The Book on Rental Property Investing

Brandon Turner

📚 GENRE: Business & Finance

📃 PAGES: 356

✅ COMPLETED: April 14, 2020

🧐 RATING: ⭐⭐⭐⭐

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Short Summary

Brandon Turner ― active real estate investor, best-selling author, and co-host of the BiggerPockets Podcast ― breaks down the  strategies he used to build his real estate portfolio. 

Key Takeaways

1️⃣ Do The Math — In real estate, you make money when you buy. Before you purchase any property, it’s critical to run the numbers on potential income, rent, and expenses. Make sure the math adds up. The property should produce positive cash flow every month. 

2️⃣ Location, Location, Location — A huge factor in any property’s performance is location. You want to invest in houses that are in good neighborhoods, low crime, quality schools, a growing population, and easy access to amenities. 

3️⃣ Treat It Like A Business — If you get into real estate investing, it’s important to take it seriously. Treat the property like a business, not a hobby. Have a business plan and be as prepared as possible in all areas.

Favorite Quote

"Having goals is great, but it's not enough. You need action, too. You will need to get off your butt and change the world yourself, because no one else will do it for you."

Book Notes 📑

Prologue

  • Brandon Turner turn down law school to become a real estate investor. He acquired dozens of rental properties over the decade after he graduated college.
    • As Turner earned money on his properties, he used the income to invest in more properties.
    • Turner now has 44 units spread out over 12 properties.

Chapter 1

  • Why is rental property investing attractive?
    1. It allows you to borrow money from the bank to acquire properties and increase the return. This is known as using leverage.
    2. With rental property investing, you’re in complete control of the outcome of your investment.
      • It’s up to you to analyze a property before you buy it.
      • It’s up to you to ensure the property is in good condition to rent.
      • It’s up to you to ensure the property is running at peak performance.
    3. Demand never ends with real estate.
      • The housing market may go up or down, but people always need a place to live.
      • Just like the stock market, the rental property market has booms and busts. Learning to identify went to buy low and sell high is key, just like with stocks.
    4. There is lots of variety with rental properties.
      • Apartments
      • Offices
      • Homes
      • Look for deals under market value, just like investing in stocks.
  • Rental property investing allows you to tap in to all four of real estate’s major profit sources. The 4 wealth generators of real estate include:
    1. Appreciation
    2. Tax savings
    3. Cash flow
    4. Loan paydown
  • Appreciation — Increase in the value of an asset over time. Appreciation is the “icing on the cake.” It should not be relied on by itself to make money in real estate. There are two types of appreciation in real estate:
    1. Natural — The natural tendency for prices to rise over time.
      • Inflation, scarcity, American greed are causes.
      • Ex. Papa Bill and Grandma Irma’s house in Pleasanton. 
    2. Forced — Improving the property to increase its value.
      • Ex. Mom and Dad’s sliding glass door. 
  • Cash Flow — The amount of income in your business after all bills have been paid.
    • In real estate, this is money left over after paying all of the expenses that go into running the property.
      • Income — Expenses = Cash Flow
    • To properly gauge cash flow, you need to have a good grasp on income and expenses going on at your property.
    • Buy properties that offer cash flow today, right away.
  • Tax Savings — The United States government loves real estate investors. Real estate investors provide places to live and keep the economy going.
    • The government rewards real estate investors with favorable tax treatment.
  • Loan Paydown — Taking a loan on your rental property and using the income from your tenants to pay the loan down every month. You can essentially use your tenant’s payments towards paying off the mortgage on your property.
    • Amortization is part of paying a mortgage loan. Initially most of your mortgage payment goes towards interest and just a little bit goes towards the actual principle on the loan.
      • Each month, a larger percentage of the money goes towards the principle up until your last payment, which goes 100% towards the principle.
    • You don’t have to have the full purchase price for a property to acquire it. You can put down a down payment and borrow the rest. Then you pay back the lender.
      • The key is to make sure you’ll get more than enough money through tenant payments to cover the price of your loan payment each month.
  • Quote: “Having goals is great–but it’s not enough! You need action, too! You will need to get off your butt and change the world yourself, because no one else will do it for you.”
  • Banks generally want at least 20% down on a loan.
  • Always have a good amount of cash on hand for safety for unforeseen circumstances or expenses.
    • Try to shoot for about 6 months-worth of expenses for each unit you have. This provides some safety.
      • Ex. Single Family Home — About $800 in expenses typically. So, shoot to have $4800 ($800×6) in cash readily available if needed. 
  • Top 5 issues of being a rental property investor:
    1. Building wealth takes time
    2. It can be all-consuming
    3. Must deal with difficult people
    4. There’s a lot of paperwork
    5. You can lose your investment
    • Preventing the above issues comes down to how well you manage and organize.
  • There’s always risks with anything. Learning to navigate the risks will define your success.
    • Do the right math and analysis before making any move.
    • Treat your rental investing business like a CEO. Don’t half ass this!
    • Educate yourself on real estate.
  • Reinvest the cash flow you earn back into your properties to take advantage of compound interest.
    • Try not to “live off” of your cash flow from rental properties. Have another source of income AKA a job.

