Loading...
businessinvestingcareers
523: How to Vet a Property Manager
About this Episode
Join our upcoming GRE live event right here! - 'New Turnkey Properties with ZERO Money Down' on Thursday 10/24.
On this week's episode, Keith shares how to vet and onboard a property manager, emphasizing the importance of their role in tenant relations and net operating income. He is also joined by our guest, seasoned investor and turnkey expert, to highlight the benefits of new construction properties with zero money down, leveraging builder incentives and portfolio loans.
Learn the key qualifications to look for in a property manager, typical management fee structures and questions to ask.
Hear about the benefits of new construction homes, including consistent income, quality tenants, and growth potential.
We discuss the potential for 10% builder credits and 5% down portfolio loans.
Show Notes:
For access to properties or free help with a
GRE Investment Coach, start here:
Get mortgage loans for investment property:
RidgeLendingGroup.com or call 855-74-RIDGE
or e-mail: [email protected]
Invest with Freedom Family Investments.
You get paid first: Text FAMILY to 66866
For advertising inquiries, visit:
Will you please leave a review for the show? I'd be grateful. Search "how to leave an Apple Podcasts review"
GRE Free Investment Coaching:
Best Financial Education:
Get our wealth-building newsletter free—
text 'GRE' to 66866
Our YouTube Channel:
www.youtube.com/c/GetRichEducation
Follow us on Instagram:
Complete episode transcript:
Automatically Transcribed With Otter.ai
Keith Weinhold 00:01
Welcome to GRE. I'm your host. Keith Weinhold, how do you vet a property manager and maintain an onboarding relationship with them over time? I just hired one, and I'll tell you how I did it. Then there's a trend to exploit in today's real estate market, with the opportunity to place zero money down on brand new build property today on Get Rich Education.
00:27
Since 2014 the powerful get rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate investing in the best markets without losing your time being a flipper or landlord. Show Host Keith Weinhold writes for both Forbes and Rich Dad advisors, and delivers a new show every week since 2014 there's been millions of listener downloads of 188 world nations. He has a list show, guess who? Top Selling personal finance author Robert Kiyosaki, get rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener phone apps build wealth on the go with the get rich education podcast. Sign up now for the get rich education podcast, or visit get rich education.com
Corey Coates 01:12
You're listening to the show that has created more financial freedom than nearly any show in the world. This is get rich education.
Keith Weinhold 01:29
Welcome to GRE Yeah. This is get rich education, the voice of real estate investing for more than 10 years now. This is episode 523, and I'm your host, Keith Weinhold, let's talk about how to vet a property manager. After all, they are what make your real estate investment mostly passive. I recently hired a new property manager. Of course, I have one in each geographic area where I own property. Now, instead, you can self manage from a distance, but sooner or later, you probably won't feel that's the highest and best use of your time. As friend of GRE and host of the real estate guys radio show, Robert Helms says, Life is too short for property management. And you know, when it comes to managing your property, still today, you can't just have an AI do that, and to be your property manager is the most important piece of your team, because they're the ones that handle all the tenant relations, collect your rent, and They control your occupancy rate too. I think you can make the case that a property manager is even more important in larger apartment buildings than they are in, say, single family rentals up to fourplexes, and that's for a few reasons. Number one, because managers drive your net operating income your noi in apartments. Okay, so that doesn't just drive your income. That drives the very valuation of the property, since apartments are the NOI divided by the cap rate. And secondly, one bad or noisy tenant can make other apartment tenants miserable. Yet if there's one noisy single family home tenant, well others might not even know about it or hear them. So a manager is more important in large apartments than smaller units. But let's not let the point be missed. They are crucial, just vital either way. And when it comes to qualifying a property manager, you know, before you reach out to that manager, do some research on your own. First, like first, I like to see if I have any friends that use that management company, and I like to get feedback from them. Also like to read reviews and see what current investors that use that property manager say about them in forums. And you know from real world experience, if you've been an investor for any period of time, it's a little sad to say, but getting reviews that are merely adequate or average, that might be good enough. There are many places in life where I accept mediocrity, although property management is probably one of them, because it's just a tough job where that manager has to