So what is real estate investing anyway?Most people think real estate investing is going out and purchasing a property and doing something to it to make money. There’s something to it. It could be doing a fix, fixing it up and selling it. That's a fix and flip. Or just a holding onto it and renting it out.But real estate investing is a lot more than that.There are other ways to get involved in real estate investing. And I use the term investing, but actually acquiring properties without putting out any money and doing something with that property is still investing in real estate. You could also be a passive investor where you don't even acquire the property, you’re just a lender to the person who's managing the property. Another way to be a real estate investor is by investing in financial instruments that are related to a property.For example, being a private mortgage lender or investing in Real Estate Investment Trusts (REITS) or investing in a Mortgage Investment Corporation (MIC).So there are a number of ways to invest in real estate that aren't really what you would consider normal real estate investing. And it has to do with acquiring or just being involved with real estate as an investment opportunity.

How Much Deposit Should You Ask for in Rent To Own Investmenthttp://www.jimpellerin.comhttp://www.riseforwealth.comhttp://www.realtyinvestmentseminars.comIn this article, I want to talk about how much deposit or how much option consideration you should collect when you are doing a Lease Option or a Rent To Own Investment.A Rent to Own is where people are renting your property where they have an option to buy the property. Now what that means is they've come in, they've found a property or they like your property. You've made an arrangement with them where they're going to lease the property from you. Usually for a lease price that's at a rate that's higher than what you would pay for normal rentals. For a price above what you're you're covering your costs. That varies depending on how much deposit they put down.A deposit in a Rent To Own a Lease Option Investment is actually what is called an Option Consideration in some circles.What that is, is the initial money that is put up as good faith to allow someone the right to purchase your property at some time in the future.How much? Well, it depends on the price of the property; it depends on their credit rating; it depends on your area and it depends on your expertise and how much equity there is in the property.Price of the PropertyMost people or a lot of people will say they want a minimum of 5% down. So if you are doing a $300,000 property that is $15,000. If you are doing a $100,000.00 property that is only $5,000.00. I tend to go on the lower side because keeping in mind these people that are trying to do Rent To Own do not have enough money saved up to purchase a property.So they are usually cash strapped and/or their credit rating is hurting. You will hear a lot of people saying if people are asking 5% down ... well if I had 5% I would not need to do Rent To Own. Which is usually the case or is the case in some situations.You can ask for 5% or you can ask for less. Just keep in mind that the less that you ask for you are increasing your risk because now these people do not have as much stake in the game.Also, keep in mind that the higher the amount then you are not going to be attracting as many people. So again, it is based on the price of the house so you can go anywhere from $5,000 - $15,000 or it can even be less.So for $100,000 property, I would usually ask for about $3,000 and for a $300,000 property I am in the range of $10,000. So it is a little bit less than then 5% but usually in the 3-4% range. Again trying to make it more attractive for people that are investing and trying to make sure that I get more investments.EquityThe other consideration is equity.Sometimes we do what’s called a lease-buy-back. A lease-buy-back is when someone who owns the house has gone out and gotten a second mortgage, has taken out a bunch of loans and has all this debt that they have to pay, but they still have equity in their property.So let’s say the property is worth $300,000 they only owe $200,000 on the property and need $50,000 to pay off their loan. So what we do is we might buy the property from them for $270,000 leaving some of the equity in there for them and pulling $30,000 out for the down payment.So again, the property is worth $300,000. They owe $200,000 in mortgages. They owe another $50,000 in debt. So that means they owe $250,000.00 and they have a difference of $50,000. We come in and buy it at $270,000 so there is $30,000 in equity. We use the $30,000 equity as a down payment on the property. Other investors tend to not want to do that because they find they haven't interrupted the buyer’s pattern enough so they are looking for more security.The other thing to consider is whether or not the owners will be able to buy the property back.Also, the higher the deposit they put down the lower their monthly payment would be. So if they put $20,000 down, their rent to own monthly payments would be a lot less if they only put $10.000 down. The idea is the initial deposit plus their monthly payment are credits we provide for the rent to own program. So all those come together to form the down payment when they go to purchase in 3 years.Just keep in mind that when asking for a down payment or that initial deposit that you ask for enough that shows some level of skin in the game when they are entering into a rent to own arrangement. But not so much that it’s making it hard for you to attract tenant buyers.

