, that we’re not so sure we want to loan you on the 11th one. So, that should be your goal, to pick up 10 rental properties. If you come to my real estate training, my home study course starts out with the first 10 houses that I bought just like that with no money down And, it’s not that difficult to do. I’ve got students of mine
like Andy and Phil and many of my other
students that have done this and some of my students become multi-millionaires doing this. And I want to teach you
how to do this too So, the first step, is learn how to find a $100,000 house at $70,000. I teach how to do that at my Wholesaling real estate Bootcamp And I’ll go ahead and
drop a link below to that. If you can learn how to
find wholesale deals, then you can fix and flip
them, you can wholesale them to other people or you can buy and fix and keep them as rentals. Either way, next time you
come across a property that you can control,
that’s worth a $100,000 and all you have to do is
put a little bit of money out of pocket, don’t be
so quick to dismiss it. Think about the long term,
think about 15 years from now, think about the tax deductions. All right, so that’s that
little tip for you Thank you for watching and I’ll see you guys on the next video.

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