adjudicate, use their judgment and walk a line between two antagonistic parties, and those parties are you and Your tenants. So adequate is good enough. Management is just one of those industries. It's kind of like airlines always seem to get bad reviews too. If there's a rating system out there for umpires and referees, it would probably be the same users only comment when there's a problem. Well. So when vetting a property manager next, I like to know how long they've been in business. I also like to know how many properties that manager currently manages, how many units they have in their management portfolio. And with this latest manager that I just recently hired, it happened to be 325 properties. That's a good number. And this manager also happens to be one in a network of a nationwide management franchise. So there are some systems and some economies of scale that I'm getting, and there are a lot of mom and pop managers too, and they can often do a good job as well of scaling and automation. A lot of managers, for example, they leverage a software like app folio, where you as an investor, you can log in and see your investor activity and your owner draws there. So this particular new manager that I hire, they have those 325, properties that they manage. But speaking to geography, I learned that their brick and mortar presence, their main office, it's a full 45 minutes away from where I have my properties all clustered. That's not ideal to have my properties far flung from their hub, because you want your properties to get adequate attention. And you can imagine, if your properties are too far for where most of their operations are. Well, then your properties might not get enough attention, but I learned that they already have 20 properties in the immediate area of mine, and that their maintenance man also happens to live near my property, so in this case, 45 minutes from the satellite office. Although it's not ideal, it did work for me. This new manager that I hired has the tenants rent be due on the first of the month, but they have a grace period to pay until the fifth and then the owner draws. They're made around the 10th of the month and the owner draws. That means when the manager makes their payment, to me, the investor, which is after they collected all the rents, minus their management fees and maintenance expenses. All right. Well, all that stuff is pretty typical, and let me tell you now about their management fee structure. And again, this is pretty typical. And by the way, I don't try to negotiate fees with managers in most cases, maybe, unless I have an awful lot of properties with them, they have a monthly management fee of 8% now 10% that's a pretty common fee out there as well, meaning that if rent is $2,000 they take $160 each month in a management fee. That's that 8% and then additionally their leasing fee is one half month, meaning that when they screen and place a new tenant for me, they get $1,000 at that time again, on this example of a $2,000 rent, and I pay a $150 re leasing fee, meaning If they release the unit to that same tenant after, say, their first year or two lease expires, ask your manager if they do markups on maintenance bills. For example, if they subcontract a plumber, and those plumber charges are $500 over to the manager. Does a manager tack on, say, 10% to that charge and then charge you $550 or not? Preferably, the answer is no markups like that can be another profit center for property management companies. However, what this manager does is instead, they have a trip charge of $55 for when their maintenance guy visits the property, and I was okay with that. That's reasonable. Also ask your property manager, if they do regular inspections of your properties, that means that they physically go inside the unit from time to time to confirm that everything is on right, that your tenant is trading a property with respect and that there aren't any deferred maintenance items cropping up, like delaminated flooring or some kind of water leak that needs attention. And this particular manager that I just decided to hire, they charge $75 a year for two of these annual inspections, so they physically go inside the unit every six months for a comprehensive check, which is a really good idea. And I love that they do that. Another tactic that I take when vetting a property manager is to ask them, you know, just a detailed question or two, really feel out their operations. It can be a good idea for you to do something like this. For example, I told this new manager that you know, in the past with other management companies or ones I still use, you know, I've seen managers they try to charge me for clearing a clogged sink drain. Well, I've let managers know I shouldn't. Not be seeing charges like that at all. In almost every instance, clearing clogs that should be charged to the tenant, not me. I mean, obstructions don't float up from water and septic systems. So in most cases, that is what's happening. So you know, the tenant is at fault for getting something clogged in there in almost every case. Now, one exception might be that, I don't know, tree roots encroach on plumbing or something like that. Okay? But the point is, when you ask about something