Epic Real Estate Investing - Your ROI and Minimum Deal Standards | HTH 017 | 540

Episode Date: December 12, 2018

You often ask us what are the minimum deal standards you should accept. As the answer to what constitutes a good deal is complex, we decided to devote this episode to help you recognize a profitable investment. Learn what a good return on investment is, how you can get infinite returns, and how using other people’s money can impact your financial freedom. Learn more about your ad choices. Visit megaphone.fm/adchoices

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Finally, heck, you may even make some new. like-minded friends. In fact, here's just a sample of what you can expect at this invite-only workshop. It'll give you the building blocks to build a lead machine that's comfortable and efficient for you to use, something that's going to work for you. It's going to give you the kick in the butt you need to start generating consistent, motivated seller leads. There's a built-in deadline even for getting your lead machine up and running. You're going to save a ton of time and money working by trial and error. I made all the mistakes for you so that you don't have to. And you can finally stop worrying about how to create consistent quality leads, especially if you're new and so much more. So go to

Epicintensive.com. You can get all the details there, reserve your seat. And in fact, I'm so confident that this will be the event that puts your real estate investing business over the top. I'm not going to ask you to pay until after the event. That's right. No risk to you. It's all on me. I'm going to take on that entire burden for you. So what that means is, if you don't feel the lead machine workshop was worth at least 10 times the price. of admission, let me know and you will not be billed. I mean, how could you lose with that? 10 times ROI is guaranteed. Don't miss this invite-only live workshop where you'll finally get your lead machine finished and start using it to flip contracts for cash and hold properties for cash flow.

Epicintensive.com. I'll see you in Vegas. This is Terrio Media. Don't wait for appreciation to buy real estate. Buy for cash. flow and wait. In other words, Hold That House. Your host's Matt Andrews and Matt Terrio. Yeah. Hello. Welcome. Welcome back. Flipping houses that can make you rich. Holding them will make you wealthy. And that is the reason for this show, the Hold That House show. I am Matt Terrio and over there is Mr. Matt Andrews. Good morning, Vietnam.

Hello there. And before we begin, before we get on with the day, we've got a free gift for you. go to hold thathouse.com and download the four-hour work month, the 10 commandments to managing property managers. Really, they are the key ingredients to financial independence through real estate that no one's telling you about, but we're not going to keep any secrets here. And you can get that for free. You can take a peek behind the curtain. You could look at what we have learned over the years, invested millions of dollars, invested millions of hours, and we've come up with this for you, and it's yours for free. Talk about a free gift. It's going to save you a lot of time and trouble.

Uh-huh. Go to hold that house.com and that's yours for free. I should say, it only saves you time and trouble if you have it. Yes. If you don't have it, it cannot save you time and trouble. This is true. So do what he says. So you have to own real estate for this to actually benefit from.

Oh, you've got to actually go get it is what I meant. Oh, yeah. Oh, I see what you're saying. You've got to get the Ten Commandments, yeah. Yes. These Ten Commandments will do nothing for you if you don't know them. This is true. Okay, there we go.

And one of them in particular is a six-figure lesson for me. Call me Captain Obvious. All right, here we go. God, it was so obvious. I totally missed it. Too obvious. What is that to say about me? Right?

So today we're talking about, you know, we get asked frequently people email us, is this a good deal or what makes a good ROI? And really the answer is it depends. Okay. And there's a lot of variables, a lot of moving parts in real estate. And there's a lot of different people that have different resources, different experience, different, you know, knowledge in different networks in their own lives, even in a addition and aside to the real estate question and that depends on all of that. Sure. Right. And so

let's talk about ROI, return on investment. I like it. You got a definition for it? I want it. Yes. How about that? You definitely want to return on your investment. Absolutely. So a return on your investment is how much you get back based on the amount of money that you put in. Pretty simple. Right? How hard is your money working for you? And so that's a, a base. measurement of an analyzing an investment property. And the basic formula is you take your net profit for the year and you divide that by the amount of money that you put into the property. And that's going to give you a percentage.

