Disclaimer: Transcripts were generated automatically and may contain inaccuracies and errors.
It has to boil down to a system and it’s gotta be somewhat scientific. It can’t just be, well, that one feels good. There’s a lot of real estate investors that go with their gut, and I don’t know if you can say, going with your gut makes a good real estate deal. There may be some people out there with the most incredible instincts on planet Earth and they can just look at a deal and somehow the deal speaks to them and they go, That is the property.
I will purchase , and maybe they’re gonna kill it, but you can’t go off of. What would your life look like if you could replace all of your working income with simple and conservative investments that could do it for you? Over the last 13 years, we’ve helped thousands of clients transact over half a billion dollars in simple and conservative real estate transactions, allowing them to begin replacing their work income with real estate investment income.
Each week, we’ll be pulling back the curtain on the ins and outs of real time retirement based real estate transac. That will transform your financial future even if you have no real estate experience. This is replace your income with me, Kevin Clayson and Steve Earl. All right, well, hello everybody. Here we are.
This is episode six. Can you believe that we’ve already done five of these, Steve? We’re on. No, I can’t quite believe it. It’s kind of awesome. It’s awesome. And I just gotta say thank you so much to all of you that are listening and that are reviewing and you’re reaching out to us and you’re giving us feedback and you’re letting us know, uh, what you think of the podcast.
And, and we are so appreciative of you and we love doing this. This has been so much fun. And so listen, we’re gonna, We got a lot more coming, right, Steve? We’re just Kevin. I gotta, I gotta tell you, it’s like, you know, Like unexcited, I was about this because I’m not one to, you know, get in front of people or even just like, be talking to people, that kind of a thing.
I’m, I’m more in the background kind of a guy, but this has been a lot of fun. Um, I’ve really, I’m really enjoying these conversations with you. Oh, yeah. Um, like to, I guess, I mean, we have these conversations all the time, right? Yeah, we do. And so, you know, Getting in front of a microphone and kinda looking at each other while we talk.
It’s, it actually feels pretty natural and, and believe it or not, you know, you might not believe this, Kevin, but I’m actually enjoying myself. . It’s, Well, it’s funny you say that. I’m glad you are, first of all, But I was talking to my wife the other day and I was like, You know it, I love doing this with you because like you just said, these are conversations that we’ve had.
Time and time again, right? I mean, how many times during the day do you come into my office or I go into yours? And then we just, we talk about the kinds of things. This is just kind of, now we’re getting an opportunity to share it with more people, which I hope it seems like so far you guys are loving it.
And so thank you for that. Kevin, I think we’re missing one thing though. What’s that? Many of these conversations happen over like lunch. Yeah. And we typically have chips and salsa. Yes. You know, while, while we’re talking about these things, like, would that be annoying to people if like, if we were like dipping and crunching while we could, could add a whole new dimension.
Yeah. That would be good. Well, so today we have another awesome topic that we want to talk about and uh, today we want to. About something that I know is, is a thing that Steve and I talk about a lot, and it’s this question, Okay, how do you tell if something’s a good deal? How do you define a good deal when it comes to real estate?
And I imagine by now, this won’t come as any sort of a surprise, but the way that Steve and I, and the way that, that our company, the way we evaluate deals is quite a bit different than. Others, you know, um, we’re on forbes.com. We get a chance to contribute on forbes.com and, and, and participate in some forums and things there.
And there was a question on forbes.com recently, which was something to the effect of, you know, what’s the, what’s the number that matters the most in your real estate investing? And the answers were all over the map. And what was interesting is I know that Steve, you and I have. Different sort of definition of what makes a good deal.
It’s not the standard, like a lot of people will say, Well, it’s gotta have so much equity. Or they’ll say, Well, it’s gotta have x, y, Z cap rate, or, uh, well, it’s gotta, you know, your, the rent that you collect has to be a certain percentage of the purchase price, and there’s all of these ways that people define or evaluate a good deal, and we’re gonna kind of take issue with that from the standpoint that.
That we don’t believe that those conventional standards, that those conventional metrics are the best way to evaluate a deal, especially not through the lens of income replacement over time. Right, Steve? Yeah. A lot of those rule of thumbs, rules of thumb are good, and sometimes they help you just kind of do a real quick review.