Chapter 2

  • The 5 keys to rental property success:
    1. Think the right thoughts
      • Take the right mindset into rental property investing.
      • Not “I want to do this.” Think “I will do this.”
      • Flip the switch. Commit to doing this right.
      • Write down your goals.
      • Always think “How can I?” instead of “I can’t.” Find a way. Put a solution on the board.
    2. Study the right source
      • Decide on a strategy. Target certain properties.
      • Obtain knowledge. Read books, study online sources and articles, listen to podcasts, watch YouTube, etc. 
    3. Picking the right plan
      • Write down your vision and how you plan to get there.
      • What is the end goal? What strategy do you want to use? What kind of properties do you want to buy? How will you finance everything? When do you want to get there?
      • Know why you want to be a rental property investor.
      • How often will you buy properties?
    4. Acquire the right asset
      • To acquire wealth, you have to acquire more assets and drop some liabilities.
        • Liabilities — Expenses like car payment, rent, cell phone bill, etc.
        • Assets — Stocks, rental properties, etc. 
    5. Managing the right metrics
      • Managing is key with rental property investing. Unlike stocks, rental properties must constantly be maintained and managed.
      • Consistently analyzing how the property is performing is huge.
        • Look at cash flow. Look at appreciation.

Chapter 3

  • Real estate investing plans can vary, but this chapter goes over 4 high-quality plans.
  • Plan 1
    • Buy incredible rental properties, save the cash flow, reinvest the cash flow back into even more rental properties.
    • All plans take time. This one takes about 7–10 years.
    • United States average appreciation on houses: 3% historically.
    • Set your buying standards:
      • Ex. Multi-family Property — “We want to buy a fourplex, 24-unit apartment. Cash flow is $200 per unit for the month after all expenses of been paid.”
    • Property must be purchasable at a discount. Buy properties that are selling at 80% of what they’re actually worth or valued that.
      • Ex. Buy a property listed at $80,000 instead of the listed price of $100,000.
    • A properties value must be able to be improved by 10% in the first year through forced appreciation. Property must appreciate by 3% each year after year one.
      • So, property improved by 10% in the first year and 3% every year after.
  • Example of Plan 1
    • We find a fourplex that needs a little help.
    • The fourplex is listed at $100,000 and we get it for $80,000. The seller pays the closing costs.
      • This means our 20% down payment is $16,000.
      • We spend $4000 to improve it by 10% in the first year.
    • Year 1 Summary:
      • Our loan – $63,500
      • Cash flow — $10,000
      • Total equity — $46,500
      • End of Year 1 value – $110,000
        • This is the $100,000 +10% improvement.
      • Total net worth — $70,300
    • Year 2 — Nothing changes. Just manage the property effectively. Cut expenses if possible. Raise rent if possible.
    • Year 2 Summary:
      • Our loan – $63,000
      • Cash flow – $20,000
      • Total equity $50,300