So an example, I don't have my calculator handy, but say you have a property that cash flows $100 a month. That's your net. It cash flows $100 a month. That's $1,200 a year. and say it took $10,000 to acquire that property. Yeah. So we have $1,200 divided by $10,000.

And that gives us what? You don't got your calculator? Yeah, I do my calculator. You got the iPhone over there. This shows you that you don't have to be the smartest tool in the shed. That's right. You don't have to know math out of your head to figure this out. So $1,200 divided by $10,000.

$1,000 divided by $10,000. That would be 12%. There it is. For some reason, with those numbers, I feel like we should have known that off the top of our head. We should have known that. We have lost all of our credibility. Yes, we have.

But what we've also shown is that you don't have to be a genius to be successful in this business, right? That's right. Those of you that have been listening to this for a while know that we're real. I'm sure there are many people listening to those podcasts that were screaming at us what the answer was. That's 12% you, you idiot. What's wrong with you?

But that just shows you, hey, that makes us relatable. That's right. Anybody can do this. And you don't even have to be able to do math in your head. You don't need to know that. trigonometry stuff to figure that's right that's right so return on investment I mean you got to know how to tabulate that like we don't so that would be 12 percent $1,200 a year and divided by $10,000 of the amount of money that you put

into the property that's 12 percent now that that's there's a distinction there that's 12 percent cash on cash return right right so that's just the cash flow that's just the income so that's what when you hear cash on cash return that's what that means yep just the cash that it spit off now how How else can a property produce a return? How can it contribute to the return? Well, you can look at a cap rate. I mean, that's a different measurement, right?

Right. That doesn't count debt service. Right. But other than cash flow, how else does a property increase its return? So you got appreciation. Appreciation. Appreciation is an obvious one. The tax benefits, that's huge.

You've got the depreciation and you've got the expenses that you can apply against your other Active income is another biggie. Yep. The other return is debt paydown, because it's not you paying down the debt. It's your tenant paying down the debt. So you might cash low $100, but you've got another $100 to go towards the debt. So there's a return there. So you look at this 12% cash on cash return.

That's just the cash that it produces. Exactly. You take into all the factors and all the profit sources of real estate. That 12% can easily come with just the most average. of CPAs can easily come 25, 30, 35%. And that doesn't even factor in the time that you are or aren't spending

to make that passive income. Right. You know, what's your time worth? So then it goes back to what's your time worth. Exactly. And so it can go up even more. That brings it up even more. Exactly. And if that allowed you to watch your son grow up and take his first steps, that ROI could be priceless. Absolutely. Right? Absolutely. Just a sec.

30 seconds, actually, while we we chip away at the rep. We'll be right back. When you go to work for your money. Does it return the favor? If not, no worries. You do not have a money problem. You merely have an idea problem. We're turnkey allies.com. And we'd like to share a new idea with you around income real estate that can transform your financial future and accelerate its arrival. Go to turnkeyallies.com and download a free investors package. Turnkeyallies.com. You do not have a money problem. Merely an idea problem. Turnkeyallies.com. More ideas, less worries. Turnkeyallies.com.

Okay, so that's return on investment. So what is a good one? That's a great question, yeah. So that's going to depend also. It's going to depend on you. It's going to depend on your experience. It's going to depend on how you acquire properties. It's going to depend on your exit strategy.

So the first place I always recommend people to start, look at all your money right now and what return is it getting right now? So if you have all your money in a savings account, you might be getting a 0.6% return. That's the interest rate. The savings account. Yeah, maybe. So 0.6. So if you found an investment property that gave you a 2% return, is that a good return?

