In this episode we attend a real estate auction where we are interested in a 4 bedroom 1 bath single family residential property.
Runtime: 19:55
A quick rundown of the episode:
- Welcome and info on how we find properties that are being auctioned
- We attend the auction of 4 investment properties each being sold absolute
- We break down our investment criteria in detail
- BOOB Update – Book reports
- New BOOB Challenge – Geocache
- Chalk Talk – Virtual Assistant Referrals
- Next Episode – We interview Adam Baker of ManVsDebt
Watch. Learn. Comment.
Numbers Breakdown:
$72,000 – Loan to Value (LTV) – House must appraise for amount
$54,000 – Loan Amount – 75% of Appraisal ($72,000) – Instant Equity
$14,000 – 10% Cash Reserves, Closing Fees, Company Expenses
$40,000 – Total for Renovations and Purchase Price
$17,500 – Improvement/Renovations
$22,500 – Purchase Price
Monthly Rental Breakdown:
$450 – Principal and Interest payment on 20-year term at 7.25%
$150 – Taxes
$ 50 – Insurance
$600 – Monthly Total
$150 – Minimum Positive Monthly Cash Flow
$750 – Monthly Rent Needed
{ 36 comments… read them below or add one }
This show is really interesting and improving every episode. I do a very similar thing to you with property in England but I don’t have a system for numbers that is so rigid and well thought out.
It may be helpful for you to write out in a blog post how you do the numbers so viewers (me:) can do it for ourselves step by step so we can benefit from the RenMen Formula.
One more thing, That property seems ridiculously cheap compared to UK house prices.
Charlie,
Thank you for your great feedback. We will publish the numbers as soon as we can (great idea). I’m sure the properties do seem cheap, what kind of rent can you get in the UK?
Well very basically, I buy properties with 25% deposit and I get 25 year repayment mortgages with the option to overpay each month. I can get £450/month rent for a £60,000 studio flat. As long as the mortgage is repaid and I clear £50/month extra, I am happy. A £60K flat is a cheap as I can get.
The cheapest 4 bedroom house that is without needing total renovation would cost around £225,000 within say 30 miles of my postcode. Very bad return for rentals on that too. Maybe 20:1. I rent them out myself, I am considering using a letting agent.
The idea of lifestyle design through property is a great concept and you are the people doing close to what I do/want to do. I am not on the same scale as you yet, but it pays for my lifestyle.
Maybe a segment on fixed vs variable rate loans would be helpful.
Charlie,
Great post. We are happy that real estate is helping with your lifestyle design, no matter what level you are on. Your numbers are tight, and like we said, not every area is the same. We tried to purchase houses in Columbus, Ohio, and the numbers just didn’t work out. You may have to look elsewhere. Keep on us posted on your progress.
Hey Guys Great Episode…best one yet! Good to hear your system of reviewing the numbers. The breakdown of the 14,000 is helpful and the L2V ratio too. The 10% cash fund, where is this money coming from, is it part of the loan? I have one commercial property( 2 apartments and an office space) that I have bought an renovated an I am itching for another now. I would be interested to hear your thoughts an managing / accepting the risk associated with having investment property.
Chad,
Thanks…we honestly felt like this show was our best one to date, thanks for agreeing…Yes, the 14K is ‘wrapped’ up in the loan of 54K…The entire loan will be financed…Risk management is a huge, huge hold up for many people…Take many small steps and always watch your backside…We associate risk management to opening new doors…the more doors you open the easier it gets to open them…At first, people would have thought we were crazy, if we told them we plan on buying 100 homes by year three…You just have to make it happen…After a while (maybe a long while) the large numbers don’t effect you nearly as much…All it is, is one house after another, just like a coach says, it just one game, but they all add up…
Speaking of financing…would love to hear a little bit about how you guys are finding financing for so many properties with the tightened lending practices lately. Thanks!
LB,
We will be discussing that in length, in an upcoming episode…check out our response to Mitch’s feedback…
Hello Guys,
I found you guys through your 4HWW episode and look forward to each new one.
I also buy SFH’s, but have strived to get much more cash flow to cover maintenance and unexpected large capital expenditures. I’ve never considered setting aside the 10% aside from the beginning and accepting less cash flow. I’m really excited to apply that strategy immediately as it should allow me to make more deals. I read a lot of real estate books and REI websites, but don’t remember seeing that idea and I’m obviously not creative or smart enough to come up with an original idea! Other than Kiyosaki, what other real estate authors do you read or suggest?
