DAY ONE
BOOT CAMP
Residential Rentals
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Agenda Day 1
• Introductions, Waivers & Workbooks, Purpose of Boot Camp• Real Estate Strategies Review• Business Goals, Create a Plan, Business Setup• Determine Exit Strategy• Financing Options• Market Research• Power Team Specific to Rentals• What are Good Deals?
Lunch• Motivated Sellers• Finding Deals and Marketing to Sellers• Repair Budgets for Rentals• Calculating Offer Price• Calculating CAP Rate
Agenda Day 2
• Calculating Cash Flow
• Calculating Cash-on-Cash Return
• Software Lab Time
• Negotiating
• Contracts
Lunch
• Due Diligence
• Landlord – Tenant Laws
• Being Organized
• Lab Time: Running Numbers on Potential Deal
• Making Money / Wealth Building
• Wrap-up
Purpose
• Learn to become a successful investor and accumulate wealth with residential rentals.
• Obtain your first rental in 60 days or less.
Investment Strategies Review
Fast CashFlips | Wholesale
Cash FlowLease Opt | Seller Financing
Buy & HoldRental | Commercial
Investment Strategies Review
Fast CashFlips | Wholesale
Cash FlowLease Opt | Seller Financing
Buy & HoldRental | Commercial
Advantages:
• Immediate capital
• Quick process
• In and out
Disadvantages:
• Short-term
• When it’s over, it’s over
Advantages:
• Some immediate capital
• Residual income
• Flexibility
• Quick process
Disadvantages:
• Finding the right sellers
• Fixed-term – will end
Advantages:
• Passive income
• Tax advantages
• Appreciation
• Long-term wealth
Disadvantages:
• Capital investment needed
• No immediate return of capital
The objective is to create an all-
encompassing strategy to generate income and
build wealth.
Common Fears
• No Money
• No Credit
• No Property
• No Deals
• No Power Team
• No Plan
• Running Numbers
• Understanding Contracts
• No Property Management Experience
Solutions
• Understand Financing Options
• Know the Role of Credit
• Find Deals
• Build a Power Team
• Create a Plan
• Understand the Numbers
• Property Management Options
Business Goals
• What is your goal 2-20 years from now?
• Write your goals down. • Generating $25,000 cash flow a month?
• Leave a legacy?• Family
• Your church
• Favorite charity
• Buy an island? – Just kidding
• What do you want?
Business Goals (cont.)
You can achieve anything you want if you:
• Identify It (Whatever “It” is for you)•Hold it in your mind• Identify the action steps to get “it”•Take action without compromise.
Business Goals - Exercise
In the next 1 year I will do:
Wholesale Deals
Cash Flowing Properties
Rentals
Fix & Flips
In the next 2-10 years I will do…
Think of yourself as an investor!
Not just a landlord.
Not just a wholesaler.
Not just a flipper.
Why Use a Business Entity?
•Everything goes through an entity from this point on.• Holds / CF Properties / Wholesale / Flips
•Advantages• Liability – asset protection• Reduced tax liability• Anonymity
Business Setup
• Sole Proprietor
• Limited Liability Partnerships (LLP)
• Limited Liability Companies (LLC)
• S Corp
• C Corp
• Consult with an attorney and/or accountant to determine what entity type is best for you and your situation.
Determine Your Exit Strategy
• Buy and Hold: • Requires money to stay in the property for a long-term investment.
• Bank Money
• Hard Money
• Private Investors
• Personal Investment (Cash)
• Creative Financing
Financing Options
Cash for a Discount- or -
Terms for a Higher Offer(Possible full-price offer.)
Bank and Temporary Financing
• Private Money and Hard Money• Used to temporarily purchase the property
during renovations.
• Bank Financing• Credit
• Limited # of properties (FHA guidelines)
• Community Banks and Credit Unions
• No-Seasoned Refinancing
• See “Bank Questions Checklist”
Creative Financing
• Owner Financing
• Rent-to-Own
• Lease Option
• Sandwich Lease Option
Creative Financing (cont.)
• Creative financing benefits for us:• Quick negotiation and closing.
• No credit involved.
• Little or no down payment.
• Seller benefits:• Quick transaction.
• We take over all responsibility.
• They continue to get a residual income without any work or responsibility.
• Monthly payments handled through 3rd party escrow service.
Break Time!
Choose Your Market
• Where You Live• Recommended on your first few deals.
• Hands on and easier to learn.
• Remote Investing• Heavily rely on your power team.
• Invest anywhere.
• Find the “low hanging fruit”.
