How To Evaluate A Hot Deal
Welcome back friend kris krohn here and we, are right, in the middle of this journey of sharing with you the very best markets, to be in and i thought for today what would be the most useful things i've ever bring tyler back in my acquisitions, director and we actually show you live, deals performance. Actual, deals that are going down right now when I talk, and brag about doing, 4,000. Homes and how amazing they are and our basic are lies and the last five years the seventy, million dollars we've made for our investors, let's, actually show, you the hot deals that, make that happen because we're literally doing them just about every single day and you, could be getting in on the action so check this out. All. Right check it out friends I got Tyler Bennett back here again and we. Are gonna start by showing you a property, in our growth market, this is a house on Emily, Boulevard, this, is in if you watch the last video this is in Orlando this is right now the number, one growth, market, in all the United States and so, what we're gonna do is I'm gonna have Tyler share, with you this Performa, and as you look at it do not allow your eyes to glaze over like oh my, gosh try, to hypnotize, me with boringness I'm gonna die from lack of understanding check. It out we're gonna walk you through this if you want to be a sophisticated, investor that, is earning these high ROI. We're gonna show you how to read this right now so tune. In you're gonna watch and watch probably watch this video a couple of times so yeah Tyler what are we looking at so now, I get to have some fun Chris this is this is this is the stuff that I enjoy so we're. Just gonna dive into just. You kind understand the context of this is we. Have different, suppliers. Agents. Everybody's sending us houses in the market yeah they send them to us and we underwrite every single house and either stamp it with approval, or we toss it out because it doesn't work this is what we start with so we put it all into these pro formas, and we. We want to make sure it's gonna perform how we want to perform so I'm gonna go through one of those performances yeah and something that you need to understand, is that when, we actually find a really good deal we actually don't know if we're gonna get it yet you know half the time our offers they they bounce and we don't get them because we got outbid because, remember we. Are super, aggressive, on getting our high ROI so we've got super strict criteria and, so, if you are one of my partner's watching this it is important I want to recall your mind so one of the previous partnering videos where we talked about that, when we find a hot deal you, might want to dive in and be like oh my gosh this is amazing let's, look at the numbers and I'm like we, don't really care yet just sign the dang document, that's in the email because, we don't even know if we're gonna get it we're gonna get it because after we get it we got to get, the rehabbers, in there we've, got to get our, we, got to actually firm, up our rent numbers from our property manager, and it'll take a few days to solidify.
The Numbers and then we'll know ah these. Are the real numbers but we got to start with, something that says I think we're, sitting on a pile of gold here and that's what Tyler's gonna take you through that no good alright so let's, look at this Chris so when, we start off with just obviously, a little picture of the house you can see what it is, but. I'm, gonna start right here on the top left so. 168,000. So we start with purchase price Wow, what can we get this house for and, then we have down payment, we have closing costs, rehab expenses, and acquisition, fee all right here in this, top column. So so if we take all of these and add up all of those together that says our total property investment or what we sometimes call our t.o.p, our total out-of-pocket for. This property, is forty. Seven thousand, eight hundred and fifteen dollars all right so now if you remember in a cash flow market sometimes it's a twenty to thirty five thousand dollar downpayment, and in, a growth market this. Is kind of more than if achill it's usually gonna be between forty, thousand, and fifty, thousand dollars to get in on a property, that has high appreciation high growth awesome, cash flow eccentric yep correct and this is the number we're gonna use to base all of the returns off of because we want to base it off of total, investment yeah a lot of people Aaron just think Oh what's my down payment for the mortgage and they calculate an investment, off of that and it looks way better than it really is well and I noticed that right underneath that you also have property management setup that's actually just a placeholder property. Management in this market is how much roughly, it's six percent yeah that's awesome yeah and what, that is is we want to make sure that it doesn't only have forty eight thousand dollars and that's all they have for this property, because the, average days on market might, be twenty one days to get this rented, well that means it could take forty or it could take five and, if it's a forty one, they might have to make a mortgage payment or sometimes. We don't put fridges in the properties, because, tenants bring them but ten, percent of the time they don't and if the tenant is really, good or I'll sign a long term contract we, may need to put a fridge in and so that's just a contingency, right so your little Buffett hammer I know and then underneath that check. This out friends, 2005. Yeah so this was built during the boom yeah, in a little new new community, that was going up during that boom 1,600, square feet three bed two bath so our two-car, garage so just our typical bits. Inside of our box and just nurse right there that what's hot it is he referenced, the box and we, have a very very tight neural box and a lot of people in real estate are always trying to make money by going outside the box yeah but when you go outside of the box and the next time you go outside of the box different, and the next time you go outside of the box different then you collecting, experience, in three different strategies and the reality, is the, reason, we have such predictable. Amazing, results, is, because our. Box always says the properties, always look the same they act the same they squawk the same they talk the same and, that gives us predictability in what's called actuaries. Means that we can look at a zip code on our last hundred, purchases, and then find out what, might vacancies, look like in that particular, area now, we're bringing a level of sophistication and, intelligence, that a real investor, really wants to have the others do and and I wish we could say that we've been doing this all along but we've learned as we've gone yeah and when, we first started sometimes, you have deals coming all over and sometimes it was let's try to how do we make this deal work and when we took that perspective, it just, in the long run it wasn't, the winning formula and, so now we really do work in this box and we're never how, do we make this work if it's outside of our box it's, in it or tonight yep.
