The Nine Most Important Things to Consider, When buying a Rental Property….

1) Does it Cashflow

People often times miss this very important question. They try and measure the cashflow of the future value, or they say they don’t mind feeding it some money each month. To be direct, it is only a good investment if it cashflows based on the rents and expenses of today, not the future rents you think you will get five years from now. Cashflow is the most important thing when deciding on a rental property.

2) Property Taxes

Property Taxes are an expense that varies widely in an area. Once again this goes back to cashflow. If the property taxes are high, but it’s a good area and you can charge high rent then it may be worth it. You always have to look at your profit minus your expenses to really see the cashflow potential.

3) Schools 

Consider the quality of the local schools around you. Good tenants with kids normally want them in a quality school district.

4) Crime

No one wants to live in an unsafe place. Sure, most areas look safe during the day, but make sure to take a drive around on a Friday night. See if you feel safe in that environment. Also, talk to the neighbors and ask them about criminal activity in the area.

5) Job Market 

Locations with growing employment opportunities attract more tenants. To find out how a specific area rates for job availability, check with the U.S. Bureau of Labor Statistics (BLS). Too many times investors don’t take this into account. There is inexpensive real estate in some areas, that would cashflow if you had a tenant. The important word there is “if”. Jobs create tenants, so make sure there are jobs in that area and that the employment rate is growing and not declining.

6) Amenities

Tour the neighborhood and check out the parks, restaurants, gyms, movie theaters, public transportation links, and all the other perks that attract renters. The more amenities an area has the easier it will be to rent.

7) Is It Somewhere People want to Live?

Investors get very wrapped up in price and often forget about the demand in the area. You will have high vacancy if it’s not a desirable area for tenants to live. A desirable area typically has a lot of the amenities above.

8) Average Rents

Rental income will be your bread-and-butter, so you need to know the area’s average rent and what the comps to your property are charging for rent. Zillow is a good place to start to find this out.

9) Natural Disasters

This was a big lesson I had to learn, but you don’t want to invest where there are high rates of natural disasters. Hurricanes are an especially expensive disaster and take it from me, a hurricane will eventually hit your property if you’re in a hurricane area.

Investing in real estate is a great way to obtain financial freedom, that said you can’t just go into it blindly. You have to do it right. In my book, “The ABC’S of Buying Rental Property” I walk you through what you need to know, so you make the right investment choices and maximize your profits.

Click here to check it out!

It’s Just Math

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

A Story is Worth a Thousand Words

I think a lot of you right now are questioning whether you will be going back to your job anytime soon. You don’t even know if your job is the right job for this new economy and what you are going to do if you need to switch careers. Most people have this knee jerk reaction that the answer is more schooling, but I want to challenge you in this ever changing environment to self educate yourself on things you are interested in. It’s never too late to reinvent yourself. Maybe you learn internet marketing, social media, real estate, or how to private label a product (I hear masks are trending right now haha). 

Whatever you want to learn, now is the time to educate yourself in order to navigate this new economy. I want you to get away from thinking you need another degree and approach it as you need more “self education.” Be open to the flexibility the future holds and be excited about it. I wrote a book on this exact thing. It is a fictional book, but Return to Orchard Canyon is more than just your basic fiction novel. It is a journey that discusses new beginnings and starting over in your career. While at the same time giving you the knowledge you need to take that step and make that decision. Click Here to check it out! 

The Real Estate Crash of 2021

A correction is coming to the real estate market and I expect to see it early next year. Each downturn is very similar to the next. We have high unemployment, and housing prices that are extremely inflated. Yet, people keep asking me, “Ken how can you say it’s going to crash when prices are skyrocketing?! I am going to miss out on the buying opportunity if I keep waiting!” So let me put a few things into perspective for you. This is a supply and demand issue. That is what inflates and deflates prices. Inventory vs demand for housing.

