What is a Good Cap Rate?
John Larson and the Real Estate Cowboys talk passive income real estate investing.
New episodes every Sunday morning at 8 a.m. John was recording in Kansas City this week and talked about good cap rates for investors.
Keep the #CowboyCoffee hot while listening to John, and the Cowboys talk about how to #BeACowboy and earn passive income in real estate.
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 podcast. Each week we discussed 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: Hey everyone, this is John. Welcome to Radio. I’m broadcasting live from Kansas City, Missouri this week. So I’m out of Dallas. And being here in Kansas City, I got to thinking, I was reading an article from Grant Cardone, and he was talking about what is a good cap rate when buying a real estate investment and being in a market like Kansas City compared to a market like Dallas. It kinda got me wondering. And so everybody that’s listening to the show, you know, there could be some new investors or some seasoned investors, you know, when you are looking for a good cap rate, what does that mean You know, most people generally will relate cap rate to the rate of return on the rental income that you’re getting. And association with what you purchased the property for. So, in most cases, people are taking advantage of Fannie Mae finance to purchase single-family rental opportunities. So they’re putting 20 or 25 percent down on a property. So let’s say $100,000 property, you put $20,000 down to purchase that property, and then your net income is $200, uh, per month that would be over and over 10 percent rate of return on your money or cap rate. But what I’ve noticed in my career is anytime you’re looking for a property with a higher cap rate on an excel document, that will usually mean that that cap rate is coming with a higher rate of risk. And usually, it’s based off a lower class property value. So I myself, I like to buy a high B class to A class buildings, and basically, the best way I can, I can reference what an, a, b, and c class property is, is by price point. the amount that the property rents for, the location of the property, uh, things of that nature. And so when you compare a market like let’s just say Kansas City to Dallas, since I’m in Kansas City and I also invest in Kansas City, the median home value in Kansas City is under $200,000.
Whereas the median home value in Dallas is $280,000, So when looking for a class property in Kansas City, you’re probably going to be looking for something that’s at, slightly above, or slightly below that $180,000 value. When you start to deviate lower and lower below that $180,000 value, you’ll start to get into a, b, and then c class property. So in the Kansas City market, I would probably say that anything at 100K or below, you’re going to be delving into a c class property. Now on paper, it will look like that, that property is going to yield a pretty high rate of return on your money. But in actuality that property is going to come with much more risk. And Grant Cardone even talks about that in his recent article that he wrote for the Entrepreneur where he said higher cap rate is generally going to imply higher risk, whereas a lower cap rate is going to imply a lower level of risk. And so what I’ve found in my career, that if you’re buying at or slightly below the median value in any market, you are going to really decrease risk on any real estate opportunity, whether it’s an office building, whether it’s a multifamily project or just a single family home.
If you buy at that median value, you’ll usually attract better tenants, which will, in turn, relate to lower risk. Also, the neighborhoods that you’re buying in, um, when you’re buying at actual median value in any market are going to be better neighborhoods. You’re not going to be dealing with crime. You’re not going to be dealing with theft. You’re not going to be dealing with vandalism to your property. And just over time I’ve, I’ve noticed that these types of areas, it’s pretty much common sense, but these areas are more desirable, more desirable for renters. They’re more desirable for families; they’re more desirable for actual retail buyers. And so when you’re buying single-family homes, you always want to know what’s my exit strategy. Well, if you’re buying these properties in good neighborhoods, you should be able to exit out of these properties very easily.
You know, you never know when life could happen, and you need to sell one of these properties. Uh, I believe in buying properties in good neighborhoods where you have strong rents or retail demand as well, not just rental demand, because if I didn’t need to sell one of these homes, I’d like to be able to easily sell it on the retail market to a buyer that’s going to pay market value for the home. They don’t really care what the cap rate is on the property. They don’t care what the property rents for. They want to buy that home because that’s the area they want to live in. That’s the school district they want to send their children to. So Grant Cardone brings up a lot of good points in this short article that he just wrote here recently. And um, you know, he said a lot of investors go to him and say, grant, what cap rate do you buy it?
And he simply says that that’s the wrong question to ask. You know, one single piece of data does not substantiate a deal. And you have to take all of the things into consideration. The location, like I said, the price points. He said that the tenant profile of the person that’s going to rent the property from you. The crime statistics, there’s a lot of things that go into it to justify if it’s a good cap rate or not. And so going back to property classes, you know, an, a class property isn’t going to yield the highest rate of return based on rental income. Okay. Well, we’ve got to keep in mind that there’s many other ways that these properties pay you. It’s not just off rental income. Rental income is actually a small portion of the way that single-family homes or real estate investors and investments in general, pay investors.