It’s like, Hey, is this something that’s worth my time to take a closer look at? But definitely how we define a good deal, um, is not super conventional. Cause we have a lot of different criteria that, uh, are maybe different and I’m, I’m excited to jump into those. Yeah, I, and I think that, and this is something you talk a lot about, Steve, and one of the ways that we look at deals differently is through this lens.
Okay? It is the lens of perspective. And I know that you have a really awesome perspective on the idea of perspective. I feel like we’re in the movie inception now. We’re just going layers down. But so, so talk to that, Steve, cuz I love the way that you phrase this and talk about. Yeah. You know, I think perspective and how we look at the world, like we all look at the world very differently, right?
We have a number of different people listening to us, um, here today, and everybody’s hearing what we’re saying just slightly differently based on their experiences in life, based on, you know, what’s happened, the decisions that they made, you know, maybe turned out one way or another. And, and so they kind of view life and, uh, we all view investing in real.
A little bit differently. And so how we look at something is absolutely critical. And so maybe to illustrate this a little bit kept like, would you mind if I kind of like indulge, you know, a little bit and just share a personal story? I don’t, I don’t wanna make this super personal, but, but maybe I could just share.
I think it’s okay to make it personal and if you, And I think I know what story you’re gonna tell and it’s 100% okay. Because I love this story cuz it taught me something that I’ve never forgotten. So if it’s, Are you gonna tell the story about, Yeah. Okay. So I guess it was about 10 years ago, 2010. It’s Labor Day weekend, so it’s Monday morning.
Uh, I wake up, uh, my wife wakes up. We decided we wanted to, uh, take a ride a, a canyon on our tandem. So I bought my wife a tandem bicycle a couple years ago for her birthday. She has kinda some bad balance and so she can’t ride a bike by herself anymore. And so we got this TM she can ride on the back. So anyways, we, we get up and we go on this ride.
We head up the canyon and we actually, we rode up the canyon about almost 10 miles. Oh, wow. Uh, we went all the way up to this waterfall. Uh, we, we look at the waterfall and by this time we left fairly early. It was. 8:00 AM or 9:00 AM or so at this point. But look at the wall waterfall. It’s like really pretty and i’ll, and now it’s time to ride back down the canyon and, and it’s a little bit cool.
And we’ve kind of worked going up the canyon. Um, we’re, we’re, so we’re riding down. We get to this little turnoff that kind of goes off the beaten path and up, you know, probably two, 300 yards kind of off the path. We’re, we’re going up there. The, the sunlight’s just kinda cresting over the mountains now.
And, uh, illuminating, you know, the east side of, of the mountains and we’re, we’re, we’re straddling the bike and we’re kind of looking up and I’m talking to. And all of a sudden she’s like, Ah, my arm really hurts. I’m like, Huh. It’s like, well, you’re probably pulling really hard on the handlebar and, uh, you know, your arm’s probably just aching from that.
And, and, and, uh, she’s like, she’s like, Oh, like, ah, it’s getting worse. And, and, and so I’m like, Well, maybe get off your bike and sit down for a minute. Like, kind of like move it around. And just as she gets off the bike, like it hits her and she like falls down. And like it’s at this point that I realized the pain she’s having was in her left arm and it’s at this.
I realized she’s having a heart attack and I’m like, What? My wife is like 41 years old. Like, how was she having a, like a heart attack? Anyway, she’s lying down there and, and I kind of lay her down on my lap and, and I’m trying to, you know, help her kind of work through this and, and the way she described it is like, it was like an elephant sitting on her, on her chest.
And so I’m like, I’m kind of starting to panic at this point. We’re off the beaten path. We don’t have our cell phones with us. I can’t call anybody. And I’m like, What do I do? Do I like leave my wife and like run and see if I can find somebody on the path? Or do I stay here and get ready to do cpr? And, and uh, at about that point, this guy pulls up on his bike and he’s got his two little boys with him, like two little kids.
They’re probably like five and eight years old or so, and he’s like, Hey, what’s going on? Are you guys okay? And, and I’m like, I think my wife’s having a heart attack. I was like, Can you, can you like stay here with her? I’m gonna run and get some help. And he is like, I, I’ll help with whatever I can. And just as I’m like standing up to go to get some.
I see this white little pickup truck driving towards us on this little service road, and it happens to be a sheriff. A county sheriff. Oh my gosh. And, and so he pulls up, he’s like, Hey, are you guys right? And I was like, My wife’s having a heart attack. And so he radios in and things kind of like miraculously fall into place.