Thanks again for the great videos and keep up the great work!
BH,
Thanks for the supporting words…First off, congrats on buying real estate…We are here to pay it forward, to teach as well as learn from our Ren Menions…We didn’t start out saving 10%, it was all trial by fire…Before taping this episode, we thought about our need to be as transparent as possible, so we decided to let everyone in…We are here to be as truthful as we can, and maybe make a few bucks along the way…We do love Rich Dad, we really like Mr. Donald J. Trump…He may rub some people the wrong way, but he knows what he is doing…You need to prepare yourself, soak up as much information as you can, and ‘benchmark’ what you need and let the rest go, basically write you own book on real estate…Everyone’s will be different…
Bill,
The 10% out of the initial loan is a new idea to me as well. That seems to give a real sense of breathing room when considering a property going unrented or needing emergency repair.
It is new to us as well, sorta…we’ve been using it for about 18 months…The Ren-Menions will see in upcoming episodes that our first few investments were not as systematic as our present deals…
DUDE! Good stuff. It’s nice to hear some details on this topic. Most people are big on ideas and small on details. Thanks for the info and taking the time to go through some of the numbers – extremely helpful.
Thanks Luke, we hope this helps you and your adventures in real estate and other businesses…
Love the show guys! thanks for the details. that REALLY helps out and explains things. I’ve always thought that the zero/low down stuff seems a little ’scamy’ and risky, but with the risk management steps like the 10% cash reserves, knowing the area, 75% loan to equity,and the plan you guys have, it seems very solid. Do you guys have a standard business plan you present to the bank/lender that you just plug in with the pertinent info? My brother and I are trying to break into the rental property business, but its quite daunting. We’re devouring any and all info we can get. Thanks! and keep up the great work!
The 0% stuff is scamy —most of the time— you just need to do a ton of research…Yes we have a business plan, the exact one from the episode, that we share with our lender…We are a completely transparent open book with our lender…If we weren’t, we wouldn’t be able to share our plan with the community as well as we wouldn’t be able to run our business…Thanks for watching…
As the aspiring new guy to rental real estate… I would assume that if you run the numbers you show in this episode by a bank they are going to be impressed. Does it take much more than numbers and a decent credit rating to get mortgage after mortgage?
Also, you reference banks… Are banks and other major lending institutions your primary source for mortgages? Do you have some kind of syndicate of Renminions as silent partners?
Yes, it does take much more than numbers and a decent credit rating to get mortgage after mortgage…We are fortunate enough to have a great relationship with a bank…This is not to say that you can’t manifest the same relationship with a bank, especially if you bring them houses that fit into their ideal zone of 75% LTV, etc…It takes work, and simply asking a bank for their requirements upfront…if you meet their requirements, it would be tough for a bank to tell you no…
We do not have silent partners, however we are always willing to listen…
Guys, way to go on giving us the numbers, I’m an engineer so I really enjoy that kind of stuff. Better luck next time on grabbing a property and hitting a home run with it.
JY,
Thanks…we were really hoping to nab that house, it was perfect…Glad to hear you enjoyed the numbers…thanks for watching…
Ren Men,
Let me add my congratulations on the best episode to date! You guys really pulled out all the stops on this one and knocked it out of the park!
To make sure I understand… assuming you had purchased the property at auction you would have been out of pocket for the $22,500 +10%. Then you would have gone and gotten the property appraised ($73,000) then gone to the bank and taken out a mortgage for the 75% where you would repay what you expended at auction and all the other fees you stated in the episode – correct?
Two questions come to mind given the 0 for 2 tries at auction… what is your purchase ratio? (i.e. how many auctions do you go to normally before you walk away with a new property?) and secondly, do you just do straight auction or do you also dabble in Tax Lien or Tax Levy (spelling?) sales?
Last question based on your numbers. You gave some websites to find auctions and you mentioned some ways to get appraisals… Other than just ‘knowing’ your target area are their any good systems or websites for approximating rental prices?
Thanks again for a fantastic episode. I’ve posted a link to episode 9 on my facebook in hopes of getting a few more Renmenions to join the … Army? Hord? Flock?
