XYZ's of Money - Lesson 3: Start Your Empire

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One on one financial. Who can answer again? We got it. Akina.

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Welcome to our XYZs of Money.

Well, Alan, you're you're amazing and super honored to be on here.

Alan, thank you as always. There are very few people.

In an industry like this that are as real as Alan Akina. And Alan, I thank you for what you do and how you serve these

people so passionately. Hey guys, welcome, welcome to another edition of the AB— excuse me, ABCs— XYZs of Money. My— I'm going crazy, you know, absolutely crazy. Anyway, this is the XYZs of Money. This is the 3rd week, and we'll be covering today in our lesson how to start to build your real estate empire with buying your first property. Let's talk about starting your empire. And I want to start with, with why real estate? Why is real estate such a good thing, and why do people talk about it? Well, Here's, here's a few things that you need to write down. Okay, keep— put this in your notes. Number 1, real estate is one of the all-time best wealth-building assets. I read this report, I was just trying to get a little more caught up, and I read a report that said the thing like 70% of all the wealthy people have real estate as part of their portfolio. It is tremendous. Okay. Second reason is because people always need a place to live. People always need a place to live. So when you're investing in residential houses, it becomes something that's needed. Third, cash flow. So we're talking about monthly income, monthly cash flow that comes from your real estate. You don't get monthly cash flow from your stock portfolio, right? Investing in Apple or mutual funds. Doesn't pay you every month. You know, if you do have dividend-paying stocks, it's usually every quarter, but nothing like real estate. Okay, next is appreciation. Appreciation is an increase in value, which increases equity. So the value of your property goes up or appreciates, and that contributes to your net worth. Next is depreciation. Or tax benefits. This right here, folks, is probably one of the biggest unknowns to most new investors, but it is huge. So let me just quickly take a minute and explain to you what depreciation is. So, so basically what the government said is, hey, if you're a landlord, we need you because we, we need people providing housing for the rest of our citizens in our country. So if you do this, we're going to give you some tax breaks if you provide good housing for people. Okay, so, so what the government says is, hey, you buy this house. Okay, so let's say we buy this house across the street and, you know, it's like $200,000. Well, we know it's going to appreciate over time, but the government says on paper it's going to go down in value. And you'll be able to depreciate the entire $200,000. Over a period of 27.5 years. So, so whatever you paid for, you can depreciate it over 27.5 years. So if you took a house, $200,000 house, and I think the math works like this: $200,000 divided by 27.5, you come up with about $7,000 and some change. So that would be your depreciation for that first year. Okay, so that, that depreciation now is going to be a tax loss that you can use against your real estate income. So, so let's say you rented it out. And you rented out the house for $10,000 for that year. Tenant paid you $10,000. You have $7,000 of depreciation that can go against that rental income. So now your remaining Taxable income is only $3,000, not the $10,000. It is a phantom. There's nothing happening. There's nothing going on. It's what we call a phantom deduction that allows you to, to get a benefit and pay less taxes. Okay. And then of course you get write-offs and all the other things. So, so pretty much your, your rental income could be tax-free if you do it right. The, the next 2 is also very important is you can use leverage to acquire real estate. What that means, if you're new, leverage means you can borrow money, take a mortgage out on the property. And when you use leverage properly, you can increase your returns. And then lastly is a property can be passive. Passive means you don't have to work in it every day. You're not there at your property looking at it, servicing it every day. It's working for you every day. And especially if you bring in like a property manager Then you don't have to deal with the day-to-day. And for a handful of my properties, we, we manage it ourselves. And then we also have a property manager for our other properties. So those are the main benefits of real estate. There's more, but I don't have a lot of time to cover it all. I want to go into the 3 types of real estate. So write this down. Okay, here's the— here are the 3 types of real estate you need to be aware of. Number 1 is residential. These are single-family homes. These are condos, townhouses. Okay, anything that is 4 units or less. So if you have a fourplex, that would still be considered residential with regards to getting a loan on it, or a duplex, triplex. Those are all— excuse me— residential. The next type of property would be commercial. So commercial is anything to do with leasing or renting to businesses. So you're, you're talking about office, warehouse, strip malls, mall buildings, even multifamily units would be Considered— you're renting to people, but it will be commercial because of the way that they lend. Okay, so anything over 4 units would fall into the commercial lending department at a bank. So commercial, again, is another aspect. And then the third type of real estate is land, whether you do land for development. So you're buying land. I've done that where we buy land and we develop and build houses. All right. I got land that I hold. One of my buddies in Texas just bought like 100+ acres of ranch land, and then he leases it out to a rancher that they grow hay, that they— like high-end hay that they sell to racehorses. Like, it's like crazy cash flow. I was really jealous when he told me about it. So, um, all 3 of these have different lending requirements. Land is A little harder because the banks don't have cash flow to judge it. Commercial, I kind of like commercial. I just bought my first commercial property in 2019. And I actually like it. It's been good. The businesses pay a lot of this stuff. And then residential. So when we break it all down, because there's so many different ways to look at real