And so you’ve got to take a lot of different things into consideration. Me, myself, I like to look for properties that are in good neighborhoods where there’s a strong rental demand, but also strong retail demand from retail home buyers. And I want to always take into consideration the tenant quality. You know, what better neighborhoods are usually going to attract better tenants. Pretty much common sense, you know, better neighborhoods are going to be the neighborhoods where you see appreciating values or appreciating markets. Today we’re in a real estate market where if you’re buying in good middle-class neighborhoods or slightly above middle-class neighborhoods, these areas are appreciating. These properties are appreciating. We’re in a seller’s market today. The prices are almost back to where they were pre-recession, in ’08. Interest rates are starting to creep up a little bit as well.
Making these cap rates on rental income smaller and smaller. And that’s because of the fact that prices are rising. Interest rates are rising. So your principal and interest payment on these homes, it’s going to be higher. But gotta, remember the tax benefits that are available to you and you talked about that last week with Howard Schulman. There’s a lot of tax benefits available to investors and especially landlords. Uh, you have to factor in the appreciation of course. Equity growth, I believe is one of the best ways that real estate pays you and it’s where you get your highest rate of return. So when you’re talking about Dallas specifically, I have properties that I purchased back in 2014 that have appreciated 50, 60, $70,000 and I only put 20 to 25 percent down on these properties. And so looking back from 2014, all of these properties have appreciated, and by more than 20 percent. So right there, just from the appreciation that I received on these homes, if I was to do a cash-out refi right now and pull that equity out, or if I was to sell these properties, I’ve already made greater than 100 percent return on my money. Okay? And there’s just not very many investment options out there that can get you these types of returns, which is why I love real estate so much. And so there’s a lot of things that play into a strong cap rate, right?
And if I look back at the properties, and the A class properties that I have in my portfolio right now, because I use the power of leverage, there’s just not many properties in there that are making this super high rate of return on cash flow from rental income. But I’m making it up in many other ways, like appreciation, like I just said. So I think a lot of new investors get very caught up on what is my cap rate, what is my rate of return, just based on the rental income of the property. And that, that I believe is shortsighted. Uh, you have to look at the whole picture. And so I just really love this article, that Grant wrote. And um, you know, he talks about location as well and he basically says that to say that location is everything might be an overstatement. But I don’t believe it is. Location matters because location is what drives demand.
And so when you look at a market like a DFW, where 150,000 people moved to in 2017 compared to a market like Kansas City where maybe 20,000 people moved into in 2017. There’s a much greater demand for property in the DFW market. Not to say that there’s not great demand in Kansas City as well. There is, but when you look at Dallas, it’s one of the fastest growing cities in America. Same goes for Houston. Same goes for Austin. Texas is receiving a lot of new people, new transplants each and every year, and that’s because of the economy. It’s because of the job growth. People are always going to follow jobs. So if you compare a Kansas City property to that of a Dallas property, you’re probably going to see a higher rate of return on the cash flow from the rental income because the property prices there are less than what they are in Dallas or if you’re looking at a B class property in Kansas City compared to an A class property in Dallas your cap rate in Dallas is going to be much smaller on rental income but might be able to give you the higher advantage with appreciation to where over time, looking back after you do a cash out refi or sell that property, you would say, wow, my Dallas property actually was my strongest performer or whatever market it is. We’re the Real Estate Cowboys, so we like to talk about Dallas and Texas quite often, but there’s other, a class high appreciating areas across the country.
Um, when I look at the Midwest specifically and the reason why I invest in Detroit still because that’s where I’m from originally, and Kansas City and St. Louis and Cleveland and all these other Midwest cities, you’ll see that the cap rate on the rental income is quite hot even in the market that we are today. Um, you could see through leverage 10 percent or greater rate of return. But like grant says in his article, these higher cap rates are always going to come with higher risk. And like I said, that goes back to buying far below the median value in the market to achieve that higher cap rate on rental income. And usually, that’s going to position you in a neighborhood or in a property and attract a tenant that is going to be more risk for evictions and missed rental payments and things like that, which is going to overall make the experience less passive.
