If you have got some extra money, you must
buy a property. Investing in real estate is the best and safest
option. Regardless of what happens, properly prices
will rise anyway and you will still make a profit.
Isn't that's how people talk about real estate. Unfortunately, that's not entirely true and
if you ask anyone who invests in real estate, he gonna tell you should think twice before
you throw your money in.
That doesn't mean you can never make money
by investing in real estate but rather there are many hidden rocks that most people aren’t
aware of that might lead you to lose money. do home price always rise? Not really, let's just take a look at some
According to NAR, for 36 years from 1968 to
2004, home prices did actually increase on average by 6.4 percent which is good, at least
its much higher than the inflation rate. Unfortunately, that was the last year of healthy
The market suddenly declined and in the following
year, the growth was just 1 percent which is not that great. And we all know what happened then, in 2008
the market crashed, home prices just kept declining year after year.
In fact, they fell by more than 30 percent. It took some time for the market to bounce
back, but that healthy growth never came back. since 2010, home price didn’t really increase
if you take into account inflation.
however, some people still say that. Even if the prices do not increase much, just
rent it out and collect the payment every month. and in 20 or 30 years years, the rent should
pay off your investment and you still end up with a property that you can keep renting.
What a brilliant strategy. Unfortunately, it's not as great as it sounds. First, you won’t rent it out for 25 straight
years, because tenants come and go and there will definitely be periods where your flat
will just be empty but it will still keep draining money out
of you, it will be like a hole in your wallet.
Secondly, real estate isn't the type of investment
where you just buy and forget about it, it needs maintenance, it needs renovation. And in my experience, people don't really
take care of a rented property as much as their own.
So you will have to renovate it more often
than if you would have lived there by yourself. In other words, your real estate investment
will never pay off, unless you sell it. Even if the value of the home rises, you are
just getting richer on paper.
you have to sell that property to materialize
that wealth before prices fall down again. Even after these 2 arguments, some people
still say that it doesn't matter, its mine, I will just go and live there by myself and
when I will not be around I will just rent it out.
In my experience that’s a horrible strategy. because when you buy that home, you buy it
base on your own needs that usually don’t correspond with the needs of the market. so what ends up happening is that you bought
it for yourself and now it's difficult to rent it out so it just stays there as a liability.
Owning a property that you don’t live in
and you can’t rent it out is a pain in the ass. That's another reason why a lot of people
lose money when investing in real estate because they are not investing, they are just buying
a property thinking that as long as its real estate, its an investment.
And lastly, real estate is one of the brutally
competitive industries out there, because it's one of the oldest industries in history. So to find a good investment, you don’t
only have to know and understand the market deeply, but rather look at hundreds of options
before throwing your money.
If you haven’t been in real estate business,
you have no idea how much time and effort it takes to find just one good opportunity. So if you are thinking that, whatever property
you buy, you will be able to rent it out, on the top of that, its value will definitely
keep rising, you are mistaken, my dear friend.
And for god's sake, please do not misunderstand
me and bombard me with comments. You understand nothing about investing, you
just lost money and now you are just preventing others to make money. Yes, I have actually lost money in the real
estate when I just started but I have made much more than I have lost
and the point of the video is to clarify some of the most common misconceptions.
So that if you ever decide to get into this
industry, you know what you are dealing with. Anyways, if you found this video helpful,
make sure you smash that like button, subscribe and hit that bell button because more videos
about investing are coming.
Thanks for watching and until next time. if you have got extra money you must buy a property investing in real estate is the best and the safest option regardless of what happens property prices will always rise anyways and you will still make a profit isn't that's how people talk about the real estate and fortunately that's not entirely true and if you ask anyone who invests in real estate he will tell you that you should think twice before you throw your money in that doesn't mean you can never make money by investing in real estate but rather there are many hidden rocks that most people aren't aware of that might lead you to lose money for example the home prices always rise not really let's just take a look at some numbers according to an array for 36 years from 1968 to 2004 home prices did actually increase on average by 6.
