How To Make Money On Your Rentals In Multiple Ways | Real Estate Investing | Freedom Vlog | EP. 65

What's up, Freedom fans? Welcome back. This is vlog number 65. 65. Aaron Davis, CEO of the Freedom Real Estate Family Companies, here with Chris Sonino, property manager extraordinaire, director of property management and all kinds of other stuff as well. All sorts of stuff.

Yeah.

Yeah. So we're going to talk about why cap rates aren't everything. Right? Right. Yeah. Too much hype about cap rates. I mean, they matter. Yeah.

We talk about overrated. Underrated or just the right amount of rated. I'm a little bit leaning toward overrated.

Cap rates are overrated.

They're just a little overrated. Especially with an inflated market like we have right now, or everything is. Valuation of pricing is a little bit crazy and possibly unrealistic. I think we could argue. So I think you brought me in here because for our investors, rent rate matters. Right.

So we're probably going to talk about.

That a little bit more. I think rent rate's probably more important than straight cap rate calculations.

Sometimes I might lean toward agreeing that maybe that cap rate, if you could only look at one thing right, might be the most important thing. But there's a big difference between 51 and 99% of the variables. You know what I mean? Right, exactly. So, you know, I don't necessarily think it's unimportant. I think it's maybe the most important. But that doesn't mean it's everything correct. I don't even think it's enough to inform whether it's a good decision. Goodbye that person, not a goodbye. So there's a lot of other things I was talking to, I was talking to a friend, local guy who invests in more like a class properties. They don't, they don't cash flow really well. No, they don't cash flow really well at all. But he loves managing in himself and that it's real low maintenance. Right. He's all about that. Right. And so he's got a couple of properties that are kind of in that a class. The cash flow is kind of garbage. Cap rates not very good. But for him it makes a lot of sense. It's about, for him, he's. He's more enjoying the speculation of, you know, the appreciation of the property. Correct. What's going to happen in that neighborhood. Right.

And cap rate isn't always taking account those things.

That's exactly right.

And also some of our, some of our products even like cap rates, not as attractive because, you know, it needs a full rehab. And we're talking about a potential inevitable thing potentially right. Not necessarily the real data as of today. So yeah, I think we'll get into deeper discussions.

Yeah, that looks like.

But yeah, straight. This is the cap rate shouldn't be the end all, buy all decision on whether or not you should buy something.

Quality of the renovation is a big deal too. So like, even if something's fully renovated, but it's kind of garbage, or it's fully renovated and it's a really good quality and you bought the warranty and you know what I mean.

Right.

Those are, those are a bunch of different variables that matter a lot too. Right. And so the, you know, taxes come into play and all that kind of stuff in your cash flow. But there's just, there's a, there's a bunch of different things. The cash is another important point. Right. Like what's the cash demand to get into that deal? Right. Cash. Cash on cash is another important, I would say right up there. And that's, you know, the top of.

The list as far as important variables.

You should be looking at as well. Yeah.

And then I think we'll also talk a little bit about the 1% rule, what that is. It's kind of, kind of a base of how we kind of like straight line estimate, strictly estimate what rent value should be. But I got a couple examples of like when that doesn't always work. So we have to kind of adjust and tweak those numbers a little bit. But for the longest time, like the 1% rule was like an investor's bread and butter on what to pass on versus what to dive deeper in. And I, I feel like in the conversations we've had with investors recently that that's not, that's turning a page a little bit. That may not be the surest way to tell sometimes that the numbers are right. You have to dive in and do some due diligence and figure out, look at cap rate, look at cash on cash, look at several other variables.

Yep. Which we'll talk about some of these when we get into our, the podcast. It might be good for us to dive a little deeper into like defining some of these things.

Right.

I know some of our listeners are more savvy than others, but are more kind of entry level investors or whatever might, might like understand the difference between cap rate and cash on cash. So. Right, we'll dig into that a little bit. We have a more lengthy conversation in the podcast. Right, yeah, absolutely. Okay, cool. Well, thank you, freedom fans. That's it for podcast or I'm sorry, vlog number 65. Yeah, we'll talk more about these subjects during the podcast when we kind of get into why cap rates aren't everything. All right, and as always, invest smart and live happy. Thank you.

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