Lower Your Risk in Real Estate | Live Deals From UFD Stage Part 2

Lower Your Risk in Real Estate | Live Deals From UFD Stage Part 2


Now where you start jumping into real
estate. One, I don’t want to get up and say why… Why not all these other
investments? What I want to focus on is why real estate? So, just… I’m just going to
open it up right now so raise your hand if… Throw out some reasons of why real
estate can be a good investment? Tax advantages. Okay, we’re going to talk about
those. Cash flow. Good. Always have a customer, right? Okay.
Equity. So, appreciation, growth. What else? Capital gains. So more tax advantage, tax
strategy. Leverage and appreciation. Let’s talk about that really quick. So, if we’re
buying a $200,000 house, we have the option of putting $40,000 down, right? Or
let’s call it 50,000 because there’s mortgage closing costs of stuff. So,
$50,000 down and we can buy 4 houses or you can pay cash and buy one house. So,
if the market grows 10% in one year, we have 10% of 200,000 or 10% of 800,000.
You’re talking about a 60,000 dollar difference just in one year from
utilizing leverage. Not to mention the additional cash flow and all. That that’s
a powerful concept to understand. -You guys remember when Tyler was talking
about the save money paid off? Get debt and then pay it off and really at the
end of the day end up nowhere? Understand that there is a day and a time to pay
stuff off. But most people are trained at the time to focus on paying stuff off is
when? Upfront. Because they’re afraid of paying what? interest. I’m losing all this
money and interest. And that makes sense sometimes. The reality is the right time
to pay things off is when it can all be paid off and there’s enough money left
over to have the residual income that can allow you to live the life that you
want. So any of you that, “I got to pay pay off. Fear, scarcity. I got to do it. I
got to do it. This is what it means.” Pause. Chill out. There’s a higher
priority. I need some cash flow. So, if I’m not working, I still got money coming in.
By the way, question. Right now I’m willing to give one of you here 10
million dollars a debt as a gift from me to you. I want to give you 10 million
dollars of debt which means that on your balance sheet your life is going to get 10
million dollars deeper in debt? Who wants some of my debt? I see a couple of hands
I’m like, “How many of you like… That’s crazy.” Why would I ever want something
like that that makes no sense. How many of you like that?
Guys that 10 million dollars, it’s worse. You’re never allowed to pay it off. So,
you got to keep that ten million dollars debt with you your entire life. Now who
wants it? You got a couple of people here that get
me. Let me tell you about the debt. The debt is for a factory. That 10 million
dollars it costs about a hundred thousand dollars a month to maintain but
the factory produces 300 thousand a month. S,o it has a 2.2 million dollars
every year financial gain. You just got to be okay holding debt. Now, who wants my
debt? It depends do you want an extra 2
million dollars a year. Who wants an extra 2 million dollars a year? Raise your
hand. Okay, guys debts from a consumer standpoint is bad. Debt from an investor
standpoint is what? Structured the right way. It’s beautiful. And by the way, you
want more of it. In fact, your goal this year should be to get way deeper in debt
with debts that make you money. Because in time, those debts will get serviced,
still get paid off, we could pay you along the way and you have a lot of
money. Is that a little bit mind-altering for some of you like, “That is such a
weird way of thinking?” I remember when I hit 10 million dollars a debt and I
looked at my income from it, I’m like, “This is such a lie. Debt is awesome.” I
love debt. I want more. How do I… Get me some more debt.” Yeah, you should all be
asking how do you get more of the right kind of debt? Does it make sense? Very
good. -Remember, I said we have a lot of experiences in real estate over the
years where we’ve learned. We’ve done some things wrong. The right type of debt
is very key in the real estate strategy. So, way back when Kris and I started
this there was stated income loans, there was negative amortization loans. There
was loans that made real estate look attractive. More attractive up front
but not sustainable, not predictable. And so now, we’re just boring. It’s no, no. We
do 30-year. Fixed-rate mortgages. We put 20% down because we want to create this
predictable performance in our… In our asset class and we want to manage
the risk, right? We want to take on risk but at some point, there’s a level where
the risk, if we go for too much return then we… Then we’re susceptible to
too much downside, right? And so it’s managing that and creating a real estate
strategy centered around a high ceiling but not exposure on a floor, right? and so
the the type of debt and how you go about it is super important. Okay, so I’m
going to throw these up I think we hit all of them. Oh, tangible. Real estate. You can
touch it, you can feel it. I like that. With it depreciation, tax savings. We’ll
go through some of this as we look at actual deals. Appreciates over time. The
Forgotten deferred game. I use that example in them in the beginning of my
townhouse to really iterate this point of even… You have net cash flow every
month from real estate but we can’t forget that your principle is getting
paid down in addition and that’s part of your return on your investment. You just
don’t get it today, you’re going to get it tomorrow, right? When you sell and your
mortgage balance is lower. And it’s important to be aware of that. And when
we underwrite and analyze deals that we look at that factor and and that
plays into our decision of whether we want to buy that particular house or not.
