Have you ever wondered how much money you need to start investing in real estate? In this video, Jorge and Rafi discuss the funds you should have available to begin investing in real estate, while also exploring financing options. Jorge and Rafi also discuss some basic real estate investing principles that are important to successfully investing in real estate.
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Video Transcript
00:03 Rafi: Okay. We are live.
00:06 Jorge: Hello, hello.
00:07 Rafi: Good afternoon everyone. Welcome to Graystone Brown Bag Sessions, where we discuss questions you ask us about real estate investment. I am Rafi.
00:19 Jorge: I am Jorge Vazquez.
00:20 Rafi: There you go. Where can they find us, Jorge?
00:25 Jorge: They could always find us at homes4income.com, that is homes, number four, income dot com.
00:31 Rafi: There you go. Well, first and foremost, this is our second session doing this. I want to really thank everyone that joined last time. A lot of feedback. They actually like the sunglasses.
00:44 Jorge: Yeah, most people think they’re cool.
00:45 Rafi: There you go.
00:45 Jorge: And I totally agree. [chuckle]
00:47 Rafi: They look good. I think it’s a way… By the way, I remember someone said, “Hey,” in terms of, “You look [00:55] ____,” or whatever. It’s a way of us having a little bit fun, being different, a little bit out there. Again, keep the feedback coming, we appreciate that, but I think the glasses stay.
01:07 Jorge: They’re staying.
01:07 Rafi: I think they’re staying. I think they’re staying. The other thing is very, very important that you go somewhere over, I think it’s over there, over here, and follow us. That way, when we are live next time, you receive a notification, and we don’t have to be chasing you down and trying to find out exactly where you are. Make sure that, again, somewhere over there, if you’re on an iPhone, here, an Android, here.
01:37 Jorge: Isn’t it at the top?
01:39 Rafi: Oh, it’s…
01:39 Jorge: Right here? Android.
01:41 Rafi: Right there? Right there? Okay, so for Android, there, for iPhone, there, something like that. But please make sure that you follow us. And even more important, if you have any questions, you go to the comments, write them down there, and we will try to answer your questions. Okay, so, again, thank you very much for joining us and we appreciate the fact that you’re spending your lunch time with us. Today, we’re eating Mexican today, so I got some chicken flautas.
02:09 Jorge: Nice, nice.
02:11 Rafi: Great from Taqueria Emanuel. What did you get?
02:14 Jorge: Chicken salad.
02:15 Rafi: Salad?
02:16 Jorge: Chicken salad, yeah.
02:17 Rafi: Boring.
02:18 Jorge: Yep.
02:19 Rafi: Salad.
02:21 Jorge: Same thing I eat every day, man.
02:23 Rafi: I’m sure Josie will be proud. Josie, he’s eating well. Be proud, be proud. [laughter]
02:29 Jorge: I’m trying, I’m trying.
02:31 Rafi: Well, the question today is from Jason. And Jason asks us this question, “Hey, how much… ” And I’m reading here, “How much should I have before starting to invest seriously in real estate?” So the question is, how much do we suggest you have in terms of funds to start investing the way that we do it, because there’s a lot of different ways, but the way that we do it, how much? So Jorge, how much do you think is that minimum?
03:03 Jorge: Well, that’s a good question. It depends on what type of asset you’re buying. But if you’re referring, Rafi, to the stuff we buy, typically, you gotta look at, acquiring a property anywhere from $50,000 to $60,000.
03:17 Rafi: Wait, wait, wait, wait, wait, wait, wait. For those California, New York people out there listening to us, he just said that we can get a property here for $50,000, $60,000. Is that what you said?
03:33 Jorge: That’s right, Rafi. If we’re talking about those type of properties we find, $50,000, $60,000. My suggestion is you gotta have at least $100,000.
03:42 Rafi: Okay, but wait. You said that the property is $50,000, $60,000, then why $100,000?
03:49 Jorge: That’s a good question. Well, you have the $50,000, $60,000 for the acquisition, another 20% to 25% for repairs.
03:58 Rafi: Okay, $20,000 to $25,000?
04:00 Jorge: 25%, or $25,000.
04:01 Rafi: Oh, okay.
04:03 Jorge: So, I’m guesstimating, let’s say, $50,000 acquisition, $25,000 in repairs.
04:08 Rafi: Okay, so 25%, so in the case of $50,000, you’re talking about having $12,000, $13,000 minimum, in addition to that? Got it.
04:18 Jorge: Or 25% of the $100,000 that I was referring to. 25% of the $100,000.
04:20 Rafi: Oh, okay, got it.
04:23 Jorge: So you have $100,000, you buy a property for $50,000, $25,000 for repairs, or 25% of the $100,000. And then the other 25% is just in case something happens with the property or reserves.
04:38 Rafi: Okay.
04:39 Jorge: Reserves are handy.
04:40 Rafi: Okay, now, I’ve heard out there that, they say, “Hey, you can get into real estate investment with $10,000, with $5,000… ” Actually, I’ve even heard, no money at all. What are your thoughts about those, because some of them work. But why here it won’t work? What’s your thought about that?
