Making Money in Real Estate Explained | Life for Sale

Summary

In this video, the host addresses various real estate investment queries from the audience. He explains the concept of triple net properties, detailing how leveraging bank loans at 4% can yield profits of around 17%. He also discusses tax-free profits from living in a property for two years, improving it, and selling it at a higher value. The host shares tips on increasing property value through improvements and refinancing, selecting the right flooring for rentals, and buying properties with retail and residential spaces. He advises on legal eviction processes and staying financially secure during a recession by avoiding over-leveraging. The video concludes with a motivational push to find real estate deals and get into the business.

Takeaways

• 💼 Triple net properties can provide significant returns. Buying a property for $1 million with 80% bank financing and a 7% cap rate can yield a 16-17% return on the $200,000 down payment.
• 🏦 Paying a mortgage on a triple net property is a common practice. A $800,000 loan at 4% interest annually results in $32,000 paid to the bank, leaving a net income of $38,000 on the investment.
• 💰 The importance of leveraging bank financing is highlighted. By borrowing at 4% and collecting 7%, investors can earn a 3% spread on the bank's money.
• 🏠 Living in a property for two years as your primary residence can lead to significant tax-free profits when selling, especially if the property value appreciates.
• 🔄 The strategy of fixing, improving, and refinancing properties to extract equity and increase cash flow is discussed.
• 👨‍👩‍👧‍👦 For married couples, leveraging the tax-free profit on a primary residence can lead to substantial wealth accumulation.
• 🏡 Tile and laminate flooring are recommended for rental properties due to their durability and low maintenance.
• 🛒 Combining commercial and residential spaces, like a storefront with an apartment above, can be a good investment if located in the right area.
• 🚫 Evictions should be handled legally and with the assistance of a lawyer to avoid potential lawsuits.
• 💡 When facing a potential recession, avoid over-leveraging on properties and ensure that mortgage payments can be comfortably made.
• 🏢 Large homes with low price per square foot might seem like a good deal, but the lack of buyers can make them a poor investment.

Q & A

How much profit can one expect from a Triple Net property investment?

A Triple Net property investment can yield a profit of around 16 to 17 percent. This is calculated by using the bank's money at a 4% interest rate while collecting rent at 7%, resulting in a 3% spread. Additionally, the investor's own money typically earns around 7%.

What is the significance of the term '7 cap' mentioned in the script?

A '7 cap' refers to a 7% capitalization rate, which means that a property generates an annual net income equal to 7% of its purchase price. For example, a property bought for $1 million would generate $70,000 per year in net income.

How does the mortgage affect the income from a Triple Net property?

The mortgage payment, typically around 4% of the loan amount, reduces the net income from the property. For instance, if the property generates $70,000 annually and the mortgage interest is $32,000, the net income after mortgage payment is $38,000.

What is the tax implication of living in a property for two years before selling it?

If you live in a property as your primary residence for at least two years, any profit made from selling the property is tax-free up to $250,000 for single individuals or $500,000 for married couples.

Why is it recommended to buy a property with a building in a Triple Net lease?

Buying a property with a building allows the investor to depreciate the property, which can significantly reduce tax liability. Land leases do not offer this advantage.

What is the strategy for increasing the value of a property before refinancing?

The strategy involves making improvements to the property, such as fixing and managing it better, which can increase its value. Once the value is increased, the property can be refinanced to pull out equity, which can be used for cash flow or further investments.

What is the advantage of doing a 1031 exchange in real estate?

A 1031 exchange allows an investor to sell a property and reinvest the proceeds into another property without paying capital gains tax, thus deferring taxes and allowing for continuous investment growth.

What is the speaker's opinion on living in a steel shipping container converted into a living space?

The speaker is uncertain about living in a converted shipping container and suggests visiting or even spending a night in one to make an informed decision.

What is the recommended flooring for a rental property according to the script?