And so our show is all about passive income real estate options, so private lending, single-family rental properties that are professionally managed for you, or vacation rentals that are also professionally managed for you. And so I’ve just found over time, I got my start in my career in Detroit, you know, uh, I was, I was dealing with c class properties, maybe even d class properties in and around the city of Detroit. And they were much more difficult to manage. There was much more turnover in these areas. And you know, when the properties would turn over and we were in there rehabbing, and we used to have to put steel entrapments over the doors and windows to keep thieves out because they’d see that we were renovating the property and putting in a new hot water tank or a new furnace or new appliances. And if we didn’t secure the property properly, someone was going to go in there and steal those at night.
Um, and now if we went back and looked at the excel documents on those properties based on what our clients were purchasing them for and what they were renting for, the cap rates looked unbelievable. They looked like you were getting a super high rate of return. And Wow, we’re going to get rich fast. I’m going to supplement my wife’s income. I’m going to supplement my income immediately. But I can’t tell you how many investors, you know, they went through a lot of trouble buying these c and d class properties because they could just never keep them tenanted long term. Um, they were getting broken into. The tenants were very rough on the homes. It seemed like every time the property would turnover, you had to re-renovate the home. Well, if you’re making money on rental income each year, which with c and d class properties, pretty much the only way these properties pay you is through the rental income and you’re going to get the tax benefits and things like that as well.
You might get the four to five ways that real estate pays you, but you’re not going to get the full spectrum, the full six ways that an A class property in an A class market will get you or a high growth market. And so I’m doing this episode just to caution investors out there, especially new investors to be careful in what you’re investing in and always make sure you go out and see the areas and see the properties because it’s also c and d class properties. They’re not really neighborhoods where you have a lot of retail demand. Um, there’s just not, there’s a lot of investor demand, but there’s not a lot of retail demand. When properties are being treated on cap rate, you’re not really able to see appreciating values in an area. Whereas in a market like Dallas, the reason why the prices are going up so rapidly is because the demand is there and you’re also investing in areas where retail demand, um, you have retail demand in retail, demand is what causes prices to go up because people are willing to pay market value or above to win that property to win the bid on that home. And so if you position your in markets or areas or neighborhoods where you have a strong retail demand, you will see the values of your property go up quite considerably over time and in a short period of time. So I want to talk a little bit more about this when we come back. If you’re listening to this show and you’d like to find out more information on passive real estate options, you can go to our website at RealEstateCowboys.com. Just put in your information. You can get on our list to receive passive income options weekly, and that list changes by the week. We have single family rental options in Dallas Fort Worth, and Houston and in Kansas City and in St Louis. We also have private money lending options where you can actually be the bank on an investment; very, very passive model and just earn a fixed rate of return on your money by being the bank, or if you’re somebody that loves taking vacations and you want to be able to use your investments. We have some great vacation rental opportunities as well, even private islands where you can purchase. You purchase a private island for less than you think and make it more affordable than you think. So if you’re interested in receiving that weekly list to see exclusive passive investment options, go to RealEstateCowboys.com, and register to receive that list each week. We also have a really cool quiz on the website where you can take a test and find out exactly what type of investor you are. Are you a little bit more of a risk taker? Are you a really passive person? Find out by taking that test and uh, we’ll be right back with more. I want to talk more about this article that I read from Grant Cardone. I find it very interesting.
Okay. Welcome back to the Real Estate Cowboys radio show. Got John Larson here I’m broadcasting offsite on in Kansas City, Missouri. Checking out my investment opportunities and my investments out here in Kansas City and I’m just relating the Kansas City market to a Dallas market where I live today and where we normally record our show from, and I’m just talking about what’s a good cap rate. You know, what is a good cap rate in these markets? And so the cap rates that you’re going to see in Kansas City or St Louis or Detroit, they’re going to be a lot different than what you might see in a Dallas or a Houston. And one of the reasons is it’s not just the property values, it’s also the property taxes. So when you know, anytime that you’re running your cap rates, you’re obviously going to say, okay, what am I purchasing the property for? Am I buying it all cash? Am I using the power of leverage and putting 20 or 25 percent down on the value of the property to purchase it? And then you’re going to factor in what are my expenses?