Your. Net here okay so monthly rent so this one will read for 1375, and then. You have a typical, 20%, down payment. Mortgage. On this and so the principal. And interest will be 773. We, have taxes, and then, we have insurance and so your total, mortgage. Payment, is a thousand, thirty six a month for this house okay so it's a thousand, thirty six to cover everything and we're expecting about a thousand, three, hundred and seventy five rent let, me show you how that translates, now to well what's the cash flow right and and what, else is there I do want to reference these assumptions, though because this is important, so obviously, we talked about the twenty percent down payment were, estimating, four percent in closing costs interest. Rate of five point six to five percent which. Is a typical investor, interest, rate right now it's about one percent above a primary more what the Freak is going on here dude you're showing freaking six percent property management for everyone those property management costs ten or twelve percent what's happening yeah this, is just economies of scale we do a lot of business with those property managers in that market and we're, able to pass, that savings on to our clients you need to understand something that the only way that you win at the highest level in real estate yes, it is being in the best market but then you win always buy bulk it's a volume game when, you actually go out here and you take a look at the potential you, know repairs, that this might need the rehab of $3500, we're, not just hiring Joe, the Yahoo you. Know guy from Google yeah you know. We, have crews, that go, from one project to the next project in extra and when you create that dependability, guess what happens in price goes down guess, what happens when you're doing your carpet, for that particular area in your tile it goes down you, actually have the ability to start doing rehab in bulk and this is where you start getting that super-intelligent, prices, you know what colors to paint things it's a system it's ones and zeros it's the matrix we know everything, about everything about everything and one with assists and we can hire people and bring them in house and have them as full-time employees instead of just contractors, and then it gets cheaper and, yeah so many many areas where we reduce costs, which, increase, performance obviously, so just understand in this area to get a six percent, on the property management that's insane but, many of our markets are still eight percent which is still below the ten to twelve percent right but that's what happens when you deal in bulk is that you start saving money so a couple more assumptions here so we have vacant scene repairs at eight percent and Chris, we track all of this so I know exactly.
How Many 12-month leases last year renewed, and what percentage didn't and if they didn't renew how many days on market and what, repairs or rehab they had to do to make it rent ready to find a new person, we track all of these numbers to, put into our assumptions, and this, is a newer house if this house was maybe ten years older that would be higher for, example and even newer houses it might be a little bit lower and so we customized that assumption, based on every single house and then, we, assumed a few things here and this is appreciation, so we talked before that Orlando, is projected to have about thirty percent appreciation over the next three years we, put eight percent in here so we're basing. Our numbers off of twenty four percent so we're trying to be conservative and then, after those three years we bump it down to just a normal like four percent type, appreciation. Because it's. Tough to forecast out much further than three years listen up guys two thousand eight hits we start stepping into the best markets Phoenix Vegas, other markets and my. Real estate was growing at over thirty percent a year on a breeze and part, of the reason why I was doing that is because we. Had all of the numbers my, performance, of my properties however were significantly. Better than what was projected and, that. That really just comes from a philosophy, that says this, is after, all a Performa, it is not a crystal ball that says exactly what will happen the future so, we're always going to err on the side of being conservative and having. So we have these assumptions, and then that that comes down to this basically profit, loss statement of, the income expenses, on a. Year-by-year, basis. So if we were to simply just look at year one we, would see right, the the rent of 1375, times 12 is sixteen, thousand, five hundred you've got your annual taxes, your insurance. HOA. Property. Management we're. Assuming no, vacancy, repairs year one because we're assuming this starts when we place a tenant, and then, of course a tenant, turnover, is when we kind of start that assumption and allocate, towards that so you have your net operating income.
