PODCAST EDUCATION

7 Things To Consider When Investing

Episode 010

John Larson and the Real Estate Cowboys talk passive income real estate investing.

Hear new episodes every Sunday morning at 8 a.m. The Cowboys take a deep dive into the state of the Texas real estate market as well as discuss seven things to consider when investing in the market.

Keep the #CowboyCoffee hot while listening to John, and the Cowboys talk about how to #BeACowboy and earn passive income in real estate.

Episode Transcript

Announcer: Have you thought about becoming financially free through real estate investing, but don’t have the time or knowledge to get started? Welcome to the Real Estate Cowboys podcast. Each week we discuss passive income investment opportunities in the red-hot Texas market. John Larson and the Real Estate Cowboys will show you how to leverage their team to build wealth in real estate through passive investment opportunities. And now here’s John.  

John Larson: Hello there, Real Estate Cowboys. John Larson here. This week’s episode, we’re going to start with a Texas market report, talk about some things going on in the Texas economy, new developments and just an overall update on the market. We’re also gonna be talking about seven things to consider when looking to purchase or invest in a single family cash producing property. So a lot of cool stuff to talk about today. But let’s start with the market update. Going right into some things in the news; not surprising at all. I just saw DFW lead the country in employment growth with almost a 120,000 new jobs added this past year. That even beat out New York. New York was second with 113,500 new jobs, and that’s according to the Bureau of Labor Statistics. So at that pace, you know, DFW’s adding about 330 jobs per day, which is just, it’s crazy. At the end of the first quarter in 2017, more than 32,000 apartments were being built in North Texas, the most of any U.S. market, and that should just coincide I guess with obviously the large amount of population growth that we’ve been experiencing in the north Texas area and just in Texas in general. DFW led the nation again in new transplants.  

Almost 150,000 new people moved to the market last year, which is great for investors, right? Especially investors who want to invest in cash producing properties. Obviously, your property is not going to perform for you unless you have someone willing to rent it from you and live in it and pay you rent. And so that’s why I love the Texas market and all these markets in Texas, Dallas Fort Worth and Houston specifically because it’s very easy to rent your property out. It’s very easy to keep the property occupied. You know, it’s very easy to keep that property cash flowing, cash producing. That’s I go back to my investors quite often and we have conversations over the phone or in person where they’re talking about, well, I could get $100 more in cash flow here in this market that’s not growing stagnant or it’s losing people. And I’m thinking to myself, what does that $100 extra cash flow going to do for you if you’re just buying in a more risky market or in a market that’s not growing like some of these other markets around America and DFW being one of them, that $100 cash flow isn’t really going to matter, that extra $100 dollars if you can’t keep the property leased consistently. So investors, when you’re thinking and choosing about markets or when you’re choosing a market to invest in, you have to consider that. You have to have to consider, you know, what does the growth look like in this market? Are there more people leaving this market than moving in, is there not very much population growth, is it just kind of stagnant? And when you’re running your numbers you have to think about these different variables. You know, real estate investing, I say this quite often, is not black and white. There are a lot of different variables that go into it.  

If we all made our decision on purchasing investment properties just based on the black and white numbers on a spreadsheet, you’d see a lot of failures out there.  I just talked to a client yesterday on the phone, poor woman, she bought five or six homes in Indianapolis from a provider up there that looks like he’s going out of business.  His property management company has gone completely radio silent. This is the guy that was on television, this is the guy that was putting together videos talking about $40,000 assets. Uh, they’re good properties. They’re good investments. You can buy $40,000 homes in good areas. I mean, it’s just, these videos were comical to me and I thought to myself, this guy’s going to be out of business very soon, peddling this type of investment property. You know, I have friends that uh, they,  I call them slum lords, right? 