like that, you're showing your property manager that you're savvy and you can't be taken advantage of. Okay? They have got to be the ones that pushes back on the tenant, sometimes not pushing on you every time, just because they feel like you're the one that can afford the expense more than the tenant. So that sets some expectations for the ongoing relationship. Also talk to your property manager about your communication preferences over time. Now, for me personally, I don't want an intrusive text message unless it's something that's pretty urgent. I prefer email communication, and the manager does not need to email me every time they need approval of expenses less than, say, $300 now, when you get more faith in your manager later, you might want to bump that number up to $500 or whatever your number is. Now, at times I do like to call my property manager on the phone. Sometimes you'll just get more information from them. This way, a better feel when I called a different property manager that I currently have, you know, one thing that they mentioned to be on the phone, they were like, oh, Keith, I've been meaning to call you. You've had a vacant unit for weeks, and we should probably lower the asking rent 50 to $100 All right. Well, I agree that we should do that, but I feel like the vacancy would have lingered longer at the higher asking rent had I not called. So really, this is the sort of light touch that you should give your properties over time, and it's the reason that why, even with professional property management, it's not completely passive. Instead, it's a little contact. And I also like to tell my property manager that I have mortgages on my properties. I have every property mortgaged, and always have. You can choose to have your manager pay your mortgage for you, or you can pay it yourself, and that's a bit about vetting and managing your property manager. And I hope some of those ideas go a long way toward helping you, really, they're the frameworks about what's important and establishing expectations with them. Up front this week a great guest and I will discuss trends in today's real estate investment market, and then we'll tell you about an event that you can join and how to specifically exploit an especially promising real estate opportunity that I have never seen before. That's next. I'm Keith Weinhold. You're listening to get rich education. Hey, you can get your mortgage loans at the same place where I get mine, at Ridge lending group NMLS, 420056, they provided our listeners with more loans than any provider in the entire nation, because they specialize in income properties, they help you build a long term plan for growing your real estate empire with leverage. You can start your pre qualification and chat with President Caeli Ridge personally. Start Now while it's on your mind at Ridgelendinggroup.com that's Ridgelendinggroup.com. Your bank is getting rich off of you. The national average bank account pays less than 1% on your savings. If your money isn't making 4% you're losing your hard earned cash to inflation. Let the liquidity fund to help you put your money to work with minimum risk, your cash generates up to an 8% return with compound interest, year in and year out. Instead of earning less than 1% sitting in your bank account, the minimum investment is just 25k you keep getting paid until you decide you want your money back. Their decade plus track record proves they've always paid their investors 100% in full and on time. And I would know, because I'm an investor too. Earn 8% hundreds of others are text FAMILY to 66866, learn more about freedom. Family investments, liquidity fund on your journey to financial freedom through passive income. Text FAMILY to 66866.
Rick Sharga 14:46
this is Rick Sharga, a housing market intelligence analyst. Listen to get rich education with Keith Weinhold and don't quit your Daydream.
Keith Weinhold 15:11
This week, we've got the privilege of hearing from a seasoned real estate investor. He himself is in single family, multifamily and commercial. He's also a licensed optometrist, and he practices on a volunteer basis, giving away his time and expertise there. In fact, he started investing in real estate while working as an optometrist and captain for the US Air Force, and that on the side, real estate investing allowed him to retire early from medicine, and today, he's an industry expert in real estate market analytics and how to use real estate as a means to create the lifestyle that you, the listener, desire for your family. Hey, welcome to GRE Zach Lemaster.
Zack Lemaster 15:54
Thanks so much for having me on again. It's good to be back, and always a pleasure to you know, talk real estate, I learn a lot from you in the content you put out. So I'm a big fan, and I appreciate you having me on.
Keith Weinhold 16:06
Well, thanks for saying that will. I'm sure we're going to learn from you today too. You've got such a great take and feel for the pulse of the residential real estate market. Tell us about your take, whether that's price, direction, rents, occupancy rates, supply, interest rates, demographics, whatever you think is important, tell us about what a real estate investor really needs to know in this era, Zach.