And so if you’re just buying a property cash, generally are your expenses are just going to be your property taxes, your property insurance, your management fees if you’re hiring a third-party management company, which I recommend you do, this a passive income show. So when you start managing properties yourself, that does not become passive any longer. It becomes a job. So you’re going to factor that in, and then you’re going to factor in any HOA’s, any other expenses that may be involved with owning the property and when you get that net number, you’re going to divide it by what you purchased the property for and that’s going to be your cap rate. Now, obviously, when you’re going to buy a property with a Fannie Mae finance or any sort of finance, you now have to factor in your principal and interest payment as well.
And so when you’re analyzing this cap rate, you’ve got to always keep in mind that it’s not just the rate of return on rental income. There’s other things that play a role in that. And so looking at my Kansas city properties and running the numbers on these homes, it’s showing on paper that the cap rates are higher than what I can get in Dallas on rental income. But when I do a full audit of my properties each year, I look at my Kansas City homes, and I see how much did these go up in value, and you know, you’re just seeing a moderate increase in pricing on these homes or in value on these homes, but not like what I’m seeing in Dallas. You know, I talked earlier in the show, how I’ve seen 20, 25, 30 percent increases in my property since 2014.
Just holding real estate in the Dallas market, it’s just been tremendous, the amount of appreciation that I’ve received in a market like Dallas compared to a market like Kansas City. But you know, the cash flow numbers on the Kansas City properties from rental income have been higher and the rates of return from cash flow on the rental income has been higher than my Dallas homes. But when I factor in all the ways that real estate pays you, my Dallas Properties have really outpaced my Kansas City and St Louis and Detroit properties due to the appreciation upside. And so going back to Grant Cardone, in that article that I was reading in the Entrepreneur, he brought out a lot of good information on what you need to look at when we’re looking for a strong cap rate. And he talks about location.
He talks about interest rates. So we’re in a time right now where interest rates are starting to creep up a little bit. You know, we’re putting 20, 20 percent down on a property, you’re probably looking at more of a five and a half percent interest rate, um, or so a lot of investors are starting to put 25 percent down to try and get closer to that five percent. And I expect the interest rates to continue to go up. And if the interest rates keep going up and the prices keep going up, your rate of return on your rental income when you finance, it’s going to be less than it was coming out of the recession. But it doesn’t mean that real estate investing is a bad investment option for you right now, because it’s still a tangible asset. Something you can go and visit and see, touch and feel. It gives you a lot of different bonuses or benefits that stocks and bonds and mutual funds can’t give you.
And it’s just like I said, it’s made more people, regular people like you and I wealthy than any other investment option out there. And so when you’re analyzing any market, you got to factor in all the risks that are involved. What are the pros, what are the cons? And so in Kansas City and St Louis and Detroit, I’m not experiencing the type of population growth that I’m experiencing in the Dallas market. So my vacancy assumptions when I’m running my numbers need to be higher in those other markets that aren’t experiencing the type of growth that a Dallas market is. And same goes for when you’re buying a property in a neighborhood that’s a little less desirable. The risk for evictions and things like that are also going to be more prevalent in a market like that. Then in a market like Dallas, in a class market. in a class neighborhood, evictions are going to be less common.
You know, your tenant profile is going to be somebody that’s got more of a stable job, a stable position, a salary-based job to where, you know, if their car breaks down on them, it’s not gonna ruin them for the month. They’re still going to be able to afford their rental payment, and that is what I prefer to invest in. I prefer to invest in properties where I truly get a passive experience, and that’s why I like to target markets that are growing exponentially because I know it’s going to keep my vacancy risks down, and I like to buy properties in neighborhoods where I get really good tenants because I know they’re going to take better care of my property, and risk for repairs and maintenance and things and high costs turnovers and things of that nature are going to be a lot less common.
And so that’s why I prefer to invest in areas where I just get better tenants. Better tenants, better jobs and just better neighborhoods in general. And I’ve noticed that when I buy in better neighborhoods as well, that my properties turnover a lot less. I get families in my homes and ended up staying long term. The children get in school; they like the school districts, they tend to re-rent with me. And also in a market like Dallas, like just today I got an email. We share emails together here in the office. So my property management company, AmericanRealPM.com, we keep everybody in the know on what’s going on with our properties and our clients’ properties. And just once again we got a renewal on a home, a two-year renewal with a $50 escalator in rent each year. So the property was renting for, I believe it was $1495 in year two. In year one of the renewal, it’s going up to $1545, and then it’s going up to $1595 in that 2nd year of renewal.