      • Year to value – $113,300
      • .03 percent appreciation
      • Total net worth – $70,300
    • Year 3 — Buy a second fourplex using the $20,000 of cash flow.
    • Year 3 Summary:
      • Our loans — $126,000
      • Cash flow — $20,000
      • Total equity — $101,000
      • Our value — $227,000 
      • Total net worth — $121,000
    • Year 4 — Same thing. Buy another four plex. 
      • Our loans — $177,000
      • Cash flow — $30,000
      • Total equity — $173,500
      • Our value — $350,500
      • Total net worth — $203,500
    • End of Year 4 — Trade up to acquire an apartment complex. 
      • We will have roughly $175,000 (total net worth — certain fees like closing costs, agent, etc.) to invest in the next property. We use this as our 20% down payment.
        • This allows us to buy a property listed as high as $875,000 after applying for the loan and using our $175,000 on the down payment.
      • We find an apartment complex worth $1 million and buy it for $800,000.
        • A down payment of $160,000 makes the loan payment $640,000 total.
        • This leaves $13,000 for closing costs, reserves, repairs.
    • Year 5 Summary:
      • Our loans — $625,000
      • Cash flow — $57,600
        • 24 units x $200 per door x 12 months 
      • Total equity — $475,000
      • Our value — $1.1 million
      • Total net worth — $532,600
    • Year 6 — Relax and manage 
    • Year 6 Summary:
      • Our loans — $610,000
      • Cash flow — $115,200
      • Total equity — $523,000
      • Our value — $1.13 million
      • Total net worth — $638,200
    • Year 7 — Same as Year 6
      • Our loans — $595,000
      • Cash flow — $172,800
      • Total equity — $572,000
      • Our value — $1.167 million
      • Total net worth — $744,800
    • End of Year 7, Beginning of Year 8 — Trade up to acquire a 75-unit apartment complex
      • We will have net worth ($744,800) — Sales expenses of selling previous apartment ($94,800) = $650,000 for final down payment
      • Complex listed at $3.4 million. We get it for $2.75 million. 
        • Total mortgage = $2.1 million after down payment 
    • Start of Year 8 Summary
      • Our loans — $2.1 million
      • Cash flow — $0
      • Total equity — $1.3 million 
      • Our value — $3.4 million
      • Total net worth — $1.3 million 
  • House Hacking — Combining your rental properties with your personal residence. 
    • Ex. Buying a duplex and living in one unit while renting out the other.
  • When you plan to live in the property for at least one year, financing becomes a lot friendlier for the borrower. 
    • FHA Loan — 3% down payment
    • USDA Loan — 0% down 

Chapter 4

  • Always use a real estate agent when buying properties. You aren’t charged a fee when you buy. 
    • Sellers get charged closing costs and commission fees by agents.
  • Always use a great agent that understands the investing aspect of real estate.
    • Use referrals to find good agents in the town.
  • Check references when selecting contractors. Good contractors are tough to find. You have to work to find them.
  • A great property manager can make the difference between a successful or failed investment. 
    • Hire good property managers if you’re going to do that.