Tile or a high-quality laminate that resembles tile is recommended for rental properties because they are durable, easy to clean, and do not show wear and tear as easily as carpeting.

What potential issues should one consider when buying a storefront with an apartment on top?

When buying a storefront with an apartment on top, consider the location, the ability to rent both spaces, and the potential noise or disturbance from the retail operation affecting the residential tenant.

What advice does the speaker give regarding evictions of tenants?

The speaker advises to handle evictions legally by hiring a lawyer to prepare the necessary notices and to follow the court process to avoid potential lawsuits.

Outlines

00:00

🏢 Real Estate Investing: Triple Net Properties

The speaker begins by addressing the concept of Triple Net properties, explaining how they work as an investment. He uses an example of purchasing a property for $1 million, with 80% financed by a bank at 4% interest, and the investor putting up 20%. The property is expected to generate a 7% return, which equates to $70,000 annually. After paying the bank interest of $32,000, the investor earns a 17% return on their $200,000 investment. The speaker also touches on the benefits of owning the property for depreciation and tax advantages, and contrasts this with land leasing.

05:01

🏠 Principal Residence and Real Estate Profits

The speaker discusses the tax benefits of living in a property for two years as a principal residence before selling it. He explains that any profit made from the sale can be tax-free, using the example of a $250,000 home that appreciates to $500,000. He encourages viewers to take advantage of this strategy and buy, live in, and sell properties every two years to maximize profits. Additionally, he advises viewers to get pre-qualified for a loan before house hunting.

10:01

📈 Improving Property Value and Cash Flow

The speaker talks about increasing property value through improvements and refinancing. He explains that by fixing and managing a property better, one can increase its value and subsequently refinance to pull cash out. He also discusses the concept of 1031 exchanges and the importance of consulting with a CPA. The speaker then addresses a question about building affordable housing with containers, suggesting that one should visit such a unit before investing. He also discusses the best flooring for rentals, advocating for tile or laminate over carpet.

15:02

🛒 Retail and Residential Combo Properties

The speaker discusses the potential of owning a storefront with an apartment above it, emphasizing the importance of location and tenant compatibility. He warns against buying properties like a nightclub with residential units above due to noise issues. The speaker also shares his experience of buying a Rolls-Royce at a significant discount and改装 it. He advises on seeking professional help for larger real estate moves and the importance of not being over-leveraged, especially in a potential economic downturn.

💼 Evictions and Legal Procedures

The speaker addresses the best way to evict tenants without going to court, emphasizing the importance of following legal procedures and consulting with a lawyer. He warns against taking matters into one's own hands and the potential legal consequences. The speaker also discusses the importance of being prepared for economic changes and not overextending oneself financially in real estate investments.

🏡 High-End Property Market Analysis

The speaker analyzes the market for high-end properties, using an example of a 10,000 square foot home in the Chicago area. He discusses the challenges of selling such properties if the market is flooded or if demand is low. He advises using real estate agents for market information and making decisions based on current trends. The speaker concludes by encouraging viewers to get involved in real estate, whether through buying, selling, or flipping properties.

Keywords

💡Triple Net Lease

A Triple Net Lease is a type of real estate lease agreement where the tenant is responsible for the property's operating expenses, such as taxes, insurance, and maintenance. In the video, the speaker explains how this arrangement works for investors by giving an example where a $1 million property can generate a stable income with minimal management responsibility. The concept emphasizes passive income and leveraging borrowed capital.

💡Cap Rate

The Cap Rate, or capitalization rate, is a real estate metric used to assess the rate of return on an investment property. In the video, the speaker refers to a 'seven cap,' which indicates a 7% return on the investment based on the property's income. This figure is critical in determining whether a property is a good investment and is frequently mentioned in commercial real estate discussions.

💡1031 Exchange

A 1031 Exchange refers to a section of the U.S. tax code that allows real estate investors to defer paying capital gains taxes when they sell a property, provided they reinvest the proceeds into a 'like-kind' property. In the video, the speaker discusses how investors can continuously defer taxes by rolling profits from one property into another, thus increasing their portfolio's value and cash flow.

