DAY ONE

BOOT CAMP

Residential Rentals

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Agenda Day 1

• Introductions, Waivers & Workbooks, Purpose of Boot Camp• Real Estate Strategies Review• Business Goals, Create a Plan, Business Setup• Determine Exit Strategy• Financing Options• Market Research• Power Team Specific to Rentals• What are Good Deals?

Lunch• Motivated Sellers• Finding Deals and Marketing to Sellers• Repair Budgets for Rentals• Calculating Offer Price• Calculating CAP Rate

Agenda Day 2

• Calculating Cash Flow

• Calculating Cash-on-Cash Return

• Software Lab Time

• Negotiating

• Contracts

Lunch

• Due Diligence

• Landlord – Tenant Laws

• Being Organized

• Lab Time: Running Numbers on Potential Deal

• Making Money / Wealth Building

• Wrap-up

Purpose

• Learn to become a successful investor and accumulate wealth with residential rentals.

• Obtain your first rental in 60 days or less.

Investment Strategies Review

Fast CashFlips | Wholesale

Cash FlowLease Opt | Seller Financing

Buy & HoldRental | Commercial

Investment Strategies Review

Fast CashFlips | Wholesale

Cash FlowLease Opt | Seller Financing

Buy & HoldRental | Commercial

Advantages:

• Immediate capital

• Quick process

• In and out

Disadvantages:

• Short-term

• When it’s over, it’s over

Advantages:

• Some immediate capital

• Residual income

• Flexibility

• Quick process

Disadvantages:

• Finding the right sellers

• Fixed-term – will end

Advantages:

• Passive income

• Tax advantages

• Appreciation

• Long-term wealth

Disadvantages:

• Capital investment needed

• No immediate return of capital

The objective is to create an all-

encompassing strategy to generate income and

build wealth.

Common Fears

• No Money

• No Credit

• No Property

• No Deals

• No Power Team

• No Plan

• Running Numbers

• Understanding Contracts

• No Property Management Experience

Solutions

• Understand Financing Options

• Know the Role of Credit

• Find Deals

• Build a Power Team

• Create a Plan

• Understand the Numbers

• Property Management Options

Business Goals

• What is your goal 2-20 years from now?

• Write your goals down. • Generating $25,000 cash flow a month?

• Leave a legacy?• Family

• Your church

• Favorite charity

• Buy an island? – Just kidding

• What do you want?

Business Goals (cont.)

You can achieve anything you want if you:

• Identify It (Whatever “It” is for you)•Hold it in your mind• Identify the action steps to get “it”•Take action without compromise.

Business Goals - Exercise

In the next 1 year I will do:

Wholesale Deals

Cash Flowing Properties

Rentals

Fix & Flips

In the next 2-10 years I will do…

Think of yourself as an investor!

Not just a landlord.

Not just a wholesaler.

Not just a flipper.

Why Use a Business Entity?

•Everything goes through an entity from this point on.• Holds / CF Properties / Wholesale / Flips

•Advantages• Liability – asset protection• Reduced tax liability• Anonymity

Business Setup

• Sole Proprietor

• Limited Liability Partnerships (LLP)

• Limited Liability Companies (LLC)

• S Corp

• C Corp

• Consult with an attorney and/or accountant to determine what entity type is best for you and your situation.

Determine Your Exit Strategy

• Buy and Hold: • Requires money to stay in the property for a long-term investment.

• Bank Money

• Hard Money

• Private Investors

• Personal Investment (Cash)

• Creative Financing

Financing Options

Cash for a Discount- or -

Terms for a Higher Offer(Possible full-price offer.)

Bank and Temporary Financing

• Private Money and Hard Money• Used to temporarily purchase the property

during renovations.

• Bank Financing• Credit

• Limited # of properties (FHA guidelines)

• Community Banks and Credit Unions

• No-Seasoned Refinancing

• See “Bank Questions Checklist”

Creative Financing

• Owner Financing

• Rent-to-Own

• Lease Option

• Sandwich Lease Option

Creative Financing (cont.)

• Creative financing benefits for us:• Quick negotiation and closing.

• No credit involved.

• Little or no down payment.

• Seller benefits:• Quick transaction.

• We take over all responsibility.

• They continue to get a residual income without any work or responsibility.

• Monthly payments handled through 3rd party escrow service.

Break Time!

Choose Your Market

• Where You Live• Recommended on your first few deals.

• Hands on and easier to learn.

• Remote Investing• Heavily rely on your power team.

• Invest anywhere.

• Find the “low hanging fruit”.