Chapter 5

  • Quote: “In real estate, you make money when you buy.”
    • You need to know the math going into a deal. You should know upfront that your property will make money before buying it.
      • Run the numbers, do the math, and figure out the cash flow before pulling the trigger on a property. Make sure you’re going to be in the positive.
  • The two most important factors to look at before buying a property:
    1. Cash flow
    2. Appreciation
  • It’s hard to predict appreciation. The United States average is 3% per year historically.
    • Because you shouldn’t count on it, primarily look at cash flow when analyzing a property.
      • Income — Expenses = Cash Flow
  • Income — The key to figuring out how much income you might make on a property is knowing ow much your property will rent for.
    • This number depends on the local market. Use Craigslist, Biggerpockets.com, Rent-O-Meter and other tools to find out how much comparable properties in a similar area are renting for. 
    • Additional ways to determine rent value:
      • Look at the local paper for listings
      • Look on craigslist
      • Call people who are advertising their property for rent and ask. Pretend you’re interested in renting. 
      • Talk to other landlords and property managers 
  • Expenses — These are deceptive. Many people underestimate their monthly expenses when it comes to properties.
    • It’s important to plan for vacancy. Vacancy fees are when your property is not being rented out by anybody.
      • Basically, you have to pay the rent because nobody is in the property. 
    • You should determine a percentage, then translate it into a dollar amount and add that to your monthly expenses when calculating and judging what your expense might be. 
      • Ex. Rent is $1,000 per month. You believe the place will be empty 5% of the time. That’s $50. Include that in your expense projections.
    • Assume 5–15% for repair expenses, depending on the condition and age of your property.
    • Include Capital Expenditures in your expense projections.
      • These are big expenses like new roofing, driveway, water heater, etc. 
      • Determine how much each big-ticket capital expenditure will cost and divide it into months.
        • Ex. Roof — Total replacement cost: $5,000. Lifespan: 25 years. Cost per year: $200. Cost per month: $16.67
        • Ex. Windows — Total replacement cost: $5,000. Lifespan: 50 years. Cost per year: $100. Cost per month: $8.33.
      • Come up with all the big capital expenditures you can think of and do the above process for each. Then at the end, do the process for all of them combined and come up with the total per month that you should include in your expense projection.
      • Your capital expenditure monthly expenses should be between 5–15% of the monthly income.
    • Always include property management fees in your expenses, even if you are managing the property yourself.
      • Property management companies take a percentage of the monthly rent income. It will vary depending on the property manager.
    • The above Capital Expenditure expenses can be difficult to track. Other, easier to track expenses include:
      • Taxes
      • Insurance
      • Flood insurance
      • Repairs
      • Water
      • Gas
      • Electricity
      • HOA
      • Snow removal
      • Lawn care
      • You also need to include mortgage payment in your projections, obviously. Using an online mortgage calculator to help determine this monthly fee. Or, call a local bank and see what kind of mortgage details they are offering.
    • Once you’ve projected the cost for all expenses, add them up and get a number for expenses per month.
      • Now, subtract this number by the projected monthly income for the property to determine the cash flow for the property. Do this for monthly and annually.
  • To determine if the cash flow is a good deal, use the cash-on-cash return on investment ratio
    • COCROI = total annual cash flow / total investment
      • Total investment is the down payment, closing costs, rehab work, etc. 
      • This calculation will give you a percentage ROI.
      • You can then compare to other investment opportunities and decide if worth it.
        • Ex. Over the last 20 years, the stock market has returned 7% annually.
  • To screen through properties quickly, use the “50% rule” and the “2% test.”
    • 2% Test Formula — Rent income / purchase price of property = X
      • If X is above 2%, it will likely produce decent cash flow.
  • Analyzing a Property:
    • When analyzing a property, first find the “total project cost”
      • This is how much you would pay for the property and closing costs and repair work and pre-rent holding costs. 
      • If this comes out to less money than similar, comparable properties on the market, that is great. Especially if those other properties are in better shape.
        • This is because the After-Repair Value (ARV) is higher than the total project cost. You can therefore value the property at those higher prices.
    • Secondly, calculate total financing and total cost out-of-pocket.
      • Basically, assume 20% down payment and find with the bank will loan you.
        • Whatever the loan amount is, subtract it from the total project cost to find out how much cash you’ll need to purchase the property. This number is what you use in COCROI ratio.
    • Third, calculate monthly mortgage payment. Use online mortgage calculator.
    • Fourth, determine possible income per month for your rent.
    • Fifth, determine expected expenses.
    • Sixth evaluate the deal using cash flow and COCROI.
  • Try to analyze one or two deals per day for practice.
    • Biggerpockets.com has a calculator that does all of this for you.

Chapter 6

  • Hiring good property managers is critical. Especially if you have a property out of state.