💡Depreciation

Depreciation is an accounting method used to allocate the cost of a physical asset over its useful life. In real estate, this often allows investors to reduce their taxable income by deducting the depreciation of a building’s structure. The speaker in the video highlights how depreciation can minimize taxes, making real estate investments even more financially attractive.

💡Principal Residence Exclusion

The Principal Residence Exclusion allows homeowners to exclude up to $250,000 ($500,000 for married couples) in capital gains from the sale of their primary home, provided they lived in it for at least two years. The speaker emphasizes this strategy as a tax-free way to generate wealth in real estate, explaining how homeowners can profit every two years without paying taxes.

💡Refinancing

Refinancing involves replacing an existing loan with a new one, typically to benefit from better terms, such as a lower interest rate. In the video, the speaker discusses how investors can refinance a property after increasing its value through improvements, allowing them to pull cash out tax-free while keeping ownership of the asset.

💡Cash Flow

Cash flow refers to the net income generated from an investment property after expenses, such as mortgage payments, taxes, and maintenance. The speaker in the video highlights the importance of positive cash flow, especially in rental properties, and how it serves as a key driver of profitability in real estate investments.

💡Over-leveraging

Over-leveraging occurs when an investor borrows too much money to finance real estate purchases, creating financial risk if the property's income cannot cover the loan payments. The speaker warns against over-leveraging, especially during market downturns, advising investors to maintain manageable debt levels to avoid financial strain during tough times.

💡Pre-qualification

Pre-qualification is the process of obtaining a preliminary assessment from a lender, indicating how much money a borrower might be able to receive for a mortgage. In the video, the speaker advises potential homebuyers to get pre-qualified before shopping for real estate to ensure they have the necessary financial backing to make offers.

💡Recession

A recession refers to a period of economic decline typically marked by reduced consumer spending and rising unemployment. The speaker addresses concerns about an impending recession but suggests that a correction in the real estate market is more likely. He advises against overpaying or over-leveraging, which could lead to financial challenges during economic downturns.

Highlights

Explanation of Triple Net Properties and their financial benefits

Calculation of returns on a $1 million Triple Net property investment

The importance of choosing a reliable business for Triple Net properties

How bank loans affect the returns on Triple Net properties

Tax implications of owning Triple Net properties

Advantages of owning the building in a Triple Net lease

Tax-free profit from living in your own property for two years

Strategy for making money in real estate every two years

Importance of getting pre-qualified for a loan before house hunting

Discussion on the potential of 1031 exchanges for profit

Ways to increase property value and cash flow through improvements

Advice on dealing with tenants and evictions legally

Recommendation for flooring in rental properties

Pitfalls of buying a storefront with an apartment on top

Thoughts on purchasing a high-end car as an investment

Strategies for increasing cash flow through real estate investments

Advice on dealing with an economic recession in real estate

Analysis of a potential real estate deal in the Chicago area

Encouragement to get involved in real estate business

Transcripts

[Music]