MM,
Thanks again for the kind words…Yes you are correct about the refinancing of the property…Our closing ratio was rather high before we started the show! We had not been to an auction in a year or so before Episode 6 (bar in Columbus)…We would guess around 50%-60% or so, we usually get one locked up…We will buy a house at auction on the Ren Men Show…
In Ohio, foreclosures are our tax lien/levy sales…In foreclosures the opening bid must 2/3 of the appraisal price…the bank usually protects the house up to a point well beyond our purchase price…we wait until the bank lists the house with an REO realtor and submit an offer…
As far as rental prices go, call the houses that are for rent in the area…drive around and hit up the for rent signs…Rent.com might help, but we don’t use it, just because we know our certain neighborhoods rather well…
Join the ??? great question…Ren Menions we need your help…
Hi, I’m a huge fan of your show and have been since I saw you on the four hour workweek blog. You guys are really inpiring me to push forward with my own lifestyle design. But there is one thing I’m very curious about. You guys got your boxing arcade machine into a couple interesting places. I was wondering, what was your sales pitch? I’ll leave it at that because I know you’re busy guys. Anyways, thanks for everything, and I look forward to watching every show!
AP,
We don’t have a sales pitch for our vending machines…we have the locators do that for us (removing us from the equation)…the locators are hit or miss…we are in a tough area —is what the locators tell us— for placing machines…we have just recently taken in-house and our office managers will get these placed within two weeks…KOV has a great website and I’m sure they would help you out…
I agree about the decline of asksunday.com…total bummer!
Here’s a similar type VA service that is U.S.-based:
http://getmorehands.com/
Thanks for the link, we’ll check it out!
I agree about asksunday. Not sure if they were actually better when I first started using them a few months ago or if I was just really excited by the concept. I pay more with personal touch (the service Greg referred to above) than asksunday but get WAY better service
MS,
Thanks for the advice…that’s makes two on the getmorehands…we are looking into today…we’ll keep you up to date…
Hey Guys — I just found your site today and I’ve already watched all of your videos. You’re doing a great job!
I was happy to see Pay Flynn in a previous video. He does a really nice job on his blog of explaining his income. The transparency not only makes him more credible, but brings readers back over and over to see how he’s doing.
As for a VA referral, you might look into JonasBlog.com or ReplaceMyself.com (same guy runs both). He does a lot of work with Fillipino VAs and offers a service to help people with outsourcing. It’s worth a look.
LM,
Thanks for the referral, we’ll take a look…Pat is a great guy…We should have an update in a few episodes…thanks again…
Wow. I can’t believe there are houses for sale there for that price. In my area (Canada) a house like that would be well over $250,000. How the heck am I supposed to get into income properties when prices are so high? Seems like it is a lot easier in your area.
Thanks for the info though. Very interesting to see how you break down your numbers. Can’t wait till the next episode…
Jack,
Thanks for the feedback…Don’t get us wrong, not every house in the neighborhoods that we look in are priced right…some houses are well over our threshold…we just keep looking until we find one…what the rental prices that are in your area? Our system is not fool-proof, there are many areas where are our numbers won’t work, but as long as your numbers work out…that is all that matters…keep us posted, share with us the details of your area…
Great episode, one thing that would be interesting for you to discuss is your roots. Such as how you got to this point, How you got into this business, what your first move on your own was? How did you come up with this math and make it work?
Just an idea
Rich
RR,
Thanks for watching…episode 11 should be able to answer -most, if not all- of your questions…
Grant and Alan,
Another great show – Definitely one of my favorites. I thought it was cool that Alan is reading “Vagabonding” by Rolf Potts. I had mentioned this author in an early submission when you were trying to reach Gary Vaynerchuk. I had emailed Rolf Potts after stumbling across a signed copy of his latest release, “Marco Polo Didn’t Go There” and he emailed a very nice message back to me the very next day – Outstanding! I enjoyed both of his books and found that “Vagabonding” was an easy read, contained great quotes, and it gets you thinking about the time when you no longer have to worry about working. He also represents someone who maintains a pretty simple lifestyle and he talks about living on your own terms, a concept that I have subscribed to for a long time. Great choice Alan!
Next, I dug the fact that you “broke down” your costing approach. It’s neat to see it simplified for those of us who haven’t lived it for the past few years like you have. Thanks!
Keep up the good work – I’ll tune in next time.
Matt