Like within, like literally, I’m telling you, within like 10 minutes or less, probably five minutes, there’s an, an ambulance there picking her up. And uh, um, and as they’re loading her into the ambulance, this guy and his two, his two little boys were, who stayed with me, you know, he’s like, Hey, don’t worry about your bike.
It’s, you know, it’s this big tandem bike. He’s like, My truck is just down the road. I’ll take it, I’ll load it, I’ll take it home. Here’s my phone number and my address When things get figured out, like gimme a call. And so I jump in the ambulance and um, I, we go to the hospital and, uh, by the time we get there, there’s a surgeon waiting and literally it’s in 15 minutes.
She’s in surgery having heart surgery. And, you know, later that day, in the afternoon, I’m sitting in her hospital room and we’re having a conversation just kind of talking about like, this crazy experience we just went through. So it, it was like a week or two later, we, uh, my wife and I went over to this guy’s house.
We called him up, we’re like, Hey, my wife’s okay. Thank you so much for your help. We like to come, come pick up the bike. He’s like, Yeah, come on over, pick it up. So we get over there and we’re just having short conversations, um, you know, on his driveway. And he is like, I’ve gotta tell you, like the most interesting thing.
So, You know, later in that day, my, my eight year old son comes out and, uh, I can tell he is got this kind of interesting expression on his face. He looks a little bit worried. He’s like, Dad, he’s like, Can I talk to you about something? I’m like, Oh boy, here we go. I, I gotta have this life and death conversation with my son about, you know, this woman who like was dying right in front of his eyes.
He’s like, Dad. He’s like, You know, I, while I standing there and, and looking at all this going on, he’s like, I just never thought I’d ever see a bike with two seats and two handle bars. , and, and I’m like, What? Here’s this lady on the ground, like literally dying in front of his eyes. And the only thing this little kid could think about was that he was looking at the coolest bike he’s ever seen in his life.
Right? And I’m like, perspective, right? His perspective in life was, I don’t know what, what’s even happening to this lady, right? But this cool blue. Spike with two handle bars and two seats is the coolest thing I’ve ever seen in my life, . And I think that that’s how we kind of approach life, right? Depending on our experience, he.
His, his perspective was, he didn’t even know what was happening to this lady. My perspective in that situation was, my wife is dying. Right? Right. He’s like, I could have cared less about this bike. Sure. And so perspective, right? It’s, it’s the lens through which we all see what’s going on around us, and so real estate investing is the type of thing where.
Having some perspective or being able to tap into someone else’s perspective. To help you understand for purposes of this conversation, what makes a good deal is extremely important. Because if you’ve never bought before, maybe you have bought before, but you’re looking maybe to, to maybe do it a little bit differently.
Cuz let’s face it, at the end of the day, most people who succeed in real estate invest. , um, you know, have success by accident. Yeah. It, it’s not because they had some magical plan or that they had done dozens of deals and so they know what they knew it worked or what didn’t work, right? And so as quickly as that success may have come, it can go away just as quickly if you don’t have some perspective and some experience to kind of go along with that.
And so, you know, that that lends itself to this conversation we’re gonna have today about what makes a good. Yeah, and I love that concept of perspective because there’s a lot of people who will share their perspective of what makes a good deal. In fact, if you’re listening to this podcast or if you’re somebody that listens to a lot of real estate podcasts, you could listen to 10 or 12 or 20 different investment pods, and you may hear 10 or 12 or 20 different ideas of what makes a good deal.
And so what I’m excited to kind of share with everybody here today, Steve, We’re not coming at this from the standpoint of one deal that worked well for you, or one deal that worked well for me, but we’re talking about literally thousands and thousands of single family residences that have performed exceptionally well for our clients over the last nearly 13 years and saying, Okay, based on this perspective, right, this is more than just an isolated deal where, you know, you may.
You may have ha have talked to somebody who has found it one streaming deal. Uh, and, and they were able to get it and they tell you, you know, it had 20% equity and, and that deal worked out so well for them that they may tell you for the rest, they, heck, they maybe go write a book and say, in order to do good real estate, you gotta have a 20%.
Equity position because that’s the approach that they’re gonna take based on their perspective that came as a result of their experience. So what we hope to share today is, is our perspective, not just based on our personal individual experience, but on the experience of over a thousand clients and thousands and thousands of deals.
