The Science of Flipping - Why Buy A Rental Property In a HOT Market?

Episode Date: July 26, 2022

The #1 training and coaching system to launch, grow, and scale your investing business!𝐋𝐞𝐚𝐫𝐧 𝐌𝐨𝐫𝐞: http://www.thescienceofflipping.com Become a 𝐓𝐒𝐎𝐅 𝐈𝐍��𝐈𝐃𝐄𝐑 and get access to exclusive training and resources:https://insider.thescienceofflipping.com 𝐈𝐍𝐒𝐈𝐃𝐄𝐑𝐒 𝐆𝐄𝐓 𝐅𝐑𝐄𝐄 𝐀𝐂𝐂𝐄𝐒𝐒 𝐓𝐎: ✔️ Science of Flipping Academy  ✔️ All the systems and software I use in my business✔️ All the tools you need to run your business ✔️ All my Scripts, Contracts, Spreadsheets✔️ Special Discounts✔️ And Much More... 𝐇𝐚𝐯𝐞 𝐚 𝐪𝐮𝐞𝐬𝐭𝐢𝐨𝐧?Get immediately connected with a team member on messenger:http://split.to/tsof-messenger 𝐁𝐞𝐬𝐭 𝐑𝐞𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐅𝐨𝐫 𝐖𝐡𝐨𝐥𝐞𝐬𝐚𝐥𝐞𝐫𝐬✅ 𝐁𝐞𝐬𝐭 𝐑𝐞𝐚𝐥 𝐄𝐬𝐭𝐚𝐭𝐞 𝐒𝐨𝐟𝐭𝐰𝐚𝐫𝐞: http://bit.ly/tsofsoftware✅ 𝐁𝐞𝐬𝐭 𝐃𝐫𝐢𝐯𝐢𝐧𝐠 𝐟𝐨𝐫 𝐃𝐨𝐥𝐥𝐚𝐫𝐬 𝐀𝐩𝐩: http://bit.ly/tsofd4d✅ 𝐁𝐞𝐬𝐭 𝐒𝐤𝐢𝐩 𝐓𝐫𝐚𝐜𝐢𝐧𝐠 𝐒𝐞𝐫𝐯𝐢𝐜𝐞: http://bit.ly/tsofskiptrace✅ 𝐁𝐞𝐬𝐭 𝐓𝐞𝐱𝐭 𝐁𝐥𝐚𝐬𝐭𝐢𝐧𝐠: http://bit.ly/tsoftext✅ 𝐁𝐞𝐬𝐭 𝐃𝐢𝐫𝐞𝐜𝐭 𝐌𝐚𝐢𝐥 𝐒𝐞𝐫𝐯𝐢𝐜𝐞:: http://bit.ly/tsofmail✅ 𝐁𝐞𝐬𝐭 𝐃𝐚𝐭𝐚 𝐏𝐫𝐨𝐯𝐢𝐝𝐞𝐫: http://bit.ly/tsofdata 𝑾𝒉𝒂𝒕 𝒕𝒉𝒆 𝑷𝒓𝒐𝒔 𝑯𝒂𝒗𝒆 𝑻𝒐 𝑺𝒂𝒚 𝑨𝒃𝒐𝒖𝒕 𝑱𝒖𝒔𝒕𝒊𝒏: “Justin is one of the best trainers in this space. He really gives everything to his tribe.”– Brent Daniels (TTP) “Justin’s ability to connect with people and help them understand what he is teaching, is unparallelled”– Kent Clothier (REWW) “We have been in the trenches flipping homes in Phoenix for over a decade, he is one of the best to do it.”– Sean Terry (Flip2Freedom) 𝐀𝐛𝐨𝐮𝐭 𝐉𝐮𝐬𝐭𝐢𝐧:Justin Colby is the founder of The Science of Flipping Podcast and The Science of Flipping Coaching Program and is an active Real Estate investor having flipped over 1500 homes in multiple markets across the U.S. Justin runs an 8-figure real estate wholesaling business that closes 20+ deals each month in multiple markets across the U.S and has helped 1000s of clients learn how to become successful real estate investors. Justin subscribes to the philosophy of "Wholesaling To Wealth" and is the foundation of his coaching program which teaches you how to get started wholesaling or streamline and scale an existing wholesaling business as well as build long term wealth through wholesaling, flipping, and building a rental portfolio. Subscribe To Justin Colby:http://youtube.com/justincolby View All My Videos:https://www.youtube.com/c/JustinColby/videos    

My point that I want you guys to all recognize is every opportunity doesn't have to be viewed as, you know, I need to get a great deal or I need to do 80% of ARV minus rehab minus wholesale fee. You don't need to always stay that stringent in your model. You need to be dynamic. Yo, yo, welcome back to the Science of Flipping podcast. I am your host, Justin Colby. Now, we all know that the real estate market is shifting real time, but I am still looking to buy four or five or six rental properties at top of market. Let me tell you why. All right, guys. So we are all very, very aware that the real estate economy is shifting real time. Markets like Phoenix and Nevada are usually the first to take the major adjustment, right? So I have a lot of friends in the Phoenix market as I've been investing there for roughly 15 years.

So because I know that the Phoenix market is usually the first to jump up and fall down, I've been pretty cautious over the last two, three years in the Phoenix market. I've only flipped a handful of properties in the Phoenix market. And it was because I knew those properties were going to be great. Now, I got into the Phoenix market primarily way back in 2007 because I knew the price point of that market was way better than the market I came from, which is the Bay Area. Now, for that reason, I always knew that it could be a great rental market, it could be a great flip market it could be a great flip market and obviously wholesale well over the last couple years finding a good rental in the Phoenix market has been really really difficult I mean the

numbers have just been getting worse and worse and worse to the point where I really just don't even look at the Phoenix market to buy rentals at anymore now it doesn't mean there aren't good markets to buy rentals. In fact, just last year alone, I bought 14 rental properties in Alabama and Oklahoma. Now, those are two good rental properties. And right now, I'm shooting this episode because I'm going to be looking to buy anywhere from four to 12 rental properties in Charlotte, North Carolina. Now, that market also has had a lot of appreciation, but let me tell you why I'm looking to buy these homes at the top of the market, even in the middle of a downward shift.

The answer is, it's just math. Now the secret to why this actually is so appealing to me is not just even the math, but it's because I'm gonna do a creative finance deal with these homes. The seller is someone that I've talked to that I'm looking to negotiate them to leave their loan in place. That's why it is just math. Because if I were to go out and buy these rentals right now in July, as I record this episode of 2022,

the interest rates are at a high. I don't want to go buy a rental when I have a six or maybe seven or eight percent interest rate to buy that home. But if I can go in and keep the loan in place, the seller bought these homes roughly two to three years ago, and I believe they're at a five percent interest rate. I'm asking for the mortgage statements now. I'm going to have a lower interest rate and the last two or three years, he has been primarily paying heavily in the interest side, not as much in the principal side of the loan, which is great for me. In the next two or three years, that line starts to cross over and I'm going to actually be the one paying more into the principal and less into the interest. I'll keep the interest down, which is roughly about 5%. Again, if I were to go

to a bank or try to go get one of my own loans, I'm going to be looking at 6%, 7%, 8% for an investment property. So this really makes a lot more sense for me. The owner is open to it. We just need to structure some more terms. I believe what we'll do is we'll do some level of a five year balloon on this loan. That way they can get out from under it. And I'm bringing the cash to the table. So what does that mean? Well, that means they are looking to get the equity out of the home. And I'm okay with that, meaning I'm not really going to be walking into a bunch of equity.

I'm going to be buying at relatively market price. I'm also going to be giving them the equity that they have in the home as long as they're willing to keep the principle in place that I just discussed. So I'm roughly going to be bringing, let's say $200,000 is my offer to the closing table. I will take ownership of the home and they are going to keep their loan in place. In a market like today, as the market is changing, I'm more than willing to pay a higher price. And I'm not saying I'm overpaying, but I'm definitely not getting a deal by any stretch of the word. But I am getting a deal for me. I preach this all the time. I'm here to create 100,000 dynamic real estate investors.

