Epic Real Estate Investing - Market Predictions and the Affects on Cash Flow | 659

Episode Date: May 21, 2019

What does happen to a turnkey real estate investor if market crashes? Mercedes will let you know the answer in detail! Tune in! Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey, Rockstar, Matt here. Thanks for listening. I got a really good show for you today. But what you're going to discover right now is a quick walkthrough on how to buy more discounted real estate through the power of a really good automated lead machine. There are a bunch of benefits to buying discounted real estate this way. First, you're going to identify the right property owners with the right motivation. Second, you'll stir up an intense curiosity for those property owners.

And third, they'll be triggered to act and voluntarily reach out to you. like almost an impulsive reflex. A really good automated lead machine doesn't have to be high tech, doesn't have to be expensive. In fact, some of the best performing automated lead machines hardly cost anything to run at all.

When you come to the Epic Intensive, you're going to notice that I focus on three levers of great automated lead machines. Find, control, and profit. As you can imagine, if you learn how to create a really good automated lead machine, you can probably buy and sell a lot of discounted real estate. And speaking of a really, really, really good automated lead machine,

I want to invite you to a special event coming up. It's the epic intensive lead machine workshop. It's July 18th through the 20th. And at this workshop, it's a three-day live event in Manhattan Beach, California, where together we'll build your own automated lead machine, reveal the art of how to influence sellers and win deals, and pull back the curtain on creative deal structuring, so you can maximize the ROI with every opportunity that crosses your desk.

You'll learn the lead machine building blocks to attract better leads, the language patterns to get more sellers to accept your offers, and how to creatively finance without using your money or your credit. You can register for the Epic Intensive Lead Machine Workshop today for a small, fully refundable seat deposit. But it's really worth 100 payments of that seat deposit. Here's why. First, you'll walk away with your very own automated lead machine that you'll be able to bring back to your market and put to work. This is going to remove the limits to the money that you can make in real estate. and you'll leave with a customized escape the rat race game plan. I'll show you how to put that money that you make to work

so that it works harder for you than you did for it. And seating, it's limited. I don't have to say that. It is. We sell out every time. And this is going to be the last lead machine workshop that we do before we change it up for next year. So go to epicintensive.com to reserve your seat.

And if you don't absolutely love the epic intensive, your seat deposit will be completely refunded right there on the spot. And you can keep all five of the bonuses that will be. handing out at the door. How's that for fair? But remember, this is the last lead machine workshop, July 18th through the 20th, and seating is limited. So again, go to epicintensive.com, reserve your seat, and I'll see you there. I decided to come to the Epic Intensive to reinforce my understanding of what it takes to achieve financial freedom. I know that Matt teaches cash flow versus flipping properties and that true wealth is built through cash flow. And I wanted to understand that better during

my career here as a real estate investor. This is Terrio Media. So you want to be a real estate investor, but you don't want to do the work. If there were only a way where someone else could do it for you, now there is. Tune in here each and every Tuesday on the epic real estate investing show for Turnkey Tuesdays with your host Mercedes-Torres. Hello and welcome, welcome to Turnkey Tuesdays brought to you. by Epic Real Estate Investing.

My name is Mercedes Torres, your Turnkey Girl, and I am privileged enough to be partners with Mr. Matt Terrio, the guy who created the epic real estate empire. For our repeat listeners, welcome back, my friends. So good to see you again. And for those of you who are just now tuning in to Turnkey Tuesdays, I created this show to really help that busy professional who understands. understands the importance of real estate investing, but just doesn't have the time or the desire to learn everything there is to learn to acquire passive income through real estate.

So this show allows you to dive into real estate investing to learn how you can benefit from somebody else doing all the work for you so that you can create passive income in your world. So on today's show, I'm going to share something very interesting with you. And it's regarding a phone call I had last week with a gentleman by the name of Tarek, Tariq, Tariq K from Southern California. In fact, while I was on the phone with him, I said, you know what, this is such a great conversation. I'm going to have to do a podcast about it. And here I am. So, Tariq, true to my word, we are going to share today just a little bit about our conversation that we had.