estate, right? There's, there's for sale by owner real estate, there's foreclosures, there's short sales, there's retail, MLS properties, and there's So many ways to do it. I wanted to break it down into 2 very simple types of styles that you can, you can prioritize these. And number one is cash flow properties. Cash flow means we're buying the property for the cash flow, typically on a monthly basis. So rental properties, right? We're buying cash flow. It's not— we're not buying it because it looks beautiful. It's painted well, it has nice landscaping. We're buying it because it makes you money. Number 2, cash now properties. So cash now would be flips. So we're buying a property, we're rehabbing it, and we're flipping it for a profit. Or we're buying land, we're building a new house, and we're flipping. You can pretty much put a majority of your investing activity into these 2 categories. Now here's my suggestion. This is just a personal suggestion. This is not recommending that you do this, but I found it very beneficial to combine the 2 because ultimately you want to grow your portfolio of properties you own. Creates long-term wealth, stable cash flow for the most part, depending on your market, and it's a great asset to pass on. When you combine Cash flow with cash now properties, you can use the cash now flips to take these profits from the flip to use as down payments to now go pick up more rental properties to add to your portfolio. So that's a way, a strategy that you can use to accelerate your, your asset accumulation or your acquisition for properties by combining the two. Okay, now let's talk about how to make money because this is, this is what it really comes down to is how do we make money on real estate. So I've listed 5 different ways. Number 1, everybody knows rental income, or you're leasing a property to a business. Okay, so that monthly cash flow is probably the holy grail, right? That's what we look for. We're trying to— we all want to retire. And if you were on lesson number 1, I talked about your HEA number. Remember your HEA number? What does HEA stand for? Happily Ever After number. This is a monthly income that you will have in your retirement. Rental income should be a part of it, and it could be the biggest part of it. Why? Because I don't think for some of us that are younger we can necessarily count on Social Security. And most people, by research, you know, only have 11% saved up for retirement. So there's not a lot in their 401, their IRAs. And so rental income could make up a majority of their, their retirement income. Next is appreciation, right? Value is going up. You're creating net worth, you're creating opportunities to leverage off of it to buy more property. Third is wholesaling. So what is wholesaling? Wholesaling is when you find a property that you might not be able to acquire at that time and put into your portfolio, but you know other investors. So let's say you found a property that was— you got it for $100,000 and it could be flipped for $180,000. So you acquire that property and then you flip it or wholesale it to another investor or someone else for $120,000. You make a quick $20,000 and you do it with very little money out of your pocket. You can close and buy the property. And then that same day, turn around and go back to the escrow office and, and close on the flip, on the, on the wholesale side of things. So That, that is good if you can do it. It's, it's harder just because you gotta have access to people to flip it to and finding the deal and all that. So, but it is a way to make money. The 4th way is tax breaks, right? So tax breaks are a— the higher income you get, guys, you will start to realize that real estate is a great place to shelter income. Okay, and then lastly is ancillary ways to make money. For example, if you have a multifamily unit, you could— you can install washer and dryers, right, like coin-operated washer and dryers or snack machines that you could create some type of other revenue stream. So those are the 5. There's other ways to do it. But here's something that I learned that's been great for me. It's a very simple, simple analogy, but good houses in good neighborhoods equal good tenants. Okay, I learned that from a good friend of mine. He's a partner at One on One Financial. He wrote this book. It's called Building Wealth One House at a Time, became a bestseller. His name is John Schaub, and he taught me that through his book and in our personal interactions. Like, hey, Alan, and I've seen his houses. I flew to Florida to go meet with him, and he has great houses and good neighborhoods, and then he has these tenants that typically stay longer. And they pay a little higher rent because it's in a good neighborhood. And typically good houses in good neighborhoods, what? They appreciate more. So this is a really good general rule of thumb. To stick to when you're investing. Okay, good houses in good neighborhoods equals good tenants. So write that down. Now let's talk about finding a deal. How do you find a real estate deal? So we're going to go through some things here. First thing, again, write this down: problems equal profits. Right. As a real estate investor, a lot of times we're going to be problem solvers. So we're going to solve a problem for the seller. They may not want to be an investor anymore, landlord, a death in the family, something happened, estate problems. So they need to offload that problem, which is their property. And if you can help them solve that problem, they're going to trust you and you're going to be able to find profits in that problem. And then as an investor, you're, you're helping people to solve their problem. They need a place to live, a good place to live that will be safe. for their family in a good neighborhood, you'll be able to solve that problem for a renter. And so this is a good general rule of thumb to live by. Now, here are 6 ways to find a deal. Number 1 is what we call drive for dollars. So this is where you drive around your neighborhood. And, and you know how we get on autopilot when we're driving home from work or coming home and we, we leave work and then 30 minutes later we're at our house and like, how did we get here? We kind of forgot, we're just on autopilot. I suggest kind of changing it up. Drive around through streets that you may not typically go on, and then when you're driving, keep your eyes open. What are we looking for? Problems. We're