Then. You have your total mortgage payment, and then, you have the difference yes right so the difference between those two is at 341, now this is on a monthly basis, which. If you annualize that, ends up being an eight point five seven percent, return, and then after, that you would potentially, have your vacancy. And repairs and that's, where that five point eight one percent comes in so right now let me just help you understand what Tyler just did there's several more wise when evaluating, a property right now what he's referencing is the cash on cash Ottawa, it, basically means if I put an X what am I getting back now this is not a cash flow market we're not putting, forty-seven. Thousand dollars down because we're looking for tons of cash flow and I want you to understand that what Tyler's doing is he's showing you the real cash flow instead. Of the gross cash flow a lot of times people get excited on the gross cash flow versus yeah, but let's, just say in year four that we're going to have to repaint and carpet how, do we factor that into their cash flow today we, do that it makes her numbers look worse but, the reality, is we've. Been friends, I've been investing in the LSA for over 15 years and in the end of the day I want, to I want to deal in the world of reality and nothing, different yeah though I love, the way that we put these numbers together they're all designed and Tyler. I want you to finish going through this but then I want to get them at the end we're gonna actually show you the exciting, numbers on this which, is what, is my real yeah will ROI when I'm saving, it for the end zone okay good let me just skip to year 10 Chris cuz this just outlines right years 1 through 10 and we're, still just talking about cash flow yeah we're not talking about principal pay down we're not talking talking about tax benefits. Appreciation. None of that yes so this is still just cash we're in the far right column over here right now yep right here in year 10 so, why, is rent so much higher and it's because we're assuming annual, rent increases yeah it's always gonna happen correct, and it's our job to make sure that they happen or else this is how novice investors, you, know hurt themselves all the time this, is a professional, stepping and making sure that this happens every year yeah and it's, one of the advantages to hiring a property management company that is their business, I've self managed some of my own personal properties, and my heart gets in the way and truthfully. You, know I I'll. Analyze a house it's like now they're paying $300, less and they should a month and I paid, him 3,600 bucks a year to live in my house but. It's because, I let. My emotions get in the way and so let professionals do it outsource, it. But. Yeah so we're increasing it every year yeah and if you just look to the bottom here now we're cash flowing, six hundred dollars a month six hundred fifty dollars a month after, everything, correct this is after everything and now you're making a 16%. Cash-on-cash. ROI, and that's just simply taking that 661, number, times, in it by 12 dividing, it by that investment, of 47,000. And I. Mean those are phenomenal, numbers yeah absolutely and a lot of times people can't see to, year 10 yeah they just look at year one and the power of time, is is, huge, in any investment, in particularly, in rules you gotta understand, that how you win is with the game of compound, interest and, if. You're gonna hold this property for 10 years long before we've, harvested some, of that money out to a refinance, or we, sold it potentially, and traded it for a couple more so, all of a sudden those RO eyes they start stack, your at really. Fast because the original dollar is now sitting in multiple, investments, and growing a ton which of course you know don't, look in real estate in terms, of five years don't look at it in terms of decades you got to look at it in terms of lifetimes, because, Munder. Estimate what we can do in a decade but we always overestimate, what we can do in a year if you stay long-term in this game you, know some of you're like but Chris I want to be financially free in five or ten years good, but, you should still hold your real estate 20 years after that and 30 years after that cuz you can't even begin to imagine what, that explodes, into when, it comes to leaving a legacy and really leaving some powerful, good on this planet for people yeah absolutely so now let's look at the real fun part about real estate, if you look down in this second, section you'll see this principal, reduction. Right here of the, first year 1989. Second, money that you're paying down that, your renters are paying down for you Chris yeah yeah. Yeah so I call it deferred cashflow, simply, because you're not getting it today but, you're guaranteed.