Zack Lemaster 16:30
man, and this could probably be a whole day conversation, Keith, I think you've done an excellent job covering this every time you put out information, so we won't belabor the point. But I guess my general take is that, you know, we're moving into a section in the the market cycle, I believe, where we'll probably start to see a little bit more of a normalization of a real estate market. I mean, it's just been so strange, right, to pull data points over the past two years, and actually, really four or five years of like, there's really some unique things happening, and there's a lot of people that have projections around how housing prices are changing and things like that. The only really thing, I think the big takeaway from the past two years is that home sales have plundered it. People talk about real estate crashes, real estate prices really didn't change that so much. And actually in a lot of the markets, like where we focused on they went up because, you know, supply and demand. These are areas where there's a huge discrepancy and there's an undersupply of housing, and those are kind of the areas you want to be in the path of progress. But one thing that we did see over the past few years is that there's a plummet in home sales, and that's both with less buyers because of the interest rates and less sellers holding on to their low interest rates. People are less likely to move in those scenarios. So I think we're going to see more of that as we start to see interest rates coming down over time, and we'll probably see more inventory hit the market, but also a new influx of buyers. So I don't know if there's going to be much of a change in terms of pricing, but generally speaking, I think there's from the investor side. A lot of what we talk about is retail, but with the investor mindset, which is your audience, I think what we will likely see is that there's probably a lot of people that were sitting on the sidelines that will jump into the market. There's going to be more buyer competition, of course, that drives prices. And one thing we know for a fact that we'll dive in deeper today about Keith, is that there are builders, because a lot of what we do is in the new construction, build to rent industry. And we could talk about why that is, but that's just a solid asset class to maintain consistent income, quality, tenants, growth and potential in both home appreciation and rents. But I think what we're likely to see is that over the past year, there's been a lot of builders giving out these crazy incentives because they've had excess inventory and they've had a slowdown on the retail sales, and it's been a really unique opportunity for investors to come in acquire good assets at with these crazy incentives of below market pricing, which we'll talk about, that is likely going to disappear over time, as they move more into the retail sales, and those channels start to open up more because there's more buyers and so in the niche that we work in, that's kind of the takeaway that I think is developing, really over the next, you know, A few months here.
Keith Weinhold 19:00
yes, this reduction in sales volume that we've had like you touched on which lower interest rates could help thaw. Almost everyone agrees that interest rates are going to fall more slowly than they spiked in rows in 2022 and you know what's funny, Zach, I can be in the front of a room talking about the condition of the economy in the real estate market, and I can say to the audience act, I can say, if you think there's uncertainty right now, a substantial amount of uncertainty, raise your hand. Adversely. Everyone raises their hand. But you know what? They did the same thing two years ago, and they did the same thing five years ago. So my point is, yeah, investors invest through the uncertainty. Because uncertainty always exists. It just shifts around as to where the uncertainty is. The listener might be trying to validate sort of one thing in their mind and get it to balance out right now. Zach, when we talk about this lowering of sales volume, and you mentioned builders that are sitting on some inventory yet we have a lack. Of supply. Can you balance that out for us and tell us how that is that some builders have inventory that they're sitting on that's supply, and yet we have an overall lack of supply.
Zack Lemaster 20:10
yeah, and I think the other key piece into that is lack of affordability, right? And so all those things kind of play together, just to tie up your last point. There's always uncertainty in real estate, but there's also the fundamentals of real estate. Keith, you know, this is a long time investor, investing all across the country, as long as you stay focused on the fundamentals, which, at the end of the day, is really investing in good locations with good teams, where you have positive cash flow, right? And you likely have a positive outlook from an economic standpoint for that market, to keep the house rent in to keep rents going up. Like that's really all there is to this to be successful long term that can exist in any market cycle. So I just encourage people to stay focused on that. But ultimately, your question about inventory supply, we talked about big things of like lack of inventory. I mean, we have a deficit of I think the last stat I saw was seven and a half million houses, you know, deficit or something like that, but that's really on the global economic picture for the US, right when we break it down to the kind of the micro economic scale with each individual regional market, because we work with regional builders as well as national builders, and we're also builder. We also put up our own houses as well to a somewhat small scale, but a lot of those builders started the houses that are now completed, you know, at this point, sometimes six months ago, more likely 12 to 18 months ago. And they had anticipation as the Fed was talking about interest rates lowering, you know, they maybe were planning an X amount of sales for those exact houses. However, from the retail standpoint, there really hasn't been that movement. So we still have a lack of homes that we need, but we also have a lack of people that can buy those houses, because there's a lack of affordability, right? And all these builders also have X amount of houses that they sell to institutional buyers, the blackrocks and some of these buyers that will come in in and we'll talk about why that's relevant to us and how we've pioneered our way into operating like one of those for the individual investor and bringing those same buying incentives to the everyday investor. But there's also been a large decrease on investor activity from an institutional level buying. So just because we have a reduction in inventory and we have a low supply does not necessarily mean that we're just gonna, you know, builders can just sell all their homes because of that. There's a lot that plays into that, and you need to look at each geographic market. But ultimately, if you're looking at the fundamentals of investing in real estate, where you can still be, and we try to be below the meeting house price point, below that $400,000 price point, again, that's where we have the largest demographic big affordability issues right now. I think that's a safe place to be, right? Because you don't see the fluctuations that you do on the more expensive homes, the more expensive markets. I think you have the large, large demographics for both renters and retail buyers, and you also have more runway, right? More runway for prices to go up. So that's kind of our the niche area that we're when I'm talking about excess supply. That's the area that we're really focusing on.
