Jason Bramblett Real Estate Show Podcast 

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Jason:  Good morning, Triad.  I hope everybody is doing great.  What a beautiful, crisp spring day out here.  Spring morning. That is just what you need to get you up and going in the morning is a little crisp air, and we have it served up for you today.  Power-packed show coming at you. This is Jason Bramblett live in the studio, and of course, my man Mikell Montgomery running and pushing all the buttons like he does every week.

Mikell:  Yes, sir.  Good morning.

Jason:  Good morning to you, sir.  And then you, all 1900, well maybe no, let’s go back. How about, I think the numbers the last time I made up was just like, let’s go with like 190,000.  Yeah, I like that number, Mikell.

Mikell:  I like that.

Jason: All 190,000 of you out there listening today.  It is an interesting thing radio. You never know who is listening, but I can tell you this.  When I get back to the office, my email is full. Our voicemail is full. We have got great listeners, great questions you guys send to us every single week.  And if you have a question, go to Jason Bramblett dot com, and you could shoot us an email. Just go up in the right corner. Click on the little email icon, shoot over a question, and if it is something that we feel will benefit the community of the Triad, we will share your question on the air.  We will hide your name to protect the guilty, so you do not have to worry about us divulging too much information about you out there. But we do have some great listeners, great questions, so please send those over to us anytime. Jason Bramblett dot com or you can call the office 553-0796. And today, we are just looking at all kinds of different things, but the real estate game is how to get into it. So many times we get questions, Jason, hey, I want to look at getting into real estate. Well, that is a big category, and so how are we looking to get into it. Is it the buy and hold?  The flips? Multi-family? How about just buying your first house? All that stuff plays into the real estate game and what you may be attempting to do out there. So we are going to dig into all those things today. Burn through as many of them as we possibly can, and of course, you can always fire a question over to the office. Should I not answer it on the air here. And again, that is Jason Bramblett dot com. Shoot it on over. Real estate is the greatest wealth-creating vehicle on the planet. How about that? More wealth is created through investing in real estate than any other venture out there.

Mikell:  Wow.

Jason: And it is one of the top things.  If you look at the wealthiest people in the world and the United States and North Carolina, and then you dissect it down by city, you will find that they all hold considerable amounts of real estate.  And this is not just the house that they live in. Remember, Warren Buffet did not become a millionaire because he got a good deal on his house. Okay? Just understand. So when you are out there negotiating this weekend and you are squabbling over $500 and the seller will not come down or the buyer will not go up, just buy the stupid house.  It is $500. It is not going to change your life. I promise you. Heck, if it is $2,500 it is not going to change your life, and a lot of you get caught up on these little nuances, and it is more of a game. Then what happens is we hear some frustrations in the market place. I travel all over the place talking to different real estate agents, and one of the things they will, the frustration is they have got a buyer hung up on $2500, and they did not buy the house.  But they won. Yeah, you showed them by not getting the house. Real good. Okay. The only thing you got was nothing, and you might have a very unhappy spouse depending on who really wanted the house.

Mikell:  Yuu do not want that.

Jason:  You do not want that.  I will promise you. You will triple down on that number next time.  I promise you.

Mikell:  That is true.

Jason: The next house will not get away no matter what. Do the right thing.  Just buy her the house, man. Come on, $2500 over 30 years is nothing. Just buy the stupid house. It is going to be okay. Again, you are not going to get wealthy off of it anyway.

Mikell:  No.

Jason:  $2500 is not going to change your life.  Get out there, buy the house, make her happy. But let’s dig in, Mikell.  What do we got lined up? What is our first little topic here we are going to jump into?

Mikell:  We want to start with buying a house and what that plan actually looks like.

Jason:  So just like the first one.  Like walk us through that. Is that what we are going to do?

Mikell:  Yes. Yes.

Jason:  All right.  Let’s do this.  So, first time house, where or where do I start?  Especially if you are looking at it from long-term investment, and that is what we want to talk about is I want to get into the real estate game.  Well, the first way to get into it is to buy your first property. Now, if you want to be a real estate investor long-term the way you need to look at this is you need to look at this I want to buy this property for future cashflow.  Not for cashflow today, but for future cashflow.

Mikell:  So start some passive income there.

Jason:  Yeah, to start some passive income, but I am not worried about it, the now.  I am worried about it 10, 15 years down the road.

Mikell:  Of course.

