95% of the success in real estate is understanding the math. So many times I get people asking me if a certain property is a good investment. Basically, they are waiting for my blessing. This is a TERRIBLE strategy. You need to be able to understand this for yourself, or you will be pushed into a bad investment by someone you trusted. I see this happen to people all of the time by online “gurus” only trying to get low dollar investors.
It all comes down to your cashflow. Income – expenses = CASHFLOW
In this video, Click here to watch I am going to show you how to look at a Zillow listing and decide if the property is cashflow positive or negative. Obviously, I want you to dig into these numbers and verify the rent and expense numbers, but start with just the basic calculation. If the numbers don’t work on the initial calculation, then it is not worth your time. If the numbers do work, it is time to move into due diligence and verify the rental and expense amounts. FYI in this hot market, most listing don’t work. That is why it is up to you to always look at the new listings and run the numbers daily.How to find out if a property cashflows in minutes
Down payments are a real dividing line when getting into real estate. It is almost like a four year degree. Everyone goes to high school, but not everyone has the endurance to make it through college. Similarly, everyone has a place to live, but not everyone buys a place to live. For most, this is due to having to save up for a downpayment.
I can’t tell you how many times people tell me they want to make passive income on real estate. They tell me that, but then they save no money for a downpayment. It’s too hard. They don’t want to make any kind of sacrifice. Instead, I hear excuses as to why they can’t save up enough to buy their first property. I want you to understand, making passive income on real estate isn’t hard, but you can’t be lazy. You have to save up for that down payment. Now I hear some of you saying. “Ken, I make just enough money to take care of myself and my family. There is just no way I can save money.” You know what I say to that? You’re not being creative enough.
Here are two stories I have for you of people making minimum wage that invested in real estate. The first was a young couple each working minimum wage jobs. They decided to rent a 2 bedroom condo and lease one room out for $500 a month. That helped them have a lower rent payment and they were able to save money each month. They also each cut back on their spending for two years. After two years time they bought a two bedroom condo in Austin. They kept that roommate which was cash flowing them $500 a month and now have purchased their second rental. All because they made the sacrifice of living with someone else. Is that something you could do? Could you rent a room in the place you are living to make extra money each month?
My second story was a 24 year old girl. She was barely making it between student loans and her low paying job. She posted dog sitting services on Rover and used the money to start saving for a rental. She became so busy that she didn’t even need an apartment. She was overnight dog sitting about 26 days a month. She then just paid her friend $100 a month to store her things and she would stay there on a night she was off. Within 2 years she had enough for a down payment on her first home. She now uses it as a dog daycare as well. Which covers her mortgage each month. She is now saving for a second rental.
In these two stories of people I personally know they didn’t have a lot. They had to work really hard to save the money for their first home and rental, but they weren’t lazy. They didn’t expect it to fall in their lap. But what it did is is allotted them the opportunity to get into real estate. Now, they have cashflow whether from a home based business or a roommate to then take that money and continue to invest. To begin is the hardest part, but remember don’t be lazy….but do be creative.
Talk to you soon,
A champion and advocate for entrepreneurs and real estate investors, Ken has spoken worldwide at top industry events. With media appearances on television and radio, Ken also host Entrepreneur Magazine’s Real Estate Radio program, where he helps listeners navigate the financial and legal arenas of real estate.