Chapter 7

  • Different types of rental properties:
    1. Single Family Home
      • Most common type of rental property. Fairly easy to finance.
      • Prices fluctuate often based on the local market.
      • Tenants usually pay for their own utilities (water, gas, electricity, etc.).
      • Renters tend to stay longer and are higher quality
      • Because prices follow the local market closely, it’s easier to buy low and sell high.
      • Rehabbing the house after a tenant leaves is usually more expensive than an apartment.
      • Competition can be tough when buying.
    2. Multi-Family Property
      • Duplex (two units) and apartment complex (hundreds of units) are examples.
      • Small multi-family properties: two, three or four units (considered residential to lenders).
      • Large multi-family properties: five or more units (considered commercial to lenders)
        • Residential properties are valued based on similar properties in the local market.
        • Commercial properties are valued based on our way compared to other local commercial properties.
      • Multi-family properties have a better chance of producing quick and consistent cash flow.
      • One loan gets you multiple units.
      • Less competition because you’re usually competing against other investors. With residential real estate, you are competing with regular people that are willing to overpay.
      • Usually more expensive than single family homes
      • Tenants usually cause headaches. Good property manager will help you big time with this though.
    3. Hybrids
      • Condominium
        • Many individually-owned units within one complex.
        • Individual units are owned by individuals, but roofs, connecting walls are jointly owned by an entire community and managed by the homeowners association (HOA).
        • Prices vary wildly based on the economy.
      • Town Houses
      • Real Estate Owned (REO)/ Foreclosures
        • Property that has been foreclosed on by a bank and is now owned by the bank.
        • 90% of the author’s deals have been REO‘s.
          • Property has usually been vacant for months or years. There are usually issues with the property, which drives people away from buying and drives the price down.
          • Because banks own the property, they are usually eager to sell it and get it off their books. As opposed to a real owner who will want the highest price possible. Banks are more willing to accept lower offers.
    4. Fixer Uppers
      • Home that needs minor or significant rehab before it can be used or rented out.
      • Author likes fixer-uppers.
      • These do bring a lot of risk, but less competition when buying.
      • Forced appreciation creates equity in the home.
        • Ex. Author bought house for $62,000, put $20,000 of renovations into it. After all rehab work was done, it was similar to other houses of similar size and condition that were worth $130,000. He had put $82,000 into his house. Therefore, with inflation and natural appreciation of 2%, that money will be tacked on to $130,000, not the $62,000 he bought the house for.
      • Better cash flow because you’re buying and loaning on a cheaper house. And you’re charging rent at the rate of a higher valued home after you rehab it.
        • When you rehab, always then refinance your loan to get money back on the renovations.
      • Downsides to fixer-upper’s:
        • Hidden fees or rehab work that you weren’t expecting.
        • Generally more out-of-pocket expenses right away. This can make staying on your budget difficult.
    5. Commercial Property
      • Offices, restaurants, etc. 
      • Higher down payment (30%).

Chapter 8

  • Location is huge in real estate investing. Neighborhoods are usually labeled and graded as A, B, C, D by investors.
    • Properties are also labeled using this scale.
  • Class A — Wealthy people, great restaurants, things to do, nice area, good schools, etc.
  • Class C — Lower income area, older houses.
  • Class D — A war zone. Crime, drug use are prevalent.
  • The author is a value investor who tries to buy homes for cheap and rehab them.
    • Author looks for Class C properties in Class B neighborhoods. 
  • Crime is big. Look for areas with a low crime rates. (www.crimereport.com)
  • Schools are also huge. Look for areas with good schools.
    • School districts are based on location.
    • Greatschools.org is a good resource.
  • Look for locations with low unemployment. This isn’t too critical though.
  • Population growth, transportation, proximity to local businesses, and price-to-rent ratio are big factors to also look at. 
    • Zillow is helpful with this.
    • Price-to-Rent Ratio = Median Monthly Rent Price / Median Sales Price
      • Use Zillow to access these numbers.
  • Vacancy rate is also big. You want an area with low vacancy rate.
    • Calling a local property manager is the best way to determine this.
    • Always make sure you factor in vacancy when calculating/predicting your expenses. 
  • Property and insurance tax is also a big factor.

Chapter 9

  • The Multiple Listing Service (MLS) is a collection of all homes listed for sale by real estate agents.
    • You have to be a licensed real estate agent to access this.
  • Tip — Look for two-bedroom houses that can simply be turned into three bedrooms easily. 
    • This adds massive equity and value to the home when you do this.
  • Again, look for properties with “something wrong with it” to have the best chance of getting a good deal. 

