2: Wealthbuilding Tip – Rental Property Size Matters

Welcome to the Purpose Driven Real Estate podcast. This is where passion meets purpose in an ever changing real estate market. I'm your host, Steve Valentine, former real estate agent turned real estate entrepreneur, speaker and guide to all things real estate. And this is my co host, Paige Tons, former D1 college athlete turned real estate adultrepreneur. Whether you work in the industry or you are a consumer of real estate, with each episode we intend to raise the bar in our industry and show you the purpose behind every piece of real estate in your life. What's up, Ms. Paige?

What is up?

How's everybody doing today?

Well, it's just me, but I'm doing pretty good.

Well, what about everybody else listening? You may not be able to respond, but forget they're out there. Yeah, remember they're out there. So what's going on? What are we chatting about today?

We are going to give a wealth building tip.

Ah, wealth building tips and tricks. Right. One of our fun things to do.

Yes.

All right, so what's the, what's the tip today?

So the question that is going to lead to or the tip is why would you buy a 1200 square foot rental versus a 3000 square foot rental?

All right, so one of those, that tip is real simple. So we start looking at how to blueprint somebody's investment strategy and you start looking at the difference between 1200 square feet and 3000 square feet. One of the differences is going to be price, obviously. But if you put it strategy wise, like here in Phoenix, you look at a 3,000 square foot house in Buckeye might be the same price as a 1200 square foot house in Phoenix. So when you look at the tip, 3,000 square feet typically is going to have two AC units. Right. So now you have double whammy. So it's one more piece of. Yeah, double whammy. It's one more.

That's not a fun whammy either.

No, it's not. In fact, I just, you know, the. I just had to replace. I got the email on Friday that we just had to replace an AC unit. 5,600 bucks. Sucks. But that is part of owning rental properties, being prepared for things like that. But you know, I only have to replace that unit once. On that 1200 square foot house versus 3000 square feet. You also have the differences in your maintenance upkeep and every time that house turns. So think about this. It's. Let's say it costs a dollar a square foot for paint. Well, every time a 3,000 square foot house turns $3,000 worth of paint plus carpet, plus flooring. Those types of pieces where a lot of people don't think, they think that, well, maybe I'm gonna get more money for rent because it's bigger, but the cost in the long term is actually more. So we always encourage our clients to stay with something that's typically under the 2000 square foot mark, so that you're typically running with one AC unit. Sometimes even looking at single level is a little bit better when it comes down to it. But definitely the smaller homes, you're not getting the advantage of a little bit more rent on a bigger house.

There's the kicker.

Yeah, there's the kicker. So the difference is, is it gonna.

Make me more money?

Right. And it really is not, not in the long run. When you look at. It's kind of like the client we were with last week, where you look at the difference between buying a $200,000 house and a $300,000 house, depending on, you know, for instance, versus Scottsdale versus Glendale. Well, that hundred thousand dollar difference, if you equate that to the amount of rent differentia differential, it's not getting you as much money just because it's a higher price point. So you just kind of have to keep those in mind when you're going through that. And it's really one of the strategies that we go through. So the tip is, if you're going to invest in real estate, really look at the size, location and price as it pertains to the amount of rents that you're going to collect on that.

Got it. So can you still buy a $3,000 square foot rental?

$3,000 square foot rental.

3000 square. I did say that. A 3000 square foot rental.

Yeah, absolutely. So a 3000 square foot rental may be a difference in. If you're going to do something that's a vacation rental, that may be. And we'll talk about a vacation rental. Maybe another episode as far as that tip and trick, because we do have several of those. But yeah, I mean, you can. You just have to be prepared for the fact that it's not going to generate more revenue and it's going to cost you more money over time. So if you're really looking for that strategy, don't let anybody sell you on. Well, it's a bigger house, you're going to get more money out of it. You can put bigger families in it, those types of things. You just don't want to go through that process and learn the hard way. You know, this actually came about experience wise From a client that we did back in 2017 where we did sell his 4,000 square foot square foot house in Buckeye in order to trade it in for a 1300 square foot house in Glendale, because he was getting $1600 a month in Buckeye for a 4000 square foot house, which, by the way, when the tenant left, it cost him nearly $9,000 to renovate and repair after the tenant left. Now he's in.