In Detroit, and they own 20, 30, 40 homes. But they manage them themselves. It’s their job. They build relationships with the tenants. They file the paperwork with Section Eight. They make sure that their properties are up to code. When someone doesn’t pay rent, they’re going down and knocking on the door.  You know, you might be able to get those properties to perform if you’re actively managing your portfolio. But investors that are looking for a passive solution and wanting to, you know, hire a third party management group to manage their five to 10, whatever, how many homes, that are, 40, 50, $60,000 in distressed areas across the US and these major metros. They’re very, very hard to manage. They’re very, very hard to keep under control. They’re very hard to keep performing. And so if you want to hire a property management company that’s managing hundreds of doors that are in that C and D class range, you’re going to have a very tough time having a passive experience.   Trust me. Um, if you’re managing them yourselves and that’s your job, I think you can get those properties to work. You can get them to work pretty well. But if you’re out in California and you’re investing in Detroit or Indianapolis or Cleveland, you’re buying C or D class homes, do not expect the passive experience. Okay? And so, you know, I feel bad for these investors that trusted this company out in Indianapolis. You know, there was another company out in Chicago, I think it was a year or two ago that just went under and I know a lot of investors personally who were affected by them going under. And so now it looks like the same thing’s happening in Indianapolis with guys that are peddling C and D class properties. It’s just, that’s the nature of this business. You are not going to get a passive experience investing in properties like that, I’m telling you right now.  

So back to the market report. We got another development announcement as well that’s going on here in Dallas and downtown Dallas. There is a Dallas based real estate development, private equity firm that’s spending a substantial amount of money to create a new district inside downtown Dallas. They announced this past Thursday that they will be creating something called the East Court and it’s gonna be a 20-acre project encompassing 200,000 square feet of office, restaurant retail space across 18 buildings.  That’s just another big announcement here and big, big news for downtown Dallas. I see a lot of money going into revitalizing downtown Dallas and that’s a great sign, but I attribute that to the millennials that are moving into the market, the young business professionals that are moving in daily that want to live close to downtown.  

And so you see there’s a lot of money going back into the downtown area, which is really, really great to see. So USA Today ran an article. They had their 10 states that they predicted to have the strongest housing markets in 2018. Number one was Nevada and that one actually is in question to me.  I see there’s a lot of growth in Nevada, but there’s not really an economy to back that growth. You don’t see increasing wages, you don’t see a strong economy to back all the housing boom that’s going on there. So that one’s a little bit concerning to me, but I can see why Nevada would be number one on there. There are a lot of new homes being built and a lot of migration into that area as well. Number two is Texas, and obviously, that’s because of the booming economy that we’re experiencing here in the Texas market.  

I can definitely understand why Texas would be on that list. I was actually surprised to see that they were not number one, but number two, still strong position. Number three is Florida, number four California, five Utah, six North Carolina, number seven Colorado, eight Tennessee, nine Oklahoma and 10 was Georgia. And so investors listening to this show, um, you don’t think Texas works for you for whatever reason? Definitely, you should be looking at some of these other markets. Now, California, not so sure for a cash producing property. The values there are quite high. Um, that’s why you see so many California investors investing outside of the state of California because it’s very hard to find good properties and get neighborhoods in California and where the numbers make sense, where you can get positive cash flow. So, but I know that the California market is booming in terms of appreciation and property prices that are rising rapidly.  