So Tariq lives in Southern California. Actually, I think he lives in Northern California that I think about it. And of course, he's interested in real estate. That's why he listens to our show. And ironically, you know, Tariq is the kind of guy that did a whole bunch of research before he, got on the phone with us. And he knew a lot about Matt and I. He had been a podcast listener for quite some time. He is a busy professional and a family man. And the reason why I'm sharing about Tarek is because many of you that I speak with fall into that same exact category of who you

are as an individual. And so, of course, he asked a bunch of questions. So, much so that when we got to the end of our call, I felt like, you know, we ran out of time and I didn't address all of his questions. I didn't address all of his concerns. So I suggested to him that he scheduled a second call because I didn't want him to feel incomplete. So sure enough, long and behold, a few days later, he scheduled a second call and we hopped on a call, a second call. And he asked me, really interesting questions, really thought out questions. Now, I get those questions all the time, which is why I decided to bring them to you. But I often get asked this question, and I'm going to paraphrase it, but the gist of it is he wanted to know, first of all, why he should work with us,

what sets cash flow savvy apart. But he really wanted to know what my predictions were for the market conditions because, of course, in this changing market, he wanted to know how it will affect cash flow. So he wanted to understand what my predictions were about the market. And of course, I laughed. And it cracks me up every time when I get this question because predictions are just, they're just educated thoughts, much like hypothesis. You know, nobody has a crystal ball. And of course, history tends to repeat itself, but the reality is, even if the cycle of real estate changes, times change. Inflation happens. So much happens that it doesn't really make a difference what Warren Buffett thinks, what Susie Orman thinks, because none of us have crystal balls. But the reason

why I laugh is because people don't like my response. In fact, I told to week, brace yourself, buddy, because you're not going to like what I have to say. And it kind of shocks people when I say that. Because my answer to that question is, who cares what the market does? Who cares? I certainly don't. Why you're asking? Because I am a cash flow investor. I specifically purchased turnkey properties. So by the time I close on a property, the property is already performing. So what does that mean? A turnkey property is a property that is already ready to go, ready to cash flow, if not already cash flowing, by the time I take ownership to that property. So when I close on a property, I'm already cash flowing or very close to it. I'm about a week away from it because either the rehab is about to get complete or the tenant is about to move in. But for the most part, 99% of the properties that I purchase for myself or that my cash flow savvy purchase, they are usually cash flowing within closing or a few weeks from closing.

So I don't care what the market does. I focus on cash flow first. And if the property cash flows at closing, chances are the property will continue to cash flow forever. Now, if you buy it right and the numbers you're using are legitimate numbers. Now, my pro formas are super conservative and I use that deliberately. I actually use real taxes, taxes that are being paid on the property today. So I know exactly what insurance is going to cost me. I know exactly what property management is going to cost me. So my figures are actual figures. And I even go a little bit overboring, factor in just a little bit more. So at closing, when I take ownership to the property, the property at closing,

for the most part is already cash flowing. So there are very little chances that my investment is going to flop, considering I use very conservative and realistic numbers. Now, there is a variable to this equation, and that's your tenant. There has to be a paying tenant. Keyword there, paying tenant. The tenant must pay their rent in order for you to cash. However, for the most part, more than 96% of our portfolio, so that's my own properties and

my client's properties are cash flow savvy clients. The tenants paid their rent on time. That's 96% of my people. Now, there's that 4% variable, of course, and I do factor in a vacancy of 6 to 8% per market, even if our vacancy is less than 1%, I still will factor that in regardless. Now, this is why property management and my property management team is extremely strict on the rules for placing a tenant because it is critical that your tenant pays rent. If your tenant doesn't pay rent, nobody gets paid. So that's the variable. And there is a direct correlation between a tenant's credit or the length of time that they've been with their employer. And, you know, life happens people. Sometimes our tenants, they don't have the best credit. And there's usually a reason for it, especially at our price point. Sometimes circumstances affect a person's credit. But we dive into it a little.