What is it that makes a good deal? And I, I kind of teased this earlier, but I’ll say it again. What we’re about to share, Steve? Very, I don’t, I have not heard anybody else in, in the industry describe a good deal in the way that we evaluate it and the way that we look at it. And so let’s get into the basics.
What are the mechanics or what are the, what are those things that we qualify as a good deal? And maybe we start with this one because this is the one that I think is, is the kind of biggest, like, wait, what? And when I, when we share it with people, they kind of go. You gotta be crazy, which is this. Most people think that a good deal means that you’ve gotta go buy it with a certain amount of equity, or you’ve gotta buy it for cheaper than, you know, maybe what it’s worth or something like that.
Steve, what do we think about that? Yeah, let me talk to that real, real quick This, this whole concept of like, first and foremost, we kind of look at things from the perspective of we’re not swinging for the fences. We’re, we’re hitting Hitting singles. Singles, That’s right. So, so that’s, that’s the perspective from which we come.
So in terms of like having like this con, this instant equity to talk to that, that is a fallacy in and of itself, a home, a, a real estate property will sell for. What somebody is willing to pay for it. And if you have a property, let’s say that you have two, two properties in a neighborhood, and, and let’s say that the comparables are stating that the typical home in this, in this neighborhood is $200,000.
And you see a property that, that you could buy for $150,000. So you’re like, Ah, $50,000 equity. Like the reality is is well, what is that $50,000, um, in equity, Um, it’s not magic. What it is, 99% of the time is something needs to be done to that home that’s gonna cost about $50,000 probably. Yeah. And the true equity that you have in that home is whether or not you have the ability to get that work done for less expensive.
Then at market cost. That, that’s your equity, right? There’s your equity. Yeah. But like, that’s the reality of it. And so the, the moment you’ve done those repairs or that, that, that rehab on the property, now all of a sudden now the home is worth what all of the other homes are worth. And so if you could get that work done for $20,000, then you legit have $30,000 potentially in, in equity in that.
So it’s not that, and that’s where sometimes flippers can, Can do, Yeah. Right. So somebody that, you know, there’s a lot of people that love the idea of flipping or, or it’s kind of glorified because it seems like, Oh, I can go get a cheap property, I can put a little bit of work in and I can sell it for more.
But the reality is, and you and I both know. That the only folks that do that successfully are the ones that have done so many, that they have the ability to go in and do the kind of work cheaper than the other guys. So they’re able to find a deal, evaluate it, and then go and do the work. Now that requires a tremendous amount of time, skill, set, and risk.
I have a guy, he’s a friend. You and I both know him. He’s a very successful flipper, but he has to go and raise private money from friends and family, and I know that that’s been difficult from time to time for him. Create some, some obligations that maybe he doesn’t want. Then he’s gotta find the property.
Then he has to go in and do the work, and it’ll take a whole bunch of time. We’re not even talking about the time that it takes in order to get a property done and flipped or whatever, and then he’s able to sell it for a profit. What we see in the outside world and what the shows talk about, the reality shows or what we see on Facebook or Instagram from.
Folks that do that kind of thing is you see the end result, right? Oh, I bought it for X and I sold it for Y and, and we don’t talk about anything that happened between X and Y and that’s why a lot of people kind of have the perception that I’ve gotta go and buy a property for way cheaper and then I can sell it for more than I bought it for.
And then obviously that makes it for a good real estate transaction. But there’s about a thousand things between those two points on the map, um, that. That have to happen. Well, and the other, the other concept with instant equity, so to speak, and if, if you can find it great, right? Sure. But there, there definitely needles in a haystack and it’s more of a job than it is investing.
But let, let’s say for instance, let’s say that you, you, you found a ho a property and it’s a $2 million property that you can buy for a million bucks. Like, is that a good deal? Right? Like it might be 50% equity position, Right? Right. Like depending on your situation, it could be a good deal, but for the typical.
Person, like our typical client, that’s a horrible deal. Yeah. Even if you could come up with getting a loan for a million dollars, it’s like, let, let’s say that you have the, the ability or the opportunity to buy this and you can kind of squeeze, sneak into this property somehow you get a loan for it. Do, do you know much the mortgage is on a million dollar, um, loan?
Not without my mortgage calculator. . Well, let so suffice it to say it’s well over $10,000 a month. Yeah. I mean, that’s a big obligation. So if, let, let’s say that you, you weren’t able to actually flip it as quick as you needed to or turn it as quickly as you needed to. Like, do you have the ability to make a $10,000 a month payment indefinitely until you actually sell the home?