Jason:  So the first thing we are going to look at is buy your first home because everybody needs a place to live. Right?  And then this is what you want to convert into your first rental, whether that be a condominium, a townhouse, or a single-family property.  And you could look at your duplexes and quadplexes. We just do not have a lot of those in the Triad, but you could look at those as well. Condo, they are great first rentals. I suggest you look at all different types and all different things. But here is the key. You have got to find one that does not have a ridiculous HOA fee.  Because the HOA fee is what kills your cashflow. So you want to make sure that you buy one that has the lowest HOA you can find. A low HOA tells me it is properly managed. A high HOA tells me that whoever is managing it does not have a clue, and or you could have this issue where you have got a lot of vacancies in the complex, if you will.  So say there are 200 units. If a large proportion of those are in bankruptcy, foreclosure, short sale, or vacant, the question is maybe nobody is paying the HOA.

Mikell:  Sure.

Jason:  When nobody pays, guess what? All the people that are paying get to share, to carry the weight of the people that are not. Right?

Mikell: Right.

Jason:  That is just how it works. That is what you signed up for. My break number is $180 a month. So if it is $180 a month or more that tells me it is not being managed properly.  Now, that is not for all properties, so if you are paying more than that and you are the HOA president, do not send me an email screaming at me. This is a generic statement. But it is a guide in which I look at $180 or more a month typically tells me that it is not being managed properly or it was not being managed properly.  I know you, Mr. New HOA President, are going to fix it. I am on your side. Get those HOA dues down and what will happen is it will also increase the value of the units. The interesting thing about condos and townhouses, the higher the HOA you actually will see a drop in the valuation. That kind of shows you, this proves a theory that I have talked about for years and years on the radio here.  You do not see it as much in single family because it is disguised and it is hidden, but it is real obvious on townhomes and condos where you have a set number of units. So say we have 200 units, and what I see is if that HOA creeps up, the values push down. And the reason why is people buy what they can afford per month.

Mikell:  Exactly.

Jason:  The end price really does not matter.

Mikell:  No.

Jason:  Whether it is $18 million, $180,000 or $200,000, people buy based on what they can afford per month.  So if you have $1000 a month cap, and that is your audience, if you will, and a proportion of that, $200 a month is going toward the HOA, that is $200 less that can go towards principle and interest.  Right? And when we look at the compounding effect of what that $200 looks like in borrowed money, it is a big number. It also squeezes the value of the properties down. So if you want to time it really well, you look for one that is climbing out of that, and you can pick up a property there. But condos, townhouses are excellent ways to get started.  The other nice thing is when your tenant moves out, well, you do not have to worry about cutting the grass. Somebody is doing it for you. Right? That is why you have the HOA.

Mikell:  Yeah.

Jason: And so you have some of that maintenance that is being taken care for you.  Whereas, if you own a single-family home, there is a lawn, there is grass, there are all these things to deal with, and the tenant moves out.  If the tenant was taking care of them, then you either are as the owner or the property management company. Somebody has got to step in and do that.  Otherwise, you are going to end up with a forest around that. So what I am looking for condos and townhomes and that $125 a month HOA tend to be really nice properties, or well-managed, I should say. And that is what we are looking at. Single-family homes, only buy three-bedroom, two-bath or four-bedroom, two-bath. That is it.  And you want them to be in the best schools. The best schools drive the market in rentals. Okay?

Mikell: Absolutely.

Jason:  So people do not say hey, where is the absolute worst school system.  I want to make sure that I invest in my kids’ future by putting them in the worst schools possible, and I want to live there.  It does not happen that way, guys.

Mikell:  Not at all.

Jason: Everybody wants to be in the best school. And here is the other thing.  I have found in Greensboro and Winston-Salem both there are families that will rent and not buy because maybe in that best school district the price point has exceeded their budget, and or they just simply cannot afford to purchase. But they can afford to rent a smaller home in that area, and they will choose to do that.  They will choose not to be owners to actually get their kids in a better school system. They will actually sacrifice that in order to do it. That is what you are looking for. Those are the best tenants ever. Especially if they have two or three kids and you catch them on the way through middle high school and you end up with ten years of an outstanding tenant in a property.  You are looking for that longevity. Tenants, flipping a property every year is not the best way to make money. You want tenants that are going to stay. I have sold a lot of homes over the years and some of the rental properties that I have sold for some of our investors, and I am just amazed. I remember selling one for a gentleman. The tenants had been in there for 33 years.

Mikell:  Wow.

Jason:  They paid for that house.

Mikell:  Absolutely.

Jason:  33 years. They paid for that house.  He was a generous man, and when they moved because he was getting up in age, he actually helped pay for all their relocation, moved them out of the property, helped them get into another property. And that is the type of landlord you want to be when you have got somebody that is committed to you for 33 years. I would argue to say that if you have got somebody how would commit to you for ten years, you probably ought to treat them that way as well.  So positive cashflow is important. Do not get me wrong, but it is not what I am looking for right off the bat. I am not trying to retire based upon the first house that I buy simply because, well, let’s face it. You are not going to be able to retire off one property’s income anyway.

