Are You Overpaying? How to Evaluate and Offer on Rental Properties

David:
This is the BiggerPockets podcast.
Welcome everybody. If you didn’t know, you found your way into the biggest, the best, and the baddest real estate podcast in the world. Today, we’ve got a unique show for you. I’m going to be talking about how to evaluate and offer on rental properties. If you’re somebody who’s ever said, “Hey, I want to get into real estate investing,” or, “I’m already in it, but I’m not really sure how I got here and I don’t know how to get more properties,” you’re in for a treat. So today’s show is going to be all me teaching all of you how to be better at evaluating and offering on rental properties and saving yourself time when you do it.
Before we get into it, today’s quick dip is very simple. If you want to do a job faster, get better tools. BiggerPockets has a calculator that will help you analyze properties very quickly and weed out the wrong ones without burning up all your energy and wasting all your time.
BiggerPockets Pro members can use these calculators in unlimited amount of times whenever they want, from wherever they are. And if you would like a discount code because you’re a podcast listener, I’ve got one for you. So get ready to get out your phone, take a note, write it down, but the code that you’re going to want to use to get 20% off your BiggerPockets Pro membership is Offer 20. That’s O-F-F-E-R 20. So if you’ve been thinking about getting a BiggerPockets Pro membership or if you haven’t heard of one, it’s probably the best deal in all of real estate, it’s very affordable. And with 20% off, it’s even more affordable. And we just want to thank you for listening to our podcast, being a loyal listener, and being a part of the family. So if you want to get 20% off, remember Offer 20. All right, let’s get into it folks.
So welcome and thanks for coming. This should be fun. So here’s what you’re going to learn today. Today, I promise to teach you exactly how to analyze a rental property to determine just how much you should offer on it. Even if you aren’t good at math, even if you have no experience in real estate, even if you don’t have any money to start with, and even if you don’t know how to find any deals. I’ll give you my seven sneaky tips for improving the chance that your offer will get accepted, and how one of those tips helped one of my friends recently.
As a bonus, I will give you the slide deck that we are going to be going over today, so you can go over it yourself if you wait until the end. So if you wait until the end, I’m going to give you the URL where you can download the deck we’re going over today.
Here’s our agenda. We’re going to start with the humble truth about my own real estate story. Then we’re going to get into leads, on and off market. Then we’re going to go into analysis, how you analyze deals, a real life one. We’re going to do it together, and then tools that will help you buy more with less risk. Then we’re going to get into part three, which is making offers. That’s where you’ll get the seven sneaky tips for improving your chance of your offer being accepted, and then some Q&A.
So let’s start off with this. Why are you here today? Did you show up because you want this kind of a life? You want a house in Miami on the water with a yacht? You want to spend all your money on designer clothes? Are you hoping to have a really nice Ferrari that you could take pictures with and step up your Instagram game?
That’s not why I’m here, and that’s not what we at BiggerPockets really are pushing people for. What we’re actually looking to do is help you live a better life. That would involve traveling to more places and getting to see the world that you want to see. It would involve going on vacations with your family and your loved ones, and making memories that will last forever. It will involve spending more time with that family and growing a deeper bond.
You see, it’s all about making memories and living a better life. And when you make money through real estate, you can make money anywhere. You don’t have to be locked in one place at one time.
Now, you’re still going to work. I don’t want to give anyone a false impression. There’s no free lunch, but the kind of work you’re doing is a lot better when you’re doing it through building wealth and real estate as opposed to other means. The most important thing you’re after is your time. We want to help you get your time back. Time is the most valuable asset on earth.
So let’s talk about BiggerPockets a little bit. Well, there’s over 2 million members. It has the number one podcast for real estate investing, more than 40,000 Pro members, more than 5 million forum posts of people asking questions, and over 40 million total YouTube views and counting. BiggerPockets believes that real estate investing is the greatest tool on the planet for the average person to build wealth and passive income, that it’s not get rich quick, that the goal of real estate is not to simply get rich, but to live an amazing life of freedom to do what you were meant to do. Anyone can invest in real estate no matter how much money, experience, time, or connections that they have.
So who am I? Why are you listening to me? Well, if you don’t listen to the podcast, you might not know. My name’s David Greene. I’m a real estate investor. I live in the Bay Area of California. I own rental properties. I flip houses. I invest in commercial real estate. I’m the co-host of the BiggerPockets podcast. I’ve written a couple books for BiggerPockets, the BRRRR book, Buy, Rehab, Rent, Refinance, Repeat, Long-Distance Real Estate Investing, and I am the author of our SOLD series where the first book has been released. It’s Every Agent’s Guide to Building a Profitable Business. I also own some short-term rentals, and like you, I was once a newbie to real estate.
But the truth is I almost gave up. In the beginning, I was unsure how to analyze deals. I tried to manage everything myself, and I was spread way too thin. I was afraid of losing money, and I didn’t know how to manage the properties that I was buying. It made me want to almost get out of it, and I merely did. But then I found BiggerPockets and I started to learn from other people.
Over time, I discovered the truth about evaluating and offering on deals. I’m going to share it with you today so you can cut short the learning, testing, and failing time. Get the good information without the embarrassing bad experiences that people like me already had to find.
Today, I own rental property. I flip houses. I invest in commercial real estate. I also do some short-term rental. I’m the owner of multiple real estate businesses and I’m financially free. So it’s a big difference from the person who bought their first house and said, “I don’t ever want to do this again. I would sell it if I could. This was terrible.” To where I own several different real estate businesses, I’m investing all over the place. I just put a property under contract today with my partner Rob at 3.25 million I believe in the Scottsdale area. And it’s a single family house. It’s not even a commercial property. And I closed on one yesterday at 1.5 million in Tennessee.
So I’m actually still buying today, and I’m going to talk with you guys about why I think you should be buying today as well, that I’m not just saying this as someone who’s a real estate agent because I do have a real estate team. I’m saying this as a person who’s a real estate investor who believes very strongly when I look at the entire economic background, the entire picture of finances in our country, that real estate is the best way to be building wealth, and right now is one of the best times ever to be getting involved in it.
