Each week, J. Massey answers viewers’ questions in real time on his LIVE online Q & A with J show on www.cashflowdiary.TV. But this live Q & A is something a little different, because J. answers questions in front of a live audience in Phoenix during a special educational event where he was invited to teach investors about raising private capital and all sorts of topics in Real Estate Investing. This no-holds-barred Q & A opens investors’ eyes across the room as J. seamlessly answers any and all of their questions. J. fields every type of investor issue the audience members and live-streamed viewers could throw at him. He rips deals apart, too. It’s something you won’t want to miss. You’ll hear some pen-on-paper scribbling in the audio. That’s J. writing out supportive points and doing the math on his big paper-and-easel set up! If you want to see what that looks like, be sure to join the next live Q & A with J… Tuesdays at 4 p.m., PST, on www.cashflowdiary.TV! For now, see what you can learn, because there are lots and lots of valuable nuggets of knowledge in this episode of Cash Flow Diary. Listen Now
On this episode of Cash Flow Diary, J answers your real estate questions so you can become a bigger, better, badder investor. In this podcast, audience members at J’s Phoenix event pose real-life real estate scenarios on multi-family homes, low-income neighborhoods, as well as ask questions on checks and balances formulas and whether to use an agent or ‘do it yourself.’
05:40 Three questions to ask
16:22 Discounted cash flows
19:19 Multi-family property question
23:23 Agent vs. DIY
30:44 Strategies for low-income neighborhoods
39:01 Single family house scenario $193K
44:03 Condo scenario $100K
45:04 Checks and balances formula
49:11 Books to read
54:45 Sales tax on rent
57:25 Profit analysis quadrant
1:01:13 Due diligence checklist
Main Questions Asked:
- How do you pay more than the property is worth and still make it a deal?
- What do you think about multi-family properties that back up to freeways? Should you build soundproof walls or trees to alleviate noise?
- Is it better to get a real estate agent or should I become a real estate agent?
- What strategies work in low-income neighborhoods?
- What are the other checks and balances formulas?
- Are you charging sales tax on your rents?
- When looking at income property, how can you tell if the seller is telling you the truth as far as income and expenses?
Key Lessons Learned:
- You are looking for problems not property.
- You can either get the price or the terms.
- You will be the same today as you will be in five years, except for two things, the books you read and the people you meet.
- The reason people say ‘Don’t go 20 miles outside your house’ is because people don’t have the team to deal with it.
Three Questions to Ask:
- 1) Have you ever considered?
- 2) Find out really why
- 3) Does it make any sense?
Discounted Cash Flows & Discounted Valuations:
- Give your buyer three options:
- 1) All cash (low and insulting), e.g $33, 250
- 2) 35% with $250 month until paid
- 3) Kind of okay (zero down and 100% financing), e.g $347 a month until paid
- When doing offers, the words you say or don’t say make all the difference.
- If you have a motivated seller, there is a way to create the transaction.
- $95,000 – 35% = $61, 750 (PV present value)
- $61, 750 / $250 a month until paid (47 months)
- Therefore the interest rate is 0.
- You have just negotiated a 0% percent loan
Multi Family Houses:
- There are three types of customers and the question is, “Who do you want to serve?”
- 1) Walmart
- 2) Target
- 3) Nordstrom
- Consider who your customer is. If you spend extra money, you better get extra revenue.
Agent or DIY:
- There are 4 essential components
- 1) Knowledge
- 2) Time
- 3) Money
- 4) Credit
- You only need one of the above and you can leverage the rest.
- Everything is relevant to your investor identity and you need to consider your ‘time horizon,’ i.e how soon do you want the deal to happen?
- The person who has money or credit does not have knowledge or time.
- The person who has knowledge and time does not have money or credit.
- With the correct knowledge, you can eliminate credit.
- You must learn to invest your time into knowledge.
- There is a difference between being and an investor and owning and investment.
- Use what you have to get what you need, so you can have what you want!
Strategies for Low-Income Neighborhoods:
- Look at your 3 types of customers: Walmart, Target and Nordstrom.
- Ask yourself who are you best equipped to serve.
- IMTD (individually, market place, team, deal).
- Individually – Who do you want to serve?
- Market place – Not every marketplace is suited to a particular customer.
- Team – When you are working in Walmart, you can’t hire a Nordstrom contractor (granite etc), otherwise you’ll spend too much on rehab.
- Deal – This is the most interchangeable part.
- Walmart cashflows, whereas Nordstrom appreciates.
- No matter which customer you are serving, your job is to create clean, safe, affordable housing.
- Where you start isn’t necessarily where you stay.
- There is no such thing as a problem property.
- When you have the I, M, and T, the correct the D will fall in place.
Single Family House Scenario $193K:
- Sounds as though this is the ‘Target’ customer but small (5 bedroom).
- Purchase price $193,000 x 1.5% = $2,895 (building needs to generate $2,895 per month in income).
- Ask customer ‘what else would they pay for?’
- Advertise house as ‘pet friendly’ with trees and space, then charge an additional $50/month dog fee.
- Purchase price – (all in cost) If goal is to rehab, then include that cost.
- Additional income could be adding a cell phone tower, laundry facilities, or a solid wall facing the freeway (advertising space).
- Debt service: $685 x 4= $2, 740 (as long as the rent is higher then it’s a pass.) This test looks at cash flow.
Profit Analysis Quadrant:
- Step 9 asks: How do I get partners and how do I raise capital?
- There are 5 types of appreciated; found, forced, phases, passive, and inflated.
- You don’t have control over inflated or passive.
- The general public focuses on passive.
- Found – You can create.
- Phased – Where you change the use (tends to pay the most).
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Links to Resources Mentioned
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