6 Things to Think About Before Getting Started in Real Estate InvestingToday 1 want to talk to you a bit about six things to think about before getting started with real estate investing. Before actually jumping into real estate investing.A lot of people want to get involved in real estate and they think about it but theydon't really do a lot of upfront thinking about various things.If you do some of this kind of thinking and just try to determine what you want to do and where you want to go you'll have a much better chance of success in real estate investing. So let's get started.1. What is your WHY?  Why do you want to become a real estate investor? Is it that you want to make a little bit of money is it that you want to make a lot of money? is this a new career change? Are you doing it for retirement or do you just want to buy one home to add to your income?  So you want to be clear about what your objective is when you invest in real estate. Starting out with a good defined WHY at the start is the #1 thing2. How much time do you have?  Is real estate investing something that you can dedicate a lot of time to or are you very busy? Do you have a busy personal life? Do you have a family? Do you have a full-time job? How much time are you willing to spend as a real estate investor or is this something you're totally committed to? You've quit your job or you don't have a job and you want to become a full-time real estate investor. So this will help you decide what type of real estate investment strategy you will go into because the more time you have the more options you have. The less time you have, then you're limited to a few different options 3. What are you good at?What kind of skills do you have? Are you a good handyman? Do you have good skills? Are you a tradesperson? Do you have good financial capabilities? Do you know how to look at a spreadsheet? Do you know how to determine if a deal or if an investment is good or not? Do you have to partner with someone … or do you have some skills, but you want to take more training to get more knowledge on a skill. Everything is required but before you start you have to decide what you're good at and what to need to get better at. 4. How much capital do you have when you get started investing?Do you have any money to invest or are you going to be starting with zero money down?  A lot of people hear about getting started in real estate investing with zero money down and certainly, that's an option and there are a few strategies that you can get started that way if you don't have any capital to invest. But if you do have the capital and you don't have much time that’s an approach as well. Let's say you've got a lot of money in the stock market today and really you're just looking at how can you can become a better investor with your money or how can you invest your money more effectively and how can you use real estate to do? That's one strategy you can look at. There are many ways to do that. You can joint venture with people. There are mortgages and various different things to invest in. 5. Education. How much time should you spend educating yourself?. We talked about skills earlier but this is now determining what gaps you have and what skills you do need. Maybe it might be as simple as just understanding what the different strategies are and making an assessment of which strategy fits best with you in your profile … based on your current skillset; based on the time;  based on what it is you want to get out of real estate investing.  What is your WHY? Also, if you become a full-time real estate investor, or if you just buy one property, there may be some property management or project management. Those are things you have to keep in mind as well. 6. You want to develop a business planMaybe that business plan is a one-page plan. It doesn't have to be a lot. In that business plan you have to define what it is you hope to get out of real estate investing why you're getting started in real estate investing. What your marketing strategies are going to be. What your investment strategies are going to be. How you're going to finance your properties. Basically ... just a quick snapshot.

Is real estate investing sexy? To own property? To rent out a property? To have property? To be the local person in the neighborhood that owns all this real estate?Real estate is a very interesting product to own. People that own real estate either are very open about it. They walk around and they say I own properties or they let people know that they're interested in real estate. Maybe it's because they're trying to attract investors or deals. Still, other people don't want anyone to know that they own real estate. It's sort of like "The Millionaire Next Door". These people might live in a normal house, have a normal car and yet owns ten, twenty or thirty properties or has a lot of investments and is a millionaire. This could be someone who runs a little real estate business or she runs a little real estate business but nobody knows about it. The reason why I start out by asking is “real estate investing sexy?” is because you don't want to hear too much about your real estate investment. You don't want to hear too much about the fact that you own real estate investments. You want to buy a property. You want to invest in a property, whether it's with joint ventures or whether it's by yourself. You want to get that property under title and you want to put renters in there. You want to advertise your property. And you can do that by yourself or you do it use a property management company but it should be a very slow, very meticulous, very quiet kind of activity.Real estate investing should not be sexy. It should be a very passive kind of way to earn an