Now, what would you do with financial independence if you had it? Well, here’s the thing. If you can get better deals, you can get to faster financial freedom. That’s what this is really about. Buying real estate, holding it for a long period of time. And the better the deal, the faster you’ll get there. Faster financial freedom means more time to live the life that you were meant to live.
99% of the properties out there are wrong for your goals. That’s one of the first things I want you guys to understand. I didn’t mention this already, but please, we’re going to take a second to stop here. Take out your cell phones. I know most times you’re listening to a speaker, they ask you to put your cell phones away, because it’s disrespectful to the speaker to have a cell phone out. I never ever think like that. When I’m listening to a speaker, I feel like if you can’t keep my attention, then you’re not a very good speaker. If my cell phone is more interesting than you, then you shouldn’t be demanding my time.
So I’m not that way. I’m happy for you guys to have your phones out. The reason I want you to take it out right now is because there’s parts of this presentation where I’m going to ask you to take a picture of the screen. This is one of them that I want you to take a picture of the screen, especially if you’re new and you haven’t bought real estate before.
The phrase real estate refers to a lot of different things, okay? It’s not all the same. Imagine that you’re an athlete and you have a very specific sport you’re training for. Not every machine in the gym is going to be helpful for you to get good at your sport. In fact, some of them might be developing the wrong muscles, or the right muscle in the wrong way that’s actually going to stop you from achieving what you want. You could go backwards.
Real estate’s like that too. Some properties will stop you from achieving your goals. Other properties will not do much, and others will push you forward. What we’re going to talk about is how to identify the right property for the goals that you have, isolate it, and then pursue it.
So how do you find that right one? Well, first off, we’re going to talk about the LAPS system. This is a very simple way that you can get anything done. Anytime I start a new business, I run through a mock setup of the LAPS system, right? So this works for real estate, but it works for anything else where you’re going to try to accomplish a goal.
You start off with leads. What is a lead? A lead is an opportunity that could work for what you want. Now, if you’re looking to get into real estate investing, this would be a seller of a house that wants to sell it. That would be a lead for you, because you want to buy a house. You don’t know if you want that house. You don’t know if you want the house at the price or the terms they’re giving, but you know that there’s potential here. That’s what a lead is. A lead symbolizes potential towards your goals.
Then you’re going to analyze it. The next step is analysis. This is where you find out, would this specific property work for what I want? Is this a good thing for me to pursue?
Pursue is step three. Of the deals that you’ve analyzed and you’ve decided, “Yes, this works,” you’re going to pursue the ones that pass your criteria. And I’m going to share with you guys a very easy way that you can analyze deals. I’m going to share it with you some ways that you can get leads. This is not rocket science. And then when it’s time to pursue, that would include writing an offer. And then the last is success. That’s the S in LAPS. You write enough offers, you pursue enough deals, you’re going to be successful.
Now here’s the good news to you. Even though this is a four step system, success is not really a step. It just happens. You only have to do the three things. Find leads, analyze them, and pursue them. Success is the result.
So there’s really only three steps you have to take if you want to be a real estate investor, and those of us that do this all the time just build systems around those three steps. Where do we get leads? How do we analyze deals, and how do we decide what to pursue and how to pursue it?
So are you ready to learn? Are you committed to focusing? Because this isn’t any good if you just sit here and listen to this information, then don’t do anything about it. Are you committed to taking action? All the knowledge in the world doesn’t matter if you don’t do something with it. You can be an expert at using those machines in the gym. You don’t get stronger, you don’t get more fit if you don’t go use those machines.
So let’s get into part one, leads. Four lead sources you can implement starting today. Well, my favorite one is I use the multiple listing service through real estate agent. Now I am an agent, so I help people this way, but more importantly, I use agents when I’m looking to buy. I think this is the tried and true best method a lot… There’s other ways to do it, but I like this one the most, especially if you understand how to do it.
Now, if you guys are in California, I want you to reach out to me because I’m an agent here and I can help you. And if you already are an agent, reach out to me anyways. I’ll see how I can help you with your business in that way. If you’re not someone who lives near me, that’s okay. I still want you to reach out. You can find me on social media @DavidGreene24, and you can email me through the BiggerPockets messaging system just by looking at my profile and sending me a message.
I’ve written some good articles for BiggerPockets that would be worth looking up about how to find an agent, how to work with an agent, what goes on in the agent world so you can be more successful, because this is my favorite method.
Number two, you can build your own website or have search engine optimization where sellers find you. This is stuff where people say, “How to sell my house fast in Louisville, Kentucky,” and you put a website together where they find your site and they fill in information for you to buy it.
You could do driving for deals. This is where you literally drive around in your car, look for houses that are in distressed condition that you think the seller might want to sell them, look up their address, skip trace the owner, and contact them directly and see if you can buy the house. And then there’s direct mail. This is just like it sounds. You send letters directly to the sellers of properties you want to buy, telling them that you want to buy their property.
Part two is analysis. So we’ve already talked about some ways you can get leads. Well, let’s peel apart the onion, right? Because that’s what you’re really doing when you’re analyzing a deal, is you’re pulling it apart and you’re looking at what’s underneath the layers. Here’s the five layers of the deal analysis.
Number one, you need crystal clear criteria. That means you don’t want to just be looking at everything. You want to know, “I want to find this type of property, in this price range, in this area.” I’m only going to look at those properties so that you’re not overwhelmed. What’s the property type? Is it a multifamily property? Is it a single family property? Is it residential? Is it commercial? Are we talking a triplex? Are we talking a town home? Are we talking a condo? You have to know what kind of property you want to look for. This would be another screen for you guys to take a picture of, good ones for you to be thinking of, especially if you’re a newbie.
Next up is the location. What area am I looking in? Then you’ve got your price range. You’re probably not looking at houses that are 100,000, up to 10 million. There’s going to be a range that you’ve been pre-approved for, that you’re comfortable with, that you’re going to be actually working within.