First, let’s discuss supply. You have the supply of properties being lowered for a couple of reasons. Reason One, some people are afraid to move. Either because of COVID itself, or the lack of certainty around their job or income. A lot of people are staying put to wait and see what happens. Reason Two, Banks are providing one year of mortgage forbearance. This means the owner does not have to pay their mortgage for one year, and the balance goes on the back end of the loan. Think about it, If someone is out of work and the bank is now allowing them to live mortgage free for one year (ending in April 2021) that person is most likely going to take the forbearance and hope they return to work within that timeframe. These issues are creating very low supply.

Now let’s discuss demand. Demand is about the same and possibly a bit higher with people trying to get out of cash or relocating from a larger city now that they can work remotely, but these buyers are competing for a limited supply, which is what is elevating prices.

Next year I see this house of cards falling. Banks can’t keep giving forbearance on mortgages and I believe most people will still be out of work. When this happens a supply of homes will flood the market and that is when it will start to correct. To see this in more detail please watch the video below!

The Real Estate Crash of 2021 Explained

It Won’t Happen Here….

If I had a dollar for how many times I have heard this over the last six months I would have made quite a bit of cash. People like to ask me about the real estate market even more than usual lately due to the instability of the stock market and rising real estate prices. Yet, there is a trend in almost every conversation…and that is the person agrees the real estate market will correct, but it won’t happen here. Where is here? Here is where ever they are invested or live. When I talk to my friends in Arizona, it won’t happen there because California people are moving there, when I talk to my California friends it won’t happen there because of the weather, when I speak with my Idaho friends it won’t happen there because people from Washington are moving there, and when I talk to my Girlfriend’s family in Ohio, it won’t happen there because well they haven’t given me a reason, just because.

I am not trying to call out anyone in this situation, but if you find yourself saying or thinking, “It won’t happen here.” The truth is you have to accept your own denial and the bullshit people around you are feeding you or you’re feeding yourself. When a correction occurs, it generally happens everywhere in the country. Sure, some areas worse than others, but all areas are affected. So you have to wrap your head around that.

If you’re an educated investor and understand market cycles, then you will understand where we are at right now in the market cycle. I can’t emphasize this enough, you can’t be a successful investor if you don’t thoroughly understand market cycles.

Click Here Where I explain the Market Cycle and Where we are Now!

Talk to you soon,

Ken

Cash is King

If you missed Monday’s email I am going to be going over 4 things you need to be doing now to be ready for the opportunities that will be created because of Coronavirus. I want to be clear I wish this wasn’t happening, but while this is very personal to a lot of people (including me and the employees in my company) this is another recession. Which many of us have been through before. There have been 4 global recessions since World War II and we will all get through this together. While it will create opportunity for some, it also has the potential to be devastating for others. I am just trying to help you prepare financially for this and to look at the past to prepare for the future.

Cash is king moving forward. Let me repeat cash is going to be king in the next 12 months. Here is why. Banks want to lend, it is in their nature. The problem is if people are out of work or just starting a new job, or are behind on bills the bank cannot lend to them. (Currently, if I am going by generally reported unemployment will be around 30% of people as of now) They can only lend to those who have a steady job, and have been paying their bills. This makes the demand on houses go down. Sure, people will still want houses, but they won’t be able to get a loan to get houses or may not have a downpayment. So when the demand goes down, so does the price of real estate. 

Supply will also go up as demand goes down. People paying on a mortgage will either default or decide to sell to move into an apartment. Either way people may be selling their homes and moving to rentals. Just like in 2008. Supply going up and demand going down. More sellers and less qualified buyers.

This is where your CASH comes in. That downpayment will make the bank feel reassured you can take on a loan. You could even be an all CASH buyer if you have something to refinance. You won’t have to even try to attempt to get a loan from a bank for a new property.

There are many ways to get cash. Refinancing, small business loans, etc. 

Getting Cash ready is the first thing you should be doing…there will be massive opportunities for those with cash. So should you go get cash right now? Hold on….let’s discuss that tomorrow.

