Epic Real Estate Investing - How I Made a Million Dollars in Real Estate (really close!) | 1183

Episode Date: March 8, 2022

Recently, Matt received a Voxer message from Dave Atkins, an REI Ace private client, sharing how he added nearly $1 million in value to his net worth in the last couple of years! Therefore, Matt invited him to join the show and share his experience so you could potentially duplicate his strategy, walk in his shoes, and do this for yourself, too! BUT BEFORE THAT, you will learn how to calculate cash flow in a couple of easy steps so you can take control over your real estate investing, escape from the daily grind, and create a life for yourself! Let's go! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terio Media. How to calculate cash flow in real estate. It's not as complicated as most people make it out to be, but it is important to understand, especially if you want to escape the rat race and enjoy financial freedom for yourself. Yeah, you heard me right? Cash flow is that very thing that could escape you from the daily grind

and create a life for yourself that's free of money worries. And I'll let you in on exactly how to calculate it. You ready? Let's go. Welcome to the all-new, Epic Real Estate Investing Show, the longest running real estate investing podcast on the interwebs, your source for housing market updates, creative investing strategies, and everything else you need to retire early. Some audio may be pulled from our weekly videos and may require visual support.

To get the full premium experience, check out Epic Real Estate's YouTube channel, EpicR-E-I.TV. If you want to make money in real estate, sit tight and stay tuned. If you want to go far, share this with a friend. If you want to go fast, go to rei-aise.com. Here's Matt. So I'm going to show you how to calculate cash flow. I'm going to first give you the quick and dirty math version. Then I'm going to give you the slow and detailed math version.

Both have their place and are very important to understand. And if you'd like some help finding affordable cash flow in your way, properties, if you wait till the end, I'll show you how to get that help to find them. So you can get to your financial freedom in one of the easiest and fastest ways. Cash flow. It's one of the four profit centers of real estate. But it's the one most people will focus on, particularly if escaping the rat race is their real estate goal. Because it's income, and that's what we need to survive. It's the income that's left over after all of the property's expenses and debt service have been paid for. It's the profit. The cash flow goal in

its simplest terms is to invest in properties that are going to pay you more than it costs you to hold on to those properties, than it costs you to maintain them. So the quick and dirty math version to determine whether a property will cash flow or not is what we call the 1% rule. And what that rule says is your monthly revenue, the monthly rent from the property needs to be at least 1% or greater of the purchase price of the property. And that purchase price includes the acquisition price and if there are any repairs or not. If the rent is at least 1% or greater than those two numbers combined, the purchase price and the rehab price, the property is likely to cash flow. Not for sure, but likely to. When you find a property like that, now it is worth your time to go ahead and

dive deeper into the numbers to determine whether it actually will cash flow. And I'll get to that in just a second. But the 1% rule, it looks like this. If I'm purchasing a property for $100,000, And let's say there's going to be $25,000 of rehab. What that means is my acquisition price or my purchase price is going to be $125,000. And so what I need in order for this property cash flow, I need to be able to rent for at least 1% of this number, which would be $1,250 a month. That right there is 1% of my purchase price. And you can reverse it too.

For example, if you know a property, rents for $1,500 a month, you know now that you cannot afford to pay $150,000 or more for it. If you pay over $150,000 for this property, it's likely not to cash flow. So that's the quick and dirty math. And that's about as far as I will go with any real estate deal. And I won't go much further than that until I get the property actually under contract. Then I'll go ahead and do the detailed math to determine whether or not, it will actually cash flow.

Now, let's run through the five steps to calculating cash flow through rental property. And step one, your gross monthly income. Basically, what is a rent for? And don't forget other revenue streams as well. Like maybe you're charging for an extra parking space, you're charging for storage. Maybe you've got a laundry facility on site, or maybe you are renting them appliances. Maybe you furnish the property. And maybe you are charging pet rent.