Then you’re going to look for the condition. Do I want a house that’s a fixer upper? Do I want one that’s turnkey? Do I want one that just needs some cosmetic changes? Am I going to adjust the floor plan? Am I going to add an ADU? What type of condition do I want this house to be in?
And then finally is the profitability. What kind of a return are you looking for? And later in this webinar, we’re going to show you how easily you can figure out the profitability.
Number two, cashflow. How much money is this property going to be making every month? Here’s how you figure out cashflow. It’s really simple, guys. In fact, I have this theory that almost every single metric that you use in real estate math… Not every one, but most of them have two parts to them. You can always reduce it into two parts, income minus expenses.
Now to be fair, expenses are often made up of more than just one thing, okay? So from that perspective, you’re going to have more than one entry into an Excel spreadsheet when figuring out your cashflow. But they can be classified as money coming in and money going out. That’s a business, and this is what we’re looking for when we’re buying a house. How much money is going to be coming in, which is typically the rent, and how much is going to be going out, which are all of our expenses.
Be careful, because there’s something called pure cashflow. It’s very easy for a spreadsheet to tell you how much money you’re going to make because it’s all theoretical. But real estate investors know that there’s more expenses involved in owning real estate than what you think about. You’ve got capital expenditures, you’ve got money you need to set aside for maintenance when something breaks, you’ve got times where your tenants are going to stop paying rent, or they’re going to leave and break their lease. Or their lease is going to end and they’re going to leave, and you need to find another one where you’re going to have vacancy. So pure cashflow is what we actually expect to keep of the cashflow that we make.
Then we’ve got a cash-on-cash return. This phrase comes around a lot, and don’t be intimidated by it. If you’re a newbie, cash-on-cash return is pretty much the real estate way of saying return on investment or ROI. They all mean roughly the same thing.
The reason we have the specific phrase of cash-on-cash return is because you make money in real estate in ways more than just cashflow. So if you’re looking for the return on your investment, you might include the appreciation from what’s gone up. You might include you paying down the loan. You might include some of the money you saved in taxes by buying that property.
The ROI is kind of a general term that can be used for a lot of different things, a lot of different asset classes. And because real estate makes you money in so many ways, it’s hard to know which ways we’re including in our math.
So cash-on-cash return is a way of saying, “Hey, for the money that I put in, the down payment, the rehab, the closing costs, how much did I get back in cashflow?” So we take our annual cashflow, how much money this property makes in a year, and we divide it by the total cash we put into it, which would be your down payment, your rehab, and your closing costs. The number you get is going to be what we call our cash-on-cash return. Very, very simple math money. The came in divided by money that we put in.
Here’s my rule of thumb. You can get an 8% cash-on-cash return. That’s a base hit. I’ll go for that. You can get a 12% cash-on-cash return. That’s a home run, awesome deal. You get a 15% cash-on-cash return, that’s a grand slam.
Now I want to highlight these metrics are a base hit, a home run and a grand slam, if I’m buying a property that’s meant to cashflow. Sometimes I buy real estate that I know is not going to cashflow right away, but it has a ton of equity. I’m getting it at a great price. Sometimes I buy real estate in an area that I believe is going to go up a lot, and it’s not going to cashflow right away in year one. But if I can get that cashflow to these numbers in the future, I’m good with it. In fact, what I found is almost all of my base hits have turned into grand slams after just two, three, or maybe four years of owning the property. They all became grand slams, because I own real estate for enough time, and time is so important. We’re going to get into that later.
Number four is equity. What is equity David? I hear this phrase thrown around. It’s really simple. You take what your property’s worth, the value, you subtract what you owe, which is your debt. The difference is your equity. So if a property’s worth $500,000, and you owe $400,000, your equity is $100,000.
And then you’ve got your total return. This is what I was talking about earlier, where sometimes ROI or return on investment is a vague term and you don’t know what it’s including, but the total return is your average annual return. You take your total profit.
Now, that might include all of your cashflow for the year, but this also now includes the equity that you’ve built. This also includes the amount of the loan that you’ve paid off with your tenants’ money. This also includes taxes that you save buying this property. And you divide that by the total cash invested. Sorry, that is your total cash invested, and then you divide that by the years that you’ve owned the property.
So here’s what the experts know. It’s not about timing the market. It’s time in the market. This is why I’ve done really, really well with real estate is I bought good properties in good areas and I waited. This is why many people don’t build wealth, because wealth comes over time. If you haven’t already done so, just Google any article about compound interest, and what you learn is that compound interest is radically unimpressive when you first start in the beginning. But by the end, it becomes insanely good, too good to be true.
So what everyone tells you is that in order to experience the magic of compound interest, you got to get in early and you got to wait. But for those that can wait, they’ll crush it. It’s like planting a tree when you’re a little kid, like a big oak tree, or redwood, or something amazing. For the first 10, 15 years, it’s not going to do a lot. But 20, 25, 30 years in, that tree is something impressive and incredible. You can’t do anything to rush it. So you have to understand that taking action now is the best thing you can do to build wealth for yourself in the future. Focus on what your portfolio will look like 10 years from now.
I want you guys to take a picture of this screen, and here’s why. 10 years from now, your portfolio is going to look exactly like it does right now, which for the majority of people here probably is no houses, maybe a handful. Unless you do something different today that puts you on a different trajectory for 10 years from now, there’s nothing you can do in my opinion to make yourself a millionaire right now, okay? It’s just like you can’t get in shape you can’t lose 50 pounds or put on a ton of muscle in a day. Your body is not designed to work that way. It won’t work. It doesn’t matter how hard you go work out at the gym, you’re not going to gain 50 pounds of muscle. You are just going to be incredibly sore the next day. It’s consistency that does it, right? So what we’re talking about is building systems and models around being consistent.
Now, let’s try this in real life, okay? So we’re going to analyze this deal right here using some tools that BiggerPockets has, and you guys can see how easy it is to figure out what kind of a return you’re going to get.
