Episode 049 - STRR - The ABC's of Acquisitions (MAO and Learning Numbers) Part Three

 

This week, we are continuing our series on Property Acquisition.  It's a part of your Short Term Rental Business Plan.  You need to be thinking long-term and planning for your retirement, whether it's decades away or only a few months.  Holding Real Estate is something we all should seriously consider because RE is how the majority of millionaires BECOME millionaires.  In this episode, we'll talk more about how to figure out what your MAO is and how to protect yourself when things change suddenly.  Remember, the MAO is the maximum allowable offer.  Where do you get the numbers and how do you figure them out, a deeper dive.

 

Transcript of this Episode:

Hi, this is Michelle, the master of bunny mindset, and you are listening to BNB dash boss podcast.

And in today's podcast, it's Friday and Friday means that I'm off and you get to listen to a best of the short term rental revenue podcast. And this podcast is a continuation of the last couple of weeks. We are going on with our acquisitions, the ABCs of acquisitions and the term acquisitions. Acquiring your properties, right?

We're acquiring properties for our portfolio. Now, whether you're buying or renting, it doesn't really matter for a short-term rental business. You have to have properties, you have to have some place to put your BNB. It doesn't really matter when you get started, whether you own it or you rent it. Okay.

But in the long run you are going to want to own. And when you have a business where you're only doing rental arbitrage, that means renting from a land. You don't have a real estate business. You have a BNB business, right? You're just making money. But if something happens to you, your business goes plop, right.

It will not run on its own. It can be a legit business where you can form it to run on its own, but it's not going to be a real estate business. It's basically a BNB business. So there are two different things. Most of us. Okay. We want the power of having properties. And if you can't have the ultimate power of owning the property, right, that would be the ultimate power.

Like if it's a game, I have the ultimate power. Okay. God always has the ultimate power, but in this game of minimal. To win the game. You would have to own the businesses, right? You want to have boardwalk and you want to have a hotel on there, correct? You want to own it, but renting it, do you see, like when you walk around and you go around the board and you land on it and you pay the rent, who's got the power.

The owner has the power always. You want to be the one who acquires the properties ultimately in the end game, but don't worry when you're first getting started. It's okay to do acquisitions in a rental format. So where you're doing rental arbitrage, that means pine a landlord renting his property and then putting a BNB business in there.

But do you see. That one is actually a real estate acquiring business, like a real estate. You're you're really turning into a real estate investor. And that's the ultimate goal is to be the real estate investor. There are two different businesses when we run our short-term rental businesses, one would be.

Whoever is running the real estate portion of it. And that is the owner of the property and they're getting paid rent. And you can do that too. When you own the property yourself, you still have two businesses. Your BNB business is still going to pay your real estate business. Right. And I'll talk about that in many, many episodes, but not this one, this one's all going to be acquiring.

So at the end of this, because last week I went into how we negotiate with owners, I'm also going to see, because I can't remember exactly what was in this one. I know it was mostly about the numbers and everything. So I'm going to be listening in as this plays out. And if it doesn't come up in there, I'm going to be giving you some tips and tricks on how to talk to landlords, because we have such an amazing business for landlords.

Landlords love us, and believe me, when you get a landlord, you will get all his properties ultimately in the end, because he's going to love you. You're going to be his favorite, favorite renter. He's just going to love your business. He's going to tell him. If he's got other properties all around the city where you're at, he's going to be collecting those and putting your butt over in those.

And he wants what you have. And we'll talk about that. So without further ado here is the ABCs of property acquisitions. Enjoy. In this episode of the short-term rental revenue podcast, we do have adult language. So if you have any little ears around listening, grab your headphones. And in today's podcast, we're going to continue on our discussion about acquisition, about acquiring properties than putting them into our portfolios.

We're going to be building our portfolio so that we can support our families, just like everybody else. And then hopefully support the business owners that are supporting us and maybe give back to the community. If we possibly can. Today, we're going to be talking about knowing those numbers and making that offer.

We've got some great questions from you guys. You're leaving messages all over the place and we're finally getting to Kristin's. Hers is a couple of months old and so poor Chris and she's been waiting. But what I think she's talking about is exactly what we talked about in last week's podcast. Hi, Michelle.

It's Kristen from Milford, Pennsylvania. I just found you on, um, podcast and I absolutely love your channel. I certainly subscribed, and I am just spending all day listening to your podcast. So thank you for sharing your knowledge and your experience with the world. Um, what my question for you is because something that I see as being very frustrating and others might be frustrated with as well.

I solely utilize Airbnb for our short term rental, but I am seeing such an influx with people who are doing short-term rentals or renting out a portion of their own home just to make extra money. And they're not necessarily in it as a business or. As a passion as a love to give back, they're just, they're wanting to take from, and they're just doing the bare minimum.

I think it's really watering down the options for people that are renting the guests. I think it's, you know, they're kind of going to a potluck dinner when they utilize some of these short term rental sites nowadays, because there's not enough checks and balances. Within the system, for example, Airbnb VR BL for hosts to go through.