Mikell:  True.

Jason:  Unless it is an amazing property. So what I am looking at is I am buying cashflow for the future.  Now I want to make sure that I have a little bit of money coming in to cover incidentals. Right? To cover things that come up.  Let’s face it. Homes have moving parts. Right? They have got the HVAC system, water system, dishwasher, appliances, all these things have a life expectancy, and they die eventually, and you have got to replace them. And so, I need to have a little bit of cashflow there to put into a nice little fund that I call a sinking fund that allows you to reach into your pocket and pay for those things as they come up and they are not a huge big surprise. That is the key to this particular aspect of buying.  Buy a property in which you can turn it in or convert it to a rental down the road and take that money that you are making and set it aside. Sinking fund is basically like insurance. Right? You do not really want to have it, but it is nice to have when you need it. So if you are making $100 a month or $1200 a year on a property, take that $1200 set it aside. Forget that it is there. Hide it, get it away from you. Do not spend it. Do not go buy stuff, and you keep it, and that way when the hot water heater goes out and it is $1350, you are covered.  Right? And after 3, 4, 5 years of dumping that 12 or $1300 a year into a fund, you have got 4, 5, 6, $7,000. Leave it alone. Because the next thing that is going to come along eventually is going to be the roof.

Mikell:  Yeah.

Jason: And it is going to be five to six grand, and guess what? Now you have the money. And here is the cool thing.  Guess who just paid for your new roof? Your tenants.

Mikell:  Your tenants.

Jason: How awesome is that?  And if you get a good roof, you will not have to deal with it for another 30 years. So that is what we want to do.  So do not touch that money. Put it to the side. The other thing that you really want to consider is hire a professional management company.

Mikell:  I am sorry, Jason. Let me ask you a question. So from the money that you make from the tenants, what percentage would you say should you invest back into the property or save for the property?

Jason:  I am going to save 100% of it.

Mikell:  Really?

Jason:  100% of that money I am going to put in the sinking fund.  And the reason why is I do not need the income now. I have a job.  

Mikell: Okay.

Jason: Everything I am looking at, I am looking at 10-15 years down the road.

Mikell:  All right.

Jason:  So my goal is I am going to buy this property. The tenant is going to pay for it.

Mikell:  Okay.

Jason: And if something goes wrong, I am going to use the cashflow that is there, maybe just a $100 a month or whatever it is.  I am going to use that money to improve the property that the tenants gave me over time.

Mikell:  Gotcha.

Jason:  All right?

Mikell:  Gotcha.

Jason: Now the best way to secure your asset to make sure that it is being taken care of is to hire a professional management company.  Here is why. Using a third-party mediator has proven over 100 years now that they always do a better job than you do. And the reason why is they are not personally vested in the deal. This is why a real estate broker can always get a better price for you on your house.  Do not shoot me. It is the national statistic. Poll the data. Get it from, go to Google. Google knows everything. Right? You will find that the stats are 16%. Well, if most agents are charging between 6-8% to sell your property, and they are getting you 16% more, you are money ahead. Here is why?  You have an emotional tie to this property, and you do stupid when you have an emotional tie. When I am negotiating your house, I do not give a rip. It does not mean anything to me. It is a box with windows. Right?

Mikell:  Yikes.

Jason:  And so, it does not, I have no memories there.

Mikell:  True.

Jason:  I have nothing vested in it other than my time.  I have not lived there, dwelled there. I do not know all the nooks and crannies.  I do not know that the grandkids were playing in the backyard and have that emotional thing.  The first baby was brought home to the house and all these things that factor into this emotional, illogical decisions that we make.  Here is the thing. I am in the real estate business. I sell real estate. I am the worst person to sell my own properties as well that I have lived in.

Mikell:  Wow. Okay.

Jason:  Because I have that emotional tie. Right?

Mikell:  Okay.

Jason: Now, I have trained myself and taught myself over 22 years to get unemotional about that in my own personal thing.  But if Mikell is selling his house, I will assure you, it has no emotional dwelling in me at all. Zero. It is nothing more than sticks, bricks and shingles. But what that does is give me the power to hold firm when we need to because I do not have that emotional tie, and I can make clear, good decisions.  Good business decisions for Mikell because Mikell cannot because his head is swimming in all the emotion of this house that he bought.

Mikell:  Exactly.

Jason:  And I have no emotion to it whatsoever.  And this is why third parties can not only sell for more, but also they can manage your property better as well. We make poor decisions based upon emotion always.  100% of the time.