Chapter 10

  • Tips from the author:
    • Three or four bedroom houses are best for housing rentals. These attract long term tenants and drive down your vacancy rate for the property.
    • For multi-family apartments, two bedrooms works well.
    • Older homes and properties make for the best deals. But, you have to be ready for a lot of expenses.
    • Garages are a big plus for homes.
    • You don’t want to pay for utilities. Tenants take advantage and run up the bills.
    • Tenants don’t take good care of the lawn usually. Look for properties with small lawns so the tenant doesn’t have a ton of yardwork to be responsible for.
  • Eight problems to look for when buying a rental property (You want these because they help you get a better deal):
    1. Bad smell
      • New carpet, mopping, and a good clean usually fix it.
      • Make sure the smell isn’t coming from the sewer.
    2. Hidden third bedroom in a two-bedroom home
      • Taking a half room and turning it into a third bedroom
    3. Ugly countertops and cabinets
      • New countertops and a new paint job on cabinets fixes the problem.
    4. Bad roof
    5. Mold
    6. Compartmentalized configuration
    7. Sloppy landscaping
    8. Junk everywhere
  • Three problems to avoid when buying a rental property:
    1. Bad neighborhood
    2. Foundation issues
    3. Shared driveways

Chapter 11

  • If buying a listing on the MLS, you need to make an offer through an agent.
  • If buying from a private seller, you can negotiate on your own.
  • Buyers don’t have to pay agent commission fees. Sellers do.
  • You can put contingencies in your offer, but you reduce your chances of having it accepted by the seller.
    • Inspection and financing are most common contingencies in offers.
  • In your offer, include details on your financing plan.
    • Also include why you would back out of an offer (contingencies).
    • Also include how the plan will develop.
  • How much to offer depends on how long it has been listed and how motivated the seller is to sell.
    • Try to figure out the seller’s true motivation for selling.
  • Send a nice letter to the seller with your offer and why you want the property. Include a picture.
  • Make two offers at once.
    • Ex. $150,000 straight up or $165,000 with finance contingency. Seller wanted $190,000.

Chapter 12

  • There are almost always negotiations when trying to buy.

Chapter 13

  • Using a loan instead of all-cash to finance a rental property purchase results in better cash-on-cash return and a better overall ROI.
    • Downside is that there is more risk for you.
  • One of the best reasons to choose a loan over all-cash is that you only put 20% of your own money down, and, hopefully if you do it right, the rent money from the tenant pays off the 80% loan mortgage. So, essentially, you only pay 20% of the house. If you use all cash, you paid for 100% of the house yourself. You factor the monthly mortgage payment into your expenses each month when calculating cash flow.
    • Another good reason to choose a loan is that you gain a greater percentage ROI when the house appreciates in value.
      • Ex. You used a loan and put 20% or $20,000 down on a $100,000 house. If, by appreciation, the value goes up to $110,000, you’ve gained $10,000 on only a $20,000 investment. If you paid all cash for the $100,000 house, you’ve gained $10,000 on a $100,000 investment. Obviously, this isn’t as great of an ROI as the loan option.
  • It is possible to buy a property with all cash, then refinance it to get a loan mortgage 6 or 12 months later.
  • Before applying for a loan, you have to pass a bank’s qualifications (credit score, debt, etc.).
  • Process of conventional loan:
    1. Shop for loan
      • Banks, mortgage companies, etc.
    2. Preapproval
      • Do this before finding a property.
      • This entails the bank pre-approving you.
    3. Submit property information
    4. Loan goes to underwriting
      • Will give you a “yes” or “no” on loan. 
    5. Lender issues appraisal
      • Appraiser evaluates the property. This costs money.
    6. Loan goes back to the underwriter
      • A final “yes” or “no” is given.
    7. Loan closes
      • You pay your down payment. Bank pays the rest.
  • Perks of conventional loans:
    • Lower interest rates
    • Longer loan periods
  • Cons of conventional loans:
    • Restriction of the number of loans you can have at once
    • Slow process
    • Sometimes won’t loan on properties in bad shape
  • Other ways of financing:
    • Portfolio lender
    • Private lender
    • Partnership
    • Home equity loan
    • Seller financing
    • House hacking
  • Home Equity Definition — What the house can sell for. What is owed on the home.
    • You can actually borrow money using your home equity through a home equity loan/credit.