There's no training. Apparently there's new background checks that are being ran when you register. But up until this point, really anybody with no business background, no customer service background, anybody can just list a house for rent or a place for rent. Yeah. You know, I obviously go on as a, as a guest sometimes and utilize Airbnb myself.

And there's some things that I'm seeing listed that just make me cringe. And I don't think it looks good for those hosts, like myself who really take pride in offering the services and take pride in their home and really look at the fact that they're sharing their place with the world as being a privilege, as well as a blessing.

So Kristen got cut off there. Sorry about that, Kristin. It only accepts three minutes when it does a recording and I apologize for cutting you off there. I believe I've got your just, and I know what you're talking about. It is frustrating for those who are especially perfectionist people. People who really, really put a lot of thought and effort into their properties.

So I get what you're saying, but guess what? This is good for us. I know it feels like it's not good for us, but it really is. There's going to be one thing that weighs this out fact that we can leave reviews. And the fact others leave reviews for us. Right? So reviews are going to make up a huge portion of this, but just like any part of good capitalism, you have to have competence.

So you are going to have people who are competing to be the best you are, the Mercedes brand. You are actually like the Lamborghini of the short-term rental business and other people are going to be, I don't know what a lower car is. Chevy or Ford. Cause sometimes those can be reliable cars. You're definitely like the you're competing with somebody who's like a Pinto, right?

Another very low car that just, it's just a nameless, Brandless baseless. But the whole thing is people get to look at all the reviews and they get to weigh those options. They say, okay, I can spend a lot of money and get a great quality product and go to Christine's place and I can stay with her. Or I can save a lot of money and just say at Joe blows over here, and it's a piece of crap property with cockroaches, and I can see it.

ELLs are always dirty because the reviews are just like, what great. So people like, are you really going to stay there? So it gives people an option. It fills whatever fills their budget. Not only that. But it also lets them know what they're getting for that money. So you're always going to have a good and a bad, you're always going to have that competition and believe me, one thing will happen.

They will leave because if they keep getting bad reviews, no one will stay there. And eventually. They're having to pay rent or they're having to pay a mortgage on this property and they've put money and time into it, regardless of how little time and effort that they put into it, there's always money involved, right?

Because a property costs money to have in Maine. So eventually if they're not making any money off of it, they're going to have to let it go. People are going to be able to see the difference. They're going to see the difference between those buildings. So that is truly the whole point of capitalism. It really is.

Competition is good. There are some people who can't afford the best and it's good for us too. It's good for us as owners to have that competition. I know I compete with people in my areas, right. I know I'm always in the top 10, but every so often I'll see somebody making more than me. I aspire to make that much in that area and make sure that my property is that good or better.

And so I love a little healthy competition. It's great for me. I always aspire to be the best. And it's great to know that you do too. You are always aspiring to be the best. And like I said, never compete for last place. Those guys they're competing for last place. And what will happen is they will eventually beat themselves out.

I mean, they will lose last place because you can't compete for last place. Someone's always going to have a lower price than you, and they can keep cutting it down, cutting it down, cutting it down. But eventually they have to pay for that property. They can only do it for so long before they lose so much money that they have to.

Or stop renting it or whatever they're doing to acquire the property. And they're out. They'll just be out because no one will want to stay there with the crappy crappy reviews, people read reviews. So I get what you're saying. I get what you're saying. It is sometimes frustrating, but at the same time, it's good.

Good, healthy competition is what everybody needs. I mean, right now we just had another burger joint come in here. We've got a ton of different, I mean, obviously a ton of different places in Arizona years ago, we had the first in and out burger come in from California and people went crazy all over the valley.

Now there's in and outs everywhere. Right? It's a very California west coast burger and they're not my favorite burger. My husband likes some, but I'm not a big fan of in and out. I'm more of a fit. Of shake shack, which is an east coast burger that we had come out here and I would definitely get a smoke shack over an in and out double, double any day.

So it just depends on what you like. Right. Well, guess what, just a week ago, a what a burger opened up here, which is a Texas chain and if you know any Texans, I have a lot of friends from Texas. They love their water. That place has a line like day and night. It's 24 hours. And I'm telling you that line is crazy, ridiculous all times of the day, but the whole point is there's something for everyone.

There's something for everyone in competition is important in the United States. We thrive on competition, not everybody's going to like an in and out, not everybody's going to like a shake shack and not everybody is going to like a, whatever. There's something for everyone and you are fulfilling a need a much wanted and much needed need in your area.

And by providing a great service, you're going to get those five star reviews. You're going to have opportunity to make more money than the majority of people, because your place will be in demand, especially when you have one of the only five star reviews in your area. You'll notice that people are like, you know what?

I am not going to stay at one of these three star, two star places. I will only stay at five star places. And so you've really, really hit your niche there. So feel good about that? Embrace that you are the top of your niche. You are the top of your area. That competition will clean itself out in time. But meanwhile, you are serving a greater clientele.

You are building a bigger base for your business, and you'll have hundreds of five-star reviews as these people go in and out of business. And just do that revolving door of trying something now, not really being good at. So, no worries. No worries. That is what capitalism is all about. It's about that competition and providing the best service you can possibly provide.