income. The fact that you have renters in there means you should do due diligence on these renters. I've put another video out on what to look for when getting tenants. You also want to make sure that the units are always rented. You want to make sure your properties are always being serviced properly and that it's being maintained properly. Whether you do that yourself or whether you do that with a property management company, is up to you.Every little detail should be managed properly and should be watched over properly. You get renters. The renters pay you rent, regularly. If they don't pay you the rent you should have a process in place to take care of that. You get all the income and then you get all the expenses paid. You pay your mortgage; your mortgage and interest; your taxes; your insurance; and all the utilities that you're responsible for; and any maintenance. You get a person to come in and do the regular maintenance on your properties. Depending on the arrangement you might have to get somebody in to mow the lawn and somebody to come in and plow the driveway in the winter.  All those little things should be a nice standard, slow, meticulous process. You could do that yourself or you can do that with a property manager. Make sure all the finances are being managed. You have a bookkeeper or an accountant or both managing all the transactions at the end of the year. You have all your financial journals being managed. You should be looking at your properties every month, seeing which properties are cash flowing and which properties are not cashflow positive. And maybe I have to make some changesAnd maybe you're investing in multi-family homes. You've got two or three or four units. How are those places cash flowing? Maybe you want to sell them? You have to make sure you're dealing with the right realtor or you're selling it yourself and you put the right marketing in place. Make sure that when the property goes up for sale that you've done all the proper staging and you've done all the proper advertising and all the proper videos.  You need to become very diligent with the process and become very good at what you're doing. But again, all this is very boring. It shouldn't be sexy. This is not something you want to get heard about in the news about "how Jim Pelerin lost a hundred thousand dollars on these investments" or "how these tenants destroyed this property". You must treat your property and your real estate activities like a business. You must treat your tenants with respect and they will treat your property with respect. So again real estate investing shouldn't be sexy. It's not sexy. It's a very mundane activity and hopefully, it will bring you good cash flow. And that's from a rental perspective. From a fix and flip perspective .. same kind of thing. You hear all these horror stories about people buying homes and then they decide to make the renovations. They buy the home and the renovations end up costing twice as much as what they expected and they end up carrying the property for that much longer because they put it on a market and the market is slow. So instead of selling it in three months, they end up only selling it in six months. Or they end up not selling it and they have to convert it into a rental.So now their whole business model of trying to do a flip every three months is gone.So do your due diligence. Make sure that you're dealing with people that know what they're doing. Or make sure that you've got somebody that you're working with that's done this before. Make sure that you get educated. Make sure you're up to speed with all the skills that are needed. Everything from sales to marketing to project management to property management, accounting, bookkeeping. All those things. Everything I've been saying so far is pretty boring, right. So real estate investing is not sexy. It shouldn't be sexy. It should be very very boring, but very very lucrative and very profitable.

Don’t Be Afraid of DebtGood Debt and Bad DebtMost people are afraid of debt. Most people have experienced debt or currently have some kind of debt.Yet most rich people have tons of debt.There are two kinds of debt: Good Debt and Bad Debt. When regular people think of debt they are usually thinking of bad debt. Bad DebtBad debt is the kind of debt you get by purchasing consumer goods that depreciate and that don’t provide any kind of financial return. For example, your car, your trips, furniture, clothes, etc. I’m not saying don’t enjoy those things … just don’t go into debt to buy them. Don't put these things on your credit card and carry balances from month to month. Don't take out loans to buy a new car. I know people think that's crazy ... what do you mean I can't buy a new car ... I can't afford a new car without taking out a loan. Then you can't afford a new car if you have to take out a loan.  You should be putting money aside every month every year to save up to be able to buy a car without a loan. Those are expensive loans. And you should only be buying these things only after you have your savings and investment program well under control.Usually, this debt starts as credit card debt or consumer debt. And this debt has a very high-interest rate. Most credit cards charge 18%, 19%, 20% and can take a long time to pay off. So, not only are you incurring that debt but you are carrying it over many years because most people only pay the minimum balance.You should never borrow for consumer products. Save first and then purchase what you want or need. And even then … make sure you really need these items.Good DebtGood debt, on the other hand, is debt that is used to acquire an investment. An investment is something that you buy that's going to provide a return that's going