But for our model and for passive income investing, that doesn’t really make sense. Same goes for probably Colorado, Denver, the Denver area. I know I have a lot of investors that invest with us that are located in the Denver market just because the prices have gone up so greatly there as well. But it’s very, very difficult to get homes in good neighborhoods that produce positive income. So, going back into the Dallas report here, this is some housing statistics, the median sales prices in the Dallas Fort Worth, Arlington market have skyrocketed 33 percent in just three years, so an average of 11 percent per year, which is outstanding. Um, and I’ve seen that with my own properties; they have increased in value quite, quite considerably in the years that I’ve owned my homes. And so  sitting on quite a bit of equity growth and obviously equity, it’s not doing anything for me right now, until I make it tangible. So I am looking at potentially doing some refinancing here in the near future, where I could pull some of that equity out of these properties and reinvest it into some more homes potentially. I’m looking at some other markets as well outside of Texas. I’m also looking at some secondary markets here in Texas that I think have a strong opportunity moving forward  in the coming years. One being Waco. Um, I really like the Waco market just because of the proximity of where it’s located here in Texas, in between DFW and Austin. So I feel like there’s some good opportunities in Waco and I feel like as property values start to increase in price in markets like Dallas, Fort Worth and Houston and Austin, which Austin has already rose pretty high to the point where it’s makes it very difficult to find cash-producing properties in good neighborhoods, even in Austin. Um, when you look at Waco, where it’s positioned right in between Dallas and Austin. So as real estate prices increase, they’re going to increase for businesses as well. And businesses still want to move to Texas because Texas is pro growth and pro-business, but it might not make sense to be in the Dallas market in the coming years or in the Austin market. So maybe they would look to, I feel like they’re going to start looking to areas like Waco, just because where it is logistically, and they’ll probably be able to get more affordable land or more affordable buildings in the market. So that’s one of that I definitely have my eye on. Also the Texas market report that came out from the Texas A&M Real Estate Center. They put this out every quarter. They showed from the first quarter of last year in 2017 to the first quarter of this year in 2018, the median price in Waco rose 9.4%, almost 10% in that market. Um, it’s pretty crazy. So we’re seeing a lot of appreciation and markets like Waco right now, also in Lubbock. These are college towns, they’re not as large of cities as obviously, you know, Dallas, Houston, Austin, San Antonio, but they’re coming up. They definitely are. When you talk about the growth that Texas is experiencing, it’s just going to happen organically that these other smaller cities in Texas are going to grow as well. And so I know there’s a lot of investors out there that are talking about, is the Dallas market overpriced. There’s no cash flow in Dallas. So on and so forth. Well, there’s cash flow in these other areas, these secondary markets, that I feel will continue to grow rapidly as more and more jobs are injected into the Texas market and more and more people are injected because of those jobs, so it just makes sense that some of these secondary markets are going to grow as well.  

Now we’re going to go back into the market report. I have a report here from Robert Kaplan who is the president of the Federal Reserve Bank in Dallas, and in a recent interview with the Houston Chronicle, he said the number of people living in Texas has grown from 22.5 million about a decade ago to more than 28 million and could rise above $40 million over the next quarter century. That is just amazing. That is the growth projection that Texas is on right now. So investors, if you are not looking to invest in Texas, you really should be. You’re talking about an unbelievable amount of growth. They’re talking about 12 million more people are expected to move into the Texas market over the next 25 years. it’s just amazing. It’s just, the growth itself, almost 6 million people just over the past decade have moved into the Texas market. So it’s definitely something that you should keep your eye on if you are not currently. The rising oil prices; U.S. crude settled at $72.13 at the end in May, that’s almost three times higher than it was two years ago, and the worst oil bust that we had in our experience. And you would think, you know, Texas 30 years ago, would be extremely depressed by something like that, but it just shows you the resilience of Texas and the diverse economy that we have in Texas today that this oil bust did not cripple the Texas economy. You know, people continue to move here. Jobs continue to move into the Texas market. The housing prices continue to increase, rental rates continue to increase. Unemployment continued to decrease, and wages continue to increase. So that to me, if I’m an investor that’s I want to see –  a resilient market. And Texas is definitely a resilient market. Economists are predicting that we are going to run into another recession here in, in 2020 and they are there saying this because the baby boomers are more and more are starting to retire and by 2020 the majority of the baby boomers will be retiring.  

And that is worrying economists because they feel like the workforce, is going to be decreased by 2020, which is going to have a negative effect on the economy. Although millennials have become the largest population group in the US, the baby boomers are still, many of them are working today, and they are expecting the next two years, the majority of them will be in that retirement age or past the retirement age. And so we are going to have issues with labor in the U.S. And so for me as an investor, investing in cash producing properties, investing in some of these markets across the US, if we’re going to go into a recession in 2020, I want to make sure I’m putting my investment dollars into a market that I know is going to be able to withstand another recession.  