So good job. Keep it up, keep up the good work. And just the fact that you care so deeply tells a lot about you. It just says that I'm a passionate person about my business and I aspire to be the best at what I do. Why aren't others? That way. It's always funny because. Why do people not think the same that we do?

And it's really weird when, when they don't, but some people don't, they're just in it for a little while and they're just trying it out and seeing what they can do and have at it, you know? So we're going to be the ones who persevere through all the coronavirus and everything else. So good luck to you, honey.

I hope you do really, really well in this business. And I know you will just by your passion right there. So let's get this subject started. Knowing your numbers. I think last week we talked about her property with a hundred thousand dollars and we knew our property was going to cost a hundred thousand dollars because our rents in that area were $1,000.

So we're using that 1% rule. Right? So if the rent is on average, a thousand dollars a month, we're going to look for properties that are usually around a hundred thousand dollars. Now that's when we're searching the whole neighborhood, right. We want to look for things around that size and we don't know what the value is.

So now you're going to search the whole neighborhood and you're going to start in an area you want to be in. Now you've got to find out what the real value of those properties are now because I'm using a scenario in a neighborhood that I already know. And I know what the ARV is. That's a little bit easier, but let's say I didn't, let's say I was going into a new subdivision.

So I'm going to go into that subdivision and say, okay, here are all the ones I'm looking at one ones right now. And here's all the one-on-ones there. The rents are about a thousand a month. This is a great subdivision. It's got some great amenities. It's got a pool and a workout room and blah, blah, blah.

And I really liked that in the clubhouse. So I'm going to buy a property in here. Now I'm going to go and look for all the recently sold. I do not give a crap. What things are listed for. Okay. Listing is hoping when something's listed per se. Is hoping I'm going to look at the recently sold and never more than three months.

Usually I don't like to go back very far, but in the last three months, how many houses have sold in there and what have they sold for. And then compare them to my property. We got to do apples to apples, right? So one ones, same square footage, same everything. Right? If it's a one story, we're looking at a one story.

If it's a one bedroom, one bath, we're looking at a one bedroom, one bath. If it's, you know, a thousand square feet, we're looking at a thousand square feet. I don't care what it is, but we're going to look at apples to apples in the same neighborhood. Only sold in the recent past. Okay. Only sold. Now we've got at least three comps.

We call those comps, the comparatives. We look at three comps from the recent past and we can see, yeah, the properties have sold around 80 some thousand. Now we're going to look at the pictures of those comps and we're going to say, okay, what did the ones that sold for, or they're all selling around 80,000?

What did those look like? You'll be able to see, you know, maybe one was really crappy and it sold for 76,000. And one was really nice and it sold for 92. Right. So you're going to look at all those prices and you're going to put them all together. But at the end, you're going to be able to figure out if I were to fix up the really crappy one and put that in there, would it be comparable to the 92?

Is, is the 92, our ARV, or is the average of all the souls in this stuff? You know, the 80,000 is the average what I'm going for. And you'll be able to tell because sometimes things will go for a lot more, but they're really fixed up and fixed up way more than you would ever fix them. You're going to have to tell what those are.

You're going to have to figure out what your numbers are and you're going to work on that from there. So now let's say that we've taken a lot of properties and the average value really is around 80,000 and that is the after repaired value. That's what it is like when it's all fixed up. And that's the number we're going to be aiming for then.

Okay. Is 80,000. But that number, that 80,000, remember, we need to get it a little less than that. Why? Because you can't pay full price for a property and have absolutely no equity in it. Plus you're going to have closing costs and everything else that goes on top of that. So we're going to have to go back from the 80,000 now in my neighborhood that we were talking about, we said a hundred thousand.

Remember our ARV in that neighborhood is a hundred thousand. The ARV being a hundred thousand, we said 30% of that was what we were aiming for. We were aiming for 30% because we knew once we put the furniture and everything in it, we'd have $80,000 into it. And that we'd have $20,000 in equity. That's a nice cush.

That 20%, right. There is a nice cush. So when you have. $80,000 when you have a property that is $80,000, what's your nice cush. Is it 20% or is it 30%? If it's 30%, then you're looking at $56,000. That's your 30% off discounted price range from 80. That means that's your target price that you want to pay for it all in, but let's do the a hundred thousand because those numbers are a lot easier.

Let's say we got our hundred, we take our 30% off of that. And I remember in your area, it might be 20%, whatever you're doing, push make spiel comfy, I'm going for 70. You might be going for 80, and then we're going to take all our repairs off of that price. So there's a new bathroom that needs going. And you know, it's probably going to cost you between five and eight grand.

Then you're going to take that off. If you've got a kitchen going in, you don't have to spend a lot on a kitchen. But whatever you've got going, wherever you're taking off, it's going to come off of that 70% price. That's still leaving you that Kush at the very end of it. That's your all in price? My Kush that I was comfy with was 70.

My repairs were 15. So how much can I possibly pay for that property? If my price was a hundred thousand. I wanted 30% equity in it afterwards. That's my target. And then after my repairs and I take those off of there. So 70 minus the 15 is 55,000. It's 55,000. That 55,000. That's called your Mayo. Mayo stands for maximum allowable.