bit more. And if the person has, you know, no collections with utilities, or if the person has an old medical bill that was, you know, five years old and was sent to collections and everything is good on their credit, I will take that into consideration because it's almost more important to me that a person's length of time at their employer is longer than the actual strength of the credit score. It's proven. So I'm a Nazi when it comes to placing tenants and I'm going a little off track here. But the reason I say that is because, yes, your cash flow is completely dependent on a tenant's ability to pay. So even if the market was to crash, people are still going to need a roof over their head. And it is proven that when the market was to crash, people are still going to need a roof over their

head and it is proven that when the market has crashed, people in dire straight will still put food on the table and a roof over their head before they pay anything else. So, you always hear me talk about the numbers. Do the math. I'm going to break it down for you so that you understand why I don't care what the market does. Okay, so let's just say, you know, you're going to buy a property. Now, our cash flow savvy properties have to meet a certain criteria. The criteria has been established because we know that most of America rents. So we have purposely sought out markets in Middle America where the purchase price and the rent ratio are going to give you a solid return.

and we are in markets that are dominated by renters. So I'm in predominant rental markets. And the houses that I purchase and that cash flow savvy has are generally between $80 to about $130,000. Having said that, for this example, I'm going to say we're going to find a property that is $80,000. So let's just assume you buy an $80,000 property. Now, I'm big on leverage. I talk about leverage all the time. We are going to finance this property using conventional financing.

So you're going to need a 20% down payment and closing costs. So for an $80,000 property, you're going to need $16,500 for the down payment and about $5,000 in closing cost. That's a total of $21,500 to buy this $80,000 house using leverage. You hear me harp about ROI. It's all about your cash on cash return. And our properties generally cash flow anywhere between 7 to 9% conservatively. So for this example, we're going to use an 8% ROI, an 8% cash on cash return. So that's roughly about $150 a month of cash flow.

That's after all your expenses are paid. So on this $80,000 property, generally speaking, our rents are between $800 to $875 per month. So we're going to use for this example, $850 per month. Okay? So we've got down payment of $21,500. We're going to cash flow about an 8% cash on cash return. And we're going to say this property is renting at $850 a month. So for that property, principal interest, taxes, and insurance will be $482.36.

For this example, let's just say it's $500 a month. Okay. So you're collecting $850. your mortgage payment and all of the essentials that goes into an investment property is $500 a month. That leaves you with $350 of the rents that you've collected. You still have your management. That's 10%. So that's an additional $85.

And let's just assume we're going to have a utilities account. And of course, I always factor in maintenance. That's an extra $100. By the way, your tenant pays all the utilities. some of my owners pay for water, but you can absolutely negotiate that your tenant pays that in the lease. Having said that, that leaves you with about 160 bucks left after you've paid every expense on the property. And that remaining money, well, that's your cash flow. That's your 8%.

But let's just say the market crashes. Let's say it crashes tomorrow and it crashes really. really bad. I mean, people are losing their jobs left and right, and your tenant is about to vacate. So your market rent is $850.50. That's what you've been collecting from your tenant. And your tenant calls you and says, you know, my boss has cut my hours and I'm only going to be working part-time. Let's just say you drop that rent to $700, or let's just say $600 a month. that rent being paid by your tenant can still cover the basic necessities of this property. So you don't have to dig out of your pocket.

It will cover your taxes, your insurance, your mortgage payment. Heck, it even covers the maintenance on the property. And let's just assume that your tenant is to move out. And you have to get your property rent ready. Well, that's why you have your maintenance account, and that's why you get a tenant deposit. So you can use this money to turn the property around. So in all cases, wouldn't your tenant be so happy if you had to drop the rent to keep them by $100 a month, $200 a month?