Right. Like talk about, like even if. Like, let’s say you had a bunch of money in the bank. Say you had hundred, an extra a hundred thousand dollars reserve in the bank. And so you could, you, you had the ability to make that payment for say, like 10 months. Yeah. Right. Can you imagine the stress? Oh yeah. Of it’s like, oh my goodness, if this thing doesn’t close next month, like not only gonna lose this home to foreclosure, I will have lost a hundred thousand dollars that I put into the payments, you know, on the, on property.
That’s, Yeah, exactly. So, so it’s the idea right. What makes a good deal for you based on your, on your situation. So in that situation, um, that’s why we, we, we don’t participate in the, in that type of, of a scenario. Even if we could make a million dollars, we, I would never buy that home cuz I’m not gonna put myself in that type of situation.
Taking on that kind of risk. Yeah, 100%. So I think the first kind of stop on our journey here is, and we say it time and time again, it’s go find a real estate single. And, and for us, that means a home that a lot of times we say is at or, or near or below the median value. Do you wanna talk to that a little bit, Steve?
Yeah. So for us, like maybe I’ll just go down, down kind of the list of, Yeah, let’s like the definition of a good deal and then we’ll, we’ll kind of take you to these by point. We can kind of, let’s talk about them. So some number one that you mentioned, like this is like maybe like scratching on a blackboard to some, like I’m sure GU investors or whatever.
Yeah. But. To us, the definition of a good deal is we buy at market value because let’s face it, 99% of the time you’re buying at market value. Okay? And, and so our definition of a good deal is like one we buy at market value. Number two, we buy the right size of home to attract the right type of tenant because we believe in rental properties and income generating properties.
And for us, that’s typically the three bed, two bath, two car garage. We wanna. in that market, in that area of buying where you have the largest demand for the property, either to rent it and or to sell it in the future, you want to be in that, you know, You know what bell curve is, right? Yeah. You wanna be in that sweet spot of the bell curve?
Yep. That type of, of a neighborhood. I always kind of say it, it’s the middle income, middle class type neighborhoods in good areas, , that make for this type of good investment deal. These single family residences where the vast majority of Americans live and want to live. And that’s the key. It’s supply and.
Now the other things is you want, you wanna buy the type of home, like you, you don’t wanna buy like a dump, right? Yeah. Like you want, you want to buy like, but the definition of a good deal for us is, isn’t one that has all kinds of structural repairs that need to be done, but just typical, you know, rehab, replace the carpet, paint, lip, blood, fix this, that, that kind of a thing.
That, that for us. That’s a good deal. Not the massive fixer upper. Yes. Um, the other part of our definition of, of a good deal is, is a property, one in a neighborhood and the type of property that will check the type of tenant that a property manager will want to manage. And a property manager wants to manage a property that they know they can make a little bit of money on each month if they know that this property is, is, is going to.
Ongoing repairs. Let me, let me let everybody in on a little secret. Property management companies do not make money when they have to make a lot of repairs. Yeah. At least not the good ones. Right. Um, and, and so they wanna manage properties that are, are not gonna take a ton of their time, effort, and resources.
And because. We want our property managers to also make money because that means they’re able to do a good job for us and, and, uh, you know, provide a great service. Sure. So, so one that, a property that a property management company would want to manage, um, we of course, you, you we wanna be able to buy a property that is cash flowing on a cash, on cash return, uh, between five and 9%.
Yeah. And not only. The cash on cash percentage return, but also the actual cash flow itself. The dollars coming in have to make sense. Now we’ll go do, we’ll do another podcast where we really kind of dive into the numbers, but let’s touch on these real quick, Steve, because there may be folks listening that, you know, we talk about cash on cash a ton and, and we talk about this other phrase, this combined cash on cash.
Let’s actually talk to where those numbers come from, just so people kind of. Well, so as far as like the cash on cash return, it’s like it’s whatever your total out of pocket expense to get into that home. And so when your down payment, which by the way, that’s another part of our definition of a good deal is, is a property where you have put at least 20% down.
We advocate actually 25% down because. You’re able to secure a better interest rate and that’s another part of a good deal Yes. Is ha is getting the right interest rate, not using hard money loans, but getting a 30 year fixed best interest rate that you possibly can from a reputable banking or mortgage institution.