Keith Weinhold 23:03
Oh, that was beautifully explained in how to tie that supply story together there. Zach, of course, there are so many ways to divide up the real estate market, one of those being that price tier. And typically for us as cash flow real estate investors, we look at a single family home. Yeah, it's going to be under 400k in order to generate income, I have an announcement to make here to you the listener on Thursday, October 24 one of our GRE investment coaches, along with Zach here, are co hosting GRE 's live event for new build turnkey income properties with zero money down. Yes, I'm stealing some of your thunder there. Zach, zero money down. Registration is now open at GREwebinars.com and the momentum has been building for this event that you can attend from the comfort of your own home. Tell us about what you'll be covering at our live event. Zach.
Zack Lemaster 23:58
yeah, and I'm very excited to do that. Keith, I appreciate you having me. Han, again, I think all the investors, if you're interested in new construction or just creative finance and some ways to make some unique deals happen, like you have to attend this webinar just to at least learn. First, we'll talk about different markets right now where we see the best opportunity. So if nothing else, you learn about some of the best markets to invest in. But really what we're going to unveil is how someone, regardless of where you live, geographically or your investing experience, how you can make a creative deal happen on a turnkey deal that you can get below market value and possibly buy with zero money down, or at least have a good portion of your down payment cover to really skyrocket your ROI. So this is a scenario, Keith, we really get to have your cake and eat it too, because you get a brand new constructed house. It's turnkey, where everything is done for you in a great market that has appreciation book on rents and prices. But you can also buy it with low to no money down and really be a creative investor. And I know that we're going to talk about all the details with that.
Keith Weinhold 24:58
Yes, let's talk more about. Out the potential for zero money down here. I mean, I think that's the most compelling value proposition with what we're doing next Thursday.
Zack Lemaster 25:08
sure. So we'll just go through a numeric example so people can kind of wrap their head around like what this entails. We already set the stage for you know why builders may have excess inventory. And what we do with our business is we partner with both regional and national builders, some of the largest national builders as well as as I mentioned, we build our own homes as well, but we partner with some of these national builders that have excess inventory in markets that we know are productive investment opportunities. A lot of these happen to be in the southeast, because that's where the population is growing, and we're seeing that's where favorable landlord legislation is and federal taxes and growth potential, all the things right, positive cash flow, but we focus on those areas. And we can go to these national builders, because as a group, you know, we buy hundreds of houses every single year, and we can basically approach them like an institutional buyer and say, we want the same access to those wholesale deals that you would sell to BlackRock, but we want that for ourselves, and we can pass that on to the individual investor. That's kind of the value add. But specifically, what we're talking about is a scenario where some of these builders will offer up to a 10% credit at closing. That is huge. And just to I mean, for someone that is just new, the real estate game is kind of learning about this is I've been investing personally for 15 years now, I've never seen things like this in any market cycle that's through multiple different market cycles, but I've never seen anything this attractive. So this is not normal. I want to say that's to start. But essentially, you can get up to 10% of a credit on a house that you can use however you want to. And so there's a few different ways that you can use this key. So if you're buying a $300,000 turnkey new construction home, you could, in theory, get $30,000 off and buy that at 270 of $30,000 of immediate equity. That might be a good strategy if you're looking to lower the mortgage payment on that or if you're looking to, say, refinance that property or sell it quicker, you have that immediate equity in that house, right? The other thing you could do with that 10% is you could use it to buy your interest rate down we have and that will get you below 4% you could literally buy your rates down into 3% with that much, if you want to put that much money into it, it'll cover your closing costs and buy the rate down significantly. So no matter what the Fed lowers, the rate to you are back actually down to one, 821, rates by buying your way there with that huge credit that obviously causes, you know, cash flow to skyrocket near ROI, to go way up. The third option that you can do is you can actually take that money, just get it back as a credit at closing. So if you're buying a house, say a $300,000 house, you're putting 20% down, which would be $60,000 on that house, you get $30,000 immediately back. That means you're into the house for 10% or half your down payment. That also skyrockets your ROI. So the point is, is there's a lot of creative