Well, it's triple what your money is doing for you right now. Exactly. So, yeah, I guess that would be better. That's a lot better. If your money is working three times as hard as it now, sure. So I always like to put that as your reference point. Sure. And so now once you've got all of your finances transferred out from this point six into this 2% return,

now is that property that does a 2% return is that a good return? Maybe if you're satisfied with 2% Comparatively, it's a good return, but could it be better? Right, it could be better. So as your experience goes in this business, your ability to acquire properties at a deeper discount, your ability to get properties to perform better, that's all going to improve.

And when those two things improve, so does your return on investment. So for, and then the other thing that you kind of want to factor in there is what's inflation. You want to make sure that you're outpacing inflation. So maybe 2% isn't good. You want to get to three and, a half probably four percent and at least you're standing still with inflation yeah you're flat you're

flat but you're not losing right right exactly right so now now we're kind of narrowing in on what's a good ROI for you because it is a different answer for everybody so there you go um the next step would be is your in your experience increases and you start having consistent deal flow come across your table now you might be looking at three different deals but only have the resources to execute on one of them. So let's go ahead and analyze for your investment portfolio, which one is going to give you the highest return. So you might have one that's a 5%, a 10% and 12%? Well, this 5% is already still double what you're getting, but is that 12% better. Absolutely. Absolutely. Wait, wait, let me get, let me pull out my calculator. Yeah, we need the calculator for that.

12 is more than five. Yes. It is more than five. And so, so now that might be your new low. Seven more. Is that right? Yeah, I'm sorry, go ahead. So that might be your new low. So the next time a deal comes across your table and it pays 10%, which was, you know, five times what it was paying the deal before that, that might not be a good investment to you or that might not be a good return for you because now you got a 12, you got a taste of the 12, you know, they're out there, you know it's possible. So you might pass on that deal and wait for the next 12% or greater property. And that's how your investments and your portfolio is going to grow. That's how your experience is going to impact your return on investment. Now, I like, I kind of look at 33% is my advertising.

absolute minimum. Because I just kind of look at, okay, in three years, I'll be 100% recouped of all the money I put in the property. I like it. That's just kind of my natural thing. But I have very few 33% cash on cash return properties. Most of my properties are infinite return. So how do you do an infinite return? I mean, 50% sounds great. That sounds almost too good to be true. Unreasonable. Most people wouldn't believe it. Yeah, they wouldn't believe it. Right. And then you've got 75, 80%, right? But can, and then 100%? And then 100%. percent, is that the highest you can go? No.

You can go way higher and you can go to infinite returns. So how do you get infinite returns? You get infinite returns by using other people's money. So, and not only to get infinite returns, because, for example, if that $1,200 cash flow house and it took $10,000 to acquire it, but if it wasn't your $10,000, if you borrowed that $10,000, you can't divide $1,200 by zero.

Right. The amount of money you have into it. That's what equates to infinite return. Exactly. Okay. So that 12% was sounding fantastic, but that's with your own money.

That's with your own money. Yeah. So when you start to leverage and guys, scalability, scaling up your businesses, building a massive portfolio involves leverage. It's always in some way,

shape, or form going to involve leverage. Unless you're, you know, you know, independently wealthy and, you know, the son of a sheik or something like that, of an oil baron or something like that. You have infinite cash reserves. That is our demographic, though.

That is our demographic. We have to be careful who we're talking to you. Yes, yes. Sorry, I don't want to offend any of your oil magnates out there. But yeah, you have to scale up to have a large portfolio, and you can't do that without leverage. And when you start to leverage, that's when those returns can become infinite. Right.

You haven't put any of your own money into your properties. No. Right. And they're bringing fantastic returns. I mean, basically, can't even calculate your return on investment for the money you've got into it. Right. Right. So, guys, that's what we're talking about. Right. So when we look at things from, you know, just from a real surface perspective, you know, what's a good, you know, what's a good cap rate?

Well, you know, I don't want to look at any kind of property that doesn't provide me, at least on paper, at least a 10% cap rate, right? That's kind of my bottom line of, I'm not going to look at it. You know, I did the numbers. I looked at, you know, insurance, taxes, property management, the whole deal. And this thing's going to do in a perfect world. going to do 7%, I'm done. Not looking at that property anymore. I'm moving on to find that 10, 12, 14% cap rate. And that's just on money that you put into.