Yeah. Yep. Exactly. And so being able to define that or how to calculate the cash flow so you take your total out of pocket cost, including the down payment, your closing costs, your rehab. Any cost associated with the purchase of that property. Right? Total out of pocket. Total out of pocket. Right there.
Let’s say it’s $50,000 and let’s say that you, uh, your rent is, uh, a thousand dollars a month. Um, and your expenses are, Um, $600 a month and could, your expenses could be principal interest, tax and insurance on the mortgage, maybe the property management fee, so on and so forth. Right. A reserve for, you know, rehab and not rehab, um, vacancy and repairs.
Yep. So all of that, you gotta factor all of that in. And let’s say that you’re walking away with for an easy number, $400 a month, um, in. Cash flow 400 times 12. That’s $4,800 per year. You take that $4,800, which is your net income on that property, divide it by your total out of pocket, which is, let’s say it’s $50,000.
Take those two numbers and I don’t have a calculator. Yeah, I do. That’ll that’ll tell you. What your cash on cash ROI is. Yeah. So in this instance, that would be like a between a nine and a 10%. Yeah. Cash on cash, you get a nine and a 10% cash on cash. Like that’s, that falls within the range of a good deal for us.
And there’s two other numbers that we talked about in an earlier podcast. The combined cash on cash and then the annualized return that we look at those three numbers. Yeah. The combined is you’re just adding back in. Your depreciation, your amortized closing costs, and your principle paydown, and that typically will bump up, You know, your, how you look at how this home is performing, that Ty, that number typically falls between like 10 and 15%.
Yeah. And then your annualized return is factoring in appreciation on top of that number, and that typically, We’ll be 15, 17 to 21%. Yeah. As far as the types of properties we buy. Yeah. And so the reason why this is important is, remember this podcast is replace your income. So for us, when we’re evaluating the good deal, we wanna go find properties that are at market value, that are around, you know, the median home value, which is just indicating that you’re looking at homes that are in the.
Demand, Right? It’s a simple supply and demand sort of situation where we wanna go and help our clients and where we go and buy homes in good markets, in good neighborhoods that have good economic sectors and job markets where people want to go and live, where it’s gonna be us. Single family residents real estate, single two bed, three bath, two car garage.
And then we’re gonna look at it and say, Is it cash flowing and is it cash flowing within the ranges of these numbers that we’re talking about right here? I can real quick cause that part of the income replacement equation. The other thing that makes a good deal. Is one that you can afford? Yes. And that’s, and that’s actually why like we buy, we help our clients buy typically outta state.
We have clients in every state in the nation, but we have focused primarily on seven different markets. And right now we’re really focused on three different markets. And one of the primary reasons we go to a particular market is it’s affordability. Yeah. So our, our average purchase price right, is $185,000.
Yeah. Right. Which, The down payment and the total out of pocket affordable for more people. Like if our market was like Manhattan. Yeah. You know, that probably wouldn’t be a good deal for any other reason other than, you know, the typical person doesn’t have that much money for a down payment. Right. So in, in defining, you know, what makes a good deal, those are, those are pretty unique, you know, factors compared to, um, what many other groups or people, you know, kind of advocate.
And notice we didn’t say cap rate one time, right? Correct. Cap rate is this thing that a lot of real estate investors, if you’ve listened to podcast, they’ll talk all about cap rate, right? Which is just another kind of equation based on the total money you’re gonna collect on that property versus your purchase price.
And so, you know, we, we kind of look at this and we say, Okay. For us a good deal all boils down to what is a, a real estate single that we can go hit that’s going to assist us in replacing income one property at a time, over time. And we’re gonna look at that through maybe a different set of lenses than somebody else will.
And Steve really hit the nail on the head, which is, look, it doesn’t matter how you slice up the. If you cannot afford that property or if going or if getting that property is somehow a massive liability that’s going to totally turn you upside down and backwards that the deal goes south, it’s probably not a good deal.
And that’s something that not a lot of people talk about, right? Most of the real estate coaches, most of the real estate companies, most of the real estate gurus, they’re not talking about, You should be able to afford this. Instead, they’re saying, And Steve, you and I have literally seen this. If you’ve ever been to a real estate sort of seminar, I’m sorry if you’ve been exposed to this, but they will tell you to do one or two things.
They’ll tell you to call your credit card company and somehow raise the limit on your credit card so you can afford their program, so they can teach you how to go and do real estate that frankly, maybe you shouldn’t afford anyway. But it won’t matter cuz it’s not gonna be any money outta your pocket cuz you’re gonna go to friends and family and go get private money or go get hard money from a private lender.