4 percent which is really good at least it's much higher than inflation unfortunately that was the last year of healthy growth the market suddenly declined and in the following year the growth was just 1% which is not that great and we all know what happened next in 2008 the market crashed home prices just kept declining year after year in fact they fell by more than 30% it took some time for the market to bounce back but that healthy growth never came back and since 2010 home prices didn't really increase if you check into the account inflation however some people still say that even if the prices do not increase much just rent it out and collect the payment every month and in 20 or 30 years the rain should pay off your investment and you will still end up with a property that you can keep renting what a brilliant strategy unfortunately it's not as great as it sounds first you won't rent it out for 25 straight years because tenants come and go and there will definitely be periods where your flat will just be empty but it will still keep draining money out of you it we'll be like a hole in your wallet secondly real estate isn't the type of investment when you just buy and forget about it it needs maintenance it needs renovation and so on and in my experience people don't really take much care of a rented property as much as their own so you will have to renovate it much more often than if you would have lived there by yourself in other words your real estate investment will never pay off unless you sell it even if the value of the home rises you're just getting richer on paper you have to sell that property to materialize that wealth before prices fall down again even after these two arguments some people still say that it doesn't matter it's mine I will just go and live there by myself and what I will not be around I'll just rent it out in my experience that's a horrible strategy because when you buy that home you buy it based on your own needs that usually do not correspond with the needs of the market so what ends up happening is that you bought it for yourself and now it's difficult to rent it out so it just stays there as a liability owning a property that you don't live in and you can't rent out is a pain in the ass that's another reason why a lot of people lose money when invest in real estate because they are not investing they're just buying property thinking that as long as it's real estate it's an investment and lastly real estate is one of the brutally competitive industries out there because it's one of the oldest industries in history so to find a good investment you don't only have to know and understand the market deeply but rather you have to look at hundreds of options before buying a property if you haven't been in real estate business you have no idea how much time and effort it takes to find just one good opportunity and for God's sake please do not misunderstand me and bombard me with comments you understand nothing about investing you just lost money and now you're just preventing others to make money yes I have actually lost money in real estate when I just started out but I have made much more than that and the point of this video is to clarify some of the most common misconceptions so that if you ever decide to get into this industry you know what you're dealing with anyways if you have found this video helpful make sure you smash that like button subscribe and hit the notification bell because more videos about investing are coming thanks for watching and I will see you in the next one you
Hey guys so in this video we are going over the step-by-step process of buying your first rental or investment property. This video will be aimed specifically at beginners, but i think anyone will find it useful.
We’ll talk about how to prepare for buying your first home, getting pre-approved for a residential mortgage actually finding and then closing on a property as well as, of course, how to make money from real estate.
Investing just some quick background about myself. My name is charlie and i am a real estate broker living in southern california. I have my own investment property and i’ve also been brokering loans since 2013.
So hopefully that gives you guys a reason to listen to what i’m saying. There are tons of ways to invest in real estate, for example, reits, which stands for real estate, investment trusts fix and flips, long-term rentals buying, multi-units and a lot more in this video.
We are focusing on long-term residential rentals, as well as buying multi-unit properties to rent out. I think this is the goal that most people have. They want to invest in multi-unit rentals and, of course, there is a good reason.
Many people make a lot of money with these types of investment properties, so here are some of the ways of making money while investing in real estate. The first one is appreciation, and this is when the value of the house goes up now in many parts of the country we’ve, seen prices skyrocket in the last few decades and as a result, some people have made a ton of money.
For example, in palo alto, where i was raised home prices used to be like three four hundred five hundred thousand dollars. Now they are easily two to three to four million dollars. Now, of course, not every area is going to have that high rate of appreciation.
Then very likely you will see appreciation. The second is paying towards the principle of the loan. When you have a mortgage and you’re, making your monthly payment part of that money goes to principal aka.
Your equity and part of that goes to interest. Now, whatever money you’re, putting into the principal the equity that’s like a for savings account, you’re, increasing the percent of the home that you actually own and therefore, at some point, when you sell the house, You’re gonna get that money back see.
I do refer to this as a less liquid savings account. Alright, the third way you make money through real estate investing is through rental income and the best case scenario is when you have positive cash flow.
This means that all your rental income is higher than your mortgage, your property taxes and any other fees you’re, paying to maintain the place. Besides the money part there are tons of other pros to real estate, investing as well.