All of that counts. So you need to add all of that up to get your gross monthly income. Now that you got that number, it's time to start deducting the expenses. So the second thing you want to do, step two is subtract the expenses. That first expense that you want to factor in is what we call our vacancy rate. Vacancies can really thwart your cash flow expectations. It can ruin everything. Though no downtime in between tenants is ideal, you do want to anticipate that the property might

be sitting vacant for a little while. Maybe it is just a few days or a month in between tenants, Or maybe it's multiple months. And that's a realistic thing to consider depending on what type of market you're in. And this can be a really difficult thing to calculate. It's not an exact science. So a good starting point might be to check in with a property manager and see what type of turnover time that they have in between tenants and how long it's taking to get a new qualified

tenant for properties. So that's right. You kind of have to guess. But you want to get as much of an educated guess as you possibly can. That's why if I don't know any better, if it's a brand new market for me, I will check in with a property manager to get their idea or their opinion. Now, if the market is hot, 2% that's typically a good number to use, 2% of the gross monthly rent that you're collecting. But if your property were to sit vacant for just one month, that's an 8% number. And that can be

significant because not only are you not receiving rent that month, you also have the expenses that you have to pay as well. So vacancies, they're no bueno. Now, there are a lot of recurring expenses that accompany a property as well. And they're going to very, very, very, from property to property, but I'll give you a list of what you can expect. First, you've got property tax. There's no getting around that property tax, depending on what state you're in. That could be a biggie. And then there's insurance.

You have to have your properties insured. And then you've got property management fees. If you're not going to manage the property yourself, you definitely want to factor that in. If you are, then you don't need to necessarily calculate this. And then there's HOA dues if applicable. That's not going to happen with every property, but some for sure. And then there's maintenance.

and repairs. Now, this can be another area where you kind of have to make an educated guess. And for our properties, we typically calculate anywhere from 2 to 5%. That's 2 to 5% of the gross rent will actually go to maintenance and repairs. Step 3, you want to calculate your net operating income. And your net operating income is what you get as a result of taking your gross monthly income and subtracting all of your expenses. That gives you the net operating income.

Now to get to your actual true cash flow number, step four is to subtract the debt service. So to get to your true cash flow number, you're going to take your gross monthly income, subtract your expenses, that gives you your NOI. Then you subtract your debt service and that will give you your cash flow. So knowing this calculation and how to determine what your actual cash flow number is a really important number for you to make a wise investment decision. After all, the goal is to cash flow while the property appreciates in value. And if you're looking for properties, that cash flow while they're appreciating in value,

it might make sense for you to talk to Mercedes. So go and download her free investor package. You can get that at cashflow savvy.com. And then after you download that, you'll be able to pick a time to hop on the phone with her and brainstorm some ideas as to what this might look like in your investment portfolio. How can you benefit from cash flow? How can you benefit from the appreciation of real estate? Please stand by.

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It's time for another epic field report. Recently, I received this Voxer message from one of my private clients, and he was sharing how it is, actually, I thought it was his first year, but we just started, we're talking offline. It was actually, it took him a few years to get here, but still quite remarkable how he added nearly $1 million in value to his net worth. And today we're going to talk to this private area Ace Pryl about how he did it. And in a way so that you could potentially duplicate, walk in his shoes, and do this for yourself. So let's dive right in.

I'll bring on my special guest today, Mr. Steve Adkins. Steve, welcome to the show. Thank you, man. Yeah, we were just talking, I thought this was in your first year, but time has really flown. And so you sent me this little message here right at the top of the year. I guess this was just at the beginning of this month. And it showed here, just listening to your podcast and joining RIA, so you've added nearly a million dollars in actual value through real estate to your net worth.

And that's what I want to talk to you about. So by the way, what market are you in? I'm in the upstage of South Carolina. So Greenville. Very good, very good. Great. So thanks for sharing that with me. And before we go, what challenge were you trying to solve?

overcome when you decided to work with Epic? Well, for me, I already had a couple of rental properties, and I was doing okay managing them, but I didn't know how to get any more. And I wanted to have, you know, I had a 401k in a pension, these type things from my job. You know, when I look at them and I say, it's just not going to be enough for how we want to live. If I want to retire and say 60, I need more income. So that's why I decided to go with REI ACE to learn how to find more deals, negotiate better, find out about markets and how to analyze them, how to analyze the deals a little better. And so those were the things that attracted me. And yeah, I found,

and also too, I was, I had never flipped, I think I had flipped one property at that point in time. I made a little money on it and I thought, you know, I bet there was a lot more money to be made in that deal that I had earned. So that was another thing I wanted to be able to give more money out of each deal. Very good. What would have it meant to you personally if you had been able to actually solve that? Well, I could retire earlier. I could retire with freedom and be independent.