Talk to you tomorrow,
Ken

Affordable Housing and Mobile Home Parks

The biggest issue we face today in real estate is affordable housing. With rents rising faster than income, cities are looking for a way to help people afford to live in their communities. Where in steps mobile home parks. These parks have always been frowned on by the cities because of the stigma they carry, but governments are starting to open their mind to these parks as affordability becomes more and more of an issue. 

In this YouTube video,. I talk to Mike Ayala of Park Place Communities. Him and his partners are creating an investment out of these mobile home parks and doing quite well at it! In this episode, Mike discusses what he looks for in a park, red flags he sees, and the good he is doing for the community. 

I will tell you that affordable housing will become more and more of a need in the United States over time and this is definitely something you should understand and look into. That is potential here from owning a park to possibly even converting a mobile home into a rental. Click here to watch!

Until Next Time,

Ken

Why now is the time to read the ABC’s of Buying Rental Property

Don’t skate to where to puck is,
skate to wear the puck is going.
-Wayne Gretzsky

This is a great quote and something that really resonates with me at this time. You have to move toward where you want to be, not where you currently are. So many people want to learn to buy their first rental when the market is great and they are looking to buy. The truth is, you should learn how to buy your first rental before you are ready to buy it. You should then retain the knowledge you obtain in this book to educate yourself on when is the right time to buy the rental and what rental is the right one to purchase.

If this Pandemic has taught you anything, it should be you need a side hustle. You cannot let yourself to be dependent on one income, no matter how reliable you think that income is. Rental Properties are a great side hustle. If you buy the right rental property, at the right price, it can give you a consistent monthly income to supplement the income you have already established.

So why don’t more people use real estate as a side hustle? It is because they don’t understand it. The truth is owning a rental property can be a great experience or an awful experience. The determining factor is if you are educated on buying and managing a rental property or if you are learning as you go. I love learning as you go in a lot of things, but rental property isn’t one of them.

If you are interested in obtaining a rental, then take the time to read my book “The ABC’s of buying Rental Property.”  The next couple of years you may have the biggest buying opportunity you will see in your lifetime, so you need to be prepared. I wrote this book to prepare you with all of the information you need to know when purchasing your first rental. I am going to help to prevent you from making the same mistakes new investors make and to maximize your investment.

Click here to purchase my book on the ABC’s of Buying Rental Property!

Tenant Screening

A Vacant Unit is Better than the Wrong Tenant

I see this all of the time. Tenant’s not paying their landlords and the landlords having to jump through the hoops of evicting them. Normally, when I get into the conversation with people I find they needed to fill their vacant unit so they lowered their rental standards or they eliminated a credit check all together.

I say this all of the time and people continue to ignore me. I would rather have a unit sitting vacant than to move in an under qualified tenant. Who you move in is one of the most important components of being successful in this business. COVID19 is really showing this. Currently MC Companies is collecting 96% of our rent. Why is this? It is because we were selective in who we moved in. All of our tenants have good credit and no felonies. Most of them are determined to keep their credit in good standing and are working with us on the rent.

Sure there will always be risk, but you can mitigate the risk, and a lot of people don’t because they just want to get their units filled. Below are the six ways you should qualify your tenants before allowing them to rent from you.

 

  1. HEALTHY CREDIT HISTORY

Most landlords’ number one concern about new tenants is non-payment of rent. Many landlords use a rent payment to cover the rental property mortgage. If the tenant doesn’t pay rent on time or at all, this could leave the landlord paying the bill out of their pocket.

If an applicant has no significant warning signs such as apartment related collections, judgments on their credit report, or they have a high credit score, it generally shows they have a history of making payments on time and are likely to continue to do so in the future.

 

  1. CLEAN BACKGROUND CHECK

As a landlord, you should always have the safety of your neighborhood, yourself, and your rental property in mind. In this regard, it’s best to know whether a prospective tenant has any relevant criminal offenses on their record. An applicant with a clean criminal check could be a good indicator that you can trust them with your property and the neighborhood. You’ll want to be sure to perform a criminal check at both the state and national level that includes Most Wanted Databases and the National Sex Offender Public Registry.

 

  1. CLEAN EVICTION HISTORY

Needless to say, a tenant who has been evicted is not a tenant you want to rent to. Although a blank eviction check is a good indicator that the applicant has a positive rental history, you’ll still want to conduct a landlord reference check to make sure the prospective tenant’s behavior at prior residences was up to par because sometimes it takes evictions a few months to post onto a credit report.

 

  1. STABLE EMPLOYMENT HISTORY

To help increase the chances of being paid on time, you’ll want to look for stable employment history. A person who has held the same job for several years and does not have significant gaps in employment could demonstrate that they have a steady job and income. Not only is this a good sign that the tenant will likely pay rent on time, but there’s also a good chance they will renew their lease since they don’t have a history of changing jobs frequently.

 

  1. SUFFICIENT INCOME

While a credit report is an excellent measure of a prospective renter’s financial credit history, it is crucial to verify employment and income for assurance that the prospective tenant has means to pay the rent. A ratio of three times the income to rent is the industry standard, which typically shows that if any unforeseen expenses come up for the applicant, they are more likely to have enough money to pay their rent.

 

  1. POSITIVE LANDLORD REFERENCE CHECKS

A positive landlord reference goes hand-in-hand with your tenant screening reports. Reference checks should verify that the applicant was a good tenant who paid rent on time and left the unit in good condition.

Being a Real Estate Investor 101

Real Estate Investor 101

Many people see investing in real estate as a way to generate cash flow, build-up a nest egg and have tenants pay your mortgage for you. While that is a successful strategy for many people, there is a technique to it. It isn’t as easy as simply buying a property and renting it. Uneducated investing is how you get into trouble. There are certain principles you need to follow to help ensure a return and be a successful investor.

  1. Don’t Assume Rents will continue to climb.

I see a lot of green investors bank on the appreciation of rents over time. While that is something that can happen with a value add structure, it is not something you want to make a purchasing decision on. Rent growth at the top of a real estate cycle is a very risky play, because when a recession hits a lot of the time you will have vacancies and rent stagnation.

  1. Run Your Numbers

They key to any property is cashflow. The problem is a lot of investors simply look at the rental income vs the mortgage. They forget you also have to take into account property tax, insurance, utility bills, repairs and maintenance, property management fees and other regular expenses. While also including an allowance for vacancies and future capital expenses (roofs, new A/C, etc.).

After all of this, if the property still cash flows then it is something you should consider purchasing.

  1. Know Your Market

I love investing in markets I live in because you will never know a market better than the one you are in daily. Never go into an unknown real estate market by yourself, always have an experienced local team who thoroughly understands it. This point cannot be emphasized enough.

  1. Hire a Professional Management Company

So many investors try to save money by self managing. While this can be done, it is a lot of work and you have to stay on top of it. If you or the people you are investing with are planning on self managing make sure they are experienced and capable of taking this on.

  1. Understand Real Estate Cycles

This is a big one that gets overlooked by many investors. You have to understand how the market cycles. From Recovery, to Expansion, then hyper supply, and finally a recession. Things are more predictable than you think and there is a right time to buy in the cycle and a time to wait and hold. The only way you can know if it is a good time to buy is by understanding this cycle.

  1. Invest with a Reliable Real Estate Company

In the past seven years who could have failed in real estate? Each year everything appreciated and rents grew. You honestly had to try to fail, but now is very different. MC Companies has a proven track record both when the market is up and when it goes down. It is important that whoever you invest your money with has this kind of experience. The next few years there will be massive opportunity, but you need  a company that is experienced to navigate it for you, because there will also be massive room for error.