trying to identify problems in neighborhoods. So we're looking for properties that may be run down. They may be in need of some major repair. The yard— that's a great sign if the yard is overgrown. grass and trees and bushes, that may be telling you something, right? Or you don't see anybody in there for a long time. What happened? Why is that house vacant? Is there some problem going on with the seller? So the best area to invest for, for new starters and new investors is typically in your neighborhood, if you can afford your neighborhood. So drive around, look for these properties. Okay. Number 2, realtors. And I put an S there because you should have multiple realtors that are sending you opportunities or deals. This is what we call deal flow. As an investor, you always know about deal flow. So write this down. I'm giving you keywords, folks, so you can put this in your repertoire. So when you're speaking to other investors and other bankers or Real estate people, they know that you know what you're talking about when you use the right words. Okay, so, so you want to create deal flow. And I typically don't just work with one realtor on finding deals. I have multiple realtors that send me deals and I tell them what I'm looking for. Right, I'm looking for this. I want a vacation rental in Salt Lake City, or I want this here. I'm looking for a single-family home that we can flip. And then they'll start to send you deals and you build these relationships with your realtors. They, they'll put you higher on that list and they've been a great source. I found deals from, from my realtors. They call me all the time. One of them was, I found this, this 20,000 square foot lot right across the street from the beach in Hawaii. And a realtor called me about it. And so I called my buddy and then he had found about it from another realtor. And so we ended up partnering together on it. Another source is friends and family. You see, your friends and family have different circles of influence. They live in different areas. And if you let them know, hey, if you ever come across a property that looks like it's a good deal, it's, you know, single-family home. You know, at least 3 bedrooms, 2 baths that's for sale and that has some problems, I'd be interested. So just pass their information over to me and I'd be happy to do it. And they know people, they have in-laws, they have other cousins, they are in other areas. So friends and family are always looking, especially when they can bring you a deal. Number 4, other investors. I've had other investors bring deals to me. We've done many deals with and partnered with other people. Especially those that I trust that have a proven track record. They have deals and they're looking for the same thing. And, you know, they're not competitors. So don't think of other investors as competitors, but think of them as potential partners and allies. You can join forces on certain things and pass things along. I do almost all of my real estate nowadays with me being so busy with One-on-One Financial. I do most of my deals with investors. Other investors to leverage my time. Number 5, online listings. This is probably one of the first things that you'll end up doing is looking online. There's many, many different resources. There's national websites like Zillow and Redfin you can find deals at, and then there's local websites, local realtors that post things. So this is a great way to find deals, creating deal flow. When I first started investing, I would spend an hour or 2, 3 times a week at night when the kids are asleep, I would look at deals online. And what this did for me and what it would do for you is if you do this over 3 to 6 months, and you spend that many hours, you start to become an expert in your area, in the cities that you're, you're, you're evaluating. Why? Because we're looking at properties. And over time, you can see what's selling and what's not, what the prices are, What's, what the rental income's like. And you can take all these numbers and start to run reports for yourself, start to get on an amortization calculator. So I would have websites up that I can look for deals, and I have amortization calculator pull up so I can run numbers to see if these are deals. I can go through many houses and properties without leaving my place. So that's a great place. And number Number 6 is marketing yourself. So you can get a website practically free or just use social media, use Instagram to build your investment site or Facebook, right? The business cards that you print, handing those out to people, flyers, mailers, there's so many different ways that you can market a property. And it'll be very, very beneficial for you. So definitely get that marketing going. Okay, so now that we find a deal, this is something that most new investors miss the point on. Okay. They are so worried about trying to find money and the structure for the deal that we just waste so much time. And by the time we get everything in order, the deal is Gone. The deal is gone. So here's one of the biggest tips that I'm going to give you today is lock up the deal first, or tie it up. What does this mean? So let's say you find a property and you already have an idea of the numbers. So in your head, you're calculating, you're like, oh, this looks good. Then you go online, do some things like, man, this, this could be a good deal. Talk to somebody that knows, realtor, run some numbers by a banker or whatever. And, you know, try to do that really quick. And then we go and lock up the deal, which means we put an offer in. We put an offer in with contingencies. Why do we do this? Because we can lock up the deal, tie it up, and then we could go figure out if it's going to work or not. And every experienced investor knows this. They do this. We do this all the time. Now, one of my partners and I, we did this with a property here in Utah, 5-acre lot that was zoned commercial. And this commercial lot, um, we— the only way we could make it work is if we could get it to, um, be able to have multifamily on it as well as commercial. So, we're gonna— there was a 7-Eleven, somebody bought the corner, 7-Eleven. So, we're gonna put up like 2 mini strip malls and then behind that wasn't gonna be ideal commercial. We weren't gonna be able to get a good rate for it. And so, we figured that multifamily would be good. If we get 80, 90 units, We could make the numbers work. We could pencil it out. And so, we