Things to Consider
•Crime Rates - Stay out of war zones• www.Trulia.com
•Average Monthly Rents - Follow 1% rule• www.Zillow.com/research
•Job Growth• www.bls.gov/home.htm
•Vacancy Rates in the area - Stay under 5%• www.BestPlaces.net
Residential Rentals Power Team
•Team members specific to rentals are:•
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Residential Rentals Power Team
•Team members specific to rentals are:•
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Real Estate Agents
Title Companies
Attorney
Contractor
Property Management Company
Insurance Agent
Accountant
Property Management
Advantages• Screen tenants
• Periodic inspections
• Know the law
• Set processes in place
• Manpower
• (Leverage their time and resources)
Disadvantages• Management fees
• 8-10% of collected rent
• No direct control
How Do I Decide?
•Ask Yourself:• Do I want to be an Owner or a Manager?• Do I want to be an Investor or a Landlord?• Why am I getting into residential rentals?
• Long-term wealth?
• “Mailbox Money”?
• More time with family?
Screening Renters
• Application (fee or no-fee)
• Call references (all of them)
• Verify employment
• Call former landlords (Know the laws)• www.E-Renter.com
• www.Landlordstation.com
• www.TenantBackgroundSearch.com
Renters
• Rental pricing• Set apart from the competition.
• Near schools, includes cable, etc. • Determine rent amount.
• Realtor• Property Manager• www.rentometer.com• www.Zillow.com/research• www.bestplaces.net
• Advertising• Online advertising• Signs
What Are Good Deals?
• How do you know when you have found a good rental deal?
• Acceptable and
• Appreciation
• appreciation – How???
• appreciation
• Low expenses
•
Lunch Time!
Marketing to Sellers & Finding Deals
• Proactive Methods • Use wholesalers
• Other landlords
• REI Clubs
• Landlord Associations
• Professional Networking
• Reactive Methods• Bandit Signs
• Place Classified Ads
• Flyers in Laundromats, Grocery Stores, etc.
• Postcards to Absentee Owners
• Real Estate Agents• MLS
• Established Network
Bandit Signs
We Buy HousesAny ConditionAny Situation
XXX-XXX-XXXX
Example of Bandit Signs
Example of Bandit Signs
Renovations
Remember:
• Don’t over-improve. It’s not a flip.
• Renters are looking for: • clean
• convenient
• something that fits their budget!
• Keep it simple and within YOUR budget.
Renovations (cont.)
• If you are touching it more than once, use products that will last and are easily maintained.
• Replace vs. Repair
• Examples:• Faucets (bathroom and kitchen)
• Bathtub surroundings
• Carpet (quality, color, condition)
Quick Rehab Estimate
Low (cosmetic)
$6-$9/ft. Rentals
$10-12/ft. Flips
Paint
Flooring
Lights
Interior doors
Plugs/switches
Light mold
Medium
$18-22/ft.
Includes Low
Kitchen rehab
Bathroom rehab
Windows
More mold
High
$28-32/ft.
Includes Medium
Roof
Electrical
Plumbing
HVAC
Minor foundation
Break Time!
Calculating Offers
1. ARV:
2. Desired Equity: 20% (.80)
3. Repairs:
MAX Offer
$100,000
-$20,000
$80,000
-$20,000
$60,000
Calculating Offers
What is my desired CAP rate?
• Reverse the math
If Annual NOI is $6,000, divide by desired CAP:
8% = $75,000 Max offer
10% = $60,000 Max offer
12% = $50,000 Max offer
*Set your standards for CAP rate and Cash Flow
Running the Numbers
• To ensure a worthwhile investment, the financials on residential rentals can be analyzed in four primary ways:
• Comp Value Analysis
• CAP Rate
• Cash Flow
• Cash-on-Cash Return
Comp Value
Comp Value – Property value based on other sold properties in the area.
• Sold 3-6 months ago• Use average DOM in area
• Distance ½ mile radius• Don’t include war zones• Consider major roads,
rivers, etc.
• Similar neighborhoods
• Age: 40 years or newer• +/- 5 years (10 max)
• Same # of beds & baths• Square footage +/- 20%• Style (Rambler, 2 story)
CAP Rate
CAP Rate – The rate at which your capital increases (return on your overall investment).
Formula
Annual Net Operating Income (NOI) ÷ Price =
CAP Rate
CAP Rate (cont.)
Steps to calculating a CAP Rate:
1. Gross rents – monthly expenses = monthly Net Operating Income
2. Monthly NOI x 12 = Annual NOI
3. Annual NOI ÷ Cost = CAP
CAP Rate (cont.)
Common Expenses:• Taxes
• Insurance
• Maintenance (5%)
• Management (10%)
• Vacancy rate (5%)
Possible Expenses:• Water & sewer bill
• Home Owners Association (HOA)
Example: 3/2 – $55,000 – Rent = $750/mo.
$750 Gross rent
-$35 Taxes
-$50 Insurance
-$37 Maintenance
-$75 Property mgmt.