Cash flow, recession-proof. One of the biggest questions Kris and I get asked
is, “You guys were helping people buy houses in 2007-8 and then the floor just
fell out. What happened to everybody? Everyone lose our houses?” And the
answer’s no. Why? Because we are buying the right type of houses and you know,
I’ll give you just an example. Because we were doing… At that time we were doing
real estate mainly in Utah, okay? So, we bought a house for $215,000 back then. It
rented for 1,400 bucks and we cashflow to our clients past Row $300 a month. Well, that house went from 215 to 175 over the next couple of
years. But what happened to the rent? Did we reduce rent? No. What happened to our customer base? Did we have more or less customers?
The man went up for our product. Now, if we are buying $700,000 houses did demand
go up for that? No, not at all but there were more customers for our products, our
vacancy rates improved, our rents improved and our clients continued to
make 6 to 9 percent return on their money during the worst real estate
recession we’ll probably ever see in our lives. And now, those houses are worth
$350,000, right? And so when I say recession proof, it’s worrying control of
when we liquidate. So we’re never going to let the type of debt that we put on the
property force us into a situation where we’re pressured to liquidate. We’re not
going to buy outside of our box because we’re not going to put too much emphasis on
speculation, it’s all going to be about cash flow predictability so that we’re in
charge. Okay? Plus that’s kind of for me, why real estate is such a good vehicle
to help create wealth over time. Now, we’re gonna dive into some of our
markets. Anything Kris? -I’m excited for this part right now because we’ve
actually brought some live deals here with us today and we’re actually going
to transact real estate the way we do every single day and how many of you
actually want to see this happen real time live time, today? Would that be
exciting? Awesome. So, you’re going to you’re going tO get what are you getting it to
watch money made before your eyes and then at the end we actually have a
little treat. -So, okay. So… And this is fun. It’s not every day that when we are
presenting that we get to actually transact real estate on stage. So before
we do that we’re going to dive into some of the markets that we’re in and I’m going to
bring up Brandon Green. So Brandon, come on up. Everybody, welcome up Brandon. Brandon. Brandon has worked with Kris
and 9? 9 years. And his specific role has always been on our acquisition
side of things. So, somewhat behind the scenes and he’s working to help analyze
all the different markets, right? There’s over 300 main markets that we analyze to
determine which markets do we want to be in and why. And he’s helped us open up
markets, we’ve closed down markets. Constantly researching new markets. And
when we get out there he helps set up the teams, the local real estate agents
of property managers, the rehab guys, the home inspectors. Just all the different
steps and and and members of our team that we need on our acquisitions in
order to actually transact in those markets. And so, I want Brandon to help
talk through a little bit about…. We’ll start with Orlando. But why are we in
Orlando, Brandon? What makes Orlando special. Give them a little tour of the
city and talk Orlando. -I’m going to be here with you guys. So, yeah. I’ve been working
with these guys for it is kind of crazy to believe it’s been that long, for 9
years. And we’ve been in a lot of different markets kind of along the way.