I mean there’s not many markets where you can achieve that type of rent increase. But in a market like Dallas where there’s 150,000 people moving to a year, you’re able to get those types of increases because the demand for rentals is just so high and the inventory is just so low in this market, and so you got to really take all that stuff into consideration. That’s all I’m saying. And this show is all about what is a good cap rate. And like I said, I don’t just look at the rental income to determine if it’s a good investment. There’s a lot of other things that play into my decision. It’s the market; it’s the location, it’s the neighborhood, it’s the quality of tenant that I’m going to attract. All of those things play a role when I’m looking at a good investment option, it’s not all about, you know, what’s the highest rate of return that I can get on the least amount of money spent? And Grant Cardone talks about that in his article, where he basically says that that’s not the best way to look at what a good cap rate is. Because on paper, if your cap rate is higher, it’s usually going to be because it’s not in the best neighborhood. You’re buying a property at a lower value, and that’s just going to increase your risk, so you may never see that 10, 15, 20 percent or greater rate of return on your money because you’re buying a property that’s in a war zone. It’s never going to attract good tenants, never going to go up in value. If anything it’s probably going to decrease in value, every time the property changes hands; you’re at risk for a break in and theft and vandalism.
And that’s just not what I’m looking for as a real estate investor, especially a passive real estate investor. And so the other thing I want to talk about today is just passive real estate options versus at the real estate investment options. And you know, I flip homes, as well. I mean obviously, we flip homes here at my company, American Real Estate Investments because we’re a turnkey rental provider as well. Passive income real estate company. But we provide turnkey rentals, which means, I go and do all the work for you. I buy good properties in good neighborhoods, and in where I’m gonna attract good tenants. I go in and do a very professional quality rehab to the home, make sure that there’s a lot of useful life, at least 10 years left of useful life on things like roofs and HVAC. So my investors aren’t having high capital expenditures early on in ownership.
And we make sure like I said, we’re positioning our investors in neighborhoods where we’re gonna continuously attract good tenants and get rental increases each year. Like I just gave you an example of, so our investors can truly have a passive experience and really see high rate of return on their money through a very stable passive investment. And so by doing that, I make it passive on the investor. Like I said, the investor yourself, you’re not going out and looking for good deals. You know, you’re not dealing with wholesalers and real estate agents or knocking on doors. We do that for you. You’re not the one that’s looking for tenants and placing tenants and dealing with calls in the middle of the night from tenants to fix something. You’re not chasing tenants down for rent, you know, we do that for you. And so I look and I compare it to my active side of my business, and all this stuff that goes into flipping homes and some of the biggest pains with that are dealing with the contractors and dealing with the wholesalers who are, every wholesaler is telling you, oh, the after repair value of this home is this number. And that’s just really not actual. They’re just beefing up the numbers and Oh, this, rehab budgets only going to be $20,000. I can’t tell you the last time I did a rehab that was only $20,000. It’s never just $20,000. And so, you’ve got to really be mindful of that. But you know, when you get into that active game, that’s one of the things a lot of investors starting off, they get some bumps and bruises along the way because they don’t think about all that stuff or they don’t have the knowledge, they don’t really know what things cost until you get going. And so a lot of times that first, second, third home that you purchase, that’s just learning, that’s just a whole learning experience. And so that’s where you can leverage other teams. You can leverage the Real Estate Cowboys. And so when we come back, we’re going to elaborate on that a little bit more, and I’m going to give you more personal firsthand takes on what goes into being an active real estate investor compared to a passive real estate investor. So if you’re listening to the show you like what you’re hearing, you’re interested in passive income options in the Dallas Fort Worth area, the Houston area, Kansas City, St Louis area, you can go to Real Estate Cowboys.com, and you can just put in your information and register to receive a weekly updated list of exclusive passive investment options; rental properties, private money lending opportunities on developments, single family residential land developments in Dallas and Houston, which are leading the nation in new single family building permits pulled because there’s such demand for housing in this market because 150,000 people are moving to DFW and Houston each year. So we have options there, and we also have some great vacation rental options in Belize. We have private islands. We have luxury homes that we allow our investors to buy in on a fractional ownership model. Not a timeshare, a fractional model where you just partner with people to buy these things, to make them more affordable. So if you are interested in getting an opportunity to receive that list of exclusive real estate investing options, go to Real Estate CowboysDFW.com, and register to receive that list and you’ll receive a list weekly. So we’ll be right back on the Real Estate Cowboys radio show.