And what that means is you aren't just a one trick pony. You're not just a wholesaler. You're not just a flipper. You're not just someone who's gonna buy one rental. I want you to do it all, right? I want you to have all the tools in there. And this would be a great example of a dynamic real estate investor.

I'm going to buy a home that works for me because I understand my exit strategy. And that exit strategy is to not exit. This is a long-term hold. Now, with all that said, because I'm going to hold this long-term and I'm going to refi his loan out in five years, again, it comes down to the basic math. As long as I can net, net in my pocket after principal, interest, taxes, insurance, maintenance, vacancy adjustments, and any minor repairs I'm going to allocate for, after I can net in my pocket $200 to $300 a door or more, I find that to be a good buy. I don't have to go out and get my own mortgage. I'm able to

have a lower interest rate as a time being because of the loan that was acquired two or three years ago is lower than I can get right now. I'm putting several hundred dollars a month in my pocket next net after I've already paid all of the expenses and I'm going to keep it. In five years, the value of the home is going to be worth more than what I'm buying it for today. I'm going to be able to capture that equity. I'm going to refi his loan out and the interest rate will be lower than what it is today. And I can refi his loan out at any point. I just have a five-year balloon as I need to do it before five years. And it's a long-term wealth building strategy. That's because I look at it that way. I have the ability to exit or not exit in this case,

because I'm not in it for the quick income. I'm in it for the long-term wealth. So it's important for all of you to really recognize one main thing is I'm not watching the market saying, I'm not going to buy this because it's going to lose value right now. I'm looking watching the market saying, I'm not gonna buy this because it's gonna lose value right now. I'm looking at how can I look at that opportunity and maximize the opportunity? And that leaves me the opportunity to ask if they're willing to keep their loan in place. You see, it doesn't mean you need a smoking deal

every deal you buy. You just need to make the deal work for you, for what you're trying to be able to do. I have a student right now. I'll tell his story. He actually is a real estate investor. He's in my coaching program. He's getting it.

Well, he just got his first deal done in the first 30 days. He's actually getting his second deal contracted to sell as a wholesaler. And he's actually going to buy his third deal. His third deal is a duplex. And he said, Justin, I think I just want to actually buy this and house hack it here's another great strategy that's going to come along in droves as the market is shifting this ability to house hack is going to be incredibly important for real estate investors meaning some might want to move in so he is actually going to move in one side of his duplex

and then he is going to rent out the other side as he buys it. Well, the numbers work out where essentially he's only going to be coming out a couple hundred dollars a month total after all mortgage, interest, taxes, insurance, cost of living. He figures less than $500 a month for him to live in his duplex. That is amazing. He's going to be able to build equity. He's going to have essentially someone else pay the entire mortgage. He's basically adjusting for all the other expenses. And that's a great example of understanding how to maximize each and every opportunity. This is going to come along a lot. Even better if you have a way that, like me, you're able to even get the seller to do some creative finance structuring regarding these deals, it can really make it a no-brainer moving forward. Every single opportunity you need to be looking at, how can I actually start to get creative in this way?

There is going to be a lot of opportunity for creative finance deals to be done, whether it's a sub two deal, a wrap deal, maybe even an ovation where they just need to get it sold at top dollar. My point that I want you guys to all recognize is every opportunity doesn't have to be viewed as, you know, I need to get a great deal or I need to do 80% of ARV minus rehab, minus wholesale fee. You don't need to always stay that stringent in your model. You need to be

dynamic. Really important. So if this has given you any good ideas, even with the working leads you currently have or how to move forward in this market, I'm glad it has. If you have, make a comment below. Make sure you are subscribed. Smash the like button. I appreciate you guys. Love you all. thank you for all the love that you give me oh yeah and I'm going to be speaking uh in Buffalo this weekend and then Milwaukee the weekend after that hopefully I can meet you guys in person if you are any of these speaking engagements come up shake my hand I'll see you guys there peace Outro Music