High return real-estate. What is it how do we find high return real estate?
That's what today's show is all about let's dive in
Hey, everyone. I'm Clayton Morris the founder of Morris invest
We're a turnkey real estate company
And we've rehabbed thousands of homes. On today's show, we're going to talk about high return real estate
What exactly is high return real estate?
Why do you want to look for high return real estate when you're investing? And how to
break down some of the mechanics and the return on investment numbers
We're going to show you how to do that in today's video, so at a high level
I've been a real estate investor for a number of years. I didn't start out as a high return real estate investor, meaning I
Overpaid, I made some mistakes, and I just wanted to be involved in real estate investing
Most people get allured by the idea of real estate investing but they don't realize there are two types of real estate investors
There are those who invest in real estate with low returns and then there are those who invest in real estate with high returns!
What's the difference? Well oftentimes, people will invest in real estate and
Not know what they're doing, and they may get a two percent return on their investment. They may get a very small
Return on their investment, and that's okay, but those people are stock market investors
Those are the people who are making money in the stock market
and they're getting about a 2 to 3 percent return and
someone might come to those people and say, "hey I have an opportunity for you to invest in real estate, you know in California, or
Denver, Colorado and and you're going to get about a 2 to 3 percent return and it'll be
diversification in your portfolio
Meaning you already have a bunch of stocks you're getting about a 3 percent return why not own some real estate also
Now you're diversified
And you're going to get two to three percent return on your investment." So tons of people
invest in real estate that way. For instance, I will tell you one of our longtime investors at Morris Invest
He's a doctor
We have many doctors who invest with us, but he admitted to me he had invested like that with low returns years ago
he bought a property in Arizona and
He bought two properties in Arizona and the first time I talked to him
We jokingly had a conversation about it. I said, "well, how are those doing for you?
You know, what's the return like? Are you getting a high return? What is the ROI that you're getting?" and he said,
"Nothing like what you get!"
And here's a doctor admitting you know after whatever 13 years of schooling. He knows that
He knows his specialty, right? He knows how to operate on a person's a
spinal column right, that's what he does
but when it came to real estate
he just kind of you know diversified his portfolio and got a lower return, but he was still into real estate and
He wanted to step his game up a lot
He wanted to start taking that next step and started wanting to get a high return on his on his real estate investments
so now we're going to break down exactly what a high return real estate investment looks like and
Why it's so important to invest this way
Because we're not in it to just sit there and hold these properties with a low return. No, no, no, we want monthly
consistent cash flow at a high level, so
How do we do it? Well number one: we want to find wholesale properties. Okay? This is the mistake
This is the number one mistake that investors like our good friend
The doctor make. They call up a local realtor, the phone, do phones even look like this?
I'm holding my finger up to my my thumb up to my head
he called a local realtor and
He said, "I'd like to buy some investment property can you help me find a property?" "Sure, there's an apartment
You know downtown there's a townhouse
you know right in the heart of downtown Phoenix and
How about you know four hundred thousand dollars.
Hold on to that property it might appreciate a little bit, but that's a good investment."
"Alright great, you know what you're talking about, Mr. Realtor. I'll take it." And
that's what so many people do but they don't realize that
There's a whole other world out there of properties that aren't being sold by a realtor that are off market
that need work in order to bring value up on the property and
Therefore you're able to keep it below market value and have a higher return on your investment. Those are the properties that I buy
Those are the properties that our investors that we work with through my company
They buy those properties because they're going to get below market a higher return
And they're not going to be paying above market and a lower return
so wholesale properties are the key! Number one, that's a huge key in getting a high return on your
Investment so high return real estate
Wholesale properties, that's number one. Number two is location
So often people will say, "I'm going to find a property.. I own a property here in California," or like our good doctor
"I own a property in Phoenix, Arizona," and
They're paying three hundred thousand dollars for this property. Well. I'm here to tell you that the value of that property
about for a single-family home, the cutoff point for the value of that property
Anything over like 120, 125 thousand dollars is
Going to not keep up with the rental value
Meaning-- or the vice versa, the rental value is not going to keep up with the cost of that property the higher you go on
That property, the rent is not going to keep it up
it's not going to stay consistent and
If you're listening to this instead of watching it my hands are going back and forth because it's like a bar
Graph you know you think about it
going up up up well the rent is not going up up up in the same consistent fashion as
the cost of the property so let me put it to you this way,
a hundred and fifty thousand dollars for a house
single-family home, let's just say it's three bedrooms two baths in Atlanta, Georgia. Okay, if
You then take that hundred and fifty thousand dollar house you think maybe it'll rent for a thousand dollars a month. Okay great
Well if you paid two hundred thousand dollars for that house or it increases to two hundred thousand dollars
Do you think that the rent is now going to be
$1,500 a month? And if you paid two hundred and fifty thousand dollars for the house
Do you think that the rent is going to be
$2000 a month? And then if you paid two hundred and fifty thousand dollars for the house
Do you think that the rent is now going to be $2500 a month?