Now, in order to do this, I’m going to have to change the way that I’m sharing my screen to do this. So we’re going to start off by going to biggerpockets.com. This is what it looks like. We are then going to click on tools, rent estimator. I’ve already forgotten what the address was of the property that we’re going to look up. Let’s go back here. All right. It was 185 Landings Drive.
Now, here’s what I want you guys to notice if you can see on my screen. It’s an eight bedroom, four bathroom property. That means that this is four units, and each unit has two bedrooms and one bathroom. So it’s four two ones, and the address is 185 Landings Drive in Frankfort, Kentucky. So we’re going to type in 185 Landings Drive Frankfort. There it is. Click on the button, hit search address. Okay, two bedrooms, one bathroom, search address. This is what I wanted you guys to see. Thank you for being patient with the little login issues I was having there. The median rent is $625 a month, and there’s high confidence that this formula is going to be correct.
So BiggerPockets, the website, is going to search all the surrounding properties and figure out what their rents are and then tell me what to expect. And if I want to verify it, all I have to do is go to this map that I’m at right here. Let me see if I can make it a little bit bigger for you. Hopefully that helps you guys. And I can see what other properties it’s using to compare this one to, right? Here’s your list. You can look up prop, that 675. Look up this Williamsburg Road Apartment 1. It’s also a two one, same square feet, are very similar. I can go on Zillow, or Redfin, or some other site, and I can see what the pictures of that property look like. Very cool, because this is how you can find comp.
So I know that I can expect to get 625 a month, and it’s usually going to be higher than what this thing shows, because rents have been going up. It’s pulling from old data. Which means if I multiply this times four because there’s four units, that 625 times two is 1,250, take that times two is 2,500. So we know that this property is going to bring in around $2,500 a month, and that’s why we started off going to this rent estimator right.
Let’s click on the rental property calculator. So we were at tools, we were at rent estimator. We’re just going to click on rental property calculator, start a new report. All right, here’s where this gets super fun and super easy.
We’re going to put in the same address, 185 Landings Drive Frankfort. We’re going to hit next. The purchase price of this property was, they were asking 240,000. So we’re going to put that in, assuming we’re giving a asking price. Let’s take the closing costs, make those around $5,000.
Now, if you’re sitting here saying, “But David, how would I know what closing costs are? I’m not a real estate agent.” That’s okay. BiggerPockets has you covered. If you go over here to calculating closing costs under the help and you click on it, they’ll tell you right here. Closing costs are around 1 to 2% of the purchase price of the property, but can differ depending on location of financing. If unsure, 1.5% of the purchase price is a good number to begin with. Okay, this explains what closing costs are.
Now, we went closer to 2% on this thing just to be safe, but you could get them to be less. You can also ask for the seller to pay for them for you, so that you keep a little more cash in your pocket. Let’s click on loan details.
Now, we’re assuming we’re going to buy this as an investment property, so we’re going to put 20% down. But if someone listening here wanting to buy this property and they wanted to house hack it, they could actually put 3.5% down, 5% down, much less, buy it as a primary residence, and you would just run your numbers. But instead of using 2,500 for the rent, you’d use three of the units. So you’d take 625 per unit times three units. And that number, whatever that would be, 1875 or so. That would be what you would use for your income. Then you would add what you used to pay in rent, because now you’re not paying rent because you’re living in one of these units. You’d add that to the 1,875, and that’s what you would use for your revenue. But in this case, we’re looking at buying it as an investment property, which means we’re putting 20% down.
Now, part of this is having a loan officer that’s going to walk you through what to do, and I have a company that can help you guys with that. So if you’re confused on financing, send me a DM or send me a message through BiggerPockets and let me know, “Hey, I want to get started. I watched your webinar. I want to get pre-approved.” I’ll put you in touch with the people. We can take care of that for you. If you already have a lender, then you probably know because they probably already told you that it’s about 20% down when you’re buying an investment property. But you could do 15%, 10%, 5%, 3.5%, or anything in between when you’re buying a primary residence.
For the interest rate, since this is an investment property, we’re going to use let’s say 4.5 to be a little safe, because rates have gone up a little bit, and no points. So a point would be money that you pay extra to get a lower rate. For the loan term, you should just always put in 30 years. That’s how long your average conventional loan is going to go for. Now remember how we ran the rental income earlier, right? This is where we’re going to put that in $2,500 a month in gross monthly income. Remember how I said cashflow is income minus expenses? Well, we figured out our income. Now we just have to figure out our expenses.
So for property taxes, how to determine your property’s tax bill? Here’s all the ways that you can do it. Now, I know that in general, if you take the value of the property, which in this case it’d be 240,000 times 0.015, which is 1.5%, that’s about $3,600 a year. So that’s what I’m going to put in here, and that’s probably higher than what it’s really going to be. 1.5% is on the high side.
Insurance. I know for a property like this, it’s going to be probably right around $30 a unit, so let’s go ahead and make that $120 a month for insurance. Repairs and maintenance, we typically budget 5% of the rent to cover that, 5% to cover the vacancy, 5% to cover capital expenditures. And on this one, we’re going to put 8% under property management fees. Now if you’re trying to figure out how much you should put in, you have all of this right here that will tell you how to do that.
The tenants are going to pay their own electricity, gas, water, and sewer, and there’s no HOA fees and there’s no garbage here. So we don’t have to worry about any of those expenses for this property. We’re going to click finish analysis.
Here’s what’s awesome, before we get into this whole thing, I want you guys to think about something. If you were a contractor and you had to build a deck, you got two ways to do it. You could grab a hammer and some nails and start hammering away, or you could go buy a nail gun, load up the nail gun, and then start putting nails in really fast.
Now, let’s talk about the pros and cons of each way. If you take the hammer and the nail by hand method, you are going to make more mistakes, because you’re less effective and efficient than a machine. Those mistakes are going to hurt you more. You’re going to hit your thumb with the hammer. You’re going to go slower. It’s going to take a lot longer to do this. And it’s going to be more expensive in the long run, because you’re going to ruin more nails doing it by hand.