to offset any kind of debt payment that you have.For example, you can borrow money from a bank to purchase a rental property, or from investors to acquire a Lease Option, or even take out a loan to invest in higher-return mortgages. There are all kinds of ways to make money outside of your normal RRSP or mutual fund type of investments.As long as you are getting a positive cash flow then it is good debt (no, your boat or jewelry is not considered an investment). And if your investment also appreciates, that is a bonus. Your personal residence is not good debt.People think, oh I got to live somewhere. If you aren't structuring your home purchase properly, then you are actually losing money by putting money into your home and not using that money to get a return. I have helped people actually figure out how to use their home to accumulate wealth and at the same time pay for their mortgage on a regular basis.It amazes me that people are afraid to take on this debt because they are afraid that they might get stuck with the monthly payments. For example, if you own a rental property and the rental unit is empty, how do you make their monthly mortgage, insurance, and tax payments? Proper planning and vacancy reserves will fix that. What that means is if you ever have a vacancy you've got some money set aside to offset your lost rents. I recommend always having six months of reserves in place to handle such things as vacancies or any kind of unexpected maintenanceFor example, if your property is renting out at $1,000 a month you should have $6,000 in the bank in your investment account to be able to weather the storm for any of those problems.Yet somehow these same people are OK purchasing a new stereo on credit and making the monthly payments because they don’t have the money to pay off the balance every month.Because people have had so many bad experiences with bad debt, they are very hesitant to take on any good debt. I see this every day with people who own their own home and have their home completely paid off. They are proud of the fact that they are mortgage-free. They are sitting on this big pool of dead equity that isn’t earning them anything except for the appreciation, and that only helps them if they sell. They think it's the greatest thing they've ever done. They bought their house for $80,000 35 years ago and now it's worth $300,000. "Did I ever do good on that investment". Well no …. not if you don't sell it. And where will you live if you do sell?If they were to take out a mortgage on their home for let’s say 3% (roughly today’s rate) and invest it in high ratio mortgages or any other investments at say 13% (average returns I guarantee my investors) they would make an easy 10% profit. If your home is worth $300K and you took out an 80% loan to value mortgage, you would have $240K to invest. At 10%, that would be approximately $24K extra income per year. Not bad for just refinancing your home.I don't know about you but most people would like to see an extra $2,000 coming in every month. People look at it as it's a risk. But if it's done properly you can reduce that risk. I guarantee my investments. I'll protect them from any kind of negative cash flow. So you really need to look at good debt as a way of making investment opportunities available to you so that you can earn extra money on a regular basis.Rich people aren’t rich because they make more money. Rich people are rich because they know how to manage their money. And they know how to manage their good debt.

10 Property Management Mistakes You Never Want to MakeWhen I started buying rental properties, I made a lot of mistakes as a Property Manager. Here are some of the most common and irritating ones in no particular order.Not screening tenants. You should always do some kind of background check on your tenants. A bad tenant is worse than no tenant. Keep your unit vacant until you find a good tenant.Not maintaining your property. If you let your property get run down, you will attract bad tenants who will run it down even more. You will also have a high turnover of tenants.Letting your tenants pay late. I have heard just about every story imaginable. My good nature has cost me thousands of dollars in unpaid rents. Now I start the eviction process that day the rent payment is returned.Not having a lease in place. Make sure you always have a lease with your tenant that describes all the terms and conditions. Get your lease form reviewed by your lawyer or use one from a reputable source (government or realtor).Not collecting a deposit (or last month’s rent). Lots of people have asked if they can pay the deposit later. It rarely happens. Make sure the deposits are collected and deposited properly. Make sure you get cash, certified cheque and that they clear before you hand over the keys.Not getting post-dated cheques. If you don’t have post-dated cheques or automatic deposit, then you will have to meet the tenant every month and that is a pain. They never come to you.Not having the utilities switched over. Some tenants can’t get the utilities put in their name due to some unpaid bills with the utility company. Don’t offer to keep the utilities in your name and then have the tenant pay you for them. They rarely do.Making friends with your tenants. Real Estate Investing is a business. You don’t want your friendship getting in the way of dealing with tenant problems.Allowing animals. I have too many bad news stories that involve pet damage and noise-related problems due to pets. Being too nice. I have lost a lot of money trying to be understanding about a tenant’s “difficult” situation. A lot of stories are made up. Most times it just delays the action you have to take, and you end up paying too much in lost rents.