It's a lot of carpet.

Yeah, it's a lot of carpet. It's a lot of paint, a lot of wear and tear. And we put him into a 1200 square foot house in Glendale that rents for $1300 a month. So you see the difference.

And even more ideally, well, he didn't do this, but if you had someone in a similar situation, you could go from that 4,000 square foot house and put the money that you get from that one into two smaller houses because the price point is a little bit lower, you get double the amount of investment.

Well, you can split when it comes down to it. So now you make a good point there, is that you say that particular house, that 4,000 square foot house in Buckeye sold, I think for about 250. And so if you were gonna do cash on cash basis or if you were loans, you could take that and look at, well, maybe 250. Maybe I put a little bit more money in and I go in for $250,000 homes. And you're gonna get 13 or $1,400 a month. So you're almost doubling your income with the same amount of cash or leverage, just depending on how you split it and how you work it.

Right. Awesome. So to wrap this one up, what is the ultimate reason for buying a 1200 square foot rental versus a 3000 square foot rental? And how do the listener. How do our listeners get guidance to this?

Okay, so at the Valentine Group, we do do a wealth building program that can be walked through that'll give, you know, similar tips and tricks like this. If they're not in Phoenix and they want to be hooked up with somebody outside, they can email us and we can refer them to one of our trusted partners somewh the country. The biggest reason for this is the long term plan is you're saving money as far as cash outlay every time a tenant turns. So if you think about, again, 1200 square feet and we just use the 1200 square foot as an example, but you think about a smaller 1800. Right. Nobody wants to live in 1800. Maybe it's a one bedroom, right? Maybe it's one bedroom. Okay.

Or like a condo or a little townhouse or something.

So what you really want to look for is just over time. So if we did a comparison, let's just say 10 years, you own that property. The same two properties, one's 3000 square feet, one's 1200 square feet. If the tenant turns and it needs paint and carpet. Let's just take those two things.

Right.

Every two years. And you have to replace an AC unit in the bigger house. Both units in that 10 year time period. Your cost every time it turns. So let's just say $2,400 every time it turns on the 1200 square foot house. And it does it five times during that 10 years. And one AC unit. So you're talking about 10 grand, 12 grand. $17,000 in cash outlay over that 10 year period of time. Okay. Now let's take the 3,000 square foot house. It does the same thing. Okay. It's $6,000. Same kind of scenario every two years for five times five times 6,000. It's 30 grand already. Plus two ACE units. It's 40 grand in outlay.

That's over double.

Well, it's. Yeah, it's almost triple the amount. Just because it's a bigger home. Now here's the other kicker. Let's say you get, you know, let's just do easy numbers. Let's say you get $1,000 a month for rent over that 10 year time period. Right. So $12,000 a year in income.

Yeah.

And the other one on 3000 square foot house, you're getting $1400. So you're getting an extra, what is that, 12? An extra $4800 a year in income. It's not going to cover the outlay over time.

Right.

So that's why we totally recommend for our clients to stay with the smaller, the smaller homes. Preferably one AC unit. Preferably no pool. Some people do like pools. Again, it depends on the investment type. Just because of the cash outlay over time.

Got it.

So that's today's wealth building investment tip and trick. We hope you guys enjoyed it. And if you're looking for any guidance on that, please follow us on social media. We do have regular investment opportunities when it comes down to purchasing rental properties. If you're new to the game and you're thinking about investing in real estate, we'd love to talk with you about it. Or you can subscribe to us for our wealth building tips and tricks. And make sure you follow us both on social media. If you're a first timer to this podcast, make sure you're checking out Paige's free course on home buying and watching my stuff on the investment opportunities. And don't forget about our exclusive inventory if you are looking to make a move. We have an exclusive inventory of repurposed homes done by our own Wendy Valentine, my crazy contractor wife. Or is what some people call boss lady Red. Yeah, that one. And so let's make it happen. We look forward to guiding you through the real estate process. That's what we do. Certainly not trying to sell you on anything here, but just giving you all the guidance you can possibly get when it comes down to real estate through our own experience. Got anything else? Paige? Are you out? Did you leave? You're out?

I thought we were out.

We're out. See ya.