Real Estate Investing: The 3 WAYS to make money owning Real Estate
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- Опубліковано 26 жов 2024
- These are the three ways you can make money owning Rental Real Estate, and exactly how to calculate your cashflow and profit - enjoy! Add me on Instagram / Snapchat: GPStephan
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So lets start here…the three ways to make money in real estate:
The first is net cashflow. Anytime you calculate cashflow, you have what’s called the “gross rent.” This is the TOTAL amount of rent you receive. So if you rent out your house for $2000 per month, that $2000 is the “gross rent” - it’s before all of your expenses. And unfortunately, anytime you own real estate, you have recurring expenses - for instance, you have property taxes. Insurance. Repairs. And at some points there will inevitably be vacancy when the house isn’t being rented, but it’s still costing you money to own. These are inevitable.
So the first step when calculating your net cashflow is to DEDUCT all of those expenses from your total rent. So even though you might get paid $2000 per month, after all of those expenses eating into your money, you might now only be left with $1200. Any time you see real estate returns calculated, it’s usually like this - and this is often referred to at the “net operating income.” Total rent, minus all expenses = net income. So you’ll need to understand what property tax rates are in your area, how much insurance roughly costs, how much you can realistically get for rent, and how quick you can generally rent out a unit.
One thing not generally included in those calculations is the mortgage payment. This is because mortgages numbers can vary wildly from person to person depending on how much money you put down, how long of a loan you get, and at what interest rate. But, in almost every situation, your mortgage will be an additional expense in addition to the total rent you receive.
The second way to make money in real estate is by equity. This means that the value of the property increases because of something you’re doing to it - and there are two ways to make money this way:
1. The first and the most common is by paying down your loan. In most situations, your loan is broken up in two categories: principle and interest. Any time you pay down the loan every month, part of it pays interest on the total balance of the loan, and the other part pays down the balance - that second part is equity in the property.
2. The second way to make money with equity is by actively increasing the value of the home. Often this means remodeling the home or adding square footage. And your equity is the difference between the amount you spent, and the new value of the home after renovations. Doing this is also generally pretty predictable. You can see other properties and what they’re selling for, and as long as you make yours similar to that, all things considered, you should get about the same price - and that’s profit.
The third way to make money in real estate is through appreciation - this means that over time, the value of the property goes up in value. This one is highly location dependent - some areas will go up as fast as inflation, just given the cost of materials to build a house get more expensive over time. This is fine, because it means your money doesn’t really lose any value - it’s simply a preservation of wealth. But other areas will go up substantially more depending on the demand for the area, and how much space is available to build.
Using a combination of these three can often give you a much, much more accurate idea of your total rate of return much beyond cashflow - and this is how you calculate your returns and evaluate a good deal while owning rental property!
For business inquiries or one-on-one real estate investing/real estate agent consulting or coaching, you can reach me at GrahamStephanBusiness@gmail.com
Suggested reading:
The Millionaire Real Estate Agent: goo.gl/TPTSVC
Your money or your life: goo.gl/fmlaJR
The Millionaire Real Estate Investor: goo.gl/sV9xtl
How to Win Friends and Influence People: goo.gl/1f3Meq
Think and grow rich: goo.gl/SSKlyu
Awaken the giant within: goo.gl/niIAEI
The Book on Rental Property Investing: goo.gl/qtJqFq
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Just goes to show how important it is to analyze a deal before going through with it. Make sure the numbers are right!!!
100% true. 99/100 the numbers usually aren't there, especially in LA.
Or get screwed #duedilligence
I always assumed people exaggerated when they say 99/100 properties just aren't profitable enough (or at all), but it seems very true... especially here in the southern part of New Jersey. The only parts I seem to find attractive returns are in the most dangerous parts of the state, for obvious reasons.
I been focusing on the stock market for past few years, but have accumulated too much money to manage comfortably in the stock market alone so trying to look elsewhere to invest and real estate has been my new obsession, but it just seems almost impossible here. I may have to wait to move to Texas to start investing in real estate since I want my first properties to be nearby at first. Your channel has been very helpful though, thank you for the content man, you've saved me countless hours and probably thousands of dollars too not to mention stress.
The dedication you have to reply to almost every comment is super human. Shows you really care.
Great video.
Thanks so much 🙌🏼
I love you dad
Thanks, Son.
@@GrahamStephan can he get a "I love you too" though?
lmao this guys awesome
I'm a student with 8k in the bank who's going to graduate this coming year.
After that I want to get a full time job (to get proper tax returns), and invest everything I save into real estate close to where I live (Amsterdam, NL). I have no experience in lending and credit scores, so this video was very helpful, thank you Graham.
Same, only difference is that i live in Amsterdam
Thanks Graham! I have been watching you for the past year and you’ve really inspired me to start my own UA-cam channel. Great video today, very helpful and interesting.
Thanks so much! Congrats on starting your own channel, just subscribed and liked the first video!
Graham Stephan That means a lot that you took the time to check my channel out! I won’t let you down:)
That’s terrific
Looks like that went well for you!
That was really good, I wish I knew about your channel back in 2018 when you were making really good real estate videos. It's a little hard to find the really good ones nowadays because they get buried under all the new videos.
Great video! I really like that you explained how to calculate a property here, added it to my most favorite videos list.
Not too sure how this video only has 29k views G, I think this is one of your best man! So detailed and helpful. I really can’t thank you enough for giving me just about all the financial knowledge I have today, Graham. Proud to say I’m choosing mentors like you over thousands in debt for college.
Thanks so much!!
hey, have you done a video on your experience of your first year in real estate. Like how many properties did you sell in your first 12 months? how long did it take to sell your first one? did you ever go on a cold streak? if so, how did you overcome it? what was the biggest mistake/mistakes you made in your first year?
I just turned 15 and I am really interested in real estate! your videos are really interesting and its not just some snobby rich guy trying to sell me a book haha. I can't wait to get into the business. See you at the top!
Im 15 into real estate. Im going to get deals with no money down
I like how you go straight and clear to the point, your videos add value 👍🏻👍🏻👍🏻
You go above and beyond in your videos man. Top 5 video I've seen on youtube. Your research is on point. Thanks for the knowledge
Thanks so much!!
Graham Stephen deserves our likes not only because he has a unique and funny way of telling us to smash the like button but also because he posts the script of the video in the description. Thanks bro!
Best video ever! Thanks Graham for being so transparent!
You got it!
Normally halfway through the video you would have asked for me to smash that like button! Fortunately, you didn't have to because this video was amazing!!! And boy did I smash that like button! Thanks Graham!
Without your videos I would have no idea how to calculate all of this! Huge help!
🙌🏼
20 minutes of solid real estate knowledge. Keep making these kind of contents Graham, very helpful. now u got another subscriber. hell yeah :-)
Thanks so much!!
Wow thank you so much for explaining clearly how to figure out your net profit. So happy to learn this today. Thank you Graham this is very helpful
🙌🏼
Real estate is something I want to get into in the future! Rental properties is the best way I believe
Awesome, that's what I believe as well!
I only need one property that generates enough cash flow to pay half my rent.
Definitely not in California.
I been looking in Las Vegas, run the numbers and most of them have cash flow, not a lot but hey $200-300 cash flow is still free money and like Graham said it’s building equity long term.
The rent vs. buy comparison was great - people often forget about the principal paydown. Like any financial decision, run the numbers!
You’re the man, Graham. I’ve been watching for a few weeks now and your easily-understandable approach has launched me into an absolute frenzy of engaging in financial education. I’m all about it now, and I’m 23, so better late than never I guess 😂 By the way, I’m sorry about this incoming wall of text, but I have a question that I feel can help others as well as myself. I have some pretty considerable student debt as well as a less-intimidating auto loan @ some pretty high rates since I have a very young credit report with less than a couple years of history and not much diversification. I have a reliable income from my full-time job. You’ve just inspired me to open up a secured credit line that I’ll only be utilizing around 25% of to build my credit. As for these loan rates, I’m talking 9% on the private student loan plus 14% on the auto loan. Since it’s very high-interest debt, I’m currently paying ahead on principle on top of my minimum payments to hopefully keep the high interest somewhat at bay until I refinance. I’ve crunched numbers, and to my surprise, once I consolidate/refinance the loans to get these rates chopped down, i found that it makes way more sense to stop paying ahead on them and instead pay the minimums in full and on time every month while using my extra cash flow (from not paying ahead anymore) to both save and invest at the same time. I’m aiming to kick off my real estate endeavors by investing with Fundrise, so that my money works for me and turns a profit that, at the end of the lives of the loans, almost cancels out the amount of interest I’ve paid on the loans. From there, I would reclaim(or let grow) that investment + profit, and combine it with my savings to invest in my first property, which will hopefully become a house hack. Do you have any advice on what I could be doing to better my approach and maximize my net worth in the end? Thanks a ton Graham, keep inspiring 👊🏻
Sounds like a decent plan. I’ll need to look into fundrise as I’m not familiar with it. But consolidating those loans would be massive!
Graham Stephan Thanks Graham! Glad to hear I’m getting on the right track. Definitely look into Fundrise! I’m sure you’d find their business model interesting, they claim that their portfolios annually return nearly 7% on average.
I have been wanting to get involved with real estate on a major level for ever and I always seem to find something that stops me, I think it may just be the mindset that I grew up with. These 3 things you just shared made me think a lot about how I really should get the ball rolling, thank you for that!
BABY Investing well you are a baby so you got time lol (;
Another excellent lesson, Professor, and a beautiful shot of downtown. You're going to make Baldwin the new Beverly.
🙌🏼😜
Words of wisdom in every video, thanks Graham!
🙌🏼
Thanks for all the calculations as I never thought it that way. As a villa owner, I have a continuous repairs problem as much as cash flows due to inconsistent rentals, yet, I also have a B&B to some rooms but the competition is tough due to location, I know. Yet, I own my villa outright. (Not in the States but in Asia). Used to get $2500/month and it stopped. I have to confess that I was offered a 4-year contract but refused it due to my circumstances at that moment in time. Now the market here is flooded w over-supply than the demands.
Really like the real world example. Thanks!
Great video. Equity piece is a bit misleading since there is no guarantee in future value increase. Additionally, the gain from equity is not liquid until property is sold. That could be years from today. I like basing a property purchase decisions on positive net cash flow since it's a more realistic target to determine cash in the bank at end of the month :)
Equity is absolutely liquid. HELOC or cash out refinance! But I agree, cashflow is always first.
Great Stuff Graham. I Appreciate all the good content. Keep up the good work.
Thank you!
Great tips brother 👌 if I ever get into real estate it will be because of you !
Thanks so much man!
He got me interested into real estate!
Hey Graham can you make a video about how to choose a good contractor for a renovation and how to handle bad ones. Also keep the bit connect memes coming. Thanks man.
Thanks man! It's all word of mouth...that's how I've picked everyone. If they're not good, I never use them again or never recommend them. Still finding people I like for each job, though - it's a process. The good ones get busy once people find out how good they are!
I just graduated high school yesterday! It feels weird that I am no longer going to high school, since I went there for 4 years. I feel sad that I am no longer going to be able to see my friends and teachers, but also happy that I will grow as a person and I am happy that I graduated. I have no idea what to expect out of high school and out into the real world.
I am going to college as well starting Monday. I have been watching your channel as well to inform myself. Can you give me advice for a teenager right out of high school, much appreciated and thank you for reading this. Have a nice day!
If real estate is something your interested in consume as much information on the topic as you can. Couple that with taking action and you can make some good income as a young adult.
I love it when you joke about negetive feedback and unsubscribing 😂. Channel is better than Netflix
Haha thank you!
Don’t kid yourself, if you are lucky enough to afford rental property you are reeling in money. Sure it’s not always easy to be cash flow positive and have real estate as your only income source, but the equity you gain each month is insane, no other investment compares.
Good point on net worth. A friend of mine is looking at a slight loss like this on his house right now. It's a much much cheaper market. I made the point about net worth today talking about it. I took a break-even to $50 loss on my first rental for several years.
But I believe cash-flow is king. I won't buy a property that I lose any money on, and don't count equity. I better be putting dollars in my pocket, and equity is a bonus when I sell. If my properties appraised for zero tomorrow, but I still make enough to cover all the expenses and pocket some, I'm happy.
I’d agree with you. Unless it’s the deal of a lifetime in terms of equity, I’d never want to be out of pocket on something.
Very applicable information as usual Graham!
THANKS!
I doubt you remember Carlton Sheets. He was the Grant Kardashian of the 1990s. When he spoke about vacancy, he said that is when your ASSET BECOMES AN ALLIGATOR. Ouch. I usually calculate around 20%/ year. That gives me time to get the old tenant out, clean&repair, and screen tenants.
Can you do a video on you thoughts about owner financing real estate investing? Oh... and you videos are awesome!
Hey Graham, I'm thinking about becoming either an electrician or an hvac tech, working, saving up some money and then buying, fixing up, and renting out properties. My question is do you think being an electrician would come in handy more when renovating houses or hvac? Thanks keep up the good work
I am an electrician for boeing & yes, I was able to update all my electrical works in my house ;-)
Keep up the great videos Graham :)
Thanks Timo!
Great video!! I definitely plan on getting into real estate in my future. Here in NJ there are a bunch of houses to renovate and cash flow from.
WHAT AMI GON DO!?? haha yes was waiting for it. Have you ever thought of not telling people to like your video in one of your videos and see if theres a measurable percentage change? Just a thought since I always forget to until you mention it. Thumbs up!
Thanks man! It’s a HUGE difference. Sometimes up to double the likes if I just ask in the beginning. And more likes = more engagement = more likely youtube pushes the videos in their algorithms!
Great helpful videos. Thank you. Subscribed!
Thanks so much!
I’m going to dislike, unsub, and report as spam just because of the absolutely ridiculous cost of living in LA. That property tax alone is nearly as high as my mortgage. 🤯
That's insane, I know :(
Haha
Will try living in NYC
That house is just over the square footage my house has but costs 10 times as much. I would never live in that state much less that city for that reason unless I was rich enough to afford to do a deal like the one in the video.
Interesting to hear about running a "loss" to gain equity.
What about the income tax for the rent? How do you factor it in?
Same goes for capital gain taxation (state-dependent)
All in all, great video, thanks!
Yes! But you can depreciate the property against the income so essentially you won’t pay taxes on it.
A few videos ago I asked you a question, if you would recommend to invest into out of state properties. In this video you said a real estate investor need a bigger portfolio to get a good income. Well you live in LA and houses are crazy expensive. But you only can get a certain amount for rent. If you buy a $1million house or several $60k houses and get a little lower rent. What you think about that? Hope it makes sense. It also would be nice when you could make a video about real estate speculation.
Number of houses doesn’t matter so much as cash flow does. So one building worth 10 houses would likely be about the same. But you’ll need to eventually scale up to continue making more.
Its great to see how much your channel has grown, and how much you've grown since you first started! I can't remember when I had subbed to you (Maybe you're able to check that) but I know it was early on, and I remember when you and I would talk through the comments about stuff. Good stuff Graham! Thanks for everything you have taught us!
My name is Aidan Woodsworth and I am a 15 year old viewer of your UA-cam channel who was very inspired to become a real estate agent and was looking for advice where to start now at my age?
Hi Graham I really enjoy ure vids,
How do u calculate the inflation into ure equation bc the inflation "lowers" ure mortgage every year while u can bump up the rent by at least inflation. That should add a good amount of money over 30yrs.
When you mean positive cash flow, do you mean adding with or without the equity increase? (Terrific Video- this may be your best of the 20-30 I've seen so far).
Thanks!! Positive cashflow = not counting equity
how have you only gotten 6k views so far, man this is good stuff
Thanks man! UA-cam algorithms don’t push these types of videos as much!
One of the biggest factors you did not talk about is the percentage of tax benefits you personally get from owning a real-estate business. So you are making a lot more than the NOI you mentioned to your viewers.
I'm looking to start investing in rental properties.
Would you recommend renting a single-family home? Or a duplex? and why
This could make a good video :)
It is important to add the tax advantages of real estate, no paying taxes legally is already a profit.
What about property tax?
Hi Graham. I was wondering about the following: there is a new, luxury development coming up in an area. Their property prices are high and I'm not sure their rental anticipations are accurate. Would you mind advising on the following: would tenants looking to rent in an area go for a slightly more expensive, luxury unit or would they prefer the older, cheaper unit?