And, you know, coming from the city of Detroit, coming from the Midwest, I see that the Midwest in most cases when we go through a depression or a recession is really negatively affected. And it really gets hurt by downturns in the economy. But in Texas and DFW specifically, where you have the most corporate headquarters in America and more and more keep coming. I don’t expect the Dallas Fort Worth market to be too affected by a downturn like this or another recession. Uh, there’s plenty of people here that are, you know, millennials or that are at that working age. So I don’t feel like we’re going to be too affected like that, which is another reason why I feel very comfortable and safe. Having my dollars invested in the DFW market and other Texas markets here in Texas, Waco in Lubbock are ones that are definitely on my radar, uh, for me to get more affordable housing and better cash flow and better rate of return on my rental income and also it shows, just from the Texas market report increases in pricing as well, and that appreciation and equity growth that I’m looking for, and in markets that I want to invest in.  

So we’re going to take a quick break here. We are talking about Texas market report, talking about new developments, talking about the housing market here in Texas, talking about the economy here in Texas when we get back, we’ll talk a little bit more about that. And I’m also going to talk about 7 things to consider when purchasing or investing in cash producing properties. So, Real Estate Cowboys community, we’ll be right back.   

Okay, Real Estate Cowboys. I’m John Larson, your host. We’re talking about the Texas market right now, we’re giving the Texas market update, update on the economy, update on the housing market and update on some new developments and new news that’s going on in the Texas market. So another article that I read was a new Fortune 500 list came out, and 22 Dallas. Fort Worth companies made the 2018 list. That is awesome news. 24 in Houston, 22 in DFW. I believe Texas now ranks number two in the country, just behind New York for the most Fortune 500 headquarters. Um, and I think one day might take over the top spot, the pace that it’s on, just the pro-business state that it is, and the more affordable market that it is. And so that was great to see 22 DFW companies make the 2018 list.  

And for those of you that don’t know, I say this a lot, DFW is actually home to the most corporate headquarters in America. So lots of jobs here. And with all the talk about a new recession, upcoming recession here in 2020, if you’re investing in real estate, I think it’s a safe bet to stick you’re some dollars here in Texas, in DFW and Houston and well more so DFW specifically, I just feel like it’s a very, very safe, stable market right now with tons of job growth, tons of job opportunity, which is resulting in a lot of population growth in a very strong workforce here in Dallas. Fort Worth. Another potential development that I’ve heard about and another business that’s moving in, creating jobs; CIMPRESS which a subsidiary of their company, Vista Print, maybe bringing more than 600 full-time jobs to Dallas County, and specifically South Dallas County, uh, which would help boost the local economy, obviously.  

And they may invest up to $50 million dollars to build a 322,000 square foot manufacturing facility in South Dallas. So that’s some big news. The project report claims the facility would bring more than 625 full-time jobs to the area, either as new or relocated positions, and it would add 125 seasonal jobs by 2023. Not only that, it is reported that the overall median wage for full-time workers would be $40,000. So just slightly below what the median income is here in the Dallas area, but really good to see that we’re bringing in – it looks to be over 600 more full-time jobs to the area. So that’s just something that I saw was recent news. Um, now to talk a little bit about Houston. The Houston metropolitan area added jobs for the 7th consecutive month in April, catching up to the state’s employment growth rate, as higher oil prices provide a lift to the local economy.  

So, you know, Houston was doing pretty well even with oil prices going down, and now that oil prices are rising again, that’s just gonna make Houston’s economy even more of a juggernaut. And so you see that it is for the 7th consecutive month adding jobs. Me as an investor, that is what I want to look for in a market. And so really, really good news coming out of Houston. Houston actually added 12,000 jobs in April after adding just under 12,000 in March and nearly 13,000 in February, the Texas Workforce Commission reported Friday, So that’s big news. Over the past year, the region gain more than 80,000 jobs, matching the state’s job growth for about 2.7%, and easily exceeding the national employment growth rate of 1.6%. So going ahead of the nation, setting the trends here in Texas. Big, big news. Houston recently lagged the state’s economic and employment growth in recent years because of its greater exposure to the oil and gas industry, which suffered a two-year oil bust and it was considered the worst in 30 years. As the industry and crude prices have recovered, so has the local economy. There are now more than 1000 rigs operating in Texas in the US. And that’s the highest level since 2015. And that information came from the Houston Oilfield Services Company, Baker Hughes, and that was recorded just this past Friday.  