No, no, no, no, no! That's not how it works!
Anything beyond a hundred and fifty thousand dollars, and I I don't buy anything that costly, that's ridiculous
anything-- a hundred and fifty thousand dollars
the rent is not going to stay in the same ratio as your increases in value
always remember that for a single-family home
So if you bought a five hundred thousand dollar home
Do you think you're going to be making five thousand dollars a month in rent?
Nope, you're not. It might go up incrementally, but it's not going to keep up with the value of that house
So location: where you're purchasing the properties, where you can find affordable
Properties that is going to be key to getting high return real estate. So for me,
I like to be in that forty, fifty thousand dollar range and some of the new construction properties that I do three bedroom two bath
Brand-new houses, I like to do are in that sixty thousand dollar range, but that's about it. That's as high as I go
Sixty thousand, sixty-five, sixty-eight thousand that's my ceiling
Because I can still get great return on investment now if I start going into the 70s and 80s
Then we start going down so the most that I end up doing is just below seventy thousand
In that sixty-five, sixty-eight thousand I bought a lot of properties in that range
and I'm able to still command a great rent and my ratios still work, so
location matters.
Because if you're in Phoenix, or you're in Atlanta, you're going to be overpaying for properties
You're going to be paying more than you would if you were in markets where we where we do our properties for instance.
You know, parts of Florida, parts of Indiana and Michigan where we're still-- you know, in Pennsylvania
We're able to get great bang for our buck in our properties because we're able to find them off market
You know if I buy a batch of 30 properties at one time
You know put up I have to put up a lot of money in order to do that
Then we renovate the properties and we're bringing it up to a great standard
But it's still going to be below the market value if a realtor had sold me that house
And that's the key that so many new investors don't understand, not overpaying for those properties. Alright, so we've got
We've got wholesaling number one number two location number three
We need to make sure that we are consistent with our rents
And we're getting a good rent for our property and the return on investment
So there's a couple of ways to figure out ROI, return on investment
And I'm going to give you two different formulas here to play with when you're thinking about high return real estate
Number one is my typical ROI formula
If you've watched this show or listen to the show you know the formula inside and out
It's a super conservative formula, people think I'm crazy
Because I do forty percent meaning I take out forty percent for vacancy repairs expenses taxes
All that stuff. Forty percent, now
I have investor friends who own hundreds and hundreds of properties who laugh at me and think that even twenty percent is fine
Thirty percent they say is still crazy forty percent. I'm out of my mind
What does that mean? What do I mean forty percent well that means that I'm
That means I'm taking
40 percent out just in case
So when I the money that I'm walking away with, my net return on investment
I have removed 40 percent as a set aside and put that in like a vault as like a worst case scenario
and what am I left with? That is my net return on investment, my net ROI
Okay, and that forty percent. Is there just in case I have vacancies. I have repairs. I have those other things
So how do we figure out ROI? I'm going to give you a second way to figure this out in a second
But let me just give you my normal formula for figuring out ROI. So let's take an example of a 50 thousand dollar house
Okay, a 50 thousand dollar house
Let's do it this way. Let's say that that 50 thousand dollar house rents for seven hundred and fifty dollars a month, okay?
we're going to take seven hundred and fifty thousand-- excuse me, seven hundred and fifty dollars times twelve. Twelve months, and then we're going to
multiply that times
0.6
So times .6. Why? Why do we multiply times .6?
Times sixty percent because that means we were moving forty percent right so multiply it times point six that gives us our
Net now that's fifty four hundred dollars a month. Now, the gross. What was the gross ready?