How to Evaluate a Rental Property InvestmentHey everybody, Jim Pellerin here, Author of Seven Steps to Real Estate Riches and bringing you the truth about real estate investing.Today, I want to talk a bit about how to evaluate your real estate investment and specifically a real estate investment from a rental - so a rental type real estate investment.I mean there are many types of real estate investing that you can do but rentals are probably the most common and I'm going to go through a little bit on how to evaluate it. A lot of people use basically two ways to evaluate the real estate investment when it comes to looking at rentals.First, they use something called Cap Rate, I'll go through that; and secondly, they use something called gross rent multiplier (GRM).Either people use them, or they don't use them, but these are the two most common and let's go through them.Cap RateSo, what the cap rate is, is it represents a percent return that you're going to get as if you had paid cash for that real estate investment.What that means is they're basically looking at how much money you have to put into this investment if you were to pay cash without any financing, and what kind of return you would get on it. Basically, it's fully capitalized. For example, let's say you bought a piece of real estate worth $300,000 for cash, as I said, and it's making you roughly $30,000 a year after all your expenses. If you take that thirty thousand and divide it by your cost of $300,000 you are basically getting a 10% return on your investment.Just as if you were to buy stocks. If you bought stocks at $300,000 and it was paying you $30,000 a year. That's a 10% return on your investment.So that's the Cap Rate. Now the key here is that $30,000 return is after expenses?The Cap Rate uses what's called your net operating income. Your net operating income purely defined is your rental income minus the operating expenses of the property. It's really quite simple. They've taken out every expense that you have so it's your income that you get after expenses - there's no financing. It's just rental income and that's the return you're getting on your investment. That's the Cap Rate. The problem with the Cap Rate is when you hear people talk about the Cap Rate of a particular property. I mean you'll see it listed on MLS or in the various sites or newspapers or wherever and they'll say a Cap Rate of 12 ... right, and they'll say that’s a really good Cap Rate.Well, the problem with Cap Rates is they tend to have numbers in them that are over-exaggerated. Either the income is overstated, or the expenses are understated, under projected. So, for example in that property that I mentioned earlier, if the gross income was $40,000 and you had expenses of $10,000, then your net operating income would be $30,000, just like I said earlier. And if you're selling that property or if you're buying that property for $300,000 and you paid cash for it, the Cap Rate would be 10%. Pretty straightforward … we just went through that, right. But let's say that the seller had exaggerated the income and it really wasn't $40,000 and it was only $35,000. And let's say that the expenses were under-exaggerated. So instead of them being $10,000, they were actually $15,000. Now your net operating income is only $20,000 because you take your $35,000 gross income minus your $15,000 operating expenses and now you only have $20,000 left. So, $20,000 net operating income over that $300,000 that you would have paid for that house if you had bought it cash. Now your Cap Rate is only 6.67% and that's a quite a difference from the 10% that they had listed or the 12% or 13% or whatever they are advertising that the Cap Rate is. Basically, the problem with Cap Rate is that the people indicating or stating the cap rate usually exaggerate one of the other or sometimes both. So, it's best to do your own due diligence and to figure out your own cap rates or to figure out your own way of evaluating the property. There are various ways you can do that, and we'll talk a bit about that.Another problem with Cap Rate too is that you've got two variables. You've got your expenses and you've got your rental income, the various rents.The higher the Cap Rate the better and a recommended minimum Cap Rate, if you're looking at rental properties, is around 10%. That's just an industry standard and it'll fluctuate. But if you want to make a good return on investment that's a good Cap Rate. And that should allow enough money left over so that you can finance it at a reasonable rate by putting 20% or 25% down.Gross Rent Multiplier (GRM)The other indicator or the other number that you can use is what's called a gross rent multiplier (GRM). That number is based on the price, the $300,000 that we talked about earlier, divided by the actual rents. In the previous example, if the rents were $40,000 and the purchase price was $300,000, the gross rent multiplier is 7.5. That's $300,000 divided by $40,000.  Or you can turn it to be the other way around you could say $40,000 times 7.5 and that gives you $300,000.The lower the gross rent multiplier is, the better. And it's just because you flip things around so instead of dividing, you're multiplying. So, in this case, the lower the gross rent multiplier, the better. And a good rule of thumb is a gross rent multiplier or a GRM of 7 is a good number ... you don't want to have anything greater than a seven. What that means is there should be enough protection or enough collateral or enough room in there for you to be able to pay for your expenses and for you to be able to pay for the financing if your GRM is 7.So, if rents are $40,000 then the maximum purchase price you should be paying if your GRM is 7, is $280,000. In our example earlier where you had rents of $40,000, you should not pay more than$280,000 for that house that's listed at $300,000. That gives you a good rough idea for a starting point. So, what you would do is you would make an offer based on that GRM and say ... yeah, it looks good ... I'll make an offer of $280,000. And if people are interested and they come back when accepting your offer then you can go in and do your due diligence of checking