Offer your Mayo is 55 all in. That might seem, I mean, from people who think their house is worth a hundred thousand and you're like, how in the hell am I going to get these people down to 50,000 or 55,000? Believe me, it happens every day, every single day. And it's funny because it won't happen if you never asked for it to happen, but it happens every day.

You can do this. It's easy to do, especially when repairs need to be done. That's why we don't go for the ones that are all fixed up. Why if somebody just bought that property and fixed it up and they put their time in their money and effort into finding it, marketing for it, fixing it, and now they're flipping it.

They need that money back. They need the money that they put into it. You're not going to be able to work with it. That's why we don't look at the ones that just got recently renovate. Unless we got a shitload of money to work with. If you got a shitload of money to work with and fine, but I still wouldn't ever pay that top price.

Not unless the numbers were really, really good, because you've got to make sure that your income is going to cover all of those expenses, all of that. And that you've got that nice cush because God forbid you have to sell that for some reason. You don't want to sell it for a loss and lose money. And there's always a reason you've got to have multiple exit strategies when it comes to purchasing a property.

Every time you go in, you've got to think what if this happens? What if this happens? What if this happens? What if God forbid somebody gets sick and I have to sell this property fast? Well, if it does, and you've got $30,000 equity in that property, you can sell it fast tomorrow for $80,000. 20,000 under market value, and it will sell it in a heartbeat and you'll still have enough to close on and you can get out of it.

And you made up all your cash. Do you see what I'm saying? If something bad were to happen like that and you had to sell it, what if God forbid a pandemic hits and you don't get income for this many months, right? Paying the mortgage on 70,000. Sure. Beats paying a mortgage on a hundred thousand. You got a little bit more cush there.

And if you paid that cash, which hopefully you did, you've got a lot more to work with. So there's a lot of reasons that you don't mess around with those numbers. Don't mess with those numbers. Know what the ARV is, what it is really, really worth. Know what cushion you are comfortable with. It may be 20% now.

Remember, I'm a more aggressive. Buyer than most people. And I don't mind getting the nose, nose hurt your feelings. Then you may want to go with 80 or even 10% because you're like, I will never be able to talk him down. Well, you will. But you're not going to be able to be, keep saying that you can't, because that's some pretty negative thinking.

Right. But I know I can get those numbers. I know that if it's meant to be, I'm going to get the right people in there. And also I'm going to be offering cash for these properties and a quick closed, you know, with no inspections and stuff. So heck yeah, I can, I can get that number a lot of times. You'd be surprised, actually, you wouldn't be, if you were an investor, because most of us investors, we get those numbers every day.

Okay. So you take that a hundred thousand, take your Kush off of there. That leaves us 70. And then you take off that 70, you're going to take whatever it takes to fix it up, to make it beautiful. Right. And that was 15,000. So that brought us down to the 55,000. The 55,000 is now R M a O R male. Okay. The male maximum allowable offer.

You want to know your ARV after repair values. You want to know what your cushion is. You want to know what your repair costs. And you want to know your mail when you go in. Okay. And then you're going to be able to play with those numbers. Now, remember these numbers have a lot to do with the rental values that are coming in.

So where do those come into play? When you take that 55,000 and you add the 15 to, it will be 70,000 all in. If we were to get all of our expenses for this property at 70,000. Let's say we were to get a loan and our loan was at 4% to end. Let's say it was a hundred percent now, even though we're paying cash for it.

We're just going to say, because maybe who knows. I mean, we might want to pull all our money back out of this thing. So if we did, we'd want to put a loan on it. So we're going to get our mortgage at 4% on that 70,000. And we're going to say, okay, what's our mortgage price. What's our taxes and our insurance.

And remember we're going to run the insurance. Even though we're doing a long-term rental income, we're going to let's use the insurance cost for a short term rental insurance, because it's a little bit more, it's a couple of hundred dollars a year more, but let's just figure it out that way. So we're going to deduct all of those expenses, taxes, insurance, mortgage payment, HOA fees.

Maybe you've got water or utilities, sewage. Things that are renters normally would not pay whatever would be included in the rent. And we're going to deduct all those expenses. Now, obviously when we're just renting it out for a monthly payment of a thousand dollars a month, most of our tenants would pay their own utilities like electric cable.

All those utilities would be paid for by them. And we'd be getting that, but we're going to pay whatever we would pay on a normal long-term rental. We're going to take those expenses out. Then we're going to make sure that our thousand dollar a month income more than covers that along with a little bit that we put away every month, just for maintenance.

When we've got a nice cushion, at least a hundred, 150, whatever your cushion is, whatever you feel comfortable with. I like to make at least a hundred, $150 extra into my pocket with a single-family home. I can do it on a single family home, but sometimes when you do multiple units, like a duplex or triplex or fourplex or something, you can't get that much.