How is this one of your lesser viewed videos. Everyone needs to see this
Real estate is awesome!
Awesome video man thank you! Trying to buy my first rental property soon!
Awesome!
Hey Graham great video just wanted to ask a question. When you mentioned appreciation "only" keeping up with inflation and said that is keeping your money safe and that's it. But the appreciation is of a house is on the total price of the house. And if you leverage it at 20% down, every one percent in appreciation, you are actually getting a 5% return on your money (100/20=5) because you are making money on borrowed money. So if the house is appreciating at 3%, that's a 15% return, which isn't too bad. Does that make sense, or am I missing something?
Hey Graham, I've been a subcriber for a year now, absolutely love your content. Can you please make more videos looking for houses and doing all the calculations? I found that really interesting. Thanks :)
Absolutely plan to!!
Would you be able to somehow calculate tax discounts? I would have thought that the three ways to make money is 1.) cash flow 2.) equity 3.) taxes. I don't really consider appreciation as it's pure speculation and past numbers don't necessarily indicate future numbers. So to me appreciation/depreciation are two sides of the coin. Would calculating tax breaks/write-offs be considered a case by case basis as well dependent on one's finance?
Also, if you can find a property that cash flows off the bat, you practically will always come up on top right? As long as you put in the work and hold it long-term?
Generally real estate income isn't taxed because you can depreciate the real estate against the income, effectively making it tax-free. But it's very much case by case. And yeah, if it doesn't cash flow - at some point it will, but you have to weigh out the options of how long that will take you and the opportunity cost of holding it until the loan is paid off or rents increase.
"Generally real estate income isn't taxed because you can depreciate the real estate against the income, effectively making it tax-free."
Can you clarify this? I don't understand what this means (newb to REI, and learning). So if I get $10,000 in rental income, the wear-n-tear cost would depreciate my home by $10,000?
3:47 that's some sneaky editing, I liked that! BOSS
;)
Have you heard of buying houses for the dollar? For example buying tax lien houses? Buying a house that is auctioned off? Would you recommend doing this for new investors? You can possibly get a house for under 50K, renovate it. Than either sell it, or use it for cash flow.
Never done it firsthand and I don’t know much about it!
Have you ever heard of "subject 2" in real estate? I came across a youtube page talking about taking over people's mortgage by the home owner signing over the deed to you (the buyer) and you basically take over the payments and the new owner can move in some tenants to pay off the mortgage and you make some money off from that. Obviously sometimes these people want a down payment but you'll occasionally get the desperate ones basically handing over their home to you so they can get out of there as quick as possible. My question is have you heard about this? if you did, is it a good idea to get into this method for the people who don't have thousands in the bank to invest in Realestate? and what are the pros and cons of this?
Solid video. That "essay" the guy sent you was killer lol
Haha thank you!
dear graham, can you do a video on pre-construction condos please? I bought a condo in downtown toronto that is scheduled to finish building in 2 years and about 20k CAD more to go in down payment. I work as a server and I really do work my ass off and spend almost nothing so I can save all I can (I spend under 1000 out of 3000 I make per month including rent and food, etc). lately I'm having doubts on the investment I put into the pre construction condo. BTW I am a huge fan of yours since you started your channel and I've been working on my real estate agent licensing and your videos are huge motivation to me (I'm 25) thanks!!
I’m usually not a fan of pre construction condos because, unless the market goes up, there no upside. You can’t add square footage, you can’t improve the property any more than it already is, and they usually don’t make good investments. If this is something for you to live in long term, however, enjoy it! :)
That, "But Graham!...Dislike!.. Unsub!" Spiel is what I live for haha. 😂
😂😂
I nor count the entire mortgage as an expense. Just the interest payment since the principle pays down the loan
Excellent! So much value in this one
Thanks!!
I think I have a problem... binge watching all your backlogged vids and liking them before I even steal all your financial entertainment knowledge. 😅😂🙄🤓
So I didn't know the search bar was a CALCULATOR... *brain explodes* Thanks for teaching me something new Graham :)
Hi Graham, not sure if you will see this comment on such an old video but, you said you would link other videos you had done on topics such as refinancing but I don't see any links in the description. I am trying to learn and understand how to leverage cash out refinancing but most videos are very confusing and was hoping you would have one that might help me better understand.