To Get it tomorrow because, your principal is getting paid down when you sell that property you're gonna get that back ok so we've got the deferred. Reduction, yes which equals about a four to five percent additional, ROI, that's hot yeah all right awesome keep going and I'm gonna skip to the bottom really quick we've got this depreciation, and tax savings and I won't go into a ton of detail on this but suffice, it to say you can depreciate, your, asset. Your house over, a twenty, seven and a half year schedule and so, for. Ease of numbers, if you had a hundred thousand, dollar house you're, getting a depreciation of, about twenty seven hundred dollars per year of taxable. Income that's coming off of your taxes, and if you're in a twenty five or thirty percent tax bracket you're, saving, thousand. Dollars or nine hundred dollars or whatever that number is exactly in actual, cash today what it's actually doing is it's actually taking the, real money that you're getting and lowering. It on paper so you're not to pay taxes on it correct which is why everyone needs to be in the game of real estate and it's mine yeah at most arms yeah and you, can defer, Tovar time when we sell we do 1031, exchanges, and all that where we we can defer and eventually, potentially. Avoid, those. Taxes long term yep through estate planning and a lot of cool stuff like that all right so, you've got an extra, about, 7%. Ish in cash-on-cash. ROI, between, principle pay down and, depreciation. Sales, or tax savings and then, we, add in the, appreciation. Yeah so if you look at year two right, we're assuming 8%, on, this particular house which represents, you know $13,000. And divide that into $47,000. Investment, that's 28%. Just in the appreciation, huge, yeah it's really really I hope you guys just caught what Tyler just said right there to, get 25%. Annual. ROI, on the money that you put in just because of an 11%, appreciation on the property listen, for some of you this might be going over your head and here's what you need to do watch, it again because. These, are the things that you really want to understand, and if, we're gonna play together or if you're gonna play in your own there, are some things you can't outsource and there's certain things that you cannot afford to, you. Know to ignore, and this is one of them is that some people I mean you know we need people that they're like I don't really not get a math you, know you and. We'll always strive to say understand. Just these few pieces because everything. That Tyler's sharing with you is addition. Subtraction. Multiple, games or division, there is no algorithm, of you. Know ^, 10 - like dice there's. No cosines, and coefficients, this is just basic. Basic math that we, want you to see it's all plugged in here and now it's all gonna come together into what we call the total projected ROI, which. Is what you've been waiting for whether you knew it or haha so really, when it comes down to is you've got this 20 to 30%. Potential. Growth in in appreciation. But, along the way you're making 10 to 15 percent so, we're, a lot of people err is they put too much emphasis on growth and, California. For example right a lot of people made a lot of money in real estate but they got zero, cash flow. Along. The way and if, it doesn't grow then. There's a lot of risk associated with it so we not only have this awesome upside. Of growth but we get cash flow along the way we make 10 to 15% along the way with, upsides, up 30 to 40%, when you add them all together yeah, all. Right let's, get let's get for the bottom line on this deal ok so at. The end of the day we're, gonna come back up here and we're gonna look at these averages. Right here so I'm gonna highlight this area right here you, want to Zone in this is what you've been waiting for and so what you have is. You. Have this 5 year average 7, year average 10 year average and, that's the cash on cash yes, if I put this money in what, liquid, cash, should. I be returned, into, my hand not, the total or a line not the appreciation. And growth that you get to capitalize on when you sell or refinance just. The cash flow portion you'll, be looking at you're looking at 6 to 10%. Net. Net now I do have this number down here on the bottom where you'll see this 8 10, and 12 and what that is is that's, your actual cash, that'll.