Sometimes it's a hundred dollars. And sometimes I know that there's even landlords out there who. Functioning at $50 a unit overhead, which I can not imagine because, because I take a lot of expenses out of there. I do lawn maintenance and all the things that keep the property looking great. So I take all of that stuff out of there, but if you can put all of your expenses that you would have on a normal long-term renter and add them all up, and let's say they came to say they came to $850.

That's still really good. You got $150. So you want to add up all your expenses for regular long-term rental. Now these are not the same expenses that you would have for a short-term rental. Are they? No, they're not because I'm on a short term rental, you'll be paying all of the utilities. You might even have cable in there depending on the property that you have or massive home owners, association fees.

If you've got a residence, like a lot of our places in Florida. Really nice amenities and workout rooms and swimming pools, and they're privately gated and really nice communities that even include the insurance and sometimes the cable and the internet and the stuff is included in our HOA. So some of our properties have a $700 a month and sometimes even a little bit more of an HOA fee.

So whatever those B's are. You have to put those in there. Okay. You'll have to, are those in there for a long-term rental or a short-term rental? You've got to know what your difference is, but we're going to run these numbers on a long term rental basis, and we're going to make sure we've got enough money to, I mean, and to cover it just in case the shit hit the fan.

Right. And guess what we had at the beginning of this year, we had the shit hit the fan. We really did because we had to switch to long-term rental prices quickly. Quickly, we had to do it really fast. And a lot of us were able to do that by putting nurses, traveling nurses into our properties or students who were stuck near the university, when the dorms closed, things like that.

We had a lot of different opportunities that arose, but then our properties and floor we're just crickets like, and we had to really go into marketing mode to try to get those. So we went long-term as quickly as we possibly could because that's when the S hits the fan. Right. But if we had to, what else could we do?

What else could we do? What if we couldn't rent those out, then our scenarios would fall into place and we'd be like, okay, now we're going to go. Long-term rental. We'll put somebody in there for six months or a year. If we have. And we'll still know that we can cash flow that property. What if we had purchased those properties using short-term rental prices?

Then we would have been crickets. Our pocket books would have been crickets and our bankers would have been foreclosing on our little butts because we would have been anticipating a much greater income. And maybe we bought that property for a much higher price. And our expenses would be so great that we could not cover them the way that we did.

It's always good to have your exit strategies. That's why we always buy using long-term rental income, because if we can't make it work on those numbers, Then we're not going to even try to make it work. Things change. I mean, it's not just a pandemic guys. A lot of times new laws come into play. There were times where short-term rentals were legal in a lot of places.

The first ones that came up in Las Vegas were legal. And then obviously all the resorts said, we don't want competition with these guys and they made them illegal. So what if you had bought all your properties using the wonderful income that we get from short-term rental? And you had bought the properties using that you would have paid too much for those properties.

And then when you went to dump them and get rid of them, because you could no longer run short-term rentals out of them, legally, you'd be screwed because nobody else could make that money off of it. You would have to wait for those prices and put long-term renters in there and you'd be losing money. So that's why we do what we do.

I don't want you to go over your head and if you have to sit down and write this out and write it out, but let's, let's talk about what that is. This is a great way to do this, and you can only do these Woodbridge mortgages and private lenders. Okay. So we used to buy properties all the time. 3, 2, 1. In Florida, we would get distressed properties at auction.

I was really good at getting auction properties. For some reason, I love auctions. I don't know what it is, but I'm really good at not caring and stopping my bidding. When I know that, you know, it's reaching my limit because I know what I want to pay. And if it goes over it, screw it. I don't keep bidding. I don't get into the emotion of it.

I usually have several properties. I'm going to bid on any way and there's always tomorrow and there's always another property. So I'm really good at it. Now, some people get too emotional and they can not do it. So don't do it. If you get emotional, okay. Emotional people can not do it. People who just know what they want to pay and they're willing to cut themselves off.

They are really good at. So I would pick up these properties for like $35,000, even though I had the whole entire 35,000 and then some, what I would do is I would go 50 50 with a private lender. I would put in my 17 five, 17,500. And then I would get a private lender at 17 five. Now, sometimes those private lenders, believe it or not are at 10%.

I know seems like a lot of money, right? Every single month you're paying a lot of money, but it doesn't matter whatever the percentage is because you're only going to do it for a couple of months when you have this bridge loan. So you're going to pay even a high percentage, even if it's 6%, 8%, 10% who gives a shit.

You really don't care because you're only going to do it for a few months and I'll show you what happens. Okay. So I put my 1700. And then I got alone for their 17 five, their portion, the other 50% of it. And then I fixed it up. Now sometimes I'd have to put 30 or $40,000 into it. So let's just say I put 35,000 into this property because a lot of times they need new cabinets in the kitchen.

They need all new appliances. They might need new flooring. They might need new bathrooms. I mean, who knows, but we're going to put a lot of work into this place. And we're going to fix this baby up and we're going to put a ton of money and time into it. And probably, I would say six to eight weeks time is usually what it would take us six to eight weeks.

But after putting in our $52,500, because we put in 35 plus our 17 five, right? So we put in $52,500 and we got alone for the 17 five, the other 1700. A bridge loan with a private lender at a really high percentage rate. Now we can go and we can refi this whole property because of the refi. We don't have to have the seasoning.