Now, if you only have to put up a fence board, it doesn’t make sense to get a nail gun. You just grab your hammer, grab your nails, and you’re doing it. If you’re going to make a business decision, if you’re going to make this a goal of yours, you’re going to want to buy tools. A nail gun will help a contractor build a deck much faster, and they’re going to build a lot of decks. They’re going to always want that tool.
So why am I talking about construction? If you’re going to be a casual real estate observer, a hammer and a nail is fine. If you’re only going to analyze a deal once a year when it happens across your path, and you can just do it on the back of a napkin or with the calculator of your phone, you’re good.
If you’re serious about wanting to change your life, to achieve financial freedom, to have 10 years later look different than where you are right now, you need tools. Me, the people I partner with, the people I work with, the agents on my team, we’re professionals, and so we all use tools. We analyze deals using methods like what I’m showing you right now, letting software do the heavy work for us. We don’t swing hammers and crush our thumbs.
So I’m encouraging you if you guys are interested in real estate, if you’re getting a kick out of this webinar, if you want to learn more, if you want to actually own some real estate, you need to get some tools, and we’ll talk about how expensive or how inexpensive they are. But in the meantime, let’s get back to our presentation, and I’m going to show you guys what this tool did for us.
So here’s our address that we just analyzed. If you wanted to find an agent to help you write an offer, you could click on this button and BiggerPockets will take you there.
Let’s look at the monthly cashflow. This is your cash-on-cash return that we talked about earlier. This property we are estimating would bring us in $532 a month, which is a 12.06% ROI. Now, this is a preliminary analysis, but remember we showed an 8% was a base hit, a 12% was a home run, and a 15% was a grand slam. So out the gate with an income of 2,500 a month and expenses of 1,967 a month, this looks to be a home run deal from a cashflow perspective.
Now, it’s not only cashflow. You’re going to have to look at other things like the area, the demographics, the people you’re going to use to manage it, what kind of tenants you’re going to get. That all has to go into this decision. But just from this first step, it’s looking really good.
The calculator’s doing all the work for us. It’s telling us we’re going to need a total of $53,000 because that’s going to be the down payment plus the closing costs that we’re going to be having.
This is our monthly expense breakdown. You see the majority of it is blue. That’s the mortgage. That will be paid off someday, and that will all go away, which will increase your cashflow by $973. Actually, yeah, 973.
The next would be the taxes. That’s $300 a month. And then this orange part here is your variable expenses. This was your maintenance, your vacancy, your capital expenditures, all those things. The property management, the stuff we set aside that we were going to have to pay for.
Now we can see this property’s net operating income is going to be $18,000 a year. That’s very easy. You don’t have to be good at math, you see? If you have a tool, the tool does all the work for you. The cash-on-cash return on investment is 12.06%, and this here is a graph that shows us what to expect over time. Remember I said time in the market?
So when you first buy this property, it’s valued right around 240,000. It’ll slowly go up based on current projections of inflation, until you hit this part right here, right before year five where it starts to go up significantly more, and that’s compound interest. Okay?
Now, let me tell you guys a little secret that no one else is going to tell you. We at BiggerPockets are trying to be very, very conservative. We’re assuming a 3% annual growth rate. The way that our government has been printing money, there’s no way it’s only going to be 3%. These properties are going to increase in value an insane amount, a lot over time. It’s going to be much more, in my opinion, than what we’re looking at on this graph.
Now, at the same time that your property is going up in value, your loan is going to be paid down, okay? The loan starts to get paid so you owe less and less money, at the same time that your property is going up in value. And if you remember from earlier in the webinar, the difference here is called equity. This is how quickly you grow equity that goes to your net worth, that will make you a millionaire.
Now, these numbers here are the last thing the calculator will show us. They’re what we can expect to see over time. So the property’s value will start off at 240. If it goes up around 3% a year, at year 30, you’re looking at probably $435,000. I would expect that to be more than double in year 30.
Your equity’s going to grow to 435,000. The cashflow started at 6,391 and it’s going to grow up to 21,000. But also, I think that will be more, because inflation is going to make rents go much higher than what we’re assuming here. Okay?
So the point is if you want to analyze properties, that’s how easily and how quickly you can do it if you have the right tools. So now that you see just how easy it is to analyze a property, I’m hoping that all of you have a little bit more confidence than you might have before. Because like I said, not every property is right for you, but this is how you find out if it is.
We talked about how to find leads. Not that complicated. It can start off with as simple as getting a real estate agent to help you. Now, I’ve shown you how to analyze.
Now, this isn’t everything, but this is the majority of the work. From this point, what you would do is you take all the information that you just analyzed, and you would verify it. You would call a property manager and say, “Hey, I’m looking at 625 a month for rent for this unit. Do you agree? Hey, what do you think the crime rate is like over here? What kind of jobs do people work over here?” You do a little bit more due diligence to verify the information you got, but at least you have a direction that you know what you’re trying to verify.
Now, before we move on to part three, which includes my seven sneaky tricks for getting your offer accepted, let’s talk about taking action. Do you know some strategies for finding deals? Do you know how to begin analyzing your next deal? Well, I hope you do, because we just went over that.
Well, that’s great, but it’s not enough to just know it. If more information was the answer, we would all be billionaires with perfect abs. Here’s a message that Dennis sent my good friend Brandon Turner at BiggerPockets. “I wanted to thank you and BP. After attending your webinar on how to make a million dollars in real estate, I got inspired to take action. So last week I closed on my first deal. I now have a triple that is rented.” He means a triplex, “And will cashflow very well for me. I can now call myself a real estate investor. I have a plan moving forward and will make my business a success.”
So are you committed to intelligently analyzing deals in your future? Do you want your life 10 years from now to be better than it is right now? Do you want to finally get your time back? Do you want to travel? Do you want to spend more time with your loved ones and less time in a cubicle?
Well, the next logical step for many of you is to become a BiggerPockets Pro member. This is how you become a better real estate investor just like I did. BiggerPockets Pro will help you analyze properties and get your next deal faster. Remember, time is the most valuable asset we have. We want to do things quickly.