put it under contract and we asked the seller for 60 days due diligence period with a 15-day extension. And so, they agreed to it and we put it under contract, got it locked up, and then we went to work. Then we started meeting with politicians. We met with bankers, we met with commercial real estate brokers to give us numbers on rents and if they can start pre-marketing. We started doing all of our work during the due diligence period. And we had that extension. And so what happened was the numbers look great and we had preliminary approvals, but then when we went back during the, during the period, The evaluation period, the politicians changed their mind. There was new ones actually that came in, said, no, we're not— we need more commercial, we're not going to approve residential. So it just didn't work. So we, we, we got out of the contract and we didn't have to put any money in. So lock up the deal and then do your due diligence. Okay, next. We're going to find the money. And here's 5 ways to find money. Number 1 is the most obvious. And probably the cheapest, not the most convenient. Banks are crazy sometimes. There's some good banks, some, you know, crazy ones, but bank loans typically tend to be the cheapest. It's a little harder to get because they look at your, your, your personal finances, your credit, and your income to be able to judge you if you're going to be able to make it, make the payment on it or not. Okay. Um, Next is other properties. If you have a property that you own, and if you're on 101 Financial and you paid it off quick or you paid it down, you would have availability that you can go and leverage that property to pull money out of it to use as down payments on other properties. I've done this many times. It's a great way to be able to accelerate your acquisition without having to wait to rebuild your funds, right? Let's, let's let the The appreciation and the, the forced debt paydown to create equity, right? Property value is going up and we're in here paying it down. The difference between the value and the balance is equity, which you can leverage to go buy more property. Third is seller financing, one of my favorite things to do as well. Seller financing— what is this? Well, this is when you get the seller of the property to agree to finance some or all of the purchase price. And we've done this. I've done this a couple of different ways. I got them to finance the whole thing, and we got them to finance part of the property. Why would we do this? Why would we get seller financing? Well, there's several reasons. Number one is that typically we don't need— they're not checking your credit score, right? They're not checking your credit and your income and all that stuff. So it's a lot easier to transact, and it frees up your financial capability, and it doesn't tie it up in a mortgage, but it allows you to go get more money to do the rehab. Or if you're buying— and I've done this with, with land and houses— and so instead of tying up all your money in loans, you have the financial capability because the seller's financing, you're just making payments. To go be able to do either more deals or to get the deal to move forward by rehabbing it and getting money that way. Number 4, other investors. So there may be other investors that don't want to do the hard work or find a deal or be involved in the project, but they want to invest in you. They trust you that you are going to give them a good return. And you'll pay them an interest rate on it, you know, an interest payment on that. Other investors are a great source of money. And then number 5 is hard money. What is hard money? Well, hard money is similar to a bank loan. They're not banks. They're lenders, but they— so they don't have all the scrutiny like a bank does. They're not necessarily going to check your credit. Hard money lenders really rely on the property itself to determine what they're going to do. Now, the, the— so that makes it easier. The downside is the interest rate is typically higher and they charge points. It's closing costs to be able to buy a property. So let's say you bought a $100,000 property, you get hard money. Sometimes they'll give you 80, 90, 100% of that. Just depends on the property, right? But you have to pay a little higher rate than you would get from the bank, and you have to pay points. So 1 point is 1% of the actual loan amount that you have to pay upfront. And that's how they make their money. And then they turn around, they sell those, they package those loans and sell it off to other investors. So there is a place and there is a time for hard money. And in In all of my experience, I've used all 5 of these things, and some of them I've done deals where we have 3 of them. So one deal we had seller financing, so it was a $900,000 deal for a piece of land that we chopped up, and then we got seller financing for $200,000 of it, so part of it, and that $200,000 was going to be paid back after we sold the first house. And there was no interest on that. So that was really nice. So we got $200,000 by the seller to hold back contingent upon us selling the first house of the 4. We also had investors that we were paying an interest rate on. And we also brought in some hard money to, to cover some gaps. So that's a way to, to have access to money. Now save your questions because I'll come back to those. A little bit, but I want to go on to another very important topic here. Okay, price, structure, or both. So I'm talking about purchase price, structure of the deal, or combining both together. So what do I mean? Okay, so I'm going to give you an example. We had this opportunity— I had this opportunity to buy a property. A guy in my community needed to sell His house. He had a lot with 2 houses on it, and they needed to get— they needed to have somebody come in, fix their problem. You know, unfortunately, the lot— it was one lot, one TMK, had 2 houses. One house was a complete teardown, uninhabitable. Unfortunately, the bank is not going to lend to somebody because there's too much risk. So they needed somebody like myself that would come in with cash or creativity to get the deal done. So So, well, great, great place. I like the city that it's in, like the neighborhood. What do you want for it? Well, I need $1 million. Like, well, you need $1 million? Oh, okay. Well, let me, let me go check this out. Let me figure this out. So went, penciled it out, came back with an offer price