Okay. So let’s go into second part of the show. We’re going to be talking about seven things to consider when investing in cash flowing properties. Number one on my list for me, when I’m looking to invest in the market, is I’m going to look for appreciation or capital growth in the market. And so I like to look for markets with high population growth. Um, obviously the population growth is going to drive up the prices of real estate in the market, due to the high demand and low inventory. Simple economics. Supply and demand. If there’s more demand for property in a certain market than there is supply, it’s going to cause an increase in pricing.  

So that’s why I like to look for markets like Dallas, Fort Worth or you know, there’s other markets across the US that are experiencing very high population growth as well, like Denver. But not all the markets make sense with the numbers. So we’ll go into that a little bit further as we go through the seven things to consider, but number one for sure is going to be the appreciation capital growth and population growth. Um, I also like to look for job growth in the cities where I’m looking to invest, research the Fortune 500 companies that are moving into your market. Look for the amount of Fortune 500 companies or Fortune 1000 companies there. Um, and so like talking about Dallas leading the country in corporate headquarters, tons of jobs, 22 Fortune 500 companies, I believe they have over 40 Fortune 1000 companies.  

So that’s a really good market to identify for appreciation, capital growth. And obviously, as more people move into the area of the real estate market begins to adjust. And the adjustment can take a few years. But as an investor you want to be part of the market from the get-go so your investment can blossom alongside that growth. And so a lot of my investors who started working with us back in 2012, 13, 14 are reaping a lot of benefits of that growth. I mean many of my investors, right now are refinancing your properties and pulling out tens of thousands of dollars in equity. You know, some of my investors that purchase from you back in 2012 and 13, some of them have $100,000 in equity in their property, because they purchased early on coming out of the recession when property values were still low here in the Dallas area.  

And because of all the population growth and job growth that we’ve experienced here in the past six years, seven years, basically the past decade, have contributed to that growth. And that’s why they’re sitting on a goldmine right now. So kudos to them for jumping in on the market early. I still think there’s an opportunity here for growth. I still think that it’s not too late to invest in the market like Dallas or Houston, but these other markets where you’re seeing the great appreciation and still are able to get in on a property at an affordable price. Number two is obviously everyone’s favorite, it seems like. Cash flow, which as we talked about last week with Keith Weinhold, cash flow is just one of the ways that properties these properties pay you. There’s up to six ways that you can make money off of real estate investing and buying single-family homes specifically and being a landlord.  

Um, but cash flow is important. Um, but once again, we caution our investors to not be fooled by paper yields and what I call it, paper yield is an Excel document, right? Once again, real estate investing is not black and white. You cannot make your investment decisions solely on the rate of return from the rental income that the property going to produce, okay? In today’s market, with the rising prices and the rising interest rates, you are only going to see high cash flow numbers on properties that are going to be a lower value, which means they are going to be in more distressed area of these major metros, or they are in a metro in the US that is not thriving, okay? It is not growing. It is stagnant, is always been a cheap area to live in, and will continue to be a cheap area to live in.  Okay, so you need to be very, very cautious about that.  

And also understand that many of these properties that have the high rate of return it’s a high risk, high reward scenario. And a lot of the success of your property is going to depend on your property manager, which in my experience, C class properties generate C class property management companies who aren’t the best. It is very, very difficult to manage these homes and to achieve the returns year over year that you were looking for from investing in this property. Um, so be very, very, very cautious of that. Like I said, high return is always going to be associated with high risk. It doesn’t matter if it’s a stock, it doesn’t matter if it’s an oil and gas opportunity. It doesn’t matter if it’s a single-family home. If it is a more risky investment, obviously we’ll show a higher rate of return, but all the stars really need to align to see that return.  