For example, you get tax advantages and you get diversification. Millionaires say that real estate is the best way to invest money for a reason it’s made a lot of people very rich and it allows people to leverage money at extremely low interest rates.
Aka, your mortgage and control, something that normally, you would not be able to control, in this case, a house that’s worth hundreds of thousands of dollars. Now, a lot of people also think that to invest in real estate, they need to buy a gigantic like 15 unit apartment, complex nope.
That is definitely not the case. You can start very small with real estate investing even buying your own home. I consider that investing in real estate, that’s, why it’s so exciting and it’s, a type of investing that grows with you.
You can start small with your own home or small investment property and then work your way up to larger and larger units. Now let’s. Talk about all the steps that are required in order to get your first property, it’s, not as simple as you know, just going out there and buying your property.
There’s, a lot of prep and you have to build up your finances in order to safely buy a home without going broke, okay step. One is your credit score, and i have this first, because this is something that you can start at any age like.
Yes, even if you’re 15 years old, you can start working on your credit right now. Your credit score sort of defines your finances for the rest of your life, so that’s. Why it’s so important, for example, it determines who trusts to lend you money and how much money they’re willing to lend you it determines your interest rates.
It determines getting approved for loans now. Is it always fair, like this credit score system, not always, but it is a system that, if you know how it works, you can definitely have a top tier credit score without too much effort.
So the fico score is what lenders look at when they determine. If you’re eligible or not for a loan, your fico score is made up of payment history at 35 credit utilization at 30, length of credit history at 15 mix of credit types at 10 and the number of recent applications at 10 as well.
This is important because, as you can see, payment history is extremely important. You don’t want to miss any payments or have anything go into default. Now, when you’re trying to buy a house, i always tell people the optimal score.
You should be looking for is a 740 or, above i believe the average credit score in the us is 703, which is not too bad, and that will get you a favorable interest rate when you do apply for a loan, however, 740 plus is optimal.
That’s, gonna get you the best rate, and that is considered an exceptional credit score. I’ve made other videos about this in more detail, but when you have a really high credit score, the interest rate you get is significantly lower and in the long term, that’s.
Gon na save you thousands and thousands of dollars. What i recommend is, if you’re young, get your first credit card and start using credit cards instead of debit cards. Debit cards are good if you are scared of spending too much money.
But if you want to build your credit and you want to build it – the easy and fast way make sure you get a credit card and use it wisely. If you’re too young to have your own credit card or your credit, just isn’t high enough to actually get approved for a credit card of your own.
What you can do is become an authorized user on one of your parents cards. Now you have to make sure that your parent has good credit, of course, because you’re, essentially sharing that credit card with them and any payments done on that card goes towards building your own credit.
My parents did that for me and by the time i was ready to open up my own credit card. Luckily, i had a good enough score to do so so yeah start young and set yourself up for success. There are so many advantages of having a high credit score, and you will thank me later.
Number two is just to be in the game, and what i mean by this is know what real estate investing entails and know how to do it. The first thing i recommend is having a lot of knowledge in real estate investing and to do that there are things like podcasts books youtube.
You can pay for mentorship there’s. Tons of things you can do to learn about real estate. Investing you & # 39. Ll also want to understand the financials of real estate, investing, for example, how making money in real estate works, cash flow, calculating profit.
There are so many things that you guys can learn about this. You can also follow people who do real estate, investing as a living, see their instagram stories, see their behind the scenes and just see how what they do on a day-to-day basis and have a vision.
Have a goal set in mind that you want to achieve for real estate, investing whether that’s, just owning a few small properties in your local area or owning properties across the country set that vision and let that inspire you.
This is the prep stage of real estate. Investing you need to have a good foundation of what real estate investing means, and so, if you are young, if you are not yet ready to buy a house, this is the step where you should just be preparing learning.
As much as you can all right, the third step to getting your first real estate, investment property is employment and sadly you cannot buy a house without a job. I mean it sort of makes sense, but that’s, just the reality of it and by job i mean like a real job.
You can’t, just you know, sell things on craigslist for fun, it needs to be stable and it has to be documented as well. This means you & # 39. Ll need tax records. You & # 39, ll need w-2s, just anything that shows your income is stable and it’s.