05:02 Jorge: There’s definitely ways of buying properties without putting your own money.
05:07 Rafi: Okay.
05:08 Jorge: But there’s always a deposit needed. There’s always gonna be a deposit needed, whether that is $1,000, $5,000, depending on the asset, again, But some people get that wrong, they think that, “I could buy… ” I hear everybody saying, “No money down.” That means no money out of your pocket, but somebody has to put in that $1,000 or $2,000, $3,000 to secure that contract.
05:33 Rafi: Got it.
05:33 Jorge: Now, how do you get that done? How do you get somebody else’s money? That’s a little complicated. That’s more of an advanced investor, through like an assignment, some sort of a joint venture, or even doing some sort of trading with the seller. That’s a little more advanced than we wanna discuss here today, but it could be done.
05:57 Rafi: Okay, so back to the real question, you suggest $100,000. $50,000 to $60,000 for the property, and then between $10,000 and $20,000 for repairs. So we’re talking about maybe a total of between $70,000 and $80,000, of those $100,000. And then that reserve. When you mention reserve of, let’s say in this example, of $20,000, what are the items that normally can come up, where you will need that reserve, to use that reserve?
06:28 Jorge: A lot of different things, depending on the type of asset you’re buying. Did you put a brand new roof from day one? Or did your roofer say, “You know what? You might have another year left on it, two years left on it.” And you’re thinking, “Okay. Let me wait for the property to cash flow a little bit, and then replace it.” So sometimes through the whole process, you’re gonna take some risk. And obviously, if you’re gonna take the risk, you’re gonna have to be able to back it up with some sort of reserve. So many things that could happen. And you wanna be able to be ready for anything that comes up. You’re not married to those numbers specifically, but you do need some reserves.
07:13 Rafi: Okay, okay. I think the other thing that a lot of people forget, and Uncle Sam never forgets, is taxes. You have taxes due, and a lot of people, again, don’t factor that into that initial equation. So those reserves, you may need to use for that. Insurance is definitely another one that, again, a lot of people don’t factor in, and then suddenly they get the bill, and go from there. I think the other thing is also, you wanna be able to… The key for rentals to be successful, it’s to have happy tenants. Because vacancy is one of the highest expenses that you can have in a rental. So why that reserve? If something happened, let’s say that the bathroom floods and you have to change carpets. You don’t wanna have to wait six, seven days until you get the funds to be able to do it. You wanna be able to respond to that very quick, you have a happy tenant that stays longer, that takes care of your house better. And at the end, again, vacancy is potentially the biggest expense that you can have. So if you can have a tenant that you can use these reserves to take care of these issues, then again, happy tenant, happy manager, and you go from there.
08:34 Jorge: You put up a good point, Rafi. A lot of investors forget that typically a first year is your try-outs. Your try-outs. So you’re trying out the tenant, but you’re also trying out the house. You don’t know this house. You don’t know if… This house could look really nice on the outside, and then certain things will come up with it. So that first year, to me, is the try-out. Once you have identified, you go through the process for the first time with this property, with the first tenant on it, you’re gonna find out a lot of things. Don’t expect the cap rate that you have in your mind, you quoted in your mind, don’t expect to get it on year one. That’s gonna be year two. Year one is your try-out to learn this process, learn the property, and learn the tenant.
09:30 Rafi: And let me tell you, I’m gonna give an example of a property that we had… Because one thing is when a property’s vacant, everything looks nice and sounds great, but once someone starts living in it and using it, things start coming up. We had a property that, we turned on the AC… I remember, we turned on the AC and it worked. It cooled. We were there half hour, maybe an hour. It worked. When [09:57] ____, everything looked great. And it was great. Tenant move in. Well, guess what? Now that AC, in Florida summer… Or, actually, Florida’s winter, because man, it’s 80 degrees forever. So for those of you in New York, sorry. But once that AC was on for every single day, for eight hours, etcetera, guess what, a month later, AC goes down.
10:24 Rafi: So again, really, what happens is that you have a house that is not being used on a consistent basis, and these things starts bubbling up. Now, again, like you said, the cap rate that first year is gonna be lower. And our experience is the cap rate from year one to year two jumps between 3% and 4%. So if you have that house, that the first year you have a 7%, 6% cap rate, don’t panic. Don’t panic. Because what you’re doing is, you’re investing, you’re finding out these little things that are bubbling up, and then once you fix them, guess what? You’re gonna start reaping the benefits of that. And again, that’s going back to the original question, that’s why you need that reserve and that’s why we suggest at least $100,000 to go for it.
11:12 Jorge: And Rafi, doesn’t have to be cash. It could be with lending. Somebody could come in with $20,000 cash and a pre-approval for $80,000. Doesn’t need to be all cash.
[pause]
11:33 Jorge: Lost the connection? Okay, we’re back.
11:34 Rafi: We’re back? Yeah, we’re back.