things that you can do with these type of exciting credits, and they vary between five to 10% based on inventory, but they go up to 10% on some of these new construction inventory options. One last thing here, Keith, and this is hopefully I haven't lost anyone, but this is where things get really creative. As a company, we also work with different lenders throughout the country to bring the best financing options to investors. And we have a group of credit unions. They're all local to that geographic area that have Portfolio loans. Meaning these are not Fannie, Mae, Freddie Mac loans. These are loans they hold in house. These are true investor loans. You still have to qualify for them, but if you qualify, you can put as little as 5% down, meaning the they will finance up to 95% of your property. We have tons of investors doing this consistently, and you can do this on up to five properties, five investment properties, if you qualify. And so that means, in theory, you could buy a brand new construction house with a 5% down loan. You get a 10% credit back at closing that covers your down payment, your closing costs, and likely puts money back in your pocket. So that's not only buying a new construction, turnkey house with no money down it's actually getting paid to do so now there's a lot of economics to understand and cash flow, you know, with a high leverage and things like that, but that's a concept, and it's very exciting.
Keith Weinhold 29:09
Yes, that last option that you mentioned seems to be the most compelling. I know. You've got investors that are learning about this and have already taken advantage of that, and again, that last option is getting the 10% credit that you're getting from the builder, coupling that with a 5% down portfolio loan from a local lender, which effectively would give you 5% cash back at the closing table. However, your closing cost of prepaids might be something like 4% so really, in a best case scenario, not only are you zero money down, you're getting about 1% of the purchase price, or $3,000 in this example back at the closing table. Now, of course that's going to affect your cash flow, but you got to think about what's important to you. So when one thinks about what's important to them, as an investor, with some of those options that you laid out there, Zach, I really highlighted the last one. What are some of the trade offs, the pros and cons of choosing these different incentives that the builders are getting right now?
Zack Lemaster 30:05
I'm so glad you asked this, Keith, because someone could be very excited about the idea of no money down, but that may not actually be the most strategic benefit to them. The nice thing is that there's so much incentive to buy right now with these type of, you know, kickbacks, these these incentives that, like you can structure a deal that's specific to you in your goals. But I would really encourage the audience to understand what is your exit strategy, or what is the next three to five years? Why are you buying this property, and how to strategically apply that? And if you don't know, if you need some guidance through that, let us help you kind of understand the different scenarios, but I want to work backwards first and mention one more thing, the no money down option would be really attractive because cash flow is going to be limited. In that scenario, you still have a loan that's covering 95% of the house, right? You would expect it, and you don't have to only put 5% down, right? You can put six, 7% down. So it's, you know, maybe break even cash flow. It's up to you. But the investors that really like that option, including myself, is the people that want to grow and scale their portfolio and stretch their capital the furthest. They maybe don't care so much about cash flow right now at this moment, they know that cash flow will increase over time. But if you're someone who really takes advantage of the tax benefits of real estate, this is way to, like, honestly, without any money out of your pocket, just taking some action, you can create this huge tax benefit, right? Because if you're buying five properties with virtually no money down, and let's say those are each $200,000 properties, you could essentially buy a million dollars worth of real estate that you own and control 100% of and you get the huge, immense tax benefit. So if you're doing things like Cost Segregation studies, like we do, you can create hundreds of 1000s of dollars of tax deductions without any money out of your pocket, just being strategic this way. But let's talk about some of these other options, because that was a real question. Where would it make sense for people? So again, if you say that 10% on a $300,000 house, that's 30k if you wanted to take that as a price reduction right out of the gates, that would obviously lower your mortgage, that's going to lower the mortgage payment amount to allow you to cash flow more. But I think the real the strategy, or the play there, is that you have built in equity in a house. This means that if your plan is to maybe put a HELOC on the house, do a cash out refinance in a few short years, as that House continues to appreciate again, because it's in a growth market, you're just going to cut that time in half because you have built in equity or if you plan to sell it. I mean, there are some scenarios where you could turn around and almost like, flip