That's the solution that I need. That's the dream, right? Very good. All right, so what were the actions and the results, I guess, of what got you to add this nearly $1 million to your net worth. Can you kind of take me back through the deals, if you can recall them? Were there a bunch of them? Was it just one?

No, no. I've got it written down here, so I won't forget anything. You know, I'm talking about retirements. I'm getting older, so I got already. So I remember. Since I joined RIAs, I've made 22 real estate transactions. I went from two properties to holding eight. And I went from making about $20,000 on a flip.

to averaging 40,000 or sometimes they've been 60 and $70,000 I've made on the flip. I've done a few notes in that period of time, and I've made about 30,000 on each one of those. I would not have been able to locate these deals had I not been involved in RIAs. So what I've used, what I've learned from RIAs was the use of property finders. That's helped a great deal because I'm a busy, what you might call a busy professional. And I'm looking for ways to find good deals that I don't have to invest a lot of time into to find them. When I retire, maybe I'll have more time for that. But I use property finders.

I use auction sites. And I've used a couple of wholesalers as well. Very good. So the property finders, you talk about bird dogs, right? Yep. How did you initiate that practice? How did you go out and find them? And then specifically, how did you find the good ones that would actually work and bring you deals?

So I had a house that I was flipping in Columbia, South Carolina. And through a real estate agent there, they just asked me, when we went to the closing, hey, do you ever do anything in Spartanburg, South Carolina? I said, I would if the deal's right. And so the next thing I know, I was driving to Spartanburg and looking at this property, which they wanted $36,000 for. It needed hardly anything to be painted, needed to have the floors, have beautiful heart pine, floors. It needed to be sanded. Needed an air conditioner. It was $20,000. So I could see this

how it could sell for easily for $100,000. I got $109 for it. I pay $36, put $20 into it. So from that deal led to another deal to another deal with that particular bird dog. And each one of those deals that are, and it's just simply, hey, we don't know anybody else. Would you like to, you know, take a look at this one before we put it on the market? I'm like, yeah. Now, not every one of them has been a winner like that. Some of them I have passed on buying because they're garbage. If I see that kind of value just to have my losses in case I wasn't right, it's okay, if I don't see 40 here, I'm not going to do it.

So that's pretty much how the bird dog was in Columbia, actually, and she sent me a couple of losses since then as well. Okay. So this was a real estate agent, right? Formerly a real estate agent. Formerly, okay. And then how did you connect with her? So I flipped this house in Columbia.

And I connected with her through the real estate agent who actually sold property. Got it. Okay. It was just a simple idea to deal. They said, hey, do you do anything in Spartanburg? Yeah. I would. So actually, talking to people.

Right? You said long ago on an episode, maybe you don't remember it, but I do. Where do you find the deals? 32% come from? your network. Yeah, yeah, they do. So she was bringing you deals and then people are always wondering how do you keep them motivated and how do you compensate them?

Do you mind kind of breaking down with that structure it looks like of how they get compensated? I was paying them $3,000 each for a lead that I actually purchased. And once the deal closed, they get the $3,000 with the market as it is. There is a little bit more competition out there, I would say. So I've up that to $5,000 per lead that I purchase. Okay. So that's enough to interest me. It really is enough to interest them.

So that's contingent on clothes and it has no relationship to how much you make. Correct. Got it. Very good. Super. And then auction sites. You found some deals on auction sites. Which sites?

HubZoo is one that I found a couple of deals on. they've been pretty good. I found one on auction.com. It was a little bit more of a pain in the neck. Then Hipson was actually a pretty easy process. All of the ones I bought about five on there. And I have a little technique that I do on an auction site. I know that there's going to be a lot of bids on some of these properties.