Mikell:  That is true.

Jason:  100% of the time. So having a professional management company is going to be key. So we have got a lot more stuff coming your way.  Stay tuned. We are going to dig into several more aspects of investing in real estate including multi-family and then the all amazing thing of flipping those houses.  So do not go anywhere.

And welcome back. This is the Jason Bramblett Real Estate show. Live in the studio.  We are diving into all things real estate. Mikell, what else we got on the list today?

Mikell:  So I did have this question for you.  Some people give me advice on real estate.  So when buying a rental property, I do take the equity from one rental property and use it as a down payment for my next rental property.  Is that correct?

Jason:  Well, most people look at it as this is the trade-up theory.  So a lot of folks will buy their first home.

Mikell: Okay.

Jason:  And they are there, and here is normally what we do. We get married. Everybody is happy. Right? Carry the spouse, she carries you across the threshold. Right? You get in the house, and then these little critters show up called kids. And then all of a sudden, you need more space.  Normally, what we do in America is instead of keeping the house we bought, condo, townhouse, or single-family home as our first rental, we sell that, and we take the equity from it to buy the bigger, better house.

Mikell:  Absolutely.

Jason: And then we do it again and again and again, and then the downside is we end up with a 3-$400,000 house a lot of times, which is a horrible rental should you ever try to rent it.  Right? So if you ever got into a situation where you needed to rent a $400,000 house, the problem is a lot of times they will not even, you cannot rent it for enough to even pay the mortgage.

Mikell:  Yeah.

Jason:  And so somebody is going to make up the difference. The other thing, too, is you are not diversified. You have all your eggs in one basket.  So if you could train yourself to keep your first home you buy and never sell it and do not use what they call a HELOC to buy your next house.  So you would actually save your down payment for your second home and use and keep the first house as your first rental. Now, really disciplined home investors will buy the same type of property. So they will go from a three-bedroom, two-bath home that they purchased as their first house, and then they will buy another one, a three-bedroom, two-bath in the same school district, and they will keep building that up.  And then they will end up with an inventory of 5, 6, 7, 10, 15, whatever it may be over their lifetime of paid for real estate in which they have got, let’s face it, if the average rent in our area is $1500 a month, and you have got ten of them –

Mikell: Wow.

Jason:  -- and you did that over 20 years, if you have no debt and you can’t live on fifteen grand a month, you have got some spending issues.  Right?

Mikell:  You really do.

Jason:  Yeah, so you can build a really amazing portfolio. Now, I would argue and say that ten is probably not enough to be diversified.  You would want more, but it is a real good start.

Mikell: What I was going to say when you were speaking about it earlier, especially with the houses in the great school districts, it seems like those are goldmines to have.

Jason:  They can be for sure.  It is something, sometimes it is hard to duplicate.  If you got that property, let’s face it, if things are going right, then real estate is going up in value.  Right? So if you bought it for $150,000, in ten years it should be $200,000. Right?

Mikell:  Yes.

Jason: If we are just playing the real estate game. Here is the thing.  If you kept that, and your basis is $150,000 and you get it to zero, you get it down to where it is paid for, and now you have got great tenants in there paying you $1500 a month, man, I want to buy every house in the subdivision that way. Right?

Mikell:  Exactly.

 

Jason:  And just keep going.  Because if it is close enough to the school, now school districts do change, and you need to think about that.  The only way I know for sure that you are going to remain in the same school district, I guess, is buy the house next door to the school because they probably will not move that. But those are things that do change, and you need to think about that as you are investing in real estate, if that is your goal. But here is what I want to say.  Do not cash out all the time and keep growing the house. That is kind of the tradition in America, and I am not saying it is wrong. But if you want to be a real estate investor, use the first property you buy as your investment. So use your condo, townhouse and those things. Right? And speaking of those, if you have a condo, we are in the market of buying those. Actually, we are in the market of buying anything. So if you have got any kind of real estate, we want to take a look at it.  You may see our billboards rolling around town. Offer on your house in 72 hours. That is because we are buying stuff. We want to take a look at it. So if you are struggling to sell your home, and or you just do now want to deal with putting it on the market, give us a call. 553-0796 or go to our website, Jason Bramblett dot com. I would like to take a look at your property to see if it something that we could potentially add to our inventory as well. So you go to Jason Bramblett dot com for all your questions. We will be back here next week live in the studio. Everybody have an awesome, awesome weekend, and do not forget.  You are buying future cashflow, not now cashflow when you are buying real estate. So think about that. Put it in your plan. Next week. Flip or flop, and we will be back. See you then.