this in theory. You could do it. If you really run the economics, they want to be hugely profitable. But theory could be profitable if you sold the house with, you know, even immediately, because these builders are still selling these houses at retail, setting comps at full market value. So if you have 10% and you're paying a realtor 5% commission, they're still closing costs. But you could, you know, net some capital, but better scenarios, probably, if you're holding it for two or three years again, letting it continue to appreciate, your option is to sell it, then you're into capital gains, or again, 1031 exchange it. You know that might be good option to have built in equity. Or if this is going to be a long term hold for you, and you're just like, I love this area where I'm investing, I want to maximize cash flow. I want to have a long term loan that has a really low interest rate, then actually applying the majority of that capital to buy your rate down. That's going to obviously maximize cash flow, and that's also going to lock you in on a 30 year fixed loan at a really low rate, maybe you want to buy the rate down. So that's really the two options. We see most investors either taking the capital back and using the zero money down option, or buying the rate down, because that's going to allow them to really cash flow well, and they're just going to hold that property for a long period of time and let real estate do what it does. Those are kind of the different scenarios. I think that makes sense for different investors and understanding where to apply this incentive. Sure, if you go for a high loan, to value loan at 95% or even 100% you really then pursue the infinite return strategy, have maximum leverage, or complete leverage in the property, have all the inflation profiting benefits magnified because you're borrowing more, but that scenario is going to reduce your cash flow. So it's all about what's important to you as a real estate investor, was that before you go, just tell us a little bit more. I think the listener is going to learn more on next Thursday's webinar, but just give us a bit more on property types, whatever else one might want to know. certainly. So this is mainly in the southeast, okay, so these would be markets like Texas, Alabama, Carolinas, Florida. We have some stuff in Tennessee, but, I mean, this is really the growth markets right where we have landlord friendly legislation, low taxes, we have affordability, but we have huge population trends moving to these areas. Those are the areas we want to be. Those are the areas where builders are building in because supply and demand. Those are areas where we're positioned for strong growth over time. Overall, our average rental increase is 6% year per year, and that's going back on data over the past decade. He's really good then, yeah, usually double national average there. So those are because we're specifically positioning ourselves in areas where. Where there's increase in rental demand and in population and economic growth, average home prices. I mean, we have new construction homes as low as 200,000 by the way. Side caveat, we also have some rehab homes that are in that 131 50 range that you can still use the low money down. Those don't have as high up incentives as the new construction do. But average price for new construction, two to 300,000 give or take. I mean, just buying them, if we're buying them with a conventional loan, with 20% down, you know, you're still looking at eight to 12% cash on cash returns. Let's just talk about the cash flow. So they're really good properties that cash flow well, which is hard to find today, and they're in good locations. I think that's really the main point I want to drive home as we finish up here is, these are single family residencies in good locations. You guys, I've invested, as you mentioned, in the nice century gave me, I mean, real estate allowed my wife and I to retire from our career paths as optometrist through investing. That did not happen overnight, but it did happen over a period of time, and it did take a lifetime, either, though, that's the thing I want to mention, over a short few years of intentional, dedicated investing, we learned that really focusing on growth markets and new construction houses allow for the best quality tenants, the most predictable returns and the best growth and rents and appreciation of the houses over time. To build equity, those are the kind of assets that we want to hold long term and will help you build wealth in a short period of time. So that's kind of been the direction of our business model. Is focusing on quality inventory in good locations with good teams that still have cash, good cash flow. But you mix in some of these incentives, Keith, and it's just like, it's a no brainer. And I do think this is the biggest thing, is sense of urgency here. This is unlimited inventory. This is not something that's normal, as I mentioned, and this buying opportunity that we're so excited about is not going to last forever, as we started this conversation, talking about the market shifting as interest rates continue to come down over time, that will continue to bring more buyers into the market and just less motivation from builders to offer these incentives. So guys, now is the time to take action and make really good investments now that will set you up for success for many years.