So like I said, be cautious of that. But cash flow is important. We want to make sure that properties are going to cash flow. I at least want to see that my investments are going to break even. I want to make sure that the rental income, is going to take care of all the expenses and also take care of my loan payment. Um, and keep in mind that your principal payment is not an expense. Your tenant is paying down your principal balance for you. It should not be viewed as an expense. Okay. So I always look at my principal amount that’s being paid on my loan as profit, right? I factor that into my cashflow. Um, I don’t look at it as an expense. The interest payment is an expense, the principal paid on is not inexpensive in my opinion. Um, you know, with higher cash flow properties, uh, there’s gonna be a lot of times less room for capital growth, but those properties, because you’re probably buying a high cash flow property, like I said, in a more distressed neighborhood where you don’t have a lot of owner occupants buying in those neighborhoods, which are going to drive up the cost of the property in those neighborhoods. You know, you’re buying in a neighborhood that’s primarily properties that are investor owned.  They’re being traded on cap rates. They’re not really increasing in value. So like I said, if you’re looking for a strictly cash flow properties, the chance for appreciation is not going to be as common and it’s also going to be a lot more volatile. So we go through another recession here in 2020. You better expect your properties in Detroit and Cleveland and Memphis and some of these other areas in the Midwest, they are going to devalue because of this. Now you will look at other strong markets in America that have a lot of jobs, have a diverse economy, I don’t expect a recession to affect those prices too much. My personal philosophy with these properties and when it comes to cash flow and things like that, with, with locking in longterm fixed debt, you know, if you’re not losing money each month on the investment, in my opinion, you’re winning.  

Um, like I said, a tenant that’s paying down your principal balance. He’s paying down your loan. He or she’s paying down your loan for you, and you’re holding an asset that you have tons of tax benefits available to you year over year. Uh, it just makes sense. So cash flow is important, but it should not be the only factor in your decision on what’s a good property, what’s a good investment.  Number three, I have as a tenant profile. And the tenant profile consideration is pretty simple. You know, lower grade properties are going to attract the less reliable tenant, when meeting rent obligations, whereas higher grade properties in better areas and neighborhoods are going to attract a more reliable tenant who can commit to longterm who can consistently pay their rent. So you don’t have to worry about evicting evictions, It’s proven, are very low. They are a lot less common with higher priced properties. Properties that are located in neighborhoods that are very close to or at the median value for that market. And I say this a lot, when you deviate too far below the median value in any market, your risk is going to greatly increase and a lot of that is due to the fact that the tenant profile in those neighborhoods is not going to be as strong as it would be in a higher end neighborhood. Those people just do not have as good of jobs, consistent income. And you know, a car breaking down or job loss can really affect their financial situation. And a lot of times it will resolve in eviction. And now you have to deal with the turnover. You have to deal with an extended vacancy and now you know, if you own your property in a distressed neighborhood, your property is vacant, you’re now leaving it open to break-ins and thefts and vandalism and so on and so forth.  

Number four I here is vacany. You have to consider vacancy in any market that you are analyzing, and in different markets have different levels of vacancy. Um, you know, a Detroit market doesn’t have 150,000 people moving into the market year over year. I don’t know what the population growth looks like in Detroit, but I’m sure it’s not very high. So if you’re looking to invest in market like Detroit or Cleveland or one of these areas in the Midewest,  Indianapolis, I would definitely assume more for vacancy because if your property goes vacant in the middle of winter, uh, there is a good chance that you could experience an extended vacancy with that property. Um, when analyzing an A class property in a growing market, a fast growing market like a Dallas or any of these markets here in Texas, you know, I would account for far less vacancy and understand that the risks for vacancy is going to be a lot less because you have, I just showed the stat earlier in the show, almost 6 million people moved to Texas in the past, decade.  

So that to me tells me that vacancy is very low in markets in Texas. So be very, very cautious about what your assumptions are when analyzing a market because you could assume yourself out of the deal if you’re running the same vacancy numbers for Detroit or Cleveland and you are for Dallas or Houston, you’re probably going to talk yourself out of a good investment opportunity. So, uh, just be cautious of that.  