So they're going to take a look at the value of this property. Now let's just say that it's the property that we just looked at, right? Let's just say it's, it's the one that's worth a hundred thousand. They might use their 70, 30, right. They might use their 70, 30 in this instance because we're going to be pulling out money.

Now, when you pull out money, they'll use that 70 30, when you do a complete refi, they just give you a refi of what you already have. But in this case, they're going to do this 70 30. So if the property is worth a hundred thousand, they are limiting us to pull out $70,000. They go in, they figure it out and they go, oh, all the houses in the area, all this fixed up, this is what this property is worth a hundred thousand dollars.

We'll give you $70,000. So they gave me. A check for $70,000. And what is that? $70,000? I pay the 17 five back that I owed. Right. And I pay myself the 52, 5 that I put in there. And right there, I got my 70,000. I pulled all my money out. What if it was worth more? What if the ARV on that was $120,000? What's the 70, 30 rule on $120,000.

That means they'll give me a loan for $84,000. So they'll say, okay. $84,000, Michelle with the $84,000 that we lend you on this house, you can pay back the 17,500. You owe, you can pay yourself back the 52,500. You put into it. And you'll have an extra 14,000 in your pocket, 14,000. That is tax-free because it's alone.

Do you understand? It's pretty cool right now. Remember what I said. If you've already got a loan, like if you've got a private lender to lend you that money at 6%, that's why I wasn't upset with a 6%. A lot of times you can definitely get these guys to lend you money. If you've been doing a lot of deals with these guys, they don't care.

As long as there's a little bit of cushion, they don't care if it's 20%, most of the time, they don't care if it's 20% or whatever, as long as they've got all of it. And if they do deal after deal after deal with. They don't care. They don't care, but sometimes they want a certain percentage. It's like, okay, if you refi this within a year, we want to make sure that we make, you know, we'll lend you a hundred thousand dollars and we want to make sure that we make 5,000 or whatever.

There's all kinds of deals. Everything is negotiable. You can make deals on deals on deals, on deals with private investors. But whatever it is, you can make sure that whatever you're doing, the loan amount is so good that you can pay yourself back, pay yourself for the furniture that you took out. Pay yourself for all that stuff, and have a little bit of extra money in your pocket.

Just paying the furniture is good enough for me. Most of the time, that's all we aim for is just to have enough to pay for the furniture too. And if we do that, we've considered a win-win that property is zero money out of our pocket. That money, literally, what's our return on investment in that? What of your pain and the $86,000 mortgage at 6%.

So what? $516 a month. Big deal. The thing is your return on your investment. There is infinite because you have no money out of your pocket. It's an infinite return. It's not a 10% return. It's not a 20% on your money return. It's not a 30% return on your investment. It's an infinite return because you are making money and you have no money invested.

You have no money of yours invested in that property. It is an infinite return. It is the best possible scenario. None of your money was used. The money coming in, goes to you. Got it. That's an infinite return. And that is what you're looking for. You're looking for infinite returns in the net returns.

Remember eight sideways is the infinite symbol. It is a very good symbol when it talks about the money coming into your pocket. It's like the why as an infinite symbol is a yummy symbol. You will love this symbol because it's awesome. Okay. It's really, really awesome. You're going to love it. So these are some of the ways and the numbers that we know and the numbers that we play with and the people that we play with.

We get a lot of players. Now, we'll remember when you're doing this stuff, you're going to go to Rhea medians, which are your real estate investor association meetings all over the country. Arizona has one of the biggest ones. I think we're the biggest in the country, the asthma area, we call it and they've got them all over the country.

You want to go to these meetings? Why? Because you're going to meet whales. There. A whale is a person with a lot of money in their pocket and they don't know what the hell to do with it. You are going to show them what to do with it. You aren't going to give them returns. You are going to meet people and all they want is a lousy 6%.

I shit. You not because what are they getting at the banks, right. 2% or less, right? Online banks. I've seen some really great rates right now on online banks at 2%. But most, for the most part, they're making 1%. They're not making anything, not on a CD, not on nada, you taking out a loan and them having a mortgage.

If you don't pay them, they get the house. That's it. They're a super duper happy. They get that house. And hopefully you can even make a deal with them that they get the house with all the damn furniture and stuff, because you're going to make a lot more than a thousand dollars a month. Because we were making a thousand dollars a month on long-term renters.

What can you make on a short-term rental? Well, that's the good news here. Let's talk about that. That little property that we're talking about in Tucson makes about 30,000 a year. That's what the air DNA said it was making, but literally. We're looking more towards 33,000. Now let's just divide that over 12 months.

Although we know that it's never going to be over 12 months, you're going to have some months that are really slow, where you're making $2,000. Some months are really great. You're going to be making over $4,000 a month or whatever on this little place. And this is a little place. This isn't like on the beach somewhere where you're making hundreds of dollars a day.

No, this little guy, this little beauty just makes over 120, $150 a night, whatever it makes. Right. But over the course of a year, it averages out about $30,000. Now you can do with 30 or 33, I'm going to do it with, let's do it with 30. Okay. So let's take the 30,000. That it makes a year, average it out over 12 months.

