Tom Olson goes over the steps for buying any rental property.
From buying the home at a good price to refinancing, Tom explains the best way to buy a rental property.
Mike: Welcome back to the FlipNerd.com REI Classroom where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Tom: This is Tom Olson of Good Success and today, I’ve been asked to be the host of REI Classroom. Today we’re going to talk about the best way to rent houses or the best way to buy rentals in your neighborhood or around the country.
Mike: This REI Classroom Real Estate lesson is sponsored by VirtualStaffNow.com
Tom: I’ve been told by a lot of different people that they’re going to buy turnkey properties, they’re going to buy these houses all fixed up and they’re going to pay almost full retail. But today, I’m going to talk about a better way and what I believe is the best way. This is how I buy houses, this is how I buy my own rentals and I believe that his is, like I said, absolutely bar-none the best way to buy rentals.
First of all, I want to let you know I’m coming to you from Chicago and it is cold. So I’ve actually created something for you today in BRRR. So really the first thing that we do obviously, is we buy a house. Now, when you buy the house, you need to get it at a good price.
You can’t buy retail. You’ve got to be able to have some equity in the property. And for us, we can typically buy the house and fix up the house and still be around 70-75% loan to value. So that’s what I’ve got. The first thing you have to do is you have to buy cash. And again, a lot of people they want to buy the house and maybe put $20,000 down and buy a $100,000 house. So I’m going to contrast that with this. You’re going to have to pay cash for the entire house up front.
So let’s just say in my neck of the woods you’re buying a house for $60,000-$70,000 and then the next step is R. I’ve got BRRR, is my acronym today. And this first thing is buy cash. The second thing is rehab. Obviously it’s very simple. So that’s the next thing you want to do is rehab the property. Again, you’re paying cash for the rehab, you’re getting it all done and you’re good to go.
In my neck of the woods, again, buying for 50, 60, 70 maybe, putting 10, 15, $20,000 into the property and these houses are all fixed up. They’re worth probably between $100,000 to $150,000. All in, I’m looking to be in about 70 to 75% loan to value.
So again, let’s start with buy, rehab and then we rent the property. You know, BRRR. So that’s where we are at. It’s pretty simple. And then the last R is refinance. This is how you can get possible infinity returns on your investments. So let’s just give you an example here of a house that’s worth $100,000. You buy the house for $50,000. You put $20,000 into it, with your own cash. So you have all your own cash out in the property.
And then you go and refi. And banks, right now, are not letting you pull a bunch of equity out but they are letting you get all the money you’ve put into the properties out of the properties as long as you’re in that 70 to 75%, depending on the bank, loan to value.
Again, I think this is the absolute best way to buy rentals. This is how I buy them and this is how if you talk to the experts in real estate, this is how they’re buying their own cash flowing properties. Again, you’ve got BRRR. Buy cash, rehab, rent and then refi the property.
Thank you so much for being with us today, today’s version of the REI Classroom. Have a great day.
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