Latest / The Jon Sanchez Show / From One Rental To Ten: How Real Estate Investors Build Wealth
Transcript
- Jon G. Sanchez: Good Tuesday afternoon to you. Welcome to the John Sanchez show on News Talk Seven Eighty KOH. Pleasure to be with you this Tuesday, and a pleasure to be with one of my two co-hosts, Mr. Cory Edge of Edge. Really? How doing, Big C? Cory: I'm doing fantastic, sir. How are you? Jon G. Sanchez: Very good. Very good. Thank you. Ms. Millard is attending to a family function and will not be joining us actually all week. All week. He's got the whole week off with us, Corey. Exactly. Exactly. Cory: Playing hooky, just like in grade school, playing hooky. Yep. Jon G. Sanchez: That's for sure. Definitely. All right. Let me tell you what we have lined up for you today. It's gonna be a great, great topic. From one rental to ten, how real estate investors build wealth. Corey, this is a dream. I know we've touched on this in some roundabout ways, but not, we're not, we've never gone really into the specifics like we're going to today. But you know, let's say I bought my first rental. It's producing income. I'm feeling confident, Corey. Everything's going good. I've got income coming in. I actually got a little better of net, you know, positive cash flow. I'm building equity in my property, and it's maybe even appreciated in this market. What I want to know, Corey, is how do I turn That one success story into two rentals and success stories, three, five, ten, whatever my number may be. So you're gonna help us break us break this down for us. How everyday real estate investors, not your big institutional, sophisticated ones, but the hardworking man and woman out there, Corey, that are listening to us right now, how they can build this portfolio, but more importantly, as you always do, there's pros and cons to everything. Some of the critical mistakes that we want or that you're gonna advise that people can avoid, right? Because All it takes is one mistake and here comes the house of cards tumbling down. Cory: Yeah, and that's that's kinda you know, we'll get into it. That's where you want a lot of the diversity, right? When you have multiple units, if you make a mistake on one but you own ten, we can Jon G. Sanchez: Right. Cory: we can hold that mistake to that one property, make sure we don't make it again, fix whatever the issue is, and it doesn't bring down the whole house of cards until you get to leverage. Like you know, leverage can bring down all of it. So we'll we'll talk about Jon G. Sanchez: Yes. Yes. Cory: that a little bit. Jon G. Sanchez: Yep. Absolutely. How how many people crazy question, you may not know the answer. How many people do you think over your, you know, nearly thirty year career as a real estate broker have you done this with where they started with one and you look back, whatever, five years, ten years, twenty years, and they've got an entire multi million dollar portfolio? Is there been has there been a lot? Cory: I I ha I have found that people either love it or they hate it. So Jon G. Sanchez: Nothing in between. Cory: people want to get involved in it, right? Because it's a great, you know, business, if you will, or Jon G. Sanchez: Yeah. Cory: career, or whatever you want to call it. and it's like going on vacation. It sounds great in the beginning, but then depending on where you go and if you like the food and all so some people Jon G. Sanchez: Yeah. Cory: get into it, John, and then it's just not their game. They don't want to deal with it. They don't want to, you know, go through it. Jon G. Sanchez: Yeah. Yep. I found the same thing. Cory: Other people, I would say the vast majority are. are successful but on a moderate level, two, three, four units, if you will, whether they're Jon G. Sanchez: Okay. Okay. Right. Cory: condos or houses. I do have a couple that, you know, no nothing to do with me, just great personalities, good business minds that have created multi, multi, multi-million dollar portfolios, if you will. Some of them, one in particular stayed within single family houses. I have another gentleman who parlayed that into a big development, you know, career, if you want to call it. Jon G. Sanchez: Wow. No kidding. Yep. Cory: of his own doing, you had nothing to do with, but you just see, and I was thinking about it today when you sent out the topic, like it's such an interesting thing because I think the dream for most Americans is we're gonna create a business, but it's hard because I gotta find a product, then I gotta go hire people, then somebody's gotta give me some money, then I gotta see if I can sell my product, I gotta figure all these things out. Whereas when you buy a rental property, it's all right there. The product's there, Jon G. Sanchez: Good point. Cory: the customer is the tenant, which are easy to find, the banks will lever you up. you know, ninety five percent if you want to like it's a self contained business Jon G. Sanchez: Mm-hmm. It's a really, really interesting way to look at it. I like that. Cory: unit that you don't need to have a lot of experience to get into. Mm-hmm. And you know, Jon G. Sanchez: Don't need a storefront. Yeah. Cory: it's not gonna become Microsoft, but it it can pay your bills and put your kids through college. So it's it's just it's a it's a neat little thing. Jon G. Sanchez: Yeah, yeah. That's a really it it it and I what I what I love about this, Corey, you gave me goosebumps. What I love about this approach that you just mentioned is you and I both know we've discussed it a million times over the years, very few landlords look at their rental or rentals as a business. At least I find that with our clients. It's like, you know what? You know, first of all, you don't have an LLCs, you have no asset protection, you're not really running as a business, you're co-mingling, your rental income, it's going into your personal bank account, on and on and on. you're running a business and the IRS looks at it as business, but do you still find that to be the case that so many people don't don't I'll call it formalize the whole process? Cory: I do a lot of it is because they're naive to it. They they've never run into a problem. So it's not that Jon G. Sanchez: Yeah. Right. Cory: they say, I know I want to do this. I'm just I'm smarter than everybody, so I won't. I don't get a lot of people that are that way, but I get the ones that they haven't had a problem. And as you know, until the problem comes up, it's not a problem until it's a problem, right? Jon G. Sanchez: Yep. That's right. That's right. Cory: and then they gotta go figure it out. So that's what we try to portray here is like, hey, these are tiny little