of $860,000. So I like around $250,000 less than he was wanting. So I need $1 million. Like, why do you need $1 million? I just need it. It's okay. Well, look, I— that's not gonna work for me at this. So the way we can make it work is that we change the structure. So, so look, I'll give you $960,000 instead of the million, but we need to change the structure. So I'm gonna give you $15,000 down. And I'll give you a monthly payment on that. And guess what? Took it. I actually offered $5,000 down and monthly payments till we get the houses built and sold. And I said, well, you know what, if you give me $15,000 now, I'll take the deal. And there we go. So price structure, or do both. Okay. Now let's talk about assembling a team to help you to Cover the gaps that you might not be skilled in. So here's a list of 10 people that I would suggest you have on your team. A realtor, good realtor or realtors. You need a mortgage lender, loan officer, and a banker. And those are 2 good people to have on your team. An escrow agent. So escrow is a person like that, that middleman. That works between the seller and the buyer, and they handle all the transactions. And if you start to do more properties, you want to get to know these escrow agents because they give discounts to real estate investors because you keep coming back. Number 4 is home inspector. Use these home inspectors to cover your butt. If there's anything missing from the house, from the deal, there's something that needs to be repaired, the roof or pipes or whatever, they can catch it. And it's— it is going to be a little bit of a cost, but it's not that bad. And they typically find things. And when they find things wrong, you can take that home inspection and go back to the seller and say, look, here's what we found, and it's going to cost this much. So they can take that off the price, or they go fix it or take it off the price. A contractor is, is, is great because you may need repairs, you may need to build a new place. Insurance agent, we need to get homeowners insurance on your new property. Your property or your new build, and these insurance agents can help you come up with the best solution. Property managers can be good. There's some sleazy ones and there's some good ones. You just got to ask for referrals. But these property managers— I suggest you try your manager property on your own if you can, to learn the ropes. And then eventually, to leverage your time, you're gonna want to find a good property manager. They're usually around that 7 to 10% range. CPA. So now you get into the next level of taxes. Always consult your CPA. If I buy this, what impact does that have on my taxes? Okay, uh, number 9, attorney. And these are okay. I mean, I don't really— I've maybe a couple times, but most transactions I don't use them. But they're good to have just in case you come up against a situation. Okay, and then lastly is a mentor. Someone that can help guide you through, through situations that you may have never been through before and give you that motivation, inspiration that you need to continue going on as an investor. So that's the team. Now, now it's time to make an offer. Okay. So when you make an offer, you're going to need to run your numbers and check them twice, right? You can look at everything— purchase price, rehab, you know, closing costs, carrying costs. I mean, everything, okay? And then make multiple offers, right? Just, just don't get stuck on one deal. You gotta have that deal flow to keep, you know, having these multiple offers. Use contingencies. Remember I talked about contingencies or locking up the deal, tying it up? Here's how you protect your Your earnest money, right? You might have put $5,000 in or $1,000 into earnest money to show them you're serious. But contingencies are things like subject to in your offer, your contract, a backdoor way of getting out of a deal after we do our due diligence, right? We're gonna do our due diligence, we're gonna figure it out. Is it worth it? If it's not, kicking the contingencies, thank you very much, and you're out. And you get your money back. Okay, next, don't fall in love. And I'm not saying with your spouse or your partner, I'm saying with the property. Fall in love with the numbers and the cash flow, but not the property itself. Because the, the reason we don't want to do this, because we don't want to make decisions that are based on emotions. We don't want to make a decision like, hey, this is a, this is a beautiful property. Okay. Next is solve the owner's problem. As a real estate investor, think about this. You are really solving a problem. Solving a problem for that owner that needs to get rid of something, and you're solving a problem for the tenant. They need a place to live. Always structure deals in a win-win. We don't ever want to take advantage of people. We, we don't do that. I don't do that. We're not trying to like get all the money we can from a deal. Why? Because this is not your last deal. We're not trying to make all the money we can on one deal. Just doesn't work that way because we're on a financial journey. This is a long process and you don't want to mess people over because it's going to come back to you. So, so do it right. Create win-win situations, right? You win because I fix your problem. I win because I create a profit. And And, and then lastly is a 20% rule. So depending on the market and the timing of what's happening in the economy, I typically use a 20% discount rule off of the listing price, right? Because everybody always jacks the price up. And in general, this is just general rule, right? 20% off. Can we make it work? Because there's other things that pop up and other expenses, things that we don't account for. And we try to catch all that with a 20% rule. Okay, now next, you're gonna get rejected offers. It's gonna happen. If you're not getting rejected offers, that means you're not putting in enough offers. What do you do when you get a rejection? 2 things. If you like the property and the deal still, then you make a counteroffer. So the example I shared with you earlier, Alan, I need a million dollars. I can't give you a million dollars. I need a million dollars. It's not going to work for me. Counter. Change the deal and it can work. Sometimes your counters don't work. Sometimes people don't even respond to you because you give them an offer so low. I don't care. I don't— that doesn't bother me. Okay, we are looking for the best opportunity, and if it doesn't happen Next, move on. We're going— I'll give you a perfect example. Last week, an owner of a gym in my neighborhood called me and said, hey, Alan, you're the first person I'm calling. I'm interested. I want to see if you're interested in buying my gym. So, well, you know, I mean, I'll always take a look. So, so send me the details. And in the meantime, my, my commercial real estate broker, his name's Eric. Good friend of mine. I had Eric run numbers on it. Hey, can you run some numbers on this? And he's like, well, Alan, if you're looking at this, why don't you look at this gym? Here's, here's some numbers. And he's texting me pictures. And in about 20 minutes, we made up— we could figure out this is a 35,000 square foot gym and it did this. It's brand new in this area, blah, blah, blah. We started talking about all these numbers. So I said, okay, let's lock it up. Like I said earlier, exactly what I am teaching you is what I do. And I did this last night. So, okay, Eric, let's go lock it up. Let's try to get it at this price. It was $3.5 million that they were asking for. So let's try to get it at this, but ask them if they will seller finance it. And that's the only way I'm doing this deal, if they'll seller finance it. So let them know that. So he gets a hold of the owner, calls me that night, said, hey, Alan, the seller finance is not going to work out. They're too deep in debt. They're like $3.2 million in loans and this. And so, so the financing is not going to work out. So I said, okay, thanks. Next. Forgot about it. Just moved on. That's what investors do. We analyze deals quickly. We try to tie it up. If it doesn't work, we move on. Okay, now next, what do you do when you get an accepted offer? Now we start to go to work and we do our due diligence. This is where we start to make sure the numbers are all adding up. We're researching, we're talking to the lender or investors to make sure that they're all good. We're putting things into place. We're ordering a home inspection. Financing's getting in order. We're working with contractors to get bids on replacing carpet, doing paint, doing work extensions, whatever it is. We're getting bids so we get our numbers tight. Okay, also during this period, once you're— you got an acceptance, typically you have 30 to 45 days of an evaluation period before you can During that time, you can still get out. Okay, so during this time, I've done this with many properties, we start to market it like, hey, okay, we got it under contract, we got an accepted offer. We, we are going to start advertising online for rent and to see what it is. So we might be able to, in 30 days, see if it rents at this number. And if it doesn't, it doesn't rent at that number that we were thinking, then the market is softer than we We're projecting for us, which, you know, might not be a good deal. Well, we're still in our inspection phase, we can use a subject-to and get out. And so you can use this for flips or rentals. And then lastly, you can use that extension. So like I said, with the 5-acre lot that we're trying to do multifamily and commercial on, we had 60 days plus a 15-day extension. So we We had a long period of time to evaluate the deal. Okay, so that's an accepted offer. Questions? Foreclosures? Yeah, I mean, foreclosures are going to happen more than they are right now. I mean, it's a great way to do it, but it requires a certain skill set and knowledge. And so if you, if you can get knowledgeable in that area, it's a great way to go, or work with investors or other bankers, other people that do that, you know, great thing. Attorney specific to real estate? Yes, you want, you want an attorney that understands real estate contract law, that has done real estate transactions. You don't want a bankruptcy attorney or a, or like a divorce attorney to be handling your real estate deals. Okay. Explain the 20% rule. This is for Jeanette and Dustin. So this is general rule of thumb, just off the top. I said, okay, I'm gonna take 20% off the top. Now it really depends on if the market's hot and they're getting multiple offers, that obviously is not going to work. And so, but in, in, in a regular market, if you see a house for, you know, $100,000 I just say, you know, $80,000. I'm gonna take $20,000 off to cover any contingencies and anything else. And, you know, they knowing that they probably jacked the price up as well. So this is just a very simple general rule of thumb of what I would discount that property before doing all the due diligence. Okay. How do we lock up the deal? What do we need to lock up the deal? You need to put an offer in. So sending a formal offer in at a certain price with the contingencies or subject to, right? I offer to buy your house for $100,000 subject to me getting approved for a loan and subject to me inspecting the property. And those 2 things can get you— because usually you got to put— you put the offer in with $1,000 earnest money and that locks it up, right? It's going under contract. Now it's under contract, you have that inspection period or due diligence period of 30, 45, 60 days to get everything in line to make sure it works. That's, that's, that's kind of what we do. We tie up a lot of property, we lock up properties if we can, and then we go do due diligence and makes it easy for you. Okay. Charlene, who was the author of Building Wealth One House at a Time. Schaub, S-C-H-A-U-B. John Schaub, great book. He's old school guy, been in investing for 40 years, just tells it like it is. Love him. And we're gonna get him to speak at one of our events here. How do you pay down your mortgage, allowing for more equity in home if you can pay more each month? Well, Carrie, you just happen to be speaking to the expert in paying off mortgages Very fast, in 5 to 7 years. We have— I have a course called the 101 Financial Course that helps people to save $150,000 to $300,000 in interest. And we do that by incorporating multiple strategies. We use— we convert— one of the strategies, we convert amortized interest to simple interest. That has a huge impact. Another thing that we do is we, we show our students how to set up debt checking accounts, not conventional accounts, so we can put our whole paycheck against our debt, which affects the daily balance, which saves us interest because the banks charge us interest every day. Like, we are the best at this. So Carrie, hit me up, DM me, email me, alan@101financial.com. I'll send you a video. To take a look at, or write, write this video down. Okay, very easy. 101financial.com/video. I'm gonna type that in the chat. I explain in there how to do it. Okay. Do these rules apply for investment properties outside the US? Yeah, these are general rule of thumb. Now contracts will be different. And financing will be different, but in general, the, the concepts work for outside the US. Would you recommend using a HELOC to acquire real estate? That is a good tool if you understand how to use it. You can leverage that to acquire properties, most likely depending on where you're buying. Sometimes you can buy it outright or use it to Make down payments out of. Very good. May, if you're a first-time homeowner, can you use that property for rental, or is it true that you have to live in a property for— You know, it depends. So, so if you're in like a new subdivision, they might have stipulations in the HOA, the homeowners association, that you have to live here for 2 years before you can rent it. But that's typically new properties. Most communities don't have that. But check your HOA, and that's how a lot of people do. I did that. I took my first property and I rented it out when I moved into my second property. It's a really great way to break into, um, to the real estate game. Okay, um, uh, can you hold up your book that you showed earlier? Okay. This is gonna be recorded. Uh, getting into condo real estate, is that good? HOAs are usually pretty ridiculous, but if the numbers work— I have a condo that just kills it. Like, we make a lot of money. Part of it is because it's in a good area, and the other part is because I paid off the mortgage. Um, so condos are good, but just run your numbers. What Once you purchase your first investment property under conventional mortgage, is there a particular timeframe that you need to wait before you purchase? No, there's no timeframe that you gotta wait to buy another property. I did my second property in like 6 months after I bought the first property. Okay. Now let me, let me give you your homework and I'll come back to answer some of these questions. Okay. So So here's your homework, and, and I'm going to give a prize to a winner next week. Okay, so what I want you to do, number one, is to pick a property in your area, and it could be any property that you just want to see, anything for sale. And this isn't necessarily something you're going to buy. I just want you to go through the motions. Okay, so pick a property in your neighborhood, and I want you to find a listing price. Okay. Then the PITI. Do you know what PITI stands for? Principal, interest, taxes, and insurance. Okay, that's, that's PITI. And, um, I mean, I need somebody out there. Okay, then we're going to find HOAs and any other expenses associated with that home to get a really close, accurate monthly cost on this. Okay, so we're going to take that listing price and we're going to find what the mortgage payment is, the taxes and insurance, HOAs. And so let's say it comes out to $2,000 a month. Then we're going to find out what the rental is like. How much can we rent this property out for? And then we'll see, are we going to make money or we're going to lose money? And I don't care if you're making money or losing money on this one because this is just— we're playing with paper, paper money. We're doing an evaluation. This is taking you through an example. So what is your cash flow? Now I want you to take this property, print it out, okay, with the picture of the property and your numbers, okay? Price, mortgage payment, any other expenses, and the rental income. And show me if you're positive or negative. And I want you to take that and tag me on Facebook and Instagram, okay? My, my, um, my Instagram is @alan_akina. So I get somebody to type that in, maybe Mark or one of our guys to type Alan_Akina. That's my Instagram, and my Facebook is 101 CEO. Post that on there, and my assistants— I have 2 assistants that will pick the winner for me. Okay, and I will give you stock. Okay, so we're going to give you a gift card to buy stock. With one of our, our go-to investment firms' stockpiles. I'm gonna give you stock, not stuff. Okay. And that's your homework next week. Okay, next week, Lesson 4, we're going into building paper wealth. We're going to talk about IRAs, traditional IRAs, Roth IRAs, and SEP IRAs for you business owners. And how you can use these 3 things to build your paper asset wealth. And then the 5th lesson is going to be on protecting your wealth, bulletproof protection of your wealth, your estate plan. Okay. Also, if you haven't done this yet, go to 101financial.com/xyz. Make sure you're on the list to get this. If you got the Zoom link, you're probably on that list. Because I'm going to do one extra. I'm going to do a 6th class, but it's only going to be announced via email. Okay, and everyone that's on that list is going to be invited to a private, a private Zoom link. And I'm doing an unannounced, but this is going to be a fantastic class. Okay. This will probably be a 2-hour class. It's not going to— it will be at a random time. Might be in the evening, might be in the day. Might be on a weekend, um, but it'll be about 2 hours and it'll be fantastic. Number 6, to kind of wrap up the XYZs, but you got to be on that list to get it, to get the email. Okay, um, so with that being said, let me take a couple more questions and, um, we will wrap up here. Okay. Do you need a team in every area that you're looking to invest in, or can be one team for all? Typically you want experts in the other areas. Now I have Some of my students that live in Hawaii, or they live in Utah, or Las Vegas, Nevada, and the properties are like ridiculous and they're not going to make a profit. So they're looking and they're actually buying through our Wealth Academy. So we have a program called Wealth Academy where we help find properties, paper assets, estate plans for our, our students, and they're buying properties in Memphis, Tennessee. I've seen Indianapolis, Indiana, Orlando, Florida, and they're cash flowing like some of us just make two three hundred dollars a month on the positive cash flow. And these properties range anywhere between $120,000, $160,000. So people in Hawaii are like, "Well, $120,000, $150,000—that's pretty cheap." So there are opportunities for that as well. Now, Mark, specific buying criteria, you know, rentals, typical