We’ve done markets in the Midwest, we’ve done markets out here in the West.
We were really heavy in Phoenix in Las Vegas. Kind of coming out of the
recession from 2010 really up until about 3 or 4 years ago when the spread between the purchase prices and the rents just no longer
yielded a good cash flow. Obviously, we’ve been talking about a lot about cash flow
and how important that is and how vital it is to make sure that cash flow and
our strategies that we put out are there. So, as we got to that point in in
Phoenix and Las Vegas. When the and we’ve made a lot of people
a lot of money over those years with that appreciation as it was going up. We
really started to look for some other markets where the dynamics were just a
little bit different from what they were in the West to try to jump into some
other markets. And one of the ones that we really looked at… And we were looking
at for quite a while was Orlando. People kind of were paying attention to kind of
what was going on in the recession. The markets that that going into the
recession had the highest appreciation rate.
1, 2 and 3 we’re always in whatever order they happened to come up
on in that day. Phoenix, Las Vegas and Orlando. Coming out of the recession, the
appreciation rates in our land in Phoenix and Las Vegas
came quite a bit faster coming out of… The recovery was quite a bit faster
out of the recovery in the Western markets. Mostly because of the way that
they actually performed their foreclosures. It’s a pretty complicated
process but the most important thing is to know is that the foreclosure process
in Orlando occurred about 3 times as long to go through a normal foreclosure
from when a notice of default when a borrower is defaulting on their loan to
when they’re actually foreclosed on. That process takes 3 times as long as it
did in the western markets. So, what happened, the recovery in Orlando, was
about 2 years after what was happening in Phoenix in Las Vegas. -So, I want you to
envision this, so… Right? These markets went up, they crashed really hard and
some markets have recovered faster than others. And what we’re constantly
evaluating is based off today’s market conditions. We can’t control that. So, we
have to understand what our today’s market conditions and based on that, what
are the best markets to buy it. And so, yeah. When it was doing down here and
it was recovering we bought a lot in some of those markets but the last 3
years, 4 years it hasn’t… Those markets weren’t as good at markets to buy in
anymore. And we’ve had 8 consecutive growth
years, right? Of real estate coming out of the recession. So, a lot of people ask
well, “Geez, do I need to wait for it to dip again or… What do we do?” Well, we
can’t control the the overlying market but what we can control is understanding
each market inside of it and how they respond to the overall market and
say those are the best ones to buy in. So, in Orlando, you know, right now when you
go shopping for real estate, nothing’s on clearance. There’s no clearance racks.
Because nobody’s losing their houses. There’s not this massive foreclosure
process happening. There’s not a ton of short sells on the market. And so we have
to understand all that. Okay, well where’s the best market?
Well Orlando, because it went so high crashed so hard and has been recovering
slower. So, their track is like this. There’s still opportunity for great
growth in that market because it’s still in a sense, recovering from their
hard crash. -Yeah. -And so that market offers good cash flow but plus growth.
-Now, before we go a little bit deeper and have Brandon explain this market, here’s
the big picture I want you understand: When you got no money or you got little
money, I want you to be doing real estate in your backyard. Because that’s where
you put in the equity, you put in the time, you put in the energy, you put
in the effort. You find yourself a great deal and in your backyard, if you meet
our criteria, you’re good to go. But once you start saying, “Hey, Kris. I want to
create a multi-million dollar machine and system that can actually keep making
money for me. And I know no longer want to put the time in.” How many do you think
at some point you might want to graduate from saying, “I don’t want to put the time
personally and I want to leverage people or leverage systems, I want to leverage
that stuff.” When you get into that game, what we’re talking about now is if
you’re going to go, use that system. Don’t go to your backyard. Because with 324
markets, if there’s 3 or 4 that are the best at any given moment, where
would you want to buy? So, buddy… I know those mornings like, “Kris, I’m from New
York. I could probably go to New York. I’ve gotten to go outside I get those lower
price ranges. Should I do that?” And I said, “If you got little no money yes. But
if you got something. 401k, IRA, home equity and it’s not growing the way you
want, now you want to transfer that money and go to the most intelligent market
where you actually can have the greatest gains.” Does this make sense?
