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My name is Dolf. I am a realtor with the Unique Places team at Keller Williams Realty. I am also an investor. I implemented most of the concepts I will teach you today. 

 

Investing is using money; it could be your own or someone else’s to buy an asset. In this case, the asset is real property, meaning a home built on a piece of land. The land is also known as the “lot” or “parcel”. I use those terms interchangeably. This money you are using, or investing rather, is called the down payment and can be a portion of the purchase price or all of the purchase price.

 

In most cases, it’s a portion, and the other portion comes from a lender or any other banking institution. The down payment can be as little as $0 if you are a veteran and using a VA loan, or 3.5% if you are using an FHA loan, or could range from 5% to 20% in the case of a conventional loan. The lower the down payment, the better, or the higher the leverage. But wait, Dolf, what does leverage mean? Leverage in physics is the tool you use to move a heavy object that is almost impossible to move by yourself. You use the leverage and apply a relatively small force to move that big object. In the real estate context, you are using a little bit of money, your down payment, to have the leverage to purchase an expensive property you cannot do by yourself. The bank here is your leverage. I hope it makes sense. 

 

Speaking of investing, people invest in buying any asset to get a monetary reward, also known as profit, in the future. This profit has two types: reoccurring profit, or cash flow, which I will explain later, and a one-time profit when you sell the asset, also known as exiting the ownership or just exiting for short. 

 

Speaking of exit, we have multiple exit strategies in real estate; I will explain them individually. I know I am going deeper; I hope you brought your life jacket (smiley face). 

 

Exit strategy number one: buy and hold, meaning you buy and keep a property for at least five years of ownership. This strategy is my favorite for many reasons, mainly tax advantages and future appreciation. I will not go into detail; I will save it for another article. 

 

Number two: buy, fix, and sell, also known as fix and flip. You buy a property that needs rehab, also known as a fixer-upper, or just a fixer, hold it for a few months, renovate it to force appreciation of value, and then sell it, hopefully for profit. When done right, this strategy can bring quick profit and is an excellent way to increase your buying power if you re-invest your profit money to buy more properties. The disadvantages are dealing with contractors, dealing with the city if you are pulling a permit, and, most importantly, paying large amounts of taxes when you sell. If you like this content, share the article with your friends or anyone who can benefit from it.  

 

Number three: the BRRR strategy. BRRR is short for Buy, Rehab, Refinance, and Rent. Some people got creative and added two more R’s for Rinse and Repeat 🙂 Hilarious! So what you do here is buy a fixer-upper property; this is the primary key; you cannot buy a fully remodeled property and apply this exit strategy, as it will not work. Once you buy a fixer, you rehab it, refinance with the lender, ask for cash out, and then rent it. Sometimes, you can get enough money for your next fixer as a down payment. That’s why I love this strategy as well.

 

I recently did one BRRR in the city of Los Angeles. I was able to pull money that paid for all my rehab costs. Another reason why I like this strategy is because once the property is renovated and rented, also known as stabilized, it is like buy and hold. You hold it for many years to enjoy appreciation and tax advantages. Also, I didn’t pay a single $ to Uncle Sam when I did the cash-out refinance since it is a “non-taxable” event! How awesome is that? It’s like making your cake and eating it, too. 

 

Now, let’s return to the cash flow concept; you should all pay attention since this is why real estate investing is worth it. So, first of all, to have cash flow, you must have a rental property, plain and simple. What does cash flow mean? And how do we calculate it? Cash flow is the amount of money left in our bank account after subtracting the gross rental income (i.e., the total rents before tax) from all the expenses pertaining to owning the property. Expenses can be mortgage (principal and interest) payments, property taxes, home insurance, utilities, repairs, maintenance, etc. Depending on your purchase and property location, or whether you get market rent, the monthly cash flow you should aim for is $200 or more per unit. 

 

I hope you enjoyed the tip of the iceberg regarding real estate investing and are ready to take some action. If you are already done investing, let me know in the comments. I want to hear your experience, pains, and gains and why you are doing this. I do it now so I can later retire and live off the passive income, and I promise you, this will be the last term I will be explaining. Passive income means an income coming to your bank every month or a quarter without any work needed from you. 

 

Take care, and I will see you in the following article.