Wouldn't that make your tenant so loyal? And you can still cash flow the property. Now, you would cash flow very little. At the very least, you would break even. But let's just say you broke even and you had to pull from your own pocket to cover, for example, the maintenance bank account. Not that you have to pay it, just to cover it to make sure you have enough for a rainy day. What's that an extra 50 bucks a month? Ladies and gentlemen, if you can't afford 50 bucks, a month in an account separated from everything else that you're doing, then you shouldn't be investing in real estate, period. So the reality is that even if the market was to crash tomorrow, your tenant would likely be able to pay the taxes, insurance, mortgage, and maintenance on your property and still make out like a bandit. So when people ask me, what are your predictions with the changing market. Who cares if I bought it right. The tenant that is in the property,

having to put a roof over their head for the family will still allow me to break even on the property in the worst possible scenario. Now, ladies and gentlemen, I'm just talking about cash flow. I haven't even tapped on your tax deduction, your uppreactment. You're a your depreciation. I haven't talked about tax benefits whatsoever. And I'm not even going to factor them in to the equation because I promise you, if the market is to change tomorrow and everything is to crash, there is a huge tax benefit for you that you are going to be able to capture when your CPA does your taxes at the end of the year. And let's just say fast forward to five years you're holding on to that property. History has proven time and time again that the market will correct itself, and I'm willing to bet you're going to be right back at market value, if not, much better. Now, in 2007, when the market did crash and people were losing their houses left and right,

that's when they called me the short sale queen because I was that one girl, that offered to short sale people's properties so I can buy it. I was buying properties for 50 cents on the dollar because banks do not want to lose everything. They're willing to lose a little bit, but not everything. So I was negotiating short sales. Wouldn't you think the market would do that again? Of course it would. Banks don't want to lose what they have.

So in the event of another 2007, if the market is to shift, I'm willing to bet you can call the bank and negotiate your loan. I speak from personal experience, ladies and gentlemen, I did it in 2007. And if the market was to do that, again, I'm willing to bet banks are willing to negotiate. So back to the original question, what happens if the market crashes? My response is, if it does, I'm a cash flow investor. so who cares. Ladies and gentlemen, it's that simple.

Don't focus on what the market is going to do. Don't focus on rates. Don't focus on anything other than cash flow. Focus on creating streams of income for yourself so that you don't have to worry about what the market is going to do tomorrow. Worry about creating streams of income today for yourself. so that you can live off of the cash flow that you are creating today. Ladies and gentlemen, it's all about the cash flow.

Cash flow is keen. Now, if you want to reach out to me and you want to discuss your situation or you want to speak to one of my other cash flow consultants, we have amazing people on board that are real estate investors that do this themselves, reach out to us. Go on to our website, cash flow savvy. com. Now, that's savvy with two vs. Cashflowsavvy.com. Download the frustrated investors guide to passive income or fill out the contact form. Email me. Mercedes at Epicrealestate.com. I do respond to everyone.

And ladies and gentlemen, sometimes it takes me a couple days to respond, but I do respond. And let me know that you also want to build cash flow for your life, for your world, for your financial future. Ladies and gentlemen, that's it for today. Thank you for joining me on Turnkey Tuesdays. My name is Mercedes-Torres. I am the Turnkey Girl, and I will catch you on next week's episode of Turnkey Tuesdays. If waiting for your investments to grow feels like waiting for pink to drive,

there's a powerful secret. Your financial planner doesn't want you to know. You can accelerate your investments growth by two, three, or even four times. That's bad news for Wall Street. but great news for you. We're cash flow savvy, and we'd like to offer you free information that will show you how to take control of your investments

and double, triple, or even quadruple their returns, and it's yours for free. For the secret your financial planner doesn't want you to know, go to cashflow savvy.com. That's cashflow savvy.com. This podcast is a part of the C-suite Radio Network. For more top business podcasts, visit c-sweetradio.com.