So I will bid what I know is not a winner. And I just put on there, yes, contact me if the deal didn't go through. and I've got several of those where I was not the first one who won the deal. However, a month later, I get a phone call. Hey, you were number three and the other two, the deal fell through. So do you want the property? I'm like, yeah.

But the place I put up there, yeah. Some of those have been really good, paid off really well, and the houses were simple to fix. I had one that had a hole in the kitchen floor. A carpenter came over there for a thousand bucks, fixed it. I mean, that was the worst. most of those I found on hubs that have been very easy that's paint, carpet,

maybe new appliances. Right. That's about it, a little bit of yard work. So if you lose the auction, you're just saying, call me if something else comes up if this falls through. Yeah,

in fact, I'll bid kind of with the idea that I'm going to lose it, and if I get this one for the price I'll put out there, great, they'll call me. If not, well, I've got it. So you just go and participate,

not necessarily. to win the auction, but hopefully the people that do win fall through, and that's the strategy. Yeah, because, you know, sometimes on those sites, two years ago, three years ago, it wasn't as much as it is now that someone's on those sites. They keep coming back to if you want to bid, you want to bid, and I just say no, because I know that there are people who are bidding that, bidding that. So if I put my position in at a value, let's say the house can sell for $300,000, I want to get it for $200,000. So I put it in for that number, and I feel that's the decisions that I can easily go to a hard money lender or even a private lender, which by the way, I've got a couple of those now who are interested in my deals, and I've had one or two fund those deals.

So it is easier to do. But yeah, I put a number where I know I can make money at it for sure. And if I get it, great. If I don't get it, that's great too. What type of, on those two auction sites, I've never used those two in particular. What type of due diligence do you do before you start bidding? They give you the address. So I look it up on the, I do some comps.

I go and drive the neighborhood. If it's in, Columbia is 100 miles from me and I've done three houses down there through Hoseon. I'll still go there and drive that neighborhood. For me, if I'm going to flip the property, one thing that I know is interesting to a buyer is what the neighborhood's like. what the schools are, how old they are, the access to, say, hospitals and health care and shopping. I want to know, obviously, I mean, not obviously, but I want to know that it's going to be easy for the homeowner to get in and out of the property. They're not going to have a busy street. So, you know, I refuse some of those because those are harder to sell.

So I really go for what does 85% of the buying public want to purchase? Right. So in a few years, we've got the 22 deals, went from holding two properties to eight properties. The whole thing is in the interest of financial independence and having that ability to retire when you want to retire. So in hindsight, looking back, I mean, what does this all meant to you? Well, that's kind of hard to put it in words.

I mean, it's exciting. It's a million dollars on my bottom line, for sure, which came about in three years' time. So what does a average couple like myself and my life? What do we need? It certainly means that we have more means than we had. It also means I've got more skills that I didn't know that I had. And so when I do decide to fly the coop and retire, which could be any time, then I know that I could just quite confident that a more what I can do.

So sometimes it doesn't feel that way when you got all the money out there on a property. You've got two of them going on your thing. I don't know. I'll see. I'll say it means a big boost in confidence, confidence that I have the skills and that I know where I can find the deals. And I know where I can increase my skills even further. Right.

Yeah, it's the first pillar of the RIAs investors, having the confidence of actually knowing what to do. when you need to do it and having the confidence that you'll actually get the result from it. So fantastic. Okay, let's see. You say you can fly the coop, retire, so to speak, anytime that you want. What do you see for the future, immediate and far reaching? Well, I do work for a major automobile manufacturer, and they pay me really good.

I have to stay there until I'm 60 in order to collect the pension. That's another year away. So that's the immediate future right there. The real estate market where I am is, most like everywhere else in the country, it's really hot. So, yeah, I'm looking for more ways to find deals, and I'd really like to increase my real estate income.

The cash flow I'm getting right now is about $2,500 a month. So, you know, what this is meaning to me from my properties. So I'll just take that money and put it back into the business. We don't spend it. My wife would love to, but we don't spend. So we're trying to build a nest egg. You know, that's where we are. 15 years ago, I'd have spent it.