When you start to factor in like you said, it's a whole different ballgame. Absolutely, absolutely. So just as you know, we open up the show with flipping houses can make you rich. Holding them will make you wealthy. Well, using your own money can make you rich. Using other people's money will make you wealthy. Absolutely.

And so when you take, real estate and you hold the real estate using other people's money, you know, that that's really what makes real estate that final frontier of creating real wealth for the average person is you're not just getting a return on investment on your own money. You're getting a return on investment on other people's money, people that have a lot more money than you. And if you can get your return on investment on people that have a lot more money than you, then, you know, that really accelerates your progress. It collapses your timeframes. And that's where it delivers you to, you know, to financial freedom's front doorstep in a fraction of the time that the rest of

the world is doing it. Absolutely. If they ever get there. Absolutely. And you guys should go back and listen to one of our previous podcasts where we kind of broke down the different options for lenders and lending and what's available to investors right now because we kind of went over all of those, you know, from a bird's eye view. We kind of went over conventional lending and private lending and hard money and portfolio

lending and then owner financing and, you know, that's other people's money too, right? So, you know, all of those different ways, if you didn't hear that one, go back and listen to that episode. Episode 15. Go back and listen to that because we really break down the different sources of leverage. And like we said, if you don't scale up, you can't scale up without that. So you've got to have it. Absolutely. So super. Hopefully I understand a little bit more about return on investment, how to calculate it.

And what makes a good one for you? It depends. It's totally up to you. You get to decide what's a good return on investment. And for you or for a good starting point, it's just kind of look at your money right now. What is it doing for you right now? And regardless of what it's doing, I guarantee you can improve it through real estate. Absolutely.

And it will outperform any vehicle that, you know, most people are in. Outside of drug dealing, which is illegal and you shouldn't do that. Outside of that, there's no better return. I don't care if you're talking about savings accounts, CDs, you know, stocks, unless you're like some kind of Wall Street, you know, genius. you're not going to outperform what a good cash flow rental property can create for you. Whether your own money's in it or whether you're scaling it up and have other people's money in it, there's just no investment vehicle. And historically, throughout history, there's never been any better investment vehicle than real estate.

So this is where it's at, guys, and passive income is the name of the game. Cash flow is the name of the game. Yep. And not only is the return on investment better than any other investment, if you download the four-hour work month and follow the 10th, Ten Commandments to managing property managers, you can virtually eliminate your risk. And that might cause some of you to pause. Like what?

It's the highest return and no risk. You know, it's kind of a little bit of a wife's tale. It's a little bit of a myth that risk and reward goes hand in hand. Now when it comes to real estate, real estate, you can virtually minimize or mitigate or eliminate your risk just through management. Right. It's something that you can manage and manage it like no other investment out there. Yeah, it's not like Silicon Valley luck of the draw.

hopefully this company will break. That's liability. That's risk. That's risk. And risk reward there. This is different. Real estate provides you the ability, like Matt said, to create this yourself, to fashion it yourself and to improve it as you get better. To improve, to manipulate, to manage.

You know, you've got control something that you don't have with any other investment, not like you do with real estate. Absolutely. That's why we like it. Yep. So that's it for today. Flipping houses can make you rich. Holding them will make you wealthy. We'll be back next week.

Until then, remember, don't wait to buy real estate. Buy real estate and wait. Hold that house. Sales pitch? Sales pitch? We don't need no stinking sales pitch. Here's the ball busting truth. You can make excuses or you can make money, but you can't do both.

Get the new free book, Epic Freedom, the two easiest and fastest strategies to a paycheck in real estate. You heard right. No sales pitch. It's free. Go to free epicbook.com. No more excuses, just real world strategies to making real money in real estate. Free epicbook.com.

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