Talk about the 4th way how you profit from inflation over time the inflation erodes the value of your debt assuming a fixed rate?
So the mortgage payment isn’t a true expense because you get that money back eventually when you sell the house with a possible bonus from appreciation.
nice video Graham!, I'm not very familiar with real estate but I was just wondering about whether it was safe to generalize if properties that have earned high profits would result in lower appreciation in the long run compared to properties that would make you a killing with appreciation 30 years from now but would make you less income?
Oh and do you know if the properties in Baldwin hill that had a good view still went up in value during the period of 2008?
That bitconnect clip is gold 😂 you must bring it back 😂😂😂
Great video Graham. I have a question, if you get a loan to put down a down payment to buy a property do you have to pay mortgage AND a loan payment each month? Or are you just paying one payment?
Usually the down payment can’t be a loan. But in that example you would have two payments.
Hey Graham, do you own the properties personally or do you have a real estate company, or even each home as an individual entity?
I also live in LA (Hermosa Beach) where it’s almost impossible to be cash flow positive when you first buy but rent will go up and you are paying the principle as you explained in the example. Question is: would you buy the property of your example (or similar scenario) or would it be a mistake? Thanks
Is it me, or are your "Dislike, Unsub" segments starting to sound more and more like Cartman from South Park? All the same those parts are hilarious! Keep up the good work.
😂😂
Stephan, I received my real estate license three weeks ago. I need help making my initial money for my first place.. can you help me and guide me? I am watching your videos and I live in South Florida.
this guy is so much better than alux
Another helpful and informative video 👍👍
Thanks so much!
if only renter's knew what landlord go through they think he's got properties he must be rich
Very, very true. The reality is that many landlords barely make money or they break even, with all the liability of owning and renting - while having the risk of getting sub-par tenants who don't pay and destroy the property. Landlords win over the long term as properties are leveraged and paid off, or through massive scale - but generally mom and pop landlords aren't the ones ballin' with cash and lambos.
True. I have a continuous problem w cash flows due to inconsistent rentals as well as the B&B that I also opened on my villa that I owned outright. (Not in the States but in Asia). Used to get $2500/month and it stopped.
It’s extremely hard based on what I have read from various bools
I like the visuals.
thanks!
Great video Graham!
Hey thanks Pablo!
Hey Graham snapped u about landlocked properties but I think I decided it's not really worth it ill have to dig in a lil more but I'll just have to keep going with step one saving money 😂
I enjoyed this. 👍
Thanks!
I love when he shows the rant of the pessimistic comments ppl make like at 8:54. They always get me 😂
😂😂
I smashed the like button
very informative, thanks for the video !
Thanks for watching!
Don't forget that even appreciation at the rate of inflation is a source of wealth building if you have a mortgage. 2% appreciation on a property with 20% equity is really a 10% return on your investment.
It’s moreso wealth preservation, because even though you make money, you lose the equal amount of purchasing power.
I disagree. What you are saying is only true if you own the real estate with no mortgage. With leverage, appreciation at the rate of inflation will build your wealth in real terms. You lose purchasing power only on the equity you have, but gain appreciation on the total value of the property.
Great content man!
Thank you!
hey, can someone explain the idea of "equity" that he used in his example, and how he got that number from that table on the mortgage calculator? (17:25)
Hey Graham - Showing Support - Great Channel :-)
Thank you so much!
Informative! Thank you
Just one question - you mention you use Craigs list to see rentals
Do you find that to be a better source than Zillow?
I do! For some reason craigslist has given me better results on leases.
That’s good to know. Thanks!
Followed you for a while but didnt subscribe. After 20times hearing you say: subscribe click the like button and ring the bell = Done!
I love the concept of your videos and everything but I feel like you must be really rich to start this.....I only got approved for a loan under 300k in los Angeles area. Can u do a video for us young first home buyers with little money. How we can start investing and growing . Thank you in advance
It’ll be really tough especially in Los Angeles. House hacking as a primary residence is probably your best option. Or living just outside LA in San Bernardino or riverside. Otherwise you’ve just gotta wait and save. LA is such an expensive market to start in.
Great subject!! thank you Graham!
Thanks Phillip!