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.