general rule of thumb is 3-bedroom, 2-bath. Yeah, no pool, but depends on your area, you know, and, and then the price will also depend on the area that you're in. Single-family homes versus condos? Depends, really depends on the market. But in general, single-family homes. The, the, the, those depreciation tax breaks that we take substantially lower your, your rental income when you're applying for with the lenders. So if you're trying to use a rental income to increase your debt-to-income ratio, it, it, it could, it could have an effect on it. Yeah, it definitely could. Okay, thanks for posting that, guys. How could I shop around HELOC when you're not residing in a home to replace rent? Just call different banks. So you can shop your, your loan around, your HELOC, your mortgage. Just call different banks in the area that your house is in and tell them what you're trying to do. And if it's a rental property, just gotta let them know that it's a rental property. And they'll— some, some will try to work with you on it. And some lenders don't give HELOCs on rental properties, some do, just depending on where you live. What is the advantage to living in your home first? So living in your home first allows you to get established, get your foot in the door. I think it's a great first step to building wealth. But there's also tax advantages. Like if you live in the house, like 2 of the Past 5 years and you sell it, you can, you can take tax-free out of the house if you're single. Up to $250,000 tax-free on the net proceeds. If you are married filing jointly, that could be up to $500,000 you can take out tax-free if you sell the house. And you have to have lived in the house 2 of the last 5 years, I believe. I would check with the tax person for that. But yeah, a house is— getting your first house is like the first step. What about purchasing a house? April said, what about purchasing a house and put it on Airbnb? Yeah, vacation rentals. I love it. I have vacation rentals and they make money if it's in the right area and you market it right. Could be very, very good. Do you need to file your profit on your tax returns? Yes, you do. You need to file your, your return when you flip, because when you flip it, you're going to get from the escrow agency 1099. So it's going to be reported. So it'll definitely be there. Sandra, run the numbers. Are you using any specific tools? No, I'm just using amortization calculators and any specific numbers that I get from a realtor. Or online, and I'm just looking at— I add up all the expenses for the house that I know, like you said, the mortgage, taxes, insurance, all that stuff, HOAs, property management, maintenance. And then I look at the rental income, the high and the low, and I take an average to run the numbers to see if it'll make any money. And that's just, you know, real quick numbers to kind of get an idea. Melanie, what is PITI? Principal, interest, taxes, and insurance. So that's your typical payment. Your monthly payment for your mortgage includes principal and interest and escrow. The escrow part is the taxes and insurance. So PITI. Run numbers based on what down payment? Typically 20 Maybe 30%, depending on the market. General rule of thumb is 20% down when buying a property. Thanks, Sean. Thank you, Sean. Wow, you're ahead. Sean answered the question. Good job, buddy. Um, wow. Okay. So, um, I'm gonna answer these last couple questions and then we'll wrap up. So what is the minimum credit score you need to get a loan from a bank? Wow, once you start getting under 680, it gets harder. It gets a little harder. Rates go up, fees go up, and the amount of banks start to shrink, especially now with the economy. The banks are just tightening up. So hopefully one day, one on, we can open up our own bank. I don't know, would you guys like that if we'll put up our own bank one day? So 680 and under is, is gonna be tough, but once you start to get into 700s, then you're, you're gonna be, you know, a lot better shape. Okay. Mm-hmm. Let's see, what type of insurance do you need to have on rentals? So you need homeowner's insurance for sure, and then I would get maybe some liability, or we call it umbrella Umbrella insurance. So that's like umbrella is— yeah, it's like it protects you over and above any of your homeowner's insurance. So definitely get that. HELOC, home equity line of credit. Sean, you're the man. Okay, what type of margins do you usually look for when searching for a rental property? Yeah, so I typically don't like to make less than a couple hundred dollars a month, and if it's that low, then I'm looking for appreciation. But it's hard to find. But I think at the beginning, I was just looking for a couple hundred bucks. If it was positive cash flow, I could make it work, get going, then that was a good thing for me. So, okay, good. Um, do you have a plan for having class for VA focus at all? You know what, Piper, I, I don't. But if you get access to VA loans, I think you can get those every 2 years. And from what I understand, I, I talked to several mortgage brokers and they for the most part think VA loans are some of the best to get. If you can use that, leverage that to buy property every 2 years with that, man, You know, go for it. Absolutely, you know, go for it. Those are great loans, absolutely great loans. So with that being said, I, I want to thank all of you for being on today. What a great, what a great session. We went over an hour. I'm sorry, it was a lot of information, but I hope you guys get some value out of the class today. Was it, was Was it worth it? You got your money's worth? How much did you pay to get on here today as a member? Free 99. I, I appreciate it. I had— I have fun teaching. I mean, this is over 2 hours straight, but I love it. I hope we helped you. I hope I inspired you to pursue more education. Financial education, arm yourself with knowledge, get smart, get money smart. And these, these classes that I'm doing is just to help get you taking that right step and moving forward. And if there's anything we can do, we're here to help. Like I said, we're one of the best, most trustworthy out there in the world of personal finance. So shoot me a message, follow me on Instagram or on Facebook, and you can message me there or email me, and we'd be happy to help you. Happy, happy, happy to help you. So thank you again, guys. God bless you. Have an outstanding rest of your week. See you soon. Thank you.