You can analyze investment properties in minutes and determine which ones are worth pursuing with unlimited access to deal analysis calculators. This is the calculator that we look like, you guys saw an updated version of, this is what it used to look like. But that calculator that we just used is free to BiggerPockets Pro members.
Become a better investor with curated article and video content, webinar replays, and exclusive articles covering everything that you need to make smart investments and avoid the wrong markets.
This is all available to BiggerPockets Pro members. We call these Pro exclusive videos. Only Pro members can watch them. We’ve got workshops on how to build a website with great SEO to grow your business, finding and funding great deals Masterclass with Anson Young who wrote that book for BiggerPockets. We’ve got Jesse Fragale going over how to invest if you’re a Canadian investor, all kinds of experts talking about their specific niche that you can watch, learn, and grow from if you’re a Pro member.
You can show the community that you mean business with a Pro badge. So Blaine here has this little badge on the bottom of his image for his account, and that’s how you know that Blaine doesn’t just talk about it, he bes about it. If I see that someone’s a Pro member, or if you see a premium badge, that means that they’re an agent, or a loan officer, or some kind of a vendor in the world. Pro is how you let people know who you are. It’s how you let people know that you’re serious about what you’re doing. You can save time and money and minimize risk with lawyer approved lease documents for all 50 states.
So BiggerPockets has put together a standard lease agreement for every single state. They have their lawyers put it together. And if you want to manage your own property, you get to use these if you’re a Pro member for free.
You can save thousands of dollars on loans and other tools that you’ll use in your real estate business with BiggerPockets Perks. Plus, you can gain access to our discounted educational bootcamps. These are all ways that you can get discounts if you’re a BiggerPockets Pro member. Roofstock is a company where you can look for properties being listed by other real estate investors. AirDNA is a company that you use to analyze what you can expect if you have a short-term rental. Foreclosure.com is a website that helps track foreclosure if you want to pursue one. Open letter Marketing is a company that you use if you want to use the direct mail approach. All of these companies help real estate investors, and you get a discount if you’re Pro.
And then you can accurately estimate rental rates based on local property comparables, listing recency, and proximity to your location, using the BiggerPockets rent estimator tool, which is the first tool that I showed you when we started, when we looked up what we could expect for rent on that Kentucky property.
So this is an example, right? You’re going to look up this property in East 39th Avenue in Denver. You can see that the median rent on a one bedroom, one bathroom here is 1,560 a month. And then you can look below at the map like I showed you, to make sure that what you’re looking at is accurate and you can have confidence in it. They’re doing everything to make it so easy for you.
But what’s the number one reason to consider Pro? It works. The BiggerPockets calculators are my go-to for analyzing potential properties. There’s no way I could analyze the volume of properties I do without being a Pro member.
“I logged on my first three unit almost a year ago, that I’m now selling for almost a $70,000 profit, that will go towards something larger. The BiggerPockets calculators were a huge factor in making sure my numbers were right.” This is from Aaron Carajo. Patrick Menifee says, “Back in June, I attended one of your webinars. Right afterwards I signed up for Pro. In the next couple of weeks I analyzed a bunch of deals. Eventually I found a fourplex. I got it under contract three weeks after signing up for Pro, and a week later I closed on another property that was six units. Big thank you to you and the entire team. My final quick tip, sign up for Pro. I made my money back at the closing table.”
So here’s some good news. This is one where you want to take your phones out and take a picture of this screen, because you’re about to get some free stuff.
If you guys want to go Pro and you sign up now, and use this code that’s on the screen right here, you can get 20% off of the price of your membership. So go ahead and take out your phone because you’re going to want to need that code. Take a picture of it. And I’m going to show you guys what to do if you want to go Pro. Then I’m going to go over some perks.
So how much is it, first off? Well, if you want to sign up for a premium account, which is what I have, it’s $1,200 a year. But if you want to go Pro, it’s only $390 a year. It’s incredibly cheap for the tool and the analysis that you get if you do this. But if you sign up today, it’s not even 390, it’s only 312. So you’re getting close to… Actually, this is less than the cost of one home inspection, which you’re going to be paying for several of them as you’re analyzing deals and trying to get something under contract. Just to know, is this a deal even worth pursuing, right? This is one of the biggest tools you’re going to need in your tool belt, and it’s one of the cheapest.
Remember, you’re going to save 20% on that annual membership if you use the code on the screen here, right? In addition, if you sign up now, here’s some bonuses that BiggerPockets will give you because you sat through this webinar and showed that you are serious about taking action.
Number one, you get this nine part video series that I did with Brandon Turner in Hawaii where we break down our nine favorite strategies for investing with little to no money down. This is in my opinion, the best work that Brandon and I ever did.
In fact, when we were making this, we looked at each other several times and said, “I can’t believe how good this is. This is such good content.” This is a $200 value that you get for free if you go Pro. You’re also going to get the Finding Great Deals Masterclass. So this is four interviews that Brandon did with different expert and different niches. One of them on door knocking, one on direct mail marketing, one on relationships, and one on driving for dollars, that will be included. Plus this free ebook of the best ways to find real estate deals for investing success, a $990 value, will be yours for free. You also get access to BiggerPockets bootcamps.
So only pros can go to these. They get exclusive access to BP bootcamps, which are 12 week real estate investing classes. Your Pro annual members can join a la carte at a discounted price. Every week, you get access to on-demand videos from Ashley Kehr, live Q&A sessions with real estate investing experts, homework assignments to apply your knowledge, and accountability group assigned based on your investing interest locations and more, which is over $1,000 in value that you get included.
Okay. So if you’re going to sign up today for Pro, here’s what you’re going to get. It’s over $2,000 value in bonuses, 20% off the actual cost of the membership, the workshop with me and Brandon, the How to Find Great Deals Masterclass, the online bootcamp access, and all you have to do is go to biggerpockets.com/proupgrade and enter that code that I just gave you.