Not just the one time thing from a lender’s viewpoint. They’re thinking. Can this person afford to make these payments for the next 30 years? The last thing they want is for you to not be able to make your payments and for them to foreclose on the house that’s, a lot of effort on their part, and they just don’t want to do that.
So yeah any cash you make on the side that actually doesn’t count as income in the lender’s viewpoint. It has to be taxed income income that shows up on your tax return. Now. This is where people that have a traditional nine to five job, anything that has a w-2 have a huge advantage.
It’s very hard for entrepreneurs or self-employed people to actually qualify for a house unless, of course, you are a really established entrepreneur. Now, what i would say is, if you are in this type of situation, where it might be hard to prove your income.
One thing you can do is try and find a co-signer, and this is probably going to be a parent or relative who has a stable income and can help you get approved for that loan. Of course, you still have to be able to make those payments.
You need to really trust that person and they really have to trust you as well, because if you don’t make those payments, then they’re on the hook and their credit is going to be screwed. The thing you have to look out for with your employment is look at your debt to income ratio.
This is all your monthly payments divided by your pre-tax income, and this number has to be under 40 to 45. It really depends on the lender. So take your pre-tax monthly income multiply that by let’s, say 0.
4, and that should be the max amount of money you spend on a house on your mortgage on your cars on student loans, all that stuff added up together. That is why increasing your income is so important for real estate, investing, especially if you’re, trying to buy bigger and bigger and bigger properties all right.
The fourth step is to hire a real estate agent in the area that you are looking at. Now, when you’re hiring an agent, you’re, not going to rely on them completely. They are your guide to the area and they should be an expert, but also, if you want to really do this long term, you need to be an expert as well.
Ask your agent, which locations which pockets of neighborhoods are going to do well for the next 10 years, really try and get their insight about the location as a whole. And i also recommend that you do your own research on this.
Go to city data.com and from there you can look at the statistics of any city you put in there. You can look at past appreciation. You can look at the crime data. You can look at the population changes.
You can look at the school data. It’s all really important when trying to come up with a city that you want to invest in because, like i mentioned earlier, that first part of making money with real estate was appreciation.
And if you have appreciation on your side, then you’re, going to make a lot more money on this property. Ask your real estate agent to send you deals whenever they pop up a lot of these deals. They are snatched up very fast and that’s.
Why you want someone to always be on the lookout for you and send you deals when they pop up just keep looking keep looking and you know. Sometimes it takes people hundreds of homes before they actually find one house that makes sense and that they actually invested, but with all this training and practice, you will learn how to spot deals and you & # 39.
Ll know how to run numbers that tell you whether or not a deal is good all right. The fifth step is to find the lender and get a pre-approval. Now i think about this. Maybe this step should actually be before finding a real estate agent and starting to look at homes.
Actually, yes, you definitely need to talk to a lender before you start looking for homes. This is the boring part that no one actually cares about, but it’s, one of the most important parts and the reason why it’s, so important is because they’re.
Going to tell you how much house you can afford, based on your income, based on the property type based on the interest rates down payment and all these other factors, all these things come together and they determine what price range you should be.
Looking at and yeah you don’t want to waste your time. You don’t want to waste your real estate agent’s time and yeah, so just know exactly how much you will be able to qualify for before you start looking at homes now.
One thing i want to say is: when you are investing in investment properties and multi-unit properties, the lender will actually use about 50 of the projected rental income as your own future income. That way, for example, you can afford a multi-unit property with a bigger price tag than you would be able to afford a smaller property that is only a single family residence so that’s.
Why it’s, important to talk to a lender? They’re, going to say what type of property you’re looking at, and if it is a multi-unit property, then yeah you can afford a more expensive home than if you were to just buy a condo or a single family house.
The other thing that you will talk about with the lender is what loan program is right for you now, i think most of you guys are going to go with an fha or a conventional loan generally. An fha loan is better for people with a lower credit score.
They are definitely more forgiving in the area, but the good part about conventional loan is that there are fewer fees. A lot of people also think that the only way you can put down a super low down payment is through an fha loan, but that isn’t the case.