Number five I have as rehab quality. And also I will add in maintenance and you want to make sure you’re purchasing an investment property that has gone through a quality renovation and has been inspected by a third party inspection company to make sure that you’re buying a truly turnkey asset. A home that is poorly renovated or a home that is older or a home that is an area with maybe not as good of a tenant profile where you might have some tents who are a lot more dirty and beat up on the home a little bit more, there are a lot more maintenance issues.  

So you need to factor that into your return as well. Um, you have to think about that stuff. C and D class properties have a lot of maintenance. It’s just a proven fact. Um, I’ve done thousands of properties and I’ve done these properties in many markets across America. And one thing I can say is the properties that were in that C and D class and low B class even price point, they had a lot of maintenance on it, quite considerably more than what I experienced in my B and A class properties. It just seems those tenants take better care of the houses. They’re cleaner, they try and keep a good home even though they’re renting a property, they still treat it like they own it. So that will really have a positive effect on your numbers when it comes to assuming costs for maintenance and capital expenditures.  

Number six, we talk about this a lot, is property management. That, I believe, is the most important thing. That’s an important thing to consider when investing out of state and not managing the properties yourself. Like I said earlier, I have friends in Detroit that I would consider them slum lords, they own, you know, low C to D class properties. But the property has performed pretty well for them. But it’s because they manage them themselves. You know, they don’t live in California and invest in C and D class properties in Detroit and leave it their financial future up to a third party property management company, okay? They control their own future. They control the money coming in, they control the investment themselves. And when doing that, you know, you can have a good experience in buying these lower grade properties. But now that has become your job, that is no longer passive, okay? And this show’s primarily about passive income, real estate investing and leveraging good teams and making sure that these teams are going to be able to get you the returns that you’re looking for it. But I’m telling you right now, it’s very, very difficult to manage these lower grade properties. And so if you’re not doing it yourself and you don’t care about them… No one is gonna care about your investments, like you do. You know it. So if you’re putting your financial future in the hands of a property manager, it’s a lot of trust that you’re giving these people. And so, like I said, the only way that I can really look at my clients in the face and ensure that they’re going to have a passive experience, you’re going to have to buy higher priced property and you’re going to have to buy it in the right market because I need to be able to put in good tenants consistently in your home.  

I need to be able to keep your property rented out consistently. When the property goes vacant, I need to be in a market that I know I can rent the property out very quickly for you so you don’t have a longterm vacancy. I need to make sure that I’m putting good tenants in the property consistently. They’re taking care of your property, and paying you rent consistently. I need to put you in properties and in markets where I know, and in areas and neighborhoods where I know evictions are not going to be very common, right? Because of the type of tenants that I’m placing. This is all stuff that needs to be considered when when investing in these properties, okay. Once again, do not base your decision on a good investment by cashflow strictly. That is not a good way to look at investing in single family house.  