business capsules and you need to treat them that way. And God forbid we hope you never have a problem. But if you do, Jon G. Sanchez: Yes. Cory: then you've insulated those things to within that little Jon G. Sanchez: Right. Cory: shell, so Jon G. Sanchez: Right. Right. You know, one one one issue that I'm really running into, I haven't even had a chance to tell you about it. You and I talk a lot off air about estate planning and you know, both of our passions for that. And what I'm finding is a lot of times people will, you know, and and I'm not saying this to brag, but they'll go, you know what? I heard you five years ago, ten years ago, emphasizing the importance of putting my rental property into an LLC and I did it. I'm like, Thank you. You know, that's that's why I sit behind this microphone, right? you know, change people's lives for the better. But yet they have a a trust. When I'm doing a trust review, they'll have a trust, but they never did the assignment of interest of the LLC to the trust. So yes, they got the asset protection of the LLC, but they don't have any probate protection, right? So Cory: Correct. Jon G. Sanchez: again, halfway there. Cory: Yes. Yeah. And a lot of people think that the trust provides the asset protection where it doesn't, Jon G. Sanchez: That's right. Nope. Cory: you know, right? So it's they're easy. And again, I think a lot of times people you say the term LLC to somebody who's never been involved and they think, my, that's $30,000 in attorney bills and this and that. Like it's so simple, so easy. Jon G. Sanchez: Yes, right. It really is. Cory: And the benefit is enormous if you ever need the protection of it. Jon G. Sanchez: Yes. That's right. That's right. No, it's it's all tied together. You know, it's it's it's income driven you know, properties, it's asset protecting the properties, it's it's a lot of things. But again, back to your point, look at each one of those rental properties as a little business capsule. I'm gonna I'm gonna steal your term. I love that. That's a that's a phenomenal way to look at it. Do you try to last thing that I'll get to the market, do you try to emphasize that to that first time, you know, investment property buyer to look at it that way? Cory: Yeah, depending on depending on if they've been through it before, right? Like somebody who who calls me, like I have a gentleman coming in from Texas who we're trying to get some stuff done. He owns multiple properties, right? I don't need to sit there and and explain Jon G. Sanchez: Mm-hmm. Sure. Cory: to him now. We're kind of talking it out. Like he talks at a high level, so I gotta make sure I can do the same thing. Or Jon G. Sanchez: Yep. Yep. Cory: if somebody who's never have it before, then I do try to explain it that way because it to a lot of people it sounds foreign, but once you explain it's like, yeah, that makes a lot of sense. And if Jon G. Sanchez: Yep. Yep. Cory: you can like I'm not very sharp, so I like people to explain things to me on a second grade level. So I try to explain on a second and then like, yeah, yeah, yeah, that makes sense. so Jon G. Sanchez: Yep. Yeah, I do the same. Yep, exactly. Well, I I've I've shared with you my and I've shared it on the show my how I get people to visualize the how an LLC works. Right my my sun and my planet diagram. Have I ever showed you that? Yeah, yeah, exactly. Yeah, yeah. So Cory: yeah, yeah, yeah. Exactly. I I don't know if I've seen the diagram, but I've heard the analogy, yeah. Jon G. Sanchez: yeah, what I what I've told Corey and this is again keep keeping things simple the way we like to do it. Right now, if you don't have a living trust and you don't have a more specifically an LLC, let's say you've got two rental properties, right? So draw a big circle. That's my son. Inside of that circle are all of your assets, your personal residence, your two rental properties, your bank accounts, your taxable brokerage accounts, on and on and on. And even your IRA accounts. You get sued on that rental property, first thing an attorney's gonna do is what, Corey? Cory: Here's the corporate seal. Jon G. Sanchez: There you go. He's going after everything in that big circle, right? That's easy pickings for him. If you have the LLC for each one of those rental properties, now that's the planet that sits outside the circle. So God forbid if you lose the lawsuit, on we'll call it rental number one, he can't go after rental two, and he can't go after what's inside the big circle, which is all of your other assets, right? Your personal assets. And that's why, again, it's so absolutely critical to meet with an attorney, have a proper asset protection plan in place and and Make sure you're you're said. The other thing too, Corey, that I see, and I know you and I have touched on this one, is people will, you know, because it it is, you're absolutely right. I mean, it takes me last one I did, it took me twenty-seven minutes to create an LLC. i it's it's very simple. Our our Secretary of State, their website has done a phenomenal job, make how easy it is to do it. I mean, I'm talking getting the, you know, the tax ID number, everything. But where people, again, are doing it halfway, they fail to get the operating agreement. And the operating agreement, as Corey and I know. We call it the glue. It's what holds that LLC together. Same thing. You get sued by an attorney. The first thing they're going to do in discovery is go, show me your operating agreement and show me your bank account. All right, Corey. Those are the first two things that they look at. Because if you don't have the operating agreement, which is basically here's the rules of the LLC. Here's what happens in the event of death, divorce, all the rules associated with this new business that you just created with this LLC. if you don't have that, good luck, you know, trying to keep that corporate veil put together. And then And then you know, the the is you've you've brought this up probably more times than I have, Corey, the mixing of the personal income or excuse me, the the mixing of the the rental income with the personal bank account. That's the other thing they look at. Cory: Well, and I you know, I had a a listener call me yesterday. I don't want to give out too many details, but we were talking about this and he said, Well, how if I'm making money, how do I get it out of there? If I can't co-mingle, I go, Well, you can get the money out. Jon G. Sanchez: no. Cory: It just needs to run through that bank account like any other business. So Jon G. Sanchez: Mm-hmm. Sure. Cory: the the rent goes into the LLC. If you need the money and the r you know, you don't need it Jon G. Sanchