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
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!
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!
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.
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.
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!
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.
Join Ken as he talks with financial planner John MacGregor about getting clear on your financial goals. John has extensive experience with a wide range of clients about transforming your mindset to secure your financial future. Check out his website here: https://www.johnmacgregor.net/
Join Ken as he talks with Eric Freeman about the best ownership structures for real estate. Eric discusses the various types of legal entities that can be established and explains why some forms of legal structure are much better than others.
Building new multifamily units from the ground up as an investing strategy
Join Ken as he talks with his long term business partner Ross McCallister about building multifamily apartment units from the ground up.
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.