And that gives us $2,500 a month. Income twenty-five hundred dollars a month. All right. Now, remember we went and we borrowed our money from our rich guy. And we said, Hey, rich, dude, that we love that you don't know what to do, either your money, probably a doctor. And you just don't want to learn how to invest yourself.

He's the one who lent us. We spent the 58,000 on the house. We spent the $18,000 fixing it up. We spent that $10,000 on the furniture and the locks and all the crap that we put in there. Right. So we put 86,000 into. Rich, dude, will you give us a loan for our 86,000? And we will give you 6% on that. And the rich dude is like, yes, I would love to make 6%.

And he goes, wait in the word, seven is my favorite number. Let's make it 7%. And you're like, okay, 7% over 30 years. With an $86,000 mortgage is going to give us a mortgage of about $572 a month. Our mortgage is 5 72. Our taxes are 1 75. Our insurance is 500. Let's say our electric water cable. All of those units utilities.

Let's say those come to 300 a month. Let's say our cleaning comes to you. 3 75 a month. Oh, oh, let's put an HOA in there. Let's put a $200 HOA. So what are our expenses then? 5 72, 1 75, 5303 75 and 200. Our expenses are 1672 when we're running a short-term rental. When we're running a short-term rental, we have all the utilities, all that extra stuff.

But when we're running a long-term rental, number one, we wouldn't have bought all that furniture. Right. And number two, we wouldn't have the cable and the electricity and all that stuff. They would be paying all that stuff themselves. So right now we're putting all those extra expenses on there because we're doing all that stuff.

We're running all the utilities and we've got the short term, right. But we're making $2,500 a month. That means we're cashflowing on average $828 a month times, our 12 months means we're making $10,000. $10,000 a year. That doesn't sound like a lot of money. Does it? Cause you're like, oh, that doesn't sound like a lot of money.

Well, let's figure out our ROI on it. Then wait a minute. We don't have any money invested in us Dewey because we took it all out. That infinite return, we've got zero money invested and we're making $10,000 a year. $10,000 a year with no money down. Do you get it now? Duplicate that duplicated three times $30,000 a year.

No money invested. Duplicate it. 10 times a hundred thousand dollars a year. No money invested right duplicated in 50 times. That's $500,000 a year. No money invested. Hello? Do you get it now? It's like huge. It's super duper huge. You're going to love this. You are going to love this. So we need to know our numbers.

We need to learn our numbers. We need to love our numbers. We need to do these deals. These types of deals, because zero, zero money down, zero money out of our pocket is a beautiful thing. It is a beautiful thing and it is how you become wealthy using other people's money. And remember, again, if it all goes to hell because of this COVID thing and you got to start renting it out months a month, you can still make all those payments.

You can still do all of that stuff and you'll be fine. Right. I don't know if it really has an HOA. I don't think this property has an HOA, but if it did, you might have to figure that out too, in there. And we should have put that number in. Obviously still, it's still going to make a lot of money. You're going to love this property.

It's a great little property and you can do it over and over and over again. And then if you had to next year after you've shown a bank that you had $30,000 coming in a bank, we'll love to refinance you and probably re finance you for 3.5%. And you can get that $570 loan down to 386. So you could get that down another $170 a month and then have another hundred and $70 a month coming into your pocket, which gives you another couple of grand.

So you're going to love that. So play with the numbers, know the numbers, love the numbers. Numbers are fun. Numbers are your friend. All right. Now next one. We picked up the property, we made the deal. We've got it. We purchased it. So next week, we're going to talk about what are we going to do with the property?

How are we going to do this? We're going to talk about that next week. Okay. So that went a little long and because I wanted to get you, you know, I want to get deep into the negotiations with the landlord. I'm just going to make it a whole separate episode and we'll just make it a bonus episode. How to negotiate with landline.

Even if they can't edit the whole thing and get it dropped for me by Friday, I'm sure they can get it to me by Friday night or Saturday or something. So it will drop on Saturday morning at the latest on the weekend. So we're going to have a bonus episode for you. You'd be happy joy because it's super important to be able to negotiate with the landlords and landlords need to know that what you've got is so incredibly important that they can't do without you now.

Did you do last week's homework? Did you go and talk to five people? I hope you did, because I'm telling you, you are going to only be able to pick a properties the better you get at that. So you can completely suck, but I'm going to tell you something I'm positive that if you really did it, once you got to the third person, you started to feel a lot more comfortable.

I know you. Because everybody does. The first one is a little, uh, and then you don't know what to say. And then the second one's a little bit better, but you're still kind of scared, but by the third one, you're kind of getting into your groove. It's kind of weird. So the more people you talk to, the more yeses you are going to get, and it's a mental game that I used to play with myself that says, okay, How many people do I have to talk to in order to get a yes.

So I used to just tally these up, right. Just take a whole list and see how many people were between them all. And if it started at, you know, 25 people to get a yes, then the next one, I was like, I'm going to get a yes. Within 22 people. And that was my goal to get a yes, before 22 and then just keep bringing it down.