Or they tell you that you, you ought go to the back of the room and there’s some guy back there with a, you know, gonna help you sign up for some kind of unsecured loan or credit cards. You could afford the program. So then you can go and try to do real estate that frankly you can’t afford. But most of those people don’t talk about that affordability factor.
And Steve, everything that we do and everything that we try to help our clients do. Comes down to this, the real estate, Yes, there’s risk in real estate, always gonna be risk in real estate. You can’t avoid it. So you have to mitigate that risk. And I think the way you mitigate, I used to say this all the time, when I would go and, and do seminars or when I’d go and speak kind of about our, our company or, or about real estate, I’d say that.
Systems increase predictability. Predictability, minimizes or mitigates risk, and a minimized or mitigated risk with a predictable system can increase your potential return, and that is the key. It has to boil down to a. System and it’s gotta be somewhat scientific. It can’t just be, well, that one feels good.
There’s a lot of real estate investors that go with their gut and, and I don’t know if you can say, going with your gut makes a good real estate deal. There may be some people out there with the most incredible instincts on planet Earth and they could just look at a deal and somehow the deals. Speaks to them and they go, That is the property.
I will purchase . And maybe they’re gonna kill it, but you can’t go off of that. What we try to do is say, what’s the system? What is what? How do we go and define a real estate single? And then how do we go and make sure that it fits into a framework that works time and time again cuz systems increase predictability.
Predictability minimizes or mitigates risk. Minimized or mitigate ed risk can increase potential future. That’s awesome Kevin. Um, let me add one more thing and this kind of encapsulates, uh, our philosophy as well and that is a good deal isn’t a good deal unless it’s good for both parties. I love that.
This, and you know what, I wanna end the podcast right here cuz we’ve talked about a lot of kind of what makes a good deal. And by the way, throughout these podcasts we’re. Go through specific deals and we’re gonna talk to specific markets and we’re gonna, we have so much that we wanna share with you, but this principle that you’re about to touch on right here, Steve, I think is so critical to how we operate as humans.
And I think that the way you operate as human, as a human, in order to be a good business person, I think you should be a good human. And that’s really what this encapsulates. And so please talk to this and let’s end the podcast on this thought. Cause I think it’s such a critical. Of, of deciding whether or not something’s a good deal or a, a good idea to move forward with.
Yeah, yeah, for sure. So this, this whole idea that, that a deal has to be good for both parties, it’s like, it’s part of like being able to sleep well at night. Yeah. It’s part of being able to look like, look at yourself in the mirror and, and feel like. I enjoy what I do. I’m not worried about somebody tackling me from behind because they got screwed on some deal or something.
Right, Right. It’s like if you’re always like, if you’re always concerned about the other. Side on, on a deal, on another transaction. You’ll be looking at it from the perspective of, Hey, look, we can create this win-win type situation that, Now, that’s not to say that you don’t wanna negotiate somebody down.
Sure. Because at the end of the day, if they accept your offer, then it, you know, it’s most likely, you know, They’re not gonna accept something for the most part if it doesn’t work out for them. Right? So I’m not saying don’t be a good negotiator and don’t do your best to get the best price, that kind of a thing.
But at the end of the day, you don’t want to take advantage. You don’t want to feel like, man, they got screwed, or something to that effect, or, And of course you don’t want to feel that way, right? Yourself? No. There are some investors that sort of like, that’s how they value the feel. They like, Oh man. I threw that guy under the bus.
I nailed that dude. Like that’s what the, that’s not what we’re advocating at. All right, So, So at the end of the day, that kind of is like the overarching thing that kind of encapsulates everything that we do, is that if it’s a good deal for both parties, it’s typically not gonna be just about the money, although obviously, We’re doing this for the money.
That’s right, Scott. But it’s also, it’s awesome to be in business and to have fun. Yeah. And to know that, that what you’re doing is benefiting other people and not just yourself. It, it truly is. Adam Smith’s invisible hand at work. Right. Yeah. Where that’s like, that is the essence of capitalism. You capitalist pig.
How dare you . If it’s good for you, it’s probably good for other people. That’s right. Right. And that’s what, you know, motivates people to movement, to, to take action, is that, that concept of the invisible hand. So, so again, just make sure that, you know, you’re not taking advantage of some little old lady who’s in dire straits and she doesn’t really know what’s going on with, with her real estate.