You can actually put three percent down with a conventional loan, but no, you will be paying private mortgage insurance all right so now that we have the mortgage stuff out of the way. Now. This is the step where you actually get an offer, accepted and close on your property.
This is step number six, but actually this step is like a hundred different steps. Combined, you have to make offers you have to negotiate. You have to work on repairs. This might take months, or maybe even years, to get an accepted offer.
Depending on your bidding strategy, i’ve, heard people viewing, maybe 10 homes, 20 homes, even up to 100 homes before they get an offer accepted. The shorts that i personally have seen is seven days on investment property, but also i have clients who have been looking for months and months without finding anything.
It really is a complex process that your agent will take you through and can really help you with those negotiations, the repairs and the whole escrow process. Once you do get an offer accepted it’s generally 30 days of escrow and trust me.
There are going to be things that come up during escrow that make you super annoyed, but that is just the whole home buying process. One thing i want to say is always do a home inspection. I’ve, never seen the client lose money from doing a home inspection.
Now, a home inspection generally costs. Let’s, say 400 500. But now with that inspection report in your hands, you have a lot of leverage to ask for money from the seller. You can ask them for credits or you can have them actually repair things that need to be repaired before escort closes all right.
The seventh and final step is to get the investment property rented out now, if you’re buying a property for yourself, then obviously that’s good, you just get to live there, but if you’re buying a multi-unit Living one of the units and renting the other ones out or you’re, just buying a property and leasing it out to tenants.
You will have to go through the process of finding tenants, screening them and renting the unit out. There are different ways you can do this, and probably the easiest way is just to hire a property manager.
They’ll, usually charge you one month’s rent and then they’ll charge between five to ten percent of the rental income as their management fee. Or you know you can do it yourself. If the house is near you, then maybe you want to take on that by yourself and just learn from the process.
The two most important things are knowing the market rent and you can do this by looking on zillow looking on hot pads and seeing what comparable properties are renting for and also the tent screening process.
You really want to make sure that your tenant is stable, is going to make the payments and is not going to give you a hard time. So, congratulations. You guys watch this video and you are one step ahead of most people.
Most people never get into real estate investing because, as you just saw, there are just so many steps and there’s, so much effort to get into your first investment property. There’s so much to learn, and this is a multi-step process.
It can take months or even years. Therefore, there are so many points where you can just be like all right. I don’t want to do this and decide to stop so that’s. Why? I want to tell you guys just take action.
If you’re young, get started right now, start preparing and really get that knowledge of real estate investing into your head. It really is a complicated process, so i encourage you guys to refer back to this video or even more detailed videos.
As you are in the process, there’s, no way that you can remember all this information and just remember to implement it on your first try. You definitely will need some handholding, but that is totally okay.
You know every real estate investor starts out like that, and it really is a great time to invest in real estate. You know we have all these powerful resources free education available online. Where yeah, you can probably get all the information you need to invest in real estate straight here on youtube.
Another really great resource that you guys should check out is bigger pockets. They have a website with a forum and a podcast and really helpful articles that will for sure make this whole process a lot easier.
And if you guys are really serious about investing in real estate long term, then it might make sense to get your own real estate license that’s. Exactly what i did. I knew that i wanted to get into real estate.
You know for the long term, so i went ahead and got my license from real estate express. So i went ahead and just took my online course and got my real estate license it’s. Gon na help you out a ton just based on the amount of information you learn and saving on the commission, especially if you’re, doing a ton and a ton of deals.
That commission is really going to add up. Just note that when you’re representing yourself at the very start of your real estate career, you might not save money compared to hiring an experienced agent.
So yeah just keep that in mind. But hey you guys. I will leave a link to the course i took below. In my opinion, it’s, probably the easiest and cheapest course available online and every person that ends up taking this class really enjoys it so yeah.
Thank you guys so much for watching. I hope you guys found this video informative if you did make sure to share with a friend and also hit that like button and subscribe, my channel, if you want to see more content just like this, i make a ton of content about personal finance, investing in Entrepreneurship, so that’s it for today.
Thank you so much and i & # 39. Ll, see you guys in the next video peace, [, Music ], you