-$37 Vacancy rate
=$516 NOI
$516 NOI x 12 months
= $6,192.00
$6,192 ÷ $55,000
= .112
= 11.2% CAP rate
Day 1 Homework
1. Business Goals – Know exactly what you want.
2. Compile a list of potential motivated sellers from online ads.
3. Locate REI clubs, Landlord Associates, etc. in your home area.
4. Create a list of professionals you can approach to build power team.
5. Call realtors in your area to send you “turn-key” rental listings.
6. Locate potential residential rental properties and run CAP rates.
DAY TWO
BOOT CAMP
Residential Rentals
Day 1 Homework
1. Business Goals – Know exactly what you want.
2. Compile a list of potential motivated sellers from online ads.
3. Locate REI clubs, Landlord Associates, etc. in your home area.
4. Create a list of professionals you can approach to build power team.
5. Call realtors in your area to send you “turn-key” rental listings.
6. Locate potential residential rental properties and run CAP rates.
Cash Flow
Cash Flow – The flow of cash in and out of the Property.
Positive vs. Negative Cash Flow
FormulaGross Rents – All Expenses (Including Mortgage)
= Cash Flow
Cash Flow (cont.)
$55,000 Price
$11,000 Down pmt
= 44,000
$44,000 @ 6%
360 mths
= $204/month
$750 Gross rent
-$204 Mortgage pmt
-$35 Taxes
-$50 Insurance
-$30 Maintenance
-$75 Property mgmt.
-$60 Vacancy rate
=$296 Positive Cash Flow
Cash-on-Cash Return
Cash-on-Cash Return – The return on the actual cash invested.
(i.e. the return on the down payment placed on the property plus repair costs)
FormulaAnnual Net Income ÷ Total Out-of-Pocket Investment
= Cash-on-Cash Return
Cash-on-Cash Return
$750 Gross rent
-$204 Mortgage pmt
-$35 Taxes
-$50 Insurance
-$30 Maintenance
-$75 Property mgmt.
-$60 Vacancy rate
=$296 Positive Cash Flow
$296 x 12 months
= $3,552
$3,552 ÷ $11,000
=.323
=32.3% C-on-C return
Real Estate Pro Software
Using the Deal Analyzer
for
Buy/Hold
Break Time!
Negotiating Points
Points to remember when making offers:• Be confident in presenting your offer.
• Never criticize the home’s décor or condition.
• Explain that your offer is based on numbers and research.
• Point out the benefits to the seller of selling their home.
Be positive!
Negotiating Points
What areas are most often negotiated?• Price
• Earnest money
• Closing dates
• Inspection dates
• Personal property
• Contingencies
Making Written Offers
They carry more weight.
Making the Offer
Listed Properties (MLS)• Use the state-approved Purchase Contract.• RE Agent writes it with our supplied info.
FSBO Properties (Non-MLS)• You or your attorney write the contract.
Offer Elements
1. LLC Name
2. Property Address/ MLS number
3. Starting Offer Price
4. Earnest Money
5. Contingencies
6. Closing Date
7. Signatures/Initials
Electronic contracts and working from templates will greatly speed up the offer making process!
Offer Acceptance
After your offer is accepted it is time
to do your due diligence.
Lunch Time!
Due Diligence Check List
• Contractors vs. Property Inspectors• (Before or after offer submission).
• Asbestos / lead paint
• Inspection Specialists (mold, drugs, etc.)
• Taxes
• Title search (preliminary and final)
• Zoning, HOA, etc. • Future plans for the area.
• What’s allowed and not allowed. (Best Use)
Additional Things to Know
• Landlord-Tenant Laws:• Evictions, inspections, maintenance, and anti-discrimination.
• Insurance:• Get quotes from reliable insurance agent.
• Resources:• Real Estate Investor and Landlord Associations
• Attorneys*Both are good for contracts and helpful forms.
Residential Lease Agreement
• Names
• Address of leased property
• Price (rent amount)
• Lease terms (length, deposit, etc.)
• Payment due date
• Late Fees
• Signatures
Lab Time
Lets go through a deal.
Break Time!
Organization
• Be Organized – nothing elaborate or fancy.
• File cabinet and individual property folders.• Expense receipts, agreements, etc.
• Consider what you will need when selling in the future.
• Software:• QuickBooks
• Spreadsheets
Making Money & Building Wealth
•Our purpose is to make money and build wealth.
•Rentals create an opportunity to do both.• Monthly cash flow• Appreciation• Leverage of equity for additional wealth accumulation
Common Fears
• No Money
• No Credit
• No Property
• No Deals
• No Power Team
• No Plan
• Running Numbers
• No Property Management Experience
Homework for the Next 30 Days
• Create a one-year and five-year plan for your business.
• Locate sellers using real estate agents and your efforts.
• Interview property managers.
• Find banks willing to do no-season refinancing.
• Make offers to get your first deal done in 60 days.
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