rents in more detail, checking expenses, looking at rent rolls and various things.Comparable RentsOne of the things you can do too, prior to your offer to validate rental income, is to look at comparable rents in the neighborhood.Look at buildings in the same type of condition, looking to see if they are 2-bedroom, 3-bedroom, 1- bedroom, whatever and see what the rents are going for in the neighborhood and use those as a better comparison.And then what you do is you add a 5% vacancy rate and that should give you a good indicator of what the gross rental income should be for that property. Now keep in mind if it's a multi-unit building and you've got 5, 6, 10 units or whatever, you have to look at how often these things are rented and what the rental has been and the occupancy has been over a period of time. So, you want to look at their rent rollAnother way to validate the rental income is to ask the owner for their tax filing for last year or for the previous year because most people don't tend to exaggerate how much income they claimed when they filed the taxes. Now some people might say they did that because they are never going to claim all the income when they file taxes.That's another indicator of why you don't want to buy that property, right?So, the three steps to evaluate the rental income.I never use Cap Rates, so right away ignore the Cap Rate because there are too many opportunities for the current owner to exaggerate either over on the income or under on the expenses.I determined the income by using the comparison method looking at rentals in the area or by asking for the owner's tax filing; andI multiply the rent income by 7 to determine the max purchase price. In that previous example we did, we had $40,000 gross income. The gross rent multiplier is 7 so I multiplied $40,000 by 7 and get $280,000 and that's the offer I would have made on that property.So that's basically a quick and dirty way to do a quick evaluation before purchasing a property. As you get closer to finalizing the deal you will want to validate all those incomes. You will want to validate those expenses. You will want to look at the property. You want to do many other things, right?Thanks very much

4 Differences Between a Rental and a Rent to Own InvestmentThe difference between an Investment of Rental properties vs an Investment of Rent To Own properties. Deposit For a rental property, they are asking for the 1st and last month’s rent or 1st month and a security deposit. For example: If your rent is 1,000, the person coming in to do the rental will have to give you $1000 for the first month and $1,000 for the last month. Or in other situations, they give you $1,000 for the first month and a smaller deposit for a damage deposit. Either way, you are looking for a couple of thousand dollars on a rental that is really only worth $1,000 a month. For a Rent To Own deposit, you are looking for someone to put down almost the equivalent a deposit they would need to buy a property or a smaller portion. I always ask for a minimum of $10,000 down up to 5% of the purchase price. If you have a property that is $300,000 then that is $15,000. There is a lot more security required when doing a Rent To Own because those people are going to be buying that property in the end. So for rentals, you are putting down a couple of thousands. In Rent to Own you are putting down $10,000 or more.  That really differentiates a Renter from a Rent to Own client. The renter is just renting and the Rent to Owner is more committed now and they have more interest in getting the property.Maintenance If you have a Rental property you are responsible for the property and the maintenance. Some of the time the tenants are not really as keen as you to keep the property in good condition. Don’t get me wrong I have good renters that have left the property in good condition because they want their deposit back. Now, on the other hand, I have had tenants that have left the property in complete chaos and I had to hire people to come in and do a major clean up, costing me thousands of dollars sometimes. Some of this can be offset by doing proper tenant qualifications as discussed in previous videos. For Rent to Own what I do is make sure that the renter is responsible for all maintenance. This includes painting, minimal repairs, cleaning, repairs if the fridge breaks and so on. The things that I cover is if there is some major problem such as the roof starts leaking or the furnace blows up. If these repairs are covered by insurance, then I help out. So the other aspect of Rent To Own is that this person wants to buy this house in 3-5 years so they are very motivated to keep the property in good shape. What happens at the end of the Rent To Own is that we do an appraisal on the property and that appraisal will reflect the condition of the property. So it is really important that the tenant maintains the quality and makes sure that the property is really kept up to date and in tip-top shape when it’s time to buy the property.RentsThe big difference in Rents is that in Rental properties you have to follow the market rents. By market rents what I mean is that if you are renting out a 2-3 bedroom home and the neighborhood rents are $1,400 then you need to rent it out for $1.400. Because the guy next to you is renting it out for $1,400 you can’t really rent it out for $1,600. Now there are some exceptions in that statement since some of the properties might have more bathrooms or a bigger lot but in general, a 3 bedroom home with 2 baths if it’s $1,400 in the same neighborhood then you will also need to charge $1,400. In a Rent to Own property, what you are actually charging is what the cost of the property is to maintain it (Mortgage, interest taxes, insurance) and on top of that, you are usually adding an amount that contributes to your profit or contributes to the tenants down payment. For example, $1,400 was just covering the costs of Mortgage, Interest, Insurance, and taxes.  But the tenants also need to save an amount of let’s say $400 and you need an additional profit of say $100-$200. So that rent of just $1,400 is now $2,000 and the difference of $600.00 is cash flow. So you are actually making pretty good cash flow on this deal. Now at the back end when it’s time to buy you just deduct that cash flow from your profit that you are going to make by selling it at a higher price so all the numbers balance at the end. So the rents are very different between a Rental and Rent to Own investment. Now in some cases, if the costs are really low you might even be coming in at market rents which is even a bigger bonus because now you are doing a Rent to Own at the same price as people are renting at. So why Rent when you can do Rent to Own. Now the big difference is that people might NOT want to do Rent to Own or they might not have that $10,000 up-front deposit.Exit StrategyWhat that means is in a Rental property you are usually holding that property for more than 3 years. You are usually holding it from anywhere up to 10-20 years. What you are doing is trying to create a long-term passive income from those rents and as the market rents go up so does your profits. So there are a lot of benefits to doing a Buy Rent to Hold. I mean the offset to these advantages is that as the property gets older it requires more maintenance so there are more costs. So are you really making profits? It really depends on the condition of the property and what you have to put in. In Rent to Own investments, they are typically 3-5 years so it’s like leasing a car. You buy the property knowing that there are not going to be any costs associated with major upgrades like the roof, appliances, roof, and things that are major cost items. So you buy it knowing that you are not going to have to touch any of that for 3-5 years. At the end of the 3-5 years when the deal is done you just flip it and sell it to the tenants that are doing the Rent To Own and you exit. The disadvantage with Rent to Own to that is that you have to go out and find a deal every 3-5 years. So there are the main differences between rent to own and rentals.

3 Mistakes People Make When Buying Real http://www.realtyinvestmentseminars.comPriceI hear it all the time from people that they want the best price or want to negotiate the best price. To me, price doesn’t really matter. What you really need to be looking for when you are doing an evaluation to be able to purchase a property, is the cash flow.  Do the numbers make sense? What that means is that you want to look at all the expenses: Mortgages, cost of insurance, taxes, maintenance and property management. All those costs that are associated with owning a rental. Now you want to look at the rental income. How much rental income are you getting for the properties? Let’s say you look at a property that is listed at $400,000.00 and now let’s say you have a similar property in a different neighborhood listed at $350,000.00. They are both 4-plexes and both have similar structures and the only difference is the location. I’m sure you have heard of the saying that Real Estate is location, location, location and that is definitely a factor. For the property that is $400.000.00, maybe the rents are higher and obviously, there are more costs and expenses associated with it because it is a higher-priced property and therefore the mortgage on that property would be more expensive. Or it could be that it’s a new property and that could be why it’s more expensive. Whereas the $350,000.00 property you might think you are getting a deal because it’s the same type of property. it’s a 4-plex and the rents might even be close, but if the expenses are higher than the net cash flow is going to be less. So the thing to look for when evaluating a property is cash flow. not the price. When I say cash flow I am also talking about long-term expenses. If that $400,000.00 property was 10 years old and that $350,000.00 home was 50 years old there would be a lot more costs associated with the $350,000.00 property over the long run, so don’t just look at the price.Mortgage Interest RatePeople think that in order for them to buy a property they need/want the best mortgage interest rate. I hear it all the time. Let’s say I can get them a mortgage for 4%, they will say “Oh no that is too expensive I heard of a  guy who can get it for 3.97.” Sure you can shop those prices around and save your 0 .03%.What is important when you are trying to get financing is you want to go to someone who you trust and knows what they are doing. Also, the cost of money is not as important as the availability of money. What that means is you may think your interest rate on that loan is so high because it’s 4% and you were really looking for 2.5% but you take that 4%. I have one property at 11% on a first mortgage and that thing cash flows like crazy. But it was a deal because the owner took back 100% loan and I was really happy to pay that 11% because I make about $400.00 a door on that property and it’s a duplex. So again, the second thing to look at when evaluating a property is don’t get caught up in the interest rate of the loans that you are looking at.TenantsNow it’s time to look at your tenants. A lot of people get worried and scared that they will start running into vacancies. So they start interviewing tenants and they get scared that they are carrying the property so they start to ease up on their requirements on qualifying a tenant. The worst thing you can do. I have had properties that took me 3-6 months to get rid of a tenant. An empty unit is much better than a unit with a bad tenant. That is a very important statement. Don’t get hung up on negative cash flow and you end up putting someone in there that just ends up being a big headache. On the surface sure, it looks good because you are cash flowing because you have that tenant.  However, what if they are in there destroying the place and they are in there for 2 or 3 months and they stop paying? Do your due diligence on your tenant. Make sure that you have a good tenant in there that is paying and that has a good credit history or at least good rental history. Do your evaluation properly so you don’t give up your unit to a bad tenant that, in the end, will cost you more money in the long run.So those are the 3 things that you need to consider when buying Rental Real Estate!.

3 Mistakes People Make When Buying Real EstatePriceI hear it all the time from people that they want the best price or negotiate the best price. To me, price doesn’t really matter. What you really need to be looking for when you are doing an evaluation to be able to purchase a property is the cash flow.  Do the numbers make sense! What that means is that you want to look at all the expenses: Mortgages, cost of insurance, taxes, maintenance and property management. All those costs associated with owning a rental. Now you want to look at the rental income, how much rents are you getting for the properties? Let’s say you look at a property that is listed at $400,000.00 and now let's say you have a similar property in a different neighborhood listed at $350,000.00. They are both 4-plexes and both have similar structures and the difference is the location. I’m sure you have heard of this saying that Real Estate is location, location, location and that is definitely a factor. If the property is $400.000.00 maybe the rents are higher and obviously there are more costs and expenses associated with it because it is a higher-priced property and therefore the mortgage on that property would be more expensive. Or it could be a new property and that could be why it’s more expensive. Whereas the $350,000.00 one you might think you are getting a deal because it’s the same, it’s a 4-plex and the rents might even be close, but if the expenses are higher than the net cash flow is going to be less. So the thing to look for when evaluating a property is do not look at price but at cash flow. When I say cash flow I am also talking about long term expenses. If that $400,000.00 property was 10 years old and that $350,000.00 home was 50 years old there would be a lot more costs associated to that $350,000.00 property over the long run, so don’t just look at the price.Interest RatePeople think that in order for them to buy a property they need/want the best interest rate. I hear it all the time, let’s say I can get them a mortgage for 4%, they will say “Oh no that is too expensive I heard of a  guy who can get it for 3.97.” Sure you can shop those prices around and catch your 0 .03%.What is important when you are trying to get financing is you want to go to someone who you trust and knows what they are doing. Also, the cost of money is not as important as the availability of money. What that means is you may think your interest rate on that loan is so high because it's 4% and you were really looking at 2.5% and you take that 4%. I mean I have one property at 11% on a first mortgage and that thing cash flows like crazy. But it was a deal the owner took back 100% loan to value and I was really happy to pay that 11% because I make about $400.00 a door on that property that is a duplex. So again, the second thing to look at when evaluating a property is don’t get caught up in the interest rate of the loans that you are looking at.TenantsNow it’s time to look at your tenants. A lot of people get worried and scared that they will start running into vacancies. So they start interviewing tenants and they get scared that they are carrying the property so they start to ease up on their requirements on qualifying a tenant. The worst thing you can do. I have had properties that took me 3-6 months to get rid of a tenant. An empty unit is much better than a unit with a bad tenant. That is a very important statement. Don’t get hung up on negative cash flow and you end up putting someone in there that just ends up being a big headache. On the surface sure, it looks good because you are cash flowing because you have that tenant.  However, if they are in there and destroying the place or start paying the hassle and damage is harder to your cash flow. Due your due diligence on your tenant, make sure that you have a good tenant in there that is paying and that has a good credit history or at least good rental history. Do your evaluation properly so you don’t give up your unit to a bad tenant that in the end will cost you more.So those are the 3 things that you need to consider when buying Rental Real Estate!