so at the request of many I'm going to

answer comments because some people just

don't get it I mean so let's start at

the beginning for all the people out

there that don't get it I'm gonna try to

give it for all the people already know

this stuff

go wash your car all right here we go

Luis Campos says how much proper do you

actually make with Triple Net properties

does the mortgage take up most of the in

government okay triple net very simple

you buy a triple net for 1 million

dollars ok I don't know a chicken place

or a blood store whatever ok make sure

it's a good one not going out of

business you give them a million but

well you go to the bank you say hey I

want to buy this place just say fine

they're gonna put up 80% you're gonna

put up 20% how much is 80% of a million

dollars how much $800,000 20% $200,000

ok now you can trade hopefully if it's a

good deal if you're really good and

strong it'll be a seven baby so a seven

cap is no difference in 7% of the

million dollars you will get seventy

thousand dollars a year in pure 100%

management free income seventy thousand

dollars a year okay then you got to pay

the bank because they put up eight

hundred grand in this day and age you

could easily get four percent if you're

a big shot you can get three percent but

let's say you get four percent supply

and the bank is going to charge you four

percent on the eight hundred thousand

dollars that is eight times four thirty

two thirty two thousand a year and he is

seventy goes to the bank for interest

and make sure you get an interest

alone for at least the term of the lease

remaining so fine you get 70 grand a

year you're gonna pay the bank 30 2070

from 32 is 38 thank you very much

now your $200,000 is gonna give you a 38

$38,000 year return okay that's like

over that's like 16 17 percent about 60

to 70 percent it's simple that's the way

triple nets work okay you're using the

bank's money and borrowing at 4% but you

collected 7% so you get that spread at

3% on the bank's money and then you're

still getting to seven percent on your

money you put that together and all in

you get about 16 or 17 percent now make

sure that you try to buy the building

too because then you can depreciate your

interest and you'll pay practically no

tax talk to your accountant about that

he'll explain that one okay if you do a

land lease you don't have a building to

depreciate so you're gonna pay some tax

on it that's a triple net simple 1

million dollar deal in real estate okay

next I hope that answers send your

account poses question and I can't make

this phone work and you may go back you

know a big thing that probably I'm

probably the whole home thing okay if

you buy a house and you live in it for

two years and it's your principal

residence okay this is the one thing

people don't get an ad this is the

easiest way for anybody to make money in

real estate tax free you buy a house you

live in over two years normally normally

not always prices go up you make it

proven to the house prices go up so

let's say you buy a house for $250,000

you live in him in two years the market

goes up the neighborhood gets better you

put some paint on it you fixed it up

whatever it's now worth five hundred

thousand when you go to sell it after

living in for two years you could sell

it for five hundred thousand dollars and

that $250,000 profit you pay nothing you

keep it in your pocket tax-free one

hundred percent if you're married you

can make up to a half a million dollars

the day I married my wife she was worth

the quarter million bucks in tax free to

me because I bought my house of five

hundred thousand we got married I lived

in here for two years we sold it for a

million that five hundred thousand from

that house was tax-free everybody should

do that anybody can do it and if you're

smart you go out you look for a good

deal on a house you picks it up you make

sure you do it in a decent neighborhood

and every two years if you're married

and you buy the right deal you can make

a half a million dollars every two years

tax-free if you're single to 50 the

wife's gonna of course you have a 250

anyway so it's a wash my wife might have

save me 250 when I married her but just

cost me millions in the past 15 years

the most important thing is you live in

your house in two years you get a

$250,000 profit that is tax-free get out

there buy a house living every two years

sell it and make some real money

tax-free let make sure you go to the

bank and get pre-qualified before you go

out shopping you want to go out shopping

with no money behind you all right this

comment says I really have to answer

these comments so this one says this

guy's a walking heart attack now if I

ran I'd be a heart attack but walk in

I'm doing all right I'm not gonna go

into that one please keep uploading this

is gold Jerry gold alright thank you

next one babe and how do you actually

earn profit into your pocket from your

deals if you always 1031 exchange them

is it just cash flow from the rent okay

here we go yes it is cash flow from the

rental income that's guaranteed you know

but if you buy a property and you start

fixing it and tweaking it and managing

it better then you can increase the

value of it

so once you buy the property you get in

there I typically think the cash flow to

make improvements if they need it and

then you got a nice of property so let's

say I don't know how long it takes you

six months a year later you got a

property that you paid a million for but

now can be worth a million and a half so

what do you do you go back to the bank

and you say hey Bank the property's not

worked a million 1/2 bucks you get a

loan borrowed money is tax non-taxable

you can borrow money for the bank and

it's non-taxable but don't take what I

say go to your accountant and always

always consult with your CPA ok but I'm

gonna tell you from my thirty years you

don't pay tax on money that's borrowed

but you will have to pay that money back

when you sell so that's how you make

money you buy it you fix it you improve

it you refinance it and then you get

some money in your pockets and then when

you sell it you pay everybody back and

it should still be some profit left to

put more money in your next 1031 to do

the next deal I call it the recycling

program man I met your son at the

Jasmine homes inspection longtime

follower and I want to know what is

something that you learned that saves

you lots of money on your next deal you

know you save money by trying to save

money you know get bids price things out

on investment do you regret the most

children no I'm just kidding I got I

make money of my kids that's a joke

what do you think about building

affordable units out of containers and

renting them out

I don't know containers it's a whole new

thing I don't know you need to go visit

some first I wanted to go look at

something there at st. Pete here but

they are doing rental units out of

containers I think they started in

Russia I don't know being in a steel

container and cutting in Windows I don't

know I've seen these containers I don't

think I want to live in one but go visit

one first maybe spend a night in one and

then you decide and then let me know

it's tile the best flooring for a rental

what hidden problems can there be when

buying a storefront with an apartment on

top and renting both thank you for

everything Ben and team okay I'm a

strong believer in tile flooring but the

newest thing that's out is they have a

laminate that looks like tile that's

very durable and a lot cheaper and a lot

less labor intense but of course tile

laminates they're all great services now

because you can mop them they don't get

beat up that bed you know you can't burn

them like carpeting you know you can't

get really stains on it that much so

yeah everybody's going with tile or a

really good laminate now so definitely

go that route if you can because in the

long run it's gonna save your money

carpet is a painted in deck what it

promised would be okay if you buy a

storefront one apartment on top they

used to be like it was the old days and

now it's coming back you got retail

below and you have people living

residential on top I mean it is what it

is it's fine as long as it's in the

right location and you can rent that

store out and people don't mind living

above a store I mean especially was an

urban area

I mean ninety percent of people in New

York City live above some sort of retail

so as long as you can find a tenant for

the store and find a good tenant to live

above them it works you know everything

works just don't buy a disco or a club

and then put somebody on top of because

that could be a problem you know boom

boom boom you know the tenant meeting I

liked it that much unless you rent to

the people at work in a club and then

it's okay because they sleeping today

when the club's closed

all right here we go are you going to

buy a new phantom yes we bought a

phantom but we didn't buy new we bought

a $580,000 phantom for $280,000 why two

years old looks the same feels the same

five thousand miles that's nothing on a

rolls-royce okay so yeah you'll be

seeing that car soon problem was it was

silver and I don't like silver cars so

we went and had it bubble wrap - a

wrapped so now it's white and nobody can

tell and don't tell nobody I have about

5.5 million dollars in holdings with

only 600 in notes and we are looking to

make bigger moves to increase cash flow

trail bars or apartments complex or

shopping centres can really need some

help Edward

okay Edward I mean if you're in st. Pete

I hear fourth Streets really jumping

okay right now I think Saint Pete is a

really good area especially if you're

going that gateway area right now and

really the only deals I see a retail

okay you can't such apartments the

numbers do the prophets like minuscule

okay so you know if you want to go down

4th Street go down to busiest streets in

the nicest neighborhoods and look with

some retail shops maybe then you can buy

and fix up or something like that that's

the only thing I can think of in st.

Pete right now or you can buy a boat

parking in the monoi and that air B&B

without them knowing it

I got a boat right here you can use here

we go with the phone what are you doing

here

all right big Blair says best way to a

big tenants without going to the courts

the best way it's a lot of ways but

there's no the only legal way

all right unfortunately it's not the

1950s where you take the front door off

the unit and you turn to gas electric go

up you can't do that no more

Hey I'm gonna tell you right now don't

fool around with evictions get a lawyer

all he does is a fiction see doesn't

charge a lot of money okay do it legally

that noise are the best things up yes he

has to start the engines every every 20

minutes or up they may not start he said

this is cheap charge calm all right

where were we emissions do not fool

around because there are lawyers out

there they're just waiting you to do

something wrong as soon as you okay the

whole thing will turn around on you I

hope you're not calling hope you're not

doing that victory in California goes

down well or New York because I'll get

really ugly listen do yourself a favor

get a lawyer let him prepare the notices

if they didn't pay the rent give a

three-day notice to pay or get to pay

acquit turn a lease and a little

three-day notice over to the lawyer let

him handle it having a few hundred bucks

pay the court fees you got sometimes

just gotta bite the bullet

you know people ain't got the money what

are you gonna do they can't pay it and

they don't think I know where to go so

just use the court system it's not a

long process unless you're in New York

or California then you screwed but do it

with a lawyer the victim the right way

because you don't want to open yourself

up to a lawsuit okay it'll be ugly

you might even who knows we're gonna

happen to you and there's no insurance

to protect you on that

okay here we go Ben how are you

protecting yourself against the upcoming

we're so sad listen you know you got to

go with the time you go with the flow

you know I don't know I'm not a

financial expert I don't even know what

the hell recession really means what

does that mean retaking a recess anyway

listen the market something markets down

the most of one thing is not to be over

leveraged on your properties okay make

sure you can make your mortgage payments

okay that's where people get screwed and

hurt don't overpay for real estate and

don't over leverage you okay so god

forbid if something happens in rent

start going down that's the only thing I

can think of hurting you

you know you'll be put yo yo up some

sort of comfort zone so you know it's

got to go with the times if wrench their

upper rents and down its life but I

don't know if it was such it's coming to

none I think there's gonna be a

correction but not a recession okay ten

thousand square foot home going for

seventy eight hundred thousand in

Chicago area twenty to twenty five

thousand the property taxes right in for

forty five hundred fifty five hundred a

month

forty percent replacement cause what do

you think and he said area twos just

very over built no eight ten thousand

square foot home for seven hundred gram

what's that seventy bucks a square foot

yeah I mean it sounds like it there

fifty cents in a dollar but it's all

about the market you know are they

selling are people buying them that's

the whole thing how many are available

just because it's cheap you'd be sitting

around with something that's cheap if

nobody's buying it then ain't no good I

mean if they're selling them and you can

go on that's why you got to use real

estate agents the real estate agents

they're they're there to help you and do

their job they'll tell you what is sold

what's comparable when did it so how

much did it sold how many square feet

the old information in their little

computer they spit it out for you and

they can tell you exactly what's going

on then you have to make your decision

based on what's happening ex door to you

that's what you got to do so you know

yeah it sounds like a really good deal

but if nobody's buying them who wants to

sit around with a house I mean yeah you

can rent it out fine if you spend it as

he's been 803

800 grand you could have to put down

160,000 20 percent down in a house like

that 160 form 800 grand is what 640 640

thousand for the bank is 640 thousand

mortgage times porpoise said played safe

so it's gonna close to 2 grand a month

in interest only if you collected 4500

you got to grab branches only you're

gonna have to grandpa the taxes

according to what you told me you got no

cash flow so it don't pay to buy an

$800,000 house and rent it out for 5

grand a month

cuz I'm trying to pay the interest your

taxes your insurance if there's any

maintenance you got no cash flow you're

working for free so I wouldn't buy it

unless you can flip it

that's enough comments for now I got

today off for a change we're gonna

that's it for the comments I got a day

off we went to cheap charters calm we

got this big great boat we're gonna test

out today we're gonna put Vince out on a

wakeboard and see what he can do and

we're gonna take it easy get out there

go find a real estate broker to help ya

go to the bank get pre-qualified for a

loan and get busy and find a deal people

die every day people have been divorced

there's a million reasons why people

sell their houses get out there find a

house fly to duplex find something just

get in the biz baby

[Music]

you