You want to have the track record, the greatest gain. So, when they say Orlando,
here’s what I want you understand: Don’t see Orlando. See top growth market out of
324 markets that meets all the macro and micro economics for maximum growth. Does
it make sense? -Oh, good. Thanks Kris. 1 more thing I’m going to add to that is
a lot of… We talk about investing your backyard or access to real estate agents.
And I like to compare it to somebody’s stock portfolio. If you’re
buying stock and you call your financial advisor. Say, “Okay, I live in Salt Lake
City. And I want you to create portfolio for me of the best performing
stocks with headquarters within 30 minutes of my… Of where I live.’
Who does that? Right? Nobody buy Apple stock if that was the case, right? But
that’s how most people invest in real estate. Because they’re limited. Because
real estate agents typically are experts in a 30 to 45 mile radius and that’s it.
That’s as far as their reach is. And when we first started, that’s how we started.
One of the things we learned was well let’s knock down those barriers and
let’s… Let’s… let’s have access to every single market to every single stock or
company that’s available out there. And be able to identify which ones are best.
And I’ll offer that to our clients. -And the reality is that scary unless you
have a team do in volume. -Correct. -Because by the way, how you win in real estate,
you win by volume. You win by what? Because by the way, let’s say, Craig. You
want to go out Florida. You’re like, “I’m going to call… I’m going to call me up an agent
out there in Orlando. Let’s go get me a house.” And you get yourself a house in
Orlando and you’re one guy. So, you cop to the property manager like,
“Yeah, I’m going to follow Kris’s system. I want to rent that for 5 years and
then I’ll sell it you see how we do.” The property manager, does he know your name?
No, why not. It’s just you. And how much are you worth to him every month? About a
100 bucks. How much loyalty do you can you command for 100 bucks? When
it comes time to getting results, does loyalty matter? Yes. But what if you were
1 of 500 homes? And you got the bosses over here that have the
relationship with them. And all of a sudden they’re like, “Oh, 10% property
management? How about 8%? 7? 6%. Because you’re giving us
that much. And when you call and have a problem, we pick up that phone because if
we don’t, what might mean risk? Yep. Okay, Brandon. Orlando. -So, jumping back into
kind of more those that kind of macro reasons for why we were… Why we really
liked Orlando. Looking at the numbers kind of up there
on the… On the orange part. I mean obviously, the one that kind of jumps off
the pages at 11% appreciation rate. I mean, that’s fantastic, right? All
across the country is a lot of hot markets. But why we really focus on
Orlando is (1) the population growth which is so
far above what the normal national averages are. You know. Basically
almost about 3% annually. So, usually even a little bit higher than
that the national average in most states is especially in a lot of the other
markets. So Midwestern markets is basically flat. So population growth is
really the main engine that’s kind of driving that economy. It’s the
number of people that are coming in. Homes being constructed businesses that
are there. -Brandon, where are these people coming from? Why is it growing? -New york.
-Yeah. Why New York? -It’s cold and taxes are really really high. You know
what I like to say is that in New York or the Northeast they use salt to melt
ice and snow. And in Orlando, they use salt for margaritas, okay? So, what’s
happening is you have these baby boomers that are getting to a point where it’s,
“Okay, where do I want to retire? Where do I want to live? And do I pay $800,000 for
a small house or apartment or something in the Northeast?
Or do I go and pay $550,000 for an estate on a golf course in Orlando with
year-round great weather? Cheaper taxes, all kinds of stuff and drink more
margaritas.” Right? And then those people… Those aren’t our customers. They’re not
renting our houses. But they come and they spend and they create service jobs
and they create those 20, 30, 35 dollar an hour type of jobs. And because they’re
golfing or going to day spas and going to restaurants and they’re out consuming,
it creates a lot of growth for all those types of jobs which those are our
tenants. The 50, 60, 70 thousand dollar a year household income dual workers. Those are
the people we rent to and they’re really really good tenants. Okay? So, that’s a
little bit about what where they’re coming from and why they predict they’re
going to keep coming because there’s a lot of baby boomers coming. I keep
interrupting you. I told Brandon “When you come up here, I’m
just going to keep interrupting you.” So… -It’s okay. -Alright back to you. -So, going back to
those 50, 60 dual income type of jobs. Well, the vast majority of those
people are working at the resort sitter in Orlando.