Actually Go into your bank account but, I want you to remember hey, you're going to have a vacancy you, going to have a repair, so you need to allocate that to go back into the property, but before, you do that it shows what those numbers are now listen six, to ten percent I want you to remember something this is not a cash flow market but those numbers are outperforming, your stock account on average they are outperforming your 401k, so output from your IRA and remember, that's just this part of the, real ROI what's the total are yeah so, I mean you're looking at twenty, seven to thirty percent and this. Particular, number right here does not include, the principal pay down or the tax benefits, so you start adding those in and there's another seven eight percent on top of that so guys you're looking at with those deferred portions, you're stepping, in out of the gate at over thirty percent you almost have you, put a dollar in and your investment, is giving you already a thirty three percent return, friends, you just need to understand something money is a game getting rich is a game getting wealthy as a game and if you don't know the rules of the game you can't win but, when you actually learn the rules which is what you're doing right now in the game of real estate then you have the ability to plan a real retirement, then you can plan real charitable, foundations, then you can look at your your, social. Footprint and ask yourself what's my legacy what, good can I do these. Are the kind of returns that elevate you out of the dust of the earth these are the kind of returns that actually can put you in a position where, you've, got options and more importantly one word that I'm passionate about freedom. And the. Freedom that is available all of us were lacking the education, and just the discipline, to put ourselves into, something like this that, makes just a world of a difference so. Toddlers we wrap this up go ahead and just open up the map show us where this guy is on the map to show us the area real quick and then, in our next video we're gonna break down our cash flow market and show you what that looks like so real, quickly here's the general. Orlando, area right. Here Disney, World's down in this area and we, we, focus all, down, here so kind of south and southwest. In Orlando this particular house is right here in Winter Haven which, is this little awesome, community it's growing like crazy you. Have a ton of redevelopment. New development, and so that's where this house is I'm gonna go street view really quick just cuz I think this is fun cuz I liked it I liked to see a tour of the neighborhood and while you're picking that up I just want to share that I've got you know we just picked up a house I think that's two miles away from the park mmm-hmm I mean guys that's talked about low key location, location if. You look at this neighborhood my, internet still still, zooming in here what, we want to make sure obviously is it this isn't some house that that's sticking out one way or another in a neighborhoods we don't want to be the smallest, oldest house or we don't want to be the biggest nicest house what. Does the neighborhood look like and so. This just kind of shows you what, the neighborhood is and we can go in and do tours of it but most of the houses all look the same and we're. Gonna fit in great so, tell there's just some final questions for you if we actually if this house looks amazing and then, we go in and put an offer on it this. Is just the beginning of the process we've got to get video, footage, picture. Footage there's all sorts of crazy amounts of due diligence yep we send in our rehab teams our inspectors, our appraisers, yeah we do a lot of work before we actually close because again these are projections that we want to fine-tune them as much as possible and, you, know you mentioned earlier that it's just addition, subtraction, and easy, math but the the hard part to it is getting the accurate. Numbers in right. So it's spitting out the sum that's gonna be as close to the actuals, as possible so we should understand something what we have just shared with you in this video thanks for hanging tight watching, it we've, just been laying down a typical, average deal that, is probably the best deal you may have ever seen in your life word that the average investor will ever come even. Close to and this, is what we do all day long in front I'm telling you something that when you're when you understand the rules of the wealthy and you have your money starting to compound at 25 30 and 35 percent and over time even more then.
The Moment we sell is property buy two more down. We're making 60 to 70 percent of our money then you sell it again you buy four more with it your original dollars are earning you over a hundred, percent of your on your money and I'm, at the point where I've been doing this for 15 years so I'm at the point where some of my dollars are kid you not are earning thousands. Upon thousands, of percent, every, single year for me and, that's what the wealthy are doing we were showing you right now exactly what it looks like and if, you're sitting there thinking man I wonder. If it would make sense for me to really look at partnering with Chris and his team and accessing, these deals or what, what could that even look like what, you need to do is go into the description below click the link and you're, going to talk to a member of my team, take you through a vetting process and. The reason why we need to vet we. Want to vet you first of all to make sure that. This is a reality that we can make this happen for you and I'll, be honest I'm also vetting you for your attitude your energy and I just want to know are you someone that we want to work with we're, to place our life where we don't have to do this in Arma we do it because we love it we do it for the sheer joy which also means that we love working with people that we love working with we want our benefactors, to be the individuals, that are in a grateful space they'll do their part they'll show up because heaven knows we, show up and we do our part so keep. That in mind when you're filling that out and talking to member of my team because, we're. Not here to work with any jerks or you, know or. Or individuals, like that we want to just have fun building wealth with the right people and that very that that might be you where. We're headed next, we just shown you our growth market we're going to be diving in on one of our cash flow markets we're, gonna show you what those numbers look like if this stuff excited, you this cash flow stuff is really gonna get you super up in the night super excited and so, click the link if you want to you know start working with us right now or join us on the very next video, and we'll break down those cash flow deals for you.