Things to Consider

•Crime Rates - Stay out of war zones• www.Trulia.com

•Average Monthly Rents - Follow 1% rule• www.Zillow.com/research

•Job Growth• www.bls.gov/home.htm

•Vacancy Rates in the area - Stay under 5%• www.BestPlaces.net

Residential Rentals Power Team

•Team members specific to rentals are:•

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•

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Residential Rentals Power Team

•Team members specific to rentals are:•

•

•

•

•

•

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Real Estate Agents

Title Companies

Attorney

Contractor

Property Management Company

Insurance Agent

Accountant

Property Management

Advantages• Screen tenants

• Periodic inspections

• Know the law

• Set processes in place

• Manpower

• (Leverage their time and resources)

Disadvantages• Management fees

• 8-10% of collected rent

• No direct control

How Do I Decide?

•Ask Yourself:• Do I want to be an Owner or a Manager?• Do I want to be an Investor or a Landlord?• Why am I getting into residential rentals?

• Long-term wealth?

• “Mailbox Money”?

• More time with family?

Screening Renters

• Application (fee or no-fee)

• Call references (all of them)

• Verify employment

• Call former landlords (Know the laws)• www.E-Renter.com

• www.Landlordstation.com

• www.TenantBackgroundSearch.com

Renters

• Rental pricing• Set apart from the competition.

• Near schools, includes cable, etc. • Determine rent amount.

• Realtor• Property Manager• www.rentometer.com• www.Zillow.com/research• www.bestplaces.net

• Advertising• Online advertising• Signs

What Are Good Deals?

• How do you know when you have found a good rental deal?

• Acceptable and

• Appreciation

• appreciation – How???

• appreciation

• Low expenses

•

Lunch Time!

Marketing to Sellers & Finding Deals

• Proactive Methods • Use wholesalers

• Other landlords

• REI Clubs

• Landlord Associations

• Professional Networking

• Reactive Methods• Bandit Signs

• Place Classified Ads

• Flyers in Laundromats, Grocery Stores, etc.

• Postcards to Absentee Owners

• Real Estate Agents• MLS

• Established Network

Bandit Signs

We Buy HousesAny ConditionAny Situation

XXX-XXX-XXXX

Example of Bandit Signs

Example of Bandit Signs

Renovations

Remember:

• Don’t over-improve. It’s not a flip.

• Renters are looking for: • clean

• convenient

• something that fits their budget!

• Keep it simple and within YOUR budget.

Renovations (cont.)

• If you are touching it more than once, use products that will last and are easily maintained.

• Replace vs. Repair

• Examples:• Faucets (bathroom and kitchen)

• Bathtub surroundings

• Carpet (quality, color, condition)

Quick Rehab Estimate

Low (cosmetic)

$6-$9/ft. Rentals

$10-12/ft. Flips

Paint

Flooring

Lights

Interior doors

Plugs/switches

Light mold

Medium

$18-22/ft.

Includes Low

Kitchen rehab

Bathroom rehab

Windows

More mold

High

$28-32/ft.

Includes Medium

Roof

Electrical

Plumbing

HVAC

Minor foundation

Break Time!

Calculating Offers

1. ARV:

2. Desired Equity: 20% (.80)

3. Repairs:

MAX Offer

$100,000

-$20,000

$80,000

-$20,000

$60,000

Calculating Offers

What is my desired CAP rate?

• Reverse the math

If Annual NOI is $6,000, divide by desired CAP:

8% = $75,000 Max offer

10% = $60,000 Max offer

12% = $50,000 Max offer

*Set your standards for CAP rate and Cash Flow

Running the Numbers

• To ensure a worthwhile investment, the financials on residential rentals can be analyzed in four primary ways:

• Comp Value Analysis

• CAP Rate

• Cash Flow

• Cash-on-Cash Return

Comp Value

Comp Value – Property value based on other sold properties in the area.

• Sold 3-6 months ago• Use average DOM in area

• Distance ½ mile radius• Don’t include war zones• Consider major roads,

rivers, etc.

• Similar neighborhoods

• Age: 40 years or newer• +/- 5 years (10 max)

• Same # of beds & baths• Square footage +/- 20%• Style (Rambler, 2 story)

CAP Rate

CAP Rate – The rate at which your capital increases (return on your overall investment).

Formula

Annual Net Operating Income (NOI) ÷ Price =

CAP Rate

CAP Rate (cont.)

Steps to calculating a CAP Rate:

1. Gross rents – monthly expenses = monthly Net Operating Income

2. Monthly NOI x 12 = Annual NOI

3. Annual NOI ÷ Cost = CAP

CAP Rate (cont.)

Common Expenses:• Taxes

• Insurance

• Maintenance (5%)

• Management (10%)

• Vacancy rate (5%)

Possible Expenses:• Water & sewer bill

• Home Owners Association (HOA)

Example: 3/2 – $55,000 – Rent = $750/mo.

$750 Gross rent

-$35 Taxes

-$50 Insurance

-$37 Maintenance

-$75 Property mgmt.