So, whereas, you know, now. It's not too many people that I have to talk to, especially landlords. I mean, landlords are almost pretty much every single one. I've only had a couple of nos with landlords, but buyers, you're still gonna get your nose. I mean, there's still going to be a good 10 in there, even for us OGs.

Right. Because some people, they just have that number in their mind and it's way, way off and other people. You know, it's just, it's just not a good fit for you. So you have to be willing to always walk away this week. What I want you to do is I want to make sure that you continue to talk to the same amount of people.

And if you didn't talk to five people make it five people increase it. I want you to talk to at least a person. Every single week. Okay. That is going to be your goal for the entire month. A person a day, a landlord a day. If you're doing rental arbitrage, a buyer a day, if you're buying right, and we're going to pick up a property, but the only way to do this is if you get off your tush and do it, and I know it's scary, but you have to do it.

You have to talk to someone. And I want you to listen to the landlord, how to negotiate episode. Okay. Because that's going to be critical if you're doing rental arbitrage. And I also suggest, and this is not just a plug, but for seven bucks and you better be able to just say that I believe in Michelle enough to pay $7 to go in.

And I think today is the last day. Today's going to be Friday is going to be the last day for our $7 courses. Go in there and get the rental arbitrage course for $7. Guys, we're talking like an expensive cup of Java, big deal. Go get the course because inside there, it's going to teach you how to do a buyers.

How to make yourself the only logical choice when it comes to property acquisitions with landlords, it's imperative that you have this course, if you have not paid $7 to buy the course, I mean, come on. Really. It just shows me that you don't care enough. It's amazing to me because most people don't realize what people get for free.

They do not value. They don't value it. And Tony Robbins taught me this lesson, Tony Robbins. In the eighties and nineties, when he was just starting to get big, right. He had the ability to give anybody, he wanted a free ticket to his events and his events were expensive back then. I mean, they're expensive now, but they were expensive back then.

His life mastery was 20 to 40 grand back then. So, I mean, you're talking a long time ago. It's a lot of money now. It was a, it was a whole lot of money. And he could give people anything for free. And once we started doing training with him, after we had graduated from life mastery, we went into like a training to start to work for him.

And we actually paid for this training. Right. So as we did, you know, they were kind of explaining and we said, well, you know, he can give that to anybody. And he said, oh, but he doesn't because what people get for free, they don't value. Kiss hockey said it to what people get for free. They don't value. The Bible even says, Because you have to have skin in the game.

When you have skin in the game, it makes all the difference. It makes all the difference. So Tony, you select people pay all this money to go, but when they paid for it, as much as it was, people would work and work and work to have the money to go to the event. And then they paid attention. They paid attention because they paid money.

And he talked about opportunity after opportunity that was lost on people that he used to give free event tickets to. And they just would not show up. Everybody would be inside at the event. And these people would be lollygagging around Hawaii. Wherever the event was, they were playing around. They were late, you know, they had no skin in the game, but people who paid for it, they were there.

It's like people with a gym membership when you're paying for a gym membership and it's expensive, you show up right? When you buy yourself a Palatine and you're paying a shitload of money for that thing, your butt is sitting on a bike and it's peddling away because you paid a lot of money for it. But most people who have something they didn't pay for or something really inexpensive, like, well, I have a bike sitting in my garage.

It's just sitting there. It's already paid for, and they don't care. There's no skin in the game. And so they're not doing it right. And if they didn't pay for a gym membership, if they get a free trial, sometimes they show up for the first, you know, few weeks, but then they stopped going. If people don't have skin in the game, they don't show up.

So it's just a psychological thing. It doesn't have value because you didn't pay. So in your brain, although you think to yourself, oh, this means a lot to me, it still doesn't have the value that it does when you really physically put money into it. It's like all kinds of stuff. It's why we don't rent to family or friends because they think that they can just tell us their sob story.

And they're not going to have to pay any rent, but we still have a mortgage to pay. So we just don't go. People who don't have skin in the game have nothing to lose. And so they don't care if they lose, you need to put some skin in the game and $7, $7. And even if the price went up by the time you heard this, it can't go up much because we're going to try to keep these prices really low.

It's absolutely worth it. It's absolutely worth it. You buy that course and you think that it's not worth the $7 afterwards. You give me a call because I can bet you that you haven't taken any action. Anybody who takes all the action and does everything in there will get a property, they will get a property.

But the thing is they usually do. And so we try to make it as affordable as we possibly can for you, because we want you to take action, but only you can take the action. We can't do that for you. We can teach you how to do a bunch of stuff, but if you don't do it, it's not going to happen. You can't blame us for your failure.

If you're the one failing to take action. So I'm going to have the, how to negotiate with the landlords. I'm going to go record that right now for you. And then we'll have that dropped on Saturday, at least, you know, on Saturday. Maybe we can drop them both on Friday, but we'll find out, but have a great weekend.

I want you to make sure you're taking action, please, please, please take action on this. Don't let this go. Don't allow yourself to procrastinate. Right? Take action. Take action. Take action. Okay. God bless you. Have a great weekend. Go and grow!!