So go ahead, take a picture of this screen. And if you’re already committed and you know you’re going to do it, just open another browser window. Go to biggerpockets.com/proupgrade and put in that code.
All right, so here’s the last thing I want to add. All these perks apply if you go annual. If you go monthly, you won’t get the freebies. So if you want those freebies, make sure that you click on the annual option.
Now, what if you’re already Pro? Well, you’re not going to get screwed over. You can find the video content that we just went over at biggerpockets.com/pro/videos. You can find the online bootcamp information at biggerpockets.com/bootcamp. So if you’re a Pro member, this is where you go to watch the stuff that we just went over.
Now, BiggerPockets also has a guarantee. So give Pro a try for 30 days. If you don’t love it, you can email [email protected] and get a 100% refund. Here you go. You just need to go to biggerpockets.com/proupgrade. You can get all the bonuses. You get 20% off. You get the calculators, you get the rent estimator tool, you get the landlord lease forms, you get the discount at all the companies that BiggerPockets works for, all for a ridiculously low price. All right, now we’re going to get into part two of the show.
Now, if one of you does sign up for Pro, I want you to go into the chat and let me know that you did it so we can all congratulate you, because you deserve that. So anyone here who is going to sign up for Pro, please let me know in the chat and I will move on with the rest of our webinar.
The first question to answer before making an offer, how is the seller selling? Typically, there’s two ways. One is through a real estate agent. And if that’s the case, you can get your own agent. They’re free to you. The seller will pay for them. The other is without a real estate agent. This is where you can make a verbal or a written offer.
The seven sneaky tips for getting your offer accepted. One, be the first. Be the first person to submit an offer. Some sellers will just take the first offer that comes their way because they have anxiety and they don’t like going through the home selling process. Good trip there.
Number two, be last. Some sellers wait until every single offer comes in before making their decision. And in those cases, this is what we use on my team often. We find out what all the other offers are. We go to our client and say, if you write this one, “You’ll be the most expensive and the best one, and you can get the deal.”
Number three, keep it clean. The less things you ask for, the better it is for the seller. So if you need a lot of time to make your decisions, if you want 21 days to do inspections, they’re probably going to say no. If you can get it done in seven days, they’re way more likely to say yes. So look for ways to ask for less things, especially in a hot market, and especially if they’re not important to you.
Give them their price, but on your terms. So if they’re asking for a high dollar amount, you don’t want to pay, you may say, “Fine, you can give the price, but I need you to do some seller financing. I need you to give me a longer escrow period. I need you to fix these things in the house before I buy it.” There’s things that you can do where you can give them what they want and you can still get what you want, which makes it a win-win.
Include a family photo or a letter. Now, in some areas you can’t do this anymore because of fair housing laws where the listing agent doesn’t want to present that to the seller, because it puts them in a position where they can get in trouble because they turned down a client. Maybe they could be accused of it being over race or something like that. But you can definitely write a letter explaining how much you love the house and what you want to do with it.
Give them multiple options. This is another really good one. Say, “Hey, I will buy your house for this price under these terms. But if you include seller financing, I’ll give you a little bit more. And if you want all cash offer, I’ll give you a little bit less.” So you give them three options and you let them pick which of those they like.
And then the last one is you can just offer again if they say no and offer again if they say no. I buy houses like this all the time. I have my agents check in every week and see if it’s gone under contract. We just keep asking until finally they say, “Okay, fine. We’ll take your offer.”
Now, I told you guys that if you waited to the end, you could get this slide deck. So all you have to do is go to biggerpockets.com/eoslides and you can get the deck that we just went over right now. You can review these again.
All right, let’s see what questions you guys have. And then again, I’ll let you know one last time if you want that 20% off, if you want all those perks, I highly encourage you. Go sign up to be a Pro member. Everyone will take you more serious. You will take yourself more serious. You’ll be invested into this. You’ll be making a decision that 10 years from now will make you a millionaire. You buy enough real estate and you wait, you will do really, really, really well with it, you need these tools if you’re actually going to buy.
This is from [inaudible 00:49:12]. “I got my annual Pro last week listening to the webinar, included all the free stuff you mentioned now. Thank you again, Dave and BiggerPockets, amazing and valuable content. Keep up the great job.” All right, so let’s see what questions you guys have. Appreciate you sitting through that webinar. These are the people that I know that are here, that are listening right now, that are absolutely going to have a life-changing experience. And they’re not just people who wish that things will happen. They’re people that make things happen.
Rodrigo says, “Any financing ideas do you recommend to pull out equity of current home?” Well, I’m doing that because I think we’re in a market that’s poised to see a run-up in prices more than what we’ve ever seen. I often say this and everybody else says the opposite. They scream, “No, no, there’s a recession coming,” and I look at all the fundamentals and say, “I don’t think there is.” I think that I wish there was, but I don’t think so right now.
So I’m actually refinancing four of my California properties, and I’m pulling out over seven figures from those four deals. These are all deals that I bought 10 years ago. Remember I told you about that 10 year thing?
So the decision I made 10 years ago, I’ve lived off of increasing cashflow every single year. I’ve paid off their notes pretty significantly on a 15-year mortgage for three out of the four. Now I’m refinancing them back into a 30-year mortgage, pulling out seven figures, which I will use to go buy more real estate. And I’m doing it through my loan team. So if you guys want to reach out to us, you can reach out to me directly and I’ll put you in contact with them myself. You can do that by sending me an email. You can message me on BiggerPockets through the messaging system. You can look us up at the1brokerage.com. There’s a lot of different ways you can get ahold of us, but please do, and we can do the same thing for you guys.
I really believe this is the best environment that I’ve seen in my lifetime for buying real estate. I think that the dollar is going to be significantly inflated. I don’t think that’s good. I just think it’s happening. And when that happens, you want to own real estate.
Here’s a really good follow-up question from Rodrigo. “Any particular states that you would recommend, the Midwest, the South?” Why yes, I’ll tell you where I’m investing. I’m investing places I see Californians moving to, because everywhere that us Californians go, we drive up the price. So Texas, Tennessee, Florida.