And, and you could take advantage and, and walk away with a hundred thousand dollars and, and it’s only because she didn’t really know the real value of her property. It’s like, don’t do that. Yeah, don’t ever do that. And so that’s an important factor for us. That’s part of what makes a good deal when both parties can shake hands, meet up on the corner of the street days or weeks or years later and, and feel.
That was an awesome deal, dude. I’d love doing business with you. Yep, that’s right. If you wanna hear if you, there’s a great book, if you wanna read about what makes up good deals. And it’s not like the book says, Here’s what makes up a good deal. But if you’ve ever heard of the book, it’s, Oh, I’m just forgetting the name of it.
I’m looking, Oh, there it is, It’s on my shelf. Winners never cheat. John Huntsman, who is a self-made billionaire, and, and he talks a little bit about how you go about doing deals that benefit both parties. Ju it was a core to who he was and it, it served him very. Listen, Steve and I both believe that the wealth that we create here on, on this earth in, in this sort of life that we’re leading, it cannot be taken with us when we die and go to whatever that place is that you believe.
You know, Steve and I have our beliefs, but so, so, but what does, what we believe does go with ya? Some of the choices that you made while you were here and, and so, uh, I think it’s important that you do things that will benefit both parties. So let’s just kind of summarize and we’ll conclude the episode.
When you’re looking at a good deal, it should be a real estate single. We generally advocate. Single family residences. Three bed, two bath, two car garage in good I, I kind of call ’em b plus type neighborhoods. Good neighborhoods, good job markets, good economic sectors with affordable purchase prices that are at or below the median, but a purchase price that’s at market value.
And one that’s going to mean that with your, with your total out of pocket, it’s a property you can afford and with your total out of pocket, it’s gonna generate a cash flow for you and your cash on cash return may range. Five and 9% and then over the long run it’s also gonna be a deal in a market that’s likely going to experience appreciation.
We didn’t even really get a chance to talk about that, but a deal that’s gonna experience appreciation so that over time it may appreciate one, two. Five, 9% year after year so that when you go to sell that property, you’ve been able to capture the equity growth. You’ve been able to collect cash flow along the way.
It’s been a property that was in a good desirable neighborhood, in a middle income, middle class neighborhood where you attracted tenants that the property managers wanted to work with, and then that property serves you well. It serves the tenant well, and it serves the person well, who you bought it from.
That was the last point that we made, that these should be. That are, it’s a benefit to the seller, It’s a benefit to you as the buyer. And I’d say it’s a benefit to the property manager and it’s a benefit to the tenants that are renting the property. And I’d go one step further and say, the tenants that are attracted to the property that the property managers wanna work with in the right kind of neighborhoods with the right set of conditions are the types of tenants that you, that the neighbor.
In the neighborhood would like to have in the neighborhood. Right. I think that that’s another piece of this, so that across the board there’s a fabulous documentary called The Office, And in the office , there is a, an episode called, uh, I think it, what is it? It’s like, Conflict, Uh, well, what’s the word?
It’s like conflict negotiation or I, I, something like that. And, and that Michael Scott is a big advocate of the win win win philosophy. Well, we say the same thing, except there’s more than just two wins. There’s three or four or five wins. There’s so many people winning across the board. How does it go wrong when there’s that?
Positive goodness inside of each of these deals. But listen, it’s gotta be the right type of real estate and the right type of markets with the right set of conditions, with the right philosophy and perspective that allows you to see it for what it is and allow you to cash flow and make money while benefiting others along the way.
And that, in a nutshell, is what we look at as a good deal. It is not just a single number on a piece of paper. It’s so, so much more than that. So like, Thank you so much for coming us, Kevin. All I can say is you Rock brother. Oh, thanks. So you, you got such a way with her. So anyways, carry on. Oh, thanks Steve.
That means a lot, man. . Um, I, we are so thankful that you’re here. We love you. We love being here with you on this podcast. Thank you for listening. Please subscribe if you haven’t and, and share this with others. We think that there’s some good here that can, that can. Flooded that, that we can flood the world with and we hope that you agree with us.
So thanks as always for joining us on Replace Your Income and we will see ya next week. Take care. Thanks so much for listening to Replace Your Income with Kevin and Steve. Do you wanna connect with us and other income replacement rangers out to obliterate the status quo? Experience real retirement with income replacement through real estate type done for you Real Estate USA in your Facebook search bar.
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