$750 a month times 12 is nine thousand dollars a year is my gross that I'm going to make off of that rental property
Well, I want to take 40% out so now I'm going to multiply that times 0.6
and I have fifty four hundred dollars so fifty four hundred dollars is what I will be left with
Worst case scenario if I have a you know four months of vacancies
Suddenly I have to repair furnace and put on a new roof and all of those things worst case scenario
I'm walking away with fifty four hundred dollars a year now. How do we figure out Roi great now?
I'm going to divide that number that
5,400 by the all-in cost of that house the all-in cost was fifty thousand dollars
so I'm going to divide that by fifty thousand and I'm left with about it eleven percent return so that's
0.108
Rounded up, that's about
11 percent return on Investment , 11 percent ROI. And if you have trouble with the decimal point you can also multiply that number times
100 so that you can see it in the flesh, and then you'll see 10.8 so 10.8%
You round that up. That's about an 11 percent return on investment on that house
But there's another easier way to figure out return on investment
It's called the 1% Rule. Now so many of my real estate investing friends use this methodology
You've heard it on radio shows you've heard it before
It's a simple way and a really effective way to figure out if it's a good investment. You're making the one percent rule
What is the one percent rule? If you're planning on buying a property that you'll
You know that you'll rent out to one or more tenants
Using the 1% Rule when you decide whether or not the property is worth it
We'll help you figure out the price you'll pay for it. So the 1% Rule
My father-in-law uses this rule and all of the properties that he's bought
So when I was first telling him a number of years ago about the properties that my team does at Morris Invest
He said, "let me just do the 1% Rule on that real quick, and he did the 1% Rule
And he said because he's from California. So he was getting four and five percent returns, and he said, "holy smokes
I'm in. I'm in. I'm in. I'm in." He started so now he's bought many many properties with us
But it's a very, it's very funny to hear him say that because the numbers make sense when you start doing that 1% Rule.
It simply states that an income producing property
must produce
1% of the price you'll pay for it every month so for example
Let's just say we're doing the $50,000 house okay, so let's say we're doing $50,000 house
Okay, then we're going to multiply that 50,000 times 1%
.01 percent
It's five hundred dollars now every month that $50,000 house should be producing at least
Five hundred dollars a month in rent. Well guess what? The property we just used as an example
Which we typically do for our properties with seven hundred and fifty dollars a month in rent.
So it breaks the 1% Rule, but the minimum should be 1%, right? That's where you know
It's still a good investment. So on a fifty thousand dollar house. It should be renting out for at least
Five hundred dollars a month. Well guess what?
That's the 1% Rule and anything above that-- and the 1% is still high return real estate
So anything above that is just gravy. So if it rents for $600 a month. That's gravy
$700 a month that's even gravier! Is that a word?
$800 a month, that's even graviest, so
there you go real simple ways to both figure out ROI
using my formula the twelve times .6 and taking out 40% which is again, really conservative or
The 1% Rule, which is 1% of the purchase price of the property is what you want it to produce every month in
Rent to get high return on your real estate investing.
I would love to hear your thoughts on this this is the down-and-dirty
Way of making sure that you're getting high returns on your real estate it really just comes down to that. There's nothing else
Fancier about it. You want to make sure your rent
value is
Well under the cost of the home, that you're getting a high return on investment, that you're buying
Properties that are off market that they're you know they're going to be wholesale property
So you're not paying you know twenty thousand dollars more than the market value of that house through a realtor
and that you're getting consistent cash flow and that's the end of the game. Consistent cash flow on your rental property and
A high return on investment. Those are the simple numbers to figure out high return real estate. I hope you found this helpful
I've been getting a lot of questions lately from people who have purchased
Properties when they've spent three hundred four hundred thousand dollars on a property, and they're literally under water because they purchased it wrong
So I hear this all the time from people
And I'm so glad to be able to help you on this journey if you have any questions at all please
Feel free to message me you can always do that
Thank you so much for subscribing to the show and leaving any reviews that you can it means the world to me that you're able
To do that
And we publish this show multiple times a week. If you're ready to take action and you want to book a call with our team
at Morris Invest, great! Come on over to our website just go to morrisinvest.com and
Click on the schedule a consultation button you can't miss it
It's right there in the middle of the screen
And we'll jump on the phone with you for 30 minutes to talk about your real estate investing goals in this journey
And we'll help you pick out your first rental property and we will take great care of you and by the way our rental properties
Yes, have a high return
High return on investment we are high return real estate. That's what we do in our house, so thanks everyone
We'll see you next time now. Go out there. Take action, become a real estate investor. Much love to you all.
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