Chapter 14

  • Underwriters are the ultimate decisionmakers on a loan, not the sales guy you initially meet with.
  • Lenders need you more than you need them.
  • Lenders don’t want to give out money on a bad deal.
  • What underwriters consider when deciding on a loan:
    1. Property type
    2. Property location
    3. Property condition
    4. Loan amount
    5. Debt income ratio
    6. Loan value ratio
    7. Credit score
    8. Repayment source (your job)
    9. Experience
    10. Cash reserves
    11. Recent credit changes
    12. Compensating factors
  • For the best chance of getting a loan approved, address the above 12 factors and provide documents to support yourself. Do the math work for the underwriter and back it up.
    • Bring all of the stuff to your meeting with your loan sales guy.
    • Be organized with your report. Present it well. Go overboard.

Chapter 15

  • Title Inspection — A deed is an ownership of property document that is transferred every time the property is sold or transferred. You
    • You can go to the courthouse and see everybody that has owned your property in the past.
    • Only buy properties that do not have previous liens (mortgages) still on them.
      • Banks consider these too risky. They won’t finance your purchase.
  • Documents inspection, physical inspection, other inspections are key in doing your due diligence.

Chapter 16

  • After acquiring the house, get it insured.
  • Get a separate debit and savings business account at a bank.
  • Create documents and store them in Google Drive.
    • These can include move-in and move out packet, etc.

Chapter 17

  • Hiring a property manager removes a lot of headaches, but it does come at a price.
    • Many property managers require 10% of the monthly rent income.
  • If you choose to manage your property on your own, you must treat it like a business, not a hobby.
    • You need to be on top of things and do things exceptionally well.
    • Create policies for tenants and stick to them. Enforce them.
  • Try to vet tenants and make sure you’re renting to good people.
  • Fix the property up before giving tours. If the property is in tip-top shape, it encourages and attracts good tenants.
    • Market your property really well. Take good pictures with a good camera.
  • Have minimum qualifications that tenants must meet. Interview and ask potential tenants if they meet the qualifications.
    • Ex. No smoking, no pets
  • Always take an application fee with an application from a tenant.
    • Ex. $35
  • Verify everything the tenant puts on their application.
  • Never let a tenant move stuff in before signing the lease and paying rent.
  • Cash flow from rental properties is considered income by the IRS.
    • Luckily, the IRS is pretty lenient on rental investors. If you play your cards right, you can write off a lot of stuff using depreciation.

Chapter 18

  • It’s not the landlord’s job to be Santa.
    • Strictly enforce the rules and apply late fees when rent payments are late.
  • Create systems and processes for dealing with any and all situations involving tenants and everything else with your property.
    • Again, treat this like a business not a hobby.

Chapter 19

  • Ideally, hold onto your properties for a long time.
  • The 1031 Exchange — When you sell a property, you have to pay big taxes on your capital gains. The 1031 exchange is listed in the IRS tax code. It’s meant to help real estate investors. The exchange allows an investor to defer paying any taxes on the profits of a property when it is sold, as long as another “like-kind” asset is purchased using the profit received.
    • Essentially, you can put off paying your taxes on a sold property, but you have to use the profits to buy another property. This is good because it gives you more money to use for the down payment of your next property, therefore widening the range of properties you could buy.
  • There are a couple strict rules you have to follow with a 1031 exchange:
    1. The next property must be at least the same amount or more money than what you sold the previous property for.
    2. You must buy the next property within 45 days of the sale of the previous property.
    3. The sale of the new property must be completed (title transferred) to you within 180 days of selling your previous property.
    4. Must use an intermediary to hold your money between transactions. The money can’t touch your bank account.
  • In the end, you have to pay taxes on all properties in which you used the 1031 Exchange. This, unfortunately, does result in a big tax payment, but the exchange did save you a lot, ultimately. 
    • There is an exception. If you die with the properties still in your possession, the properties are passed onto your heirs at full-market value, meaning the heirs can then sell the property and pay little or no taxes on the sale because there will be little or no capital gains. 
      • Ex. Mom and Grandma Barbara’s rental property in the Bay Area.

Chapter 20

  • Five things rental property investors must do while in the game:
    1. Manage your portfolio
    2. Raise income over time
      • Raise rent, etc. 
    3. Decrease expenses
    4. Execute your plan
      • Build your plan, do the math, execute.
    5. Give back