I have agents in all of those states that I can connect you with. If you guys would like, just reach out to me and I’ll put you in touch with the people that I use. Arizona is another big one that I’m really, really bullish on. And we can get you pre-approved and we can send you there, and you can buy the same stuff I’m buying if that’s what you guys want to do. So reach out to me.
Here’s what’s really, really important. Okay Rodrigo, I don’t want to give my email out right now because I don’t want it to get sold to spambots, but if you go to my Instagram, which is davidgreene24, and you look at connect or contact, I think it’s contact, it has my email right there. And you can just send me an email through there or you can send me a direct message or both would be best.
What I was saying, here’s what’s really important to me. You guys got to buy something, and you got to buy good property and good areas and wait. That is the strategy that we use right now. You delay gratification in the right spots. So I would really like for you to sign up to be a BiggerPockets Pro member so that you don’t buy the wrong property. You don’t buy a property that’s going to lose money every month. You want to buy something that’s going to make you money every month, and that tool will ensure that you make a wise decision.
Now, once you are equipped to make good decisions, I want to give you the resources that you need to go make those decisions, right? This would be the agent, the loan, the little pieces that you need. Then I want you to go start investing in real estate, and waiting and watching as your wealth builds. This is the simplest way that your average person can build wealth in America right now. You don’t have to be a rocket scientist, you just have to be patient and wise. And everybody here has the tools in order to be able to do that.
All right, Brian says, “Hi David. We’re currently looking for our first property in Southern California and has been a challenge getting offered accepted. It seems like most offers are waiving appraisal contingencies. Is there a situation where waiving appraisal contingencies makes sense and when it doesn’t? Also, can you explain how a pre-appraisal would work and what a help in getting offers accepted?”
Well, Brian, I actually have a real estate team in Southern California. And if you were working with us, we would’ve already gone over this with you. Don’t know what agent you’re using or why that isn’t coming up, but maybe you want to reach out to me and get connected to my team so we could go over that.
Long answer short, every property is different. If we can get our client an appraisal contingency, we will. In other cases, it’s not that… Here’s how you should look at it. If somebody else wants to buy that house and they don’t need an appraisal contingency, the sellers aren’t going to give you one, okay? You can only ask for as much as nobody else is willing to give up.
So if you want an agent that can explain this stuff to you, you got to find an agent that knows what they’re doing. You should be reaching out to us and letting us help you with this. One thing that we often do if we aren’t going to get an appraisal contingency is we say that we agree to pay X amount over the appraised price. So if for some reason an appraisal is low, instead of you being on the hook for 100 grand, you’re only on the hook for 15 grand. We do that kind of stuff upfront so our clients don’t have to worry about an incredibly low appraisal, and the sellers know that they’re still going to get a little bit over the appraised price. It ends up being a win-win. So reach out to us, we’ll work that out for you.
Kev, “Are you familiar with Loan Guys for financing?” No, I am not. I have my own financing that I use. Malcolm, “What do you think of BRRRR, but rent to own instead of renting?” Okay, Malcolm, here’s why I don’t love that method. If we were in a method where prices were just stagnant, rent to own makes sense because you’re taking all of the expenses of property, you’re putting them on the tenant so that they’re responsible for it and not you. That means your cashflow is higher. The problem is you don’t get the upside of the property going up in value. I don’t like that method in this environment, because we’re seeing so much appreciation in prices. And that’s what you want, not your tenant.
So in an environment like this, you tend to make more money from prices going up than you do just from cashflow. In a stagnant environment, you tend to make more from cashflow. So you kind of just have to play your chips the way that they’re dealt to you, and your strategy will change over time. So hope that makes sense.
All right, I’m going to get this wrapped up because we’ve gone a little bit over our hour. And Malcolm, you’re welcome. Thank you for asking that question. A few ways that you guys can get your questions answered if you weren’t able to here, one, go to biggerpockets.com/david. You can submit a question there and I will answer it on the BiggerPockets podcast for you. Number two, if you’re in California, reach out to me and I will get you connected when we do meetups. Number three, if you’re not in California, follow me on social media, send me a DM, or find me on the BiggerPockets website and send me a message through there.
Number four, you can check out my website, davidgreene24.com. It’s got a little bit of all the stuff that I’m interested in that you guys can see and on all the ways that I can help you with your goals. And then number five, help me catch up to Brandon Turner who has his own text letter called Behind the Beard. I started one called Behind the Shine, because of the bing shine on my bald head. You can get that by going to DGT Live slash text letter. Sign up for that, solely free, it tells you what’s going on in my world.
And then six, follow BiggerPockets on social media as well. Follow us there. You can follow us on YouTube. You can follow us on our podcast, you can follow us on Instagram. But look for BiggerPockets. There’s a lot more information than just what you’re seeing on this webinar and just what you’re seeing on the podcast that I don’t want you to miss out on. All right, thank you very much to everybody who sat through this. I really appreciate your time. Make sure you reach out and we will stay in touch.
So there you have it. That is my blueprint for confident deal analysis and winning in negotiations. Most importantly, you can save time and analyze deals faster than other people, as well as learning how to throw out deals that are not worth your effort, time, or energy to analyze.
Remember, if you like this stuff to check out my book, Long-Distance Real Estate Investing that will help you choose the market in which you should analyze deals in, or my book Buy, Rehab, Rent, Refinance, Repeat: The BRRRR Rental Property Investment Strategy Made Simple. That will teach you how to be a black belt real estate investor, find the best deals, and add value to everything that you buy.
Thank you for joining me today. I hope that you’ll learned something and I hope that you’re charged up to go find your next deal. Remember that you can refine your analysis using this seven step deal assessment framework once you’ve committed it to memory. You can accurately calculate your ROI and then negotiate from a position of strength when you know what you’re buying, and fund deals creatively, even with limited capital, by using these tips.
And one more time, if you’d like to get a BiggerPockets Pro membership like me, you can use the code Offer 20 to get 20% off. All right, thanks everybody. I will see you on the next show.