Keith Weinhold 37:03
The time is now. This is one of the best deals I've really learned about here in the recent past at all this could be of any benefit to it all. You really want to jump in on this, because, like Zach said, this won't last forever. Well, Zach, before I ask you for your closing thoughts again, for you to listen or be sure to sign up for GRE 's live event. This is for new build, turnkey income properties, potentially with zero money down. It is Thursday, October 24 at 8pm Eastern. Register at GREwebinars.com any last thoughts? Zach
Zack Lemaster 37:03
Keith, I just appreciate all the information you're putting out there, we are all thrilled about real estate as an asset class. It's been an interesting past few years. But again, just going back to the fundamentals, guys invest in good properties and good locations with good teams. And I promise you, if you do that consistently over time, you will reach financial independence or whatever financial goals you are striving to achieve. There's more millionaires or main real estate than the other asset class, and it's the most predictable Path to Wealth. There's no secret about that, but it does take consistency in any market cycle. So Keith, thanks so much again for having me on.
Keith Weinhold 38:12
Oh, those are great parting words, and you the listener, are going to get to talk more with Zach and one of our investment coaches. Next Thursday, it is live at the end, you will have a chance to have your questions answered in real time, in case you want to talk to Zach more. Hey, it's been great having you here. There's something in the market cycle there that we can really take advantage of. Builders have some excess inventory and see the money that they have tied up in them is something that they're paying a fairly high interest rate on to. And we have now partnered with some of the biggest builders, Lennar DR Horton and others, to get you this institutional grade buying power buying at scale for lower prices and better incentives, like Zach and I said, new builds in the southeastern US for purchase prices of 200 to 300k offering you up to a 10% credit at closing. So in a 300k rental single family home, you can then use as much as 30k and choose what you want to do with that. You could buy your interest rate down to 3% that's probably better if you're going to hold it long term or use on your closing costs and have some to use toward your interest rate. Or alternatively, you could just take it as a price reduction. A 300k property is now 270k maybe you can even enjoy the discount and sell it in the next, say, two to three years for a profit. You're likely not going to be immensely profitable that way, but you don't know what the market will do over time. All right, so it'll typically be a five to 10% credit, and that depends on the property that you seek here. All right, so that is the builder credit bucket there. And then, in addition to that, if you qualify, you have some good, say, credit and assets where you can get a financing option through local credit unions, and that is local to the area that your property is in that will extend you a portfolio loan. If you qualify, you'll learn about how to do this. And this means you could put as little as 5% down, and you can do that on up to five investment properties. Okay, so with those buckets, or those two incentives combined, you could then get a 5% down loan with a 10% builder credit so that 5% bank could cover your closing costs and even just put a little money in your pocket. You should sort of think of all of that as a best case scenario. You might be pretty excited about no money down, and you probably should, but, you know, attend the event and weigh the pros and cons and see if that is the right avenue for you. A lot of it comes down to what do you want to optimize your cash flow or your leveraged equity? This is an action taking time for you to get a good chance at being set up for financial success for years. I mean, it is opportunities just like this. I mean, you learn about these concepts on the benefits of real estate investing here on the show. And now here's something really tangible where you can get ahead. I mean, personally, for me as an investor, I've never had an opportunity like what we're talking about here. Before. If you so desire, you can own new build property and learn how to get it tied up at the event. Make sure to sign up and put it on your calendar. That is next Thursday, the 24th from the comfort of your own home, GRE 's live online event for new build properties in growth markets, potentially with zero money down. It is free to register, and as of now, there are spots available at GREwebinars.com Until next week, I'm your host. Keith Weinhold, don't quit your Daydream.
42:10
Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of get rich Education LLC, exclusively.
Keith Weinhold 42:38
The preceding program was brought to you by your home for wealth, building, get richeducation.com.
Hosts & Guests
No transcript available for this episode.