Now I realize what the big picture is. And the values changed as we, the years past on that. Oh, yeah. But you know, one thing, he asked me a moment ago what it means to me. I have two friends who were older than me, 168 and 166 or something like that. And they both started collecting Social Security. and my cash flow checks, the amount of money I get in my cash flow is more than each of them get from their Social Security. In a brief amount of time, really, and with really, I mean, truly part-time effort, I've actually got that income already that they worked their entire life, and that's part of the real estate income, part of their retirement income.

Right. I hear that story so many times and not necessarily about Social Security, but about people that have come to me and have put, you know, a good couple decades into an endeavor or a specific job or a career. And they're looking at what they're going to have at that retirement point. And then they're like, well, this is just not enough. And so when they go out and they just, you know, spend a couple years and do some deals on their own. They're like, oh, my gosh, I accomplished the same in a couple years what it took me a whole, you know, three decades to accomplish my job.

Tony Jarvie was the one of the, you know, his cash flow now far exceeds his pension. He's been at the bank for 40 years. And you know what the funny thing is? What I would add to that, everything you said, plus this was much easier than I would have imagined. Real.

People need to realize that you just need to jump in and start doing something. Right, right. Yeah, thanks for saying that. Because I just love hearing that it's not difficult, right? I mean, most of us will go to some sort of job, right? We pick up the phone, we talk to people, we probably make proposals, and we close deals. Like we have all of these types of skills in some fashion, and some of us might be directly or indirectly.

But we do that all day long, as is outside of real estate. And if we just take that, just kind of apply that to a real estate. model pays a whole lot more. Yeah. Perfect. Well, thank you, Steve. Ask me this. What are the,

give me the three favorite things that you've enjoyed about working with Epic? Three things favorite about Epic would be, first off, I enjoyed working with yourself and the team. But secondly, was all of the other investors that I met are potential investors coming to the epic events out there. And they were in California when I went, I think they're in Nevada. now when you can actually go to it and not have to wear a mask. But that was a blast. I'm still in touch with a lot of those folk.

I would say that the learning and the techniques would be also, it's really by working with REI's, the dialogue that you have with a seller to get them to a point. I told another one of our, one of your clients, one of our friends, I see, no, I think you should memorize that thing. Because we all want to tend to make things too, complicated. This thing just, it's one of the techniques. It makes it simple, straight to the point,

and you qualify whether or not you're ready to sell this property or not. I'll say those three things, working with your team, working with the other investors, keeping up with them. And then the techniques I've learned have been very bad, they've been worth every thing that I invest in to come into the RIA's program. Fantastic. Thank you. Last thing, just finished this sentence for me. I almost didn't work with Epic because there's multiple reasons money time fear uh don't know if i mean i've been listening to you for a long time when i joined but you know i don't know if it's really genuine or not you know these kind of things um so i did and i'm glad that it did very good well thanks steve for taking time out of your day to me with us to share your story

i'll say one thing that's simply this there was another a colleague he's another art AIS investor. And he called me. After we'd met each other out there in California, he called me, said, should I do this? And I was already in the program. And I said, you know, you guys have to think about it this way. What I think is Matt and Mercedes, they're the real deal. Now, there's a lot of shysters out there and stuff, but you guys keep putting it out there. And so really, I appreciate it because it's what's kept me motivated to stay in this because

we all have enough distractions in our life. So the things you put out there, they're exciting, they're fun. And we learn a lot. I learn a lot from them. So I would say joining the RIAS program was kind of like a continuation of what I've learned on podcast and YouTube from yourself and a few others, but mainly from you. It's great. Well, thanks again, Steve.

I'll let you go. I appreciate you sharing your story. And I know the people that are listening, appreciate it as well. It's very inspiring. My pleasure. And that wraps up the epic show. If you found this episode valuable, who else do you know that might too? There's a really good chance you know someone else who would.

And when their name comes to mind, please share it with them. And ask them to click the subscribe button when they get here and I'll take great care of them. God loves you and so do I. Health, peace, blessings and success to you. I'm Matt Terrio. Living the dream. Yeah, yeah, we got the cash flow. You didn't know home world.

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