And that’s really the main the biggest reason why we’re in Orlando is
to get near those resorts. Epcot, Disney… 68 million people visited Orlando last
year. 68 million. The number one city in the country. -By over 25 million
tourists. Do you think at New York, you think of Vegas. It Dwarfs all of those by
tens of millions of visitors everywhere. -So, tourism is really the driving factor
of the economy in Orlando that has a lot to do with when we’ll talk about this in
a minute we can get the maps up here of why we’ve chosen the specific regions in
Orlando that we do is specifically to have the largest pool of renters that
are working at these kind of resorts that Tyler was describing about. Those
types of income earners to get as close to those as we possibly can. That’s why
our lease up rates in Orlando are so small because there’s such a huge pool
of people working at those resorts that are the perfect candidate for
renters for where we want to go. -Brandon, let’s talk about that real quick. Show
them where do we… (Whoops) Well there we go. So, here’s a big map of Orlando.
Maybe go down there. Show them where we buy down there. -Right. So, just kind of
looking at the map up here, you can kind of see the metro area the MSA for
Orlando’s up there in the corner. If anybody just familiarity with the state.
This i-4. What we call it the i-4 corridor interstate 4. Goes all the way
down here to Tampa. In this area, you can barely just see the beginning of it.
And all the way up to Daytona Beach up in that top corner. So, where we want to
be and where the the resorts are Legoland, Disney, Epcot. All of the resorts
are basically in the southwest quadrant is where Orlando is. We’ve done some deals
in the past kind of on the on the northeast side of Orlando. When we first
got into the market. But I think we did 3 deals there out of the 400 deals
that we did just because the rental rates and the appreciation is so much
greater or the resorts are. And that’s where the vast majority of the new
construction in terms of homes is occurring. Medical City which is a 7
billion dollar development is in that same area as well. That’s where the vast
majority of the growth is coming. And where that biggest rental pool
is going to be. We do markets though and they’re not a lot of they’re showing up.
Kissimmee, Poinciana, Davenport, Payne City. The furthest out we ever goes kind of
Auburndale. We’ve done a few deals down there but really this this portion of
the i-4 corridor is kind of our sweet spot and where we spend the vast
majority of our time. -So, one thing that we really look at and then we’re going to…
We’re going to look at some live deals in Orlando. See that average home price is
238 and the average rent is 15 27. A lot of people say, “Hey, Utah is growing like
crazy right now. It’s a hub for job creation. Population growth. It’s
appreciating like crazy. How come this isn’t one of your hot markets?” Well, the
average home price in Utah is about $345,000 now. And the average rent is 1,700. So, do the math. Rent to purchase price,
rent to purchase price. And so what we do, those are the averages. We want to
perform better than the average, right? So, our average rents are 14, 15, 16 hundred dollars. Our average purchase prices in Orlando are 180, 190,
200. Right? So, we want to outperform the average and then find the gems inside of
that market and then pursue those. -Boom. -We’re going to take a break for a moment to
acknowledge an individual who’s having a birthday today. And so the birthday, we
going to give them a house. Brent Higby, break it up here guys.
The birthday boy! How are you doing? Awesome, happy birthday. Check out this
guy. What’s you doing for your birthday? I give myself the gift of knowledge
proximity, power, growth in real estate. I love that. That’s really awesome.
Now, by the way, you see that the Higby’s actually just bought their first
property with me. 2 days ago? Guys, give them up for that. That’s really awesome. Okay, so guys are gonna tell you about
this property with Tyler. I want you guys to look at this Performa. So, you guys
just bought already a property in Florida. Let me tell you about this one.