Number seven, exit strategy.  Once again also very important, and this goes back to the A, B and C class properties as well. C class properties, not a lot of different buyers that are looking for those. Are investors looking for a C class property? Sure.  You might be able to sell the property to another investor, are you gonna be able to flip the home on the MLS, hire a real estate agent and get top market value retail value for your property by selling it to a homeowner? Probably not. Or your likelihood of doing so is going to be far less than buying a high B or A class property in a good neighborhood. I’m in a market where a lot of new people are moving in daily because the demand for property is going to be extremely higher, right? Going back to Detroit where I’m from, you know I started off as a retail real estate agent and in the winter there was not a lot of movement in the real estate market. In the summer? Sure the market was really hot. So let’s say you need to exit out of your property in the middle of winter.  You’re not going to have as many buyers in that market and let’s be honest, people. Life happens. Just because today you have a bunch of money to invest in real estate doesn’t mean 5 to 10 years from now you are going to be in the same financial position. Hopefully, you’re in a greater financial position, but life happens. What happens if you need to exit out of these homes? What happens if you need to sell one of these homes? What happens if you need to pull your money out of these investments. Don’t you want to make sure that you’re investing in homes that you can easily exit out of? Don’t you want to make sure that you can sell these properties at the top of market value, that the buyer is not going to care what the capitalization rate on property is? The buyer’s not going to care how much the property rents for. The buyer just wants to move in there with their family because the home’s in a good neighborhood and it’s in a good school district. It’s in a neighborhood where retail buyers want to buy, and that retail buyer’s going to pay you market value for that home, not want a discount, not want to cut you out from under your legs and then buy the property on a deal because they’re buying it as an investment. And only investors are looking at buying in those markets because this is a 90 to 100 percent rental occupied neighborhood. There are no longer occupants or if there are, very, very few. So that’s another thing that you want to consider as a very, very important thing to consider when investing in rental properties. What if I need to exit out of this home? Am I going to easily be able to exit out? I know a lot of investors that want to exit out of their properties because they didn’t have a good experience. They went and bought seen C and D class properties. They were sold on a dream, and the property did not perform the way that they expected, and now they’re sitting here holding the house, and it’s vacant and it’s costing them money, and they want to sell it so bad, but the only people that they can get to buy is somebody that’s gonna offer them 10, 20, $30,000 less than what it’s worth because they know that they are in a distressed situation and they know that the property is in an area where it’s just strictly properties being traded on cap rate from investor to investor, and there are no retail buyers. They’re going to come in and say, Hey, I’ll tell you what that house is worth because I want to move my family into this area. So be very, very cautious about this. Consider these seven things anytime you’re looking at investing in a single family home anywhere in the US, a rental property, and I hope that we were able to give you all some good information today.  

This is John Larson with the Real Estate Cowboys. If you like what you heard on the show, please subscribe to us. I’m podcasting every Sunday on all the major platforms out there. So if you like what you heard, please go RealEstateCowboysDFW.com, put in your information and receive our Passive Income Starter Kit. This starter package talks about all the different passive income paths on income options that are available to investors, single family rental properties, private lending opportunities, specifically for my IRA, 401K crowd, if you have not self directed yet, you should definitely look at doing that. Private lending is a great, great option. You get a high fixed rate of return on your money and consistent passive income stream back into your retirement account that’s tax free or tax deferred. Also, vacation properties in Belize. We talk about a lot of our private islands there and our luxury vacation homes that you can use when you want and when you don’t use it we rent it out for you, we professionally manage those properties for you as well.  

So, great information in that Passive Income Starter Kit. Also, my passive income book will be coming out here shortly, that’s great for new and seasoned investors. All the different options that are available to you. I talk about  7 things to consider when investing in real estate allowed to stuff like that. That’s also available to you in that book. So that will be out for you, hopefully within the next month. Also when you sign up, you’ll be able to get access to exclusive, fascinating opportunities. You’ll be able to see single family opportunity that you can invest in, and new private money lending opportunities that are available on the vacation rentals that we just spoke of. So, that’s a great way to get first right of refusal, and stay in hte know on great passive income options that are available to you. And then also we have our investor quiz.  

You’re not sure what type of passive income investment that’s best for you. Are you single family rental person? Are you a private lending person? Do you like a little bit less risk and a lot more passive experience for you? Or are you somebody that’s retired or on the cusp of retirement? Do Y\you love the idea of being able to use your property down in the Caribbean, and when you’re not, make some money on it. So, take that passive income quiz, and find out what type of investor you are. Maybe you’re the one, or two, or maybe you’re all three. You’ll find out by taking that quiz. So once again, thank you all for listening to us, this is another episode of Real Estate Radio Cowboys. We’ll see you next week.  

Announcer: All opinions expressed by the host of the show are the opinions of American Real Estate Investments LLC and do not reflect the opinions of guests or sponsors. No personal or professional advice on this program should be considered an endorsement to follow a real estate financing or investment strategy. Before acting on any information, seek advice from your financial tax, mortgage or real estate advisor, as the information is not guaranteed and investment strategies have the potential for profit or loss.