11:37 Jorge: Rafi, tell them a little bit about what is the cap rate? What is that, you mentioned it a few times, for those who…
11:43 Rafi: You know what? I’m gonna give a little bit, but I think that’s a perfect subject for next week’s discussion. But cap rate… You know what? Let me put it equivalent to the interest rate that you’re getting in banks, savings account. So right now, banks are… When you go to a bank and you put a CD for $100,000, they will give you 0.00125. When we’re talking about cap rates now, similar to that, we’re talking about 10%. But I think that’s a perfect item for a full session, to understand what things we include in that cap rate. For example, taxes, vacancy, insurance, rent, all that kind of stuff. But in a nutshell, for those of you that are starting in real estate, when you hear cap rate, think of like a savings account interest rate, and then go from there.
12:38 Jorge: That interest that you make a year.
12:40 Rafi: Yeah, well, and this is where sometimes you go, especially with flips, and you go, “Wait. I only made 10% on that flip.” Remember banks calculate interest rate on an annualized basis, so if you did 10% on that and it took three months, and you do it four times. You actually did 40%.
13:01 Jorge: Right. Right.
13:02 Rafi: 40%. So it’s all on how you calculate, and how you refresh that money. I wanna, before I forget, give a shout out to Jason Ficks, his comment, “A good property management company will keep the tenants happy.” Absolutely. Absolutely. We strongly suggest that you hire a good management company. They range between 8% to 12%. But if it’s a very good property management, you get that money back and more.
13:34 Jorge: I totally agree with you, Rafi. You’re as successful as your team is. So if you have a solid team, you’re gonna be successful. If you have a weak team, your weakest link is gonna be what’s gonna make you hurt. So your property manager, if you’ve got to interview 10 of them, interview 10 of them. Make sure you get the right person.
13:54 Rafi: Get referrals.
13:55 Jorge: Because sometimes, you think, “Okay, well this guy’s been doing it for a long time, he manages a lot of properties,” but guess what? He doesn’t manage your type of property. And then you’re wondering, “What’s going on with my property?” So very important to… From the rehab and the managing… Acquisition, rehab and managing, it’s important that you have the right team together.
14:15 Rafi: You know what we can do? And again, my mind, going 100 miles an hour. We have the cap rate as potential subject. I think we should invite maybe one of the property managers that we work with…
14:27 Jorge: Absolutely.
14:28 Rafi: To one of the sessions, and have a kind of a property manager session on the things that they look for, all that kind of stuff. So we have two subjects already. That’s good. Excellent, guys. We promised you around 15 minutes, and we’re around that mark. Again, don’t forget to follow us. Either here, or there, somewhere, somewhere there. Follow us, that way when we go live, and you get the notifications… We are trying to stick to around lunch time on Fridays. So, sometime mid noon, 12:30. Sometimes conference calls go a little bit longer, or we’re visiting properties and it takes long. But we’re trying to stick around lunch time, to be mindful of…
15:14 Jorge: I wanna add something real quick, going back to answering the original question. If you feel like, “Man, I don’t have a 100,000, that’s so much money!” Call us anyways, we’ll work a plan out. Right, Rafi?
15:22 Rafi: Mm-hmm.
15:24 Jorge: We’ll figure it out. We have our money lenders. As long as you have the desire, we’re gonna help you out.
15:31 Rafi: Yes.
15:31 Jorge: We’ll find a way to make it happen.
15:33 Rafi: Well, and one thing that you will find from us, we’re transparent, we’re honest. If you call us and you are honest with us and explain your situation, we’ll be able to tell you, “You know what? Right now, it may not work, but here are the options. Here’s Sam, a private lender, here’s this guy,” and we can find ways, and…
15:55 Jorge: Even use the 401k. We could teach you how. It’s very simple, guys, using your retirement funds to buy real estate.
16:04 Rafi: So again, give us a call. Where can they find us?
16:07 Jorge: They can find us at homes4income.com. That is homes, the number 4, income dot com.
16:14 Rafi: Homes quatro income dot com. Again, thank you very much. I saw OJ out there. Felipe, also joined us. So thank you for that. We will see you next Friday, the 20th. That’s when we have a new president, by that time.
16:28 Jorge: That’s right.
16:30 Rafi: Friday the 20th, around noon time. Make sure that, again, you follow us, somewhere over there. That way you get notifications when we go live. And remember, you can find us at homes4income.com. This is Rafi.
16:43 Jorge: This is Jorge.
16:44 Rafi: Thank you very much for your time. And those chicken flautas are calling me. So we’ll see you later.
16:49 Jorge: See you later, guys.
16:50 Rafi: Bye.
16:52 Jorge: Bye.
Graystone Investment Group
Graystone Investment Group is an experienced real estate wholesaler in Tampa Bay. We serve clients who flip homes in as little as 30 days, as well as clients who hold high cash flowing rental properties.
Unlike other wholesaling groups, we provide clients with a turnkey process at no extra charge. We find properties that we resell to investors at discount prices, while also connecting them with private financing. We also coordinate with rehab and management companies we’ve worked with for years.
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