Welcome back. This is John Larson with the Real Estate Cowboys radio show. We talk all about passive income real estate options here, but today we’re talking about what is a good cap rate on a rental property. And we’re also talking about passive real estate investing options versus active real estate investment options. And that’d be, you know, flipping homes. You see Chip and Joanna Gaines there every week on HGTV flipping houses down in Waco, and they’re making it look like you can make $70,000 in an hour. It’s just, that’s not really the way it works. Even seasoned investors like myself still run into bumps and bruises when doing single family flips, retail flips or just buying properties and renovating them and putting them into my rental pool. Uh, just recently I was flipping a house in North Dallas, and I had a contractor. We hired a guy, a new guy, and you know, you hope for the best.
I saw his book of work. Everything looked pretty good. Well, you know, three weeks in we ended up having to fire the guy. And uh, you know, his employees who we had met at the house, the tile guys, just some of the laborers started reaching out to us on social media on Facebook and stuff. Me and my partners and saying, Hey, the general contractor hasn’t paid us for two weeks, and so we’re not coming back on the job. I’m just letting you know, so this guy, we’re paying him money each week, and we’re thinking things are getting done. And then he started off really good demo the house really fast, efficiently, and you know, everything started off like it looked like it was going to be pretty good. But when it came time to lay in the tile and finishing, it just seemed every week there’s less and less guys on the job, and the quality of work was just not there.
You know, the tile guy he started off with seemed like he was pretty good, but then when that guy walked off the job for not getting paid, he had to hire somebody else, and that guy came in and just messed up my entire bathroom. Had to restart from square one. And it got to the point where we actually just ended up having to part ways with that general contractor, and we gave him a pretty hefty down payment, which I wish we didn’t do that. And he ran off with our money, bought a new truck, and so we had to start over from scratch. And so now that property that we thought we were going to make a quite a substantial return on, now we’re going to be lucky to break even. Might even take a loss on that one. So, you know, real active real estate investing becomes a job.
If you’re a landlord and you manage your properties, you know, you have 10 homes, 15 homes 20 homes or more, that’s a job. There’s really no way that you can operate that type of business passively. Active real estate investors who are doing flips in their market, the good ones, they’re at the houses every day. The guys that are making money, they’re there every day. They’re there every step of the way because if you leave the thing alone if you leave the house alone if you leave your contractors alone for just one day, something can get messed up. You know, they didn’t lay the tile that you wanted. They laid the tile that you wanted for the bathroom floor on the bathroom shower walls. There’s just, there’s things I’ve seen. I’ve seen it all. And so, you know, there’s great money in flipping homes and in today’s market, because inventory is low and the demand for properties, it’s there, especially in major metros like DFW and Houston and Austin, here in Texas.
Demand for real estate is at an all-time high and the inventory is just very low because we’re behind the eight ball from the GFC, you know. The builders stopped building homes and now markets like Dallas and Houston and Austin that are experiencing exponential growth, 150,000 people a year moving into these markets. You know, there’s just not enough homes to go around. And so, you know, you can sell these properties very easily. I just did one that I sold on the retail market in East Dallas. I had a contract on it in a week. I had 15 showings total, and this was a house that sold for $380,000. 15 showings total on that property and it got under contract in a week and our single-family rental opportunities in Dallas for our investors that understand the six ways that real estate pays you, you know, through the principal, pay down of the tenant, through the tax benefits, through the appreciation, through taking advantage of finance and leveraging inflation. Obviously, the rental income that you get from the property. And then if you’re able to buy a property in the Dallas market, like I just said, an investor last month, a gentleman, he bought a property in East Dallas, his purchase price was $285,000. The property appraised for $305K. I was shocked at the appraisal. So this person just bought a property with already $20,000 in equity in this home, you know, he could turn around and sell it next month and make $20,000. Just in equity, you know, he just got a smoking deal on it. I’m really happy for him that ended up happening. But that’s what I like to call it. Instant equity play. He was able to buy a property below market value, a turnkey property below market value. It’s just very hard to find in today’s market. It’s almost impossible to purchase a home fully renovated and into the renovation quality that I put into the homes. It’s very hard to buy a property with some equity in the home already in the deal. Alright? But that’s another way that real estate pays you, that everybody needs to understand. And so my investors that understand those six ways that real estate pays you, they don’t wait very long to jump on all the new opportunities that we get in the DFW or Houston market because they know they’re going to be able to achieve those six ways that real estate pays you. But this article that I read from Grant Cardone, talking about cap rates and things like that, you know, he said he would have made a fortune in San Diego 20 years ago buying extremely low cap rate properties, which I relate that to the Dallas market today. You know, you’re buying on a low cap rate in the Dallas market. There’s higher property taxes in Dallas, and in Texas, but for the demand that we’re seeing in the real estate market and all the new businesses that continue to move into the DFW area. Dallas is already number one in the nation for, for corporate headquarters. You know, you’re talking about Texas has the second most Fortune 500 headquarters in America at this point. And that number keeps growing and so all the jobs are here, which is why all the people are moving here, which is why the real estate values are continuing to increase. And I guarantee there’s a lot of people that invested with me back in 2012, 13, 14 that are sitting here and thinking the same thing that Grant Cardone’s thinking. Like, wow, I’m so glad I bought properties back then. And there’s still an opportunity to ride this appreciating wave that we’re seeing in the market here in Dallas.
And so I guarantee 20 years from now there’s going to be a lot of happy investors that went in and bought in the Dallas or Austin or Houston market because they’re going to be sitting on a goldmine. And he thinks about the whole deal like he says, you gotta think about how you’re going to exit. It’s not just the current cap rate, and you know, I’m a firm believer in that. And so if you’re interested in learning how to get started in passive real estate investing, if you’re interested in the Texas market, if you’re not interested in the Texas market, I don’t know why, um, but if you are interested in those markets, go to real estate, cowboys, DFW DOT com. Submit your information, and you will go on a list to receive exclusive and vast options each week.
Single-family rentals for equity, single-family rentals for cash flow in the Kansas City, St Louis markets. The equity plays are down here in Texas. Still going to get some cash flow in those properties, but just not as much as you would in a market like Kansas City or St Louis, vacation rentals that can get you a lot of different things. I call it the triple threat, a vacation rental, you can use it when you want, when you don’t, have a professional management company that we own, still manages that asset for you and make sure that vacation renters are coming in to rent your property so you can receive passive income from that property, but then also position you in markets and in countries like Belize that are growing at a rapid rate as well, so you can see some appreciation with these properties as well. And then like I said, you can use it when you want or if you want a super, super passive opportunity. You don’t want to deal with tenants. You don’t want to deal with the management company saying, Hey, your roof needs a replacement. It’s leaking. Or Hey, your A/C unit just went out, or your A/C unit needs to be serviced, you know, and send me a check for $4,000, but you don’t want to deal with that. Then we have other great options for you and it’s called private lending. You can lend out of your IRA, you can lend out of your 401k. All you’ve gotta do is just self direct that account, if it’s not self directed yet, and you could put that money to work in the real estate market or put that money to work on an awesome safe residential land development in Houston or Dallas, that’s gonna pay you a fixed rate of return on your money. You’re never going to have to deal with any sort of tenants or any repairs or things like that. Just a fixed rate of return. So a lot of investors like that, especially the IRA, 401K investor. If you are interested in getting these opportunities sent to you, weekly exclusive opportunities just to you off-market opportunities, go to Real Estate Cowboys, DFW DOT com, put in your information, register and you will start receiving those opportunities each week. There’s also a lot of cool stuff to do on the site. There’s education. There’s a cool quiz that we came up with called the Investor Quiz. Basically, it’s just going to ask you 10 questions that we’re going to find out what type of investor you are. Are you a little bit of a risk taker? Maybe single-family, residential properties are better for you because you’re willing to take some of the risks for higher returns, or you very low-risk taker, you know, you just want something that’s a guarantee, a fixed rate. Well then maybe private money lending is best for you, but go ahead and take that quiz and find out. And that’s it for this week’s show. Thanks for joining me. We didn’t have any guests this week. I was broadcasting live from Kansas City, and just relating to the Kansas City market, to the Dallas market. Talk about cap rates today. Also talking about active real estate investing versus passive real estate investing. So if you liked what you heard on the show, feel free to reach out. Like I said, go to Real Estate Cowboys that of real estate companies, BMW DOT com, and sign up and it’s not just a, you know, our list of exclusive opportunities that you’re going to get, you know, we put out weekly or monthly newsletters talking about the real estate market. There’s a lot of education that you can get from listening to the show, but also accessing the website. So thanks for your time. We’ll talk to you guys again next week. The Real Estate Cowboys radio show. This is John Larson signing off. Thanks a lot.
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.