You look at the picture. Does it look like the other one that you bought? -There
are some similarities but… -They’re very very similar. In fact a very very cookie
cutter. So, if you take a look at it, it’s a little grainy up there. But Tyler, I want
you walk through the numbers from the computer there. -Okay. Yeah, if you can’t
see it really well. I apologize. But so this house. It’s in Poinciana. Show them
where that is. Poinciana is right here. -Perfect. Okay.
So, right in that area that we just talked about. It was built in 2005. So,
think about the boom, right? And then a lot of construction just halted. So, do we
buy very many houses built for 2008 to 11 now. Because there’s hardly any built.
And then they started building again. So, this was built during that time. It’s
1,600 square feet, 4 bedrooms, 2 bathrooms. So, fits inside of that box
perfectly. $172,000. So again, how come you don’t buy in Utah as a
major market? Or all these other markets that have a lot of positive things going
on? Well, you can’t even buy a condo here for 172,000. Let alone a newer house, right?
On land and all that. So, the rent on this house is 1,400. So again, you
go back to those market averages, right? What was it 230 something and
1500. So, this 1,400 into 172 better ratio than market average. What we’re always
looking for is part of our underwriting criteria. When we underwrite houses, they
come through and we stamp approval or rejection right? On the houses. -I want to
talk about the exciting number for me guys. If you take a look right there in
the middle Brent, if you can point out the ROI’s. We calculate those in a
couple of different ways. When I take a look at my 5-year average ROI I am
dead-on at 7% cash on cash. For Florida, that’s a really high
performer. And the overall annual cash on cash with appreciation, with everything
else on this one currently looks like 29% annual ROI. -Wow.
-Friends, 29% annual ROI. It’s an exciting. It’s an
exciting. So, it’s your birthday, so it’s your choice. You go make a birthday wish.
If your birthday wishes you want this house… -Absolutely. -And we’re going tO go for
and see one get it under contract, you ready for it? -Let’s do it.
-Guys. Give it up. Super exciting, you guys.
Awesome. Awesome. So guys, I want to help you understand what that means. You guys
going to have a seat. That means that we’re literally doing real estate right now.
Now, you need to understand something. This house, is it a really good deal? Is
it going to last? Is it going to last? No, actually let me ask you guys. How much
time do we have when you… Went our massive marketing team, guys there’s
about 200 people in total that make this whole system work. When you get to the
point where you found the deal, you’ve run through the numbers, how much time do
we have to get this on the contract? -Huh! So, this house hit last night. And we’ll
have an offer out in a couple hours, we’re going to send you a doc you sign on
your phones. You know how to do it. You’ve done it already. And it’ll be under
contract by the end of the day tomorrow. I mean, you got to go fast. -A lot of times
we… It’s… It’s less than less than 24 hours is usually how much time we have
to jump on these things. -So, guys. There’s a massive marketing team that is
actually researching crunched in the numbers. There’s 2 numbers we don’t
have yet. So, the strategy is we’re going tO race to get this on a contract. nd then
during our due diligence for the next 3 to 5 days, we’re going to (1) get
the property manager in because we have a guesstimate on what we think property
management is. But we might be off $25. Rarely 50 but we
might be off 25 that’ll adjust the ROI. The other thing though is repairs. We got
pictures, we look at it. It’s possible repairs might be a thousand less. They
could be 5 grand more. Usually, the team is so good at estimating based on
just digital online that they’re usually accurate within a thousand dollars. But
sometimes, we go in and find out, “Wait a second. There’s an extra $4,000.” That adjusts of our ROI. That break the bank on this one. Are we going to
let it go? We’ve got a high likelihood of getting this. And friends, when you find a
really good deal, when do you need to act? -(Now) -You got it. And remember, we’re not buying
the house right now. What are we doing? We’re tying it up and we’re getting it
under contract. So by the way guys, for the Higby’s, one more time. Give me a
huge round of applause. Supercharged.

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