-$37 Vacancy rate

=$516 NOI

$516 NOI x 12 months

= $6,192.00

$6,192 ÷ $55,000

= .112

= 11.2% CAP rate

Day 1 Homework

1. Business Goals – Know exactly what you want.

2. Compile a list of potential motivated sellers from online ads.

3. Locate REI clubs, Landlord Associates, etc. in your home area.

4. Create a list of professionals you can approach to build power team.

5. Call realtors in your area to send you “turn-key” rental listings.

6. Locate potential residential rental properties and run CAP rates.

DAY TWO

BOOT CAMP

Residential Rentals

Day 1 Homework

1. Business Goals – Know exactly what you want.

2. Compile a list of potential motivated sellers from online ads.

3. Locate REI clubs, Landlord Associates, etc. in your home area.

4. Create a list of professionals you can approach to build power team.

5. Call realtors in your area to send you “turn-key” rental listings.

6. Locate potential residential rental properties and run CAP rates.

Cash Flow

Cash Flow – The flow of cash in and out of the Property.

Positive vs. Negative Cash Flow

FormulaGross Rents – All Expenses (Including Mortgage)

= Cash Flow

Cash Flow (cont.)

$55,000 Price

$11,000 Down pmt

= 44,000

$44,000 @ 6%

360 mths

= $204/month

$750 Gross rent

-$204 Mortgage pmt

-$35 Taxes

-$50 Insurance

-$30 Maintenance

-$75 Property mgmt.

-$60 Vacancy rate

=$296 Positive Cash Flow

Cash-on-Cash Return

Cash-on-Cash Return – The return on the actual cash invested.

(i.e. the return on the down payment placed on the property plus repair costs)

FormulaAnnual Net Income ÷ Total Out-of-Pocket Investment

= Cash-on-Cash Return

Cash-on-Cash Return

$750 Gross rent

-$204 Mortgage pmt

-$35 Taxes

-$50 Insurance

-$30 Maintenance

-$75 Property mgmt.

-$60 Vacancy rate

=$296 Positive Cash Flow

$296 x 12 months

= $3,552

$3,552 ÷ $11,000

=.323

=32.3% C-on-C return

Real Estate Pro Software

Using the Deal Analyzer

for

Buy/Hold

Break Time!

Negotiating Points

Points to remember when making offers:• Be confident in presenting your offer.

• Never criticize the home’s décor or condition.

• Explain that your offer is based on numbers and research.

• Point out the benefits to the seller of selling their home.

Be positive!

Negotiating Points

What areas are most often negotiated?• Price

• Earnest money

• Closing dates

• Inspection dates

• Personal property

• Contingencies

Making Written Offers

They carry more weight.

Making the Offer

Listed Properties (MLS)• Use the state-approved Purchase Contract.• RE Agent writes it with our supplied info.

FSBO Properties (Non-MLS)• You or your attorney write the contract.

Offer Elements

1. LLC Name

2. Property Address/ MLS number

3. Starting Offer Price

4. Earnest Money

5. Contingencies

6. Closing Date

7. Signatures/Initials

Electronic contracts and working from templates will greatly speed up the offer making process!

Offer Acceptance

After your offer is accepted it is time

to do your due diligence.

Lunch Time!

Due Diligence Check List

• Contractors vs. Property Inspectors• (Before or after offer submission).

• Asbestos / lead paint

• Inspection Specialists (mold, drugs, etc.)

• Taxes

• Title search (preliminary and final)

• Zoning, HOA, etc. • Future plans for the area.

• What’s allowed and not allowed. (Best Use)

Additional Things to Know

• Landlord-Tenant Laws:• Evictions, inspections, maintenance, and anti-discrimination.

• Insurance:• Get quotes from reliable insurance agent.

• Resources:• Real Estate Investor and Landlord Associations

• Attorneys*Both are good for contracts and helpful forms.

Residential Lease Agreement

• Names

• Address of leased property

• Price (rent amount)

• Lease terms (length, deposit, etc.)

• Payment due date

• Late Fees

• Signatures

Lab Time

Lets go through a deal.

Break Time!

Organization

• Be Organized – nothing elaborate or fancy.

• File cabinet and individual property folders.• Expense receipts, agreements, etc.

• Consider what you will need when selling in the future.

• Software:• QuickBooks

• Spreadsheets

Making Money & Building Wealth

•Our purpose is to make money and build wealth.

•Rentals create an opportunity to do both.• Monthly cash flow• Appreciation• Leverage of equity for additional wealth accumulation

Common Fears

• No Money

• No Credit

• No Property

• No Deals

• No Power Team

• No Plan

• Running Numbers

• No Property Management Experience

Homework for the Next 30 Days

• Create a one-year and five-year plan for your business.

• Locate sellers using real estate agents and your efforts.

• Interview property managers.

• Find banks willing to do no-season refinancing.

• Make offers to get your first deal done in 60 days.