The Book on Rental Property Investing

Question 1

What are the 4 Wealth Generators for rental properties?

Answer 1

1. Appreciation
2. Cash Flow
3. Tax saving
4. Loan Paydown

Question 2

There are actually two kinds of appreciation in real estate: what are they?

Answer 2

natural and forced.

Question 3

What is Natural Appreciation? What is an example of natural appreciation?

Answer 3

the natural tendency for prices to rise over time. An example : house your parents purchased in 1955 could be sold 40 years later for ten times its original value, this is natural appreciation

Question 4

What is Forced appreciation? Provide 2 examples of forced appreciation.

Answer 4

concept of improving a property so the property’s value becomes greater. For example, turning a two-bedroom home into a three bedroom home can increase its value immediately. Adding a second bathroom can likewise increase its value immediately.

Question 5

What is the difference between flipping a house and rental properties?

Answer 5

When you flip a house, you capitalize on only one kind of wealth generation, which is appreciation (primarily forced appreciation). Rental properties capitalize on all four.

Question 6

Should you invest in a bad deal, assuming appreciation will come and bail you out?

Answer 6

no Treat appreciation for what it is: a possible

reward for an investment done right.

Question 7

What is cash Flow in layman’s term?

Answer 7

cash flow is the amount of income left in your business after all the bills have been paid; this amount is often expressed as a monthly dollar amount

Question 8

In the real estate rental business, what is cash flow

Answer 8

income left after paying out expenses that affect the property, such as mortgage, taxes, insurance,
vacancies, repairs, capital expenditures, and utilities.

Question 9

To truly understand your cash flow, you

must truly understand your ____and _____

Answer 9

income and expenses

Question 10

What is perhaps the most important wealth generator for rental property investors.

Answer 10

Cash flow

Question 11

Best cash flow scenario when purchasing a rental property

Answer 11

Don’t buy for a “what if” scenario; buy for a “this is” reality. Cash flow is the lifeblood of any rental property investor.

Question 12

The lifeblood of any rental property investor.

Answer 12

Cash flow is the lifeblood of any rental property investor.

Question 13

Keep the cash flow pumping, and you’ll keep growing. Breakeven on cash flow or lose money on cash flow, and you are on a path to

Answer 13

financial ruin.

Question 14

Only buy rental properties that offer

Answer 14

cash flow today.

Question 15

Tax savings #3 and rental properties

Answer 15

I pay far less in taxes than most Americans, despite earning more income (both passive and active) than most.

Question 16

The fourth and final wealth generator is known as the loan paydown, which in simple terms is this: you can

Answer 16

automate part of your wealth building by simply obtaining a loan on your rental property and using the
income from your tenants to pay that loan down each and every month.

Question 17

One of these expenses is the entire mortgage payment, though in reality, a mortgage payment has two
separate parts:

Answer 17

1. Principal

2. Interest

Question 18

The principal of the mortgage is the _________and the interest is the

Answer 18

Actual balance of the loan being paid down, while the interest is the profit the lender makes, based on the interest rate you agreed to pay when you secured the loaN

Question 19

Leverage is a financial term that simply means

Answer 19

applying a small amount of force to achieve far greater

results.

Question 20

Leverage vs risk

Answer 20

The more leverage you use, the greater the risk you

may be taking.

Question 21

Bad leverage example:

Answer 21

bought a housewith just 5% down, and the value of that property dropped by 20%, you would then be “underwater” on your loan, meaning that you’d owe more money on the house than its worth.

Question 22

You purchase a house for $100,000 and put 30% down, thus obtaining a $70,000 loan;
I buy an identical house for $70,000 with 0% down, thus obtaining a $70,000 loan.
So, who is at more risk?

Answer 22

You are at thegreater risk, because you have more cash invested. I just did the up-front work required to pay $70,000,and you did not. I leveraged my creativity in place of a down payment.

Question 23

The better you understand those (3) things , the lower your risk of something going wrong

Answer 23

The market, your investment, and how to manage that investment

Question 24

House Hacking: Example?

Answer 24

If you plan to purchase and live in a small multifamily property of two to four units, you could obtain a bank loan for as low as 3.5% down through the FHA loan program

Question 25

House hacking is best for people who:

Answer 25

Have limited cash

Not enough experience

Question 26

House hacking limitations?

Answer 26

You have to live in the property for AT LEAST ONE YEAR

Question 27

Conventional Loan down payment, usual minimum

Answer 27

20%, some 25-30%

Question 28

Is it possible to buy a 100% cash ?

Answer 28

I have no problem with people who want to use 100% cash for their real estate purchases, completely
avoiding any kind of loan.

Question 29

What to do if you have all cash?

Answer 29

Pretend that you are not doing so when you are
shopping for deals. Having excess money on hand when you’re shopping is dangerous, whether you are at
Nordstrom, the supermarket, or looking for rental properties

Question 30

3 major things to make sure you do?

Answer 30

Know your numbers
Scrutinize each property carefully
Targeting will provide a solid return on investment.

Question 31

Warren buffet price and value

Answer 31

Price does not equal value. As Warren

Buffet says, “Price is what you pay, value is what you get.”

Question 32

Reserves What is it and why is it necessary?

Answer 32

The fact is, when investing in rental properties, things are going to go wrong. You’ll have good months, bad months, and average months—and you’ll never know which one you will get.

Question 33

What is the amount of cash in reserves should depend on?

Answer 33

Number of properties you own
Condition/age of the properties
Anticipated cost of fixing the properties

Question 34

Start with this AMOUNT OF RESERVE as a rule of thumb?

Provide examples

Answer 34

6 months of expenses PER UNIT

Single family that costs you $800/month, 4800 needed in savings

Question 35

So, how much money should you have to get started?

Answer 35

Enough to cover your down payment and reserves.

Question 36

Top Five Difficulties of Rental Property Investing

Answer 36

1. Building Wealth Takes time
2. It can be ALL consuming
3. You have to Deal with difficult people
4. It involves paperwork and Bookkeeping
5. You can lose your investment

Question 37

Building wealth takes time and its about

Answer 37

about taking CONSISTENT ACTION over a LONG PERIOD OF TIME (ups and downs will come with rentals)

Question 38

How can rental be ALL consuming?

Answer 38

broken pipe does not respect your personal time.
However, your business will run the way you set it up to run. If you appoint yourself the “fixer of pipes,”
then yes, you may run into problems.if you run your business like an owner instead, you can
then outsource most problems and enjoy the occasional vacation.

Question 39

Examples when you will have to deal with difficult people

Answer 39

may need to fire a contractor who doesn’t
show up on time.
may need to let your property manager go when he or she can’t fill a vacancy fast enough.
May have to hear the same sob story about why the rent was late for the 100th time.
probably have to evict a tenant.

Question 40

How do you prevent dealing with difficult people?

Answer 40

By screening your tenants exceptionally well, you’ll
be able to weed out the ones who will cause you the most damage.By outsourcing tasks you don’t want to
do (such as answering phones and showing vacant units, as I have done), you can decrease your interaction
with difficult people and situations

Question 41

Bookkeeping why is it important

Answer 41

you absolutely must keep accurate bookkeeping and
accounting records, which can be challenging.Receipts need to be logged and filed, contractors must be paid and those charges recorded, and come spring, your taxes will begin to take on a life of their own as your rental portfolio grows.

Question 42

Taking risk? When is it too much?

Answer 42

Risk is inherent in every investment there is. After all, you know the phrase “more risk, more reward.”
However, there is obviously a tipping point at which the risk becomes too great, as my friend’s parents
discovered.

Question 43

____is required for entrepreneurs?

Answer 43

RISK

Question 44

Real estate investing uneducation?

Answer 44

There is a big difference between being busy and being effective, and this is the case with a lot of real estate investors; The solution to this problem is proper education.

Question 45

How do you learn about real estate?

Answer 45

I encourage you to continue learning through library books, meetups, and other low-cost resources.

Question 46

People buy properties without doing the right math. As I often say, “Without the right
math going into an investment, you’ll never get the right

Answer 46

profit coming out of it.”

Question 47

Greatest reasons investors fail (4)

Answer 47

• They never develop systems to help them as they grow.
• They treat their tenants like friends.
• They don’t create clear policies for finding good tenants.
• They simply approach investing like a church picnic, and it shows.

Question 48

Pay attending to the following 4 points to AVOID losing your hard work invested in real estate

Answer 48

• Understand that risk is a powerful but dangerous tool, so tread cautiously.
• Build a solid educational foundation for yourself before getting in too deep.
• Don’t skimp on the math. Always understand the numbers for any property you buy.
• Work on your business, not in it. Treat your investments like a business—which they are.

Question 49

House flipping and real estate wholesaling, for example, are “_____.” Owning rentals is an _____ (hopefully

Answer 49

“jobs; investment (hopefully

Question 50

To be able to quit your job and find “financial freedom” through rental properties, you have to be able to

Answer 50

live off your cash flow. BUT YOU miss out on cash flow

Question 51

What is compound interest?

Answer 51

Compound interest is the profit earned by reinvesting profits. To quickly simplify this concept, I’ll use a
story. Let’s pretend that your bank account has $1,000 in it. That account is special and automatically earns
10% interest every year. So, at the end of the first year, it has $1,100 in it, meaning that you made yourself
$100. (because 10% of $1,000 is $100). If it earns 10% interest again the next year, you will not have
earned $100, but rather $110, because the 10% is now calculated on the $1,100 you had in the account at
the beginning of that second year (10% of $1,100 = $110).

Question 52

Compound interest Example

Answer 52

Let’s pretend that your bank account has $1,000 in it. That account is special and automatically earns
10% interest every year. So, at the end of the first year, it has $1,100 in it, meaning that you made yourself
$100. (because 10% of $1,000 is $100). If it earns 10% interest again the next year, you will not have
earned $100, but rather $110, because the 10% is now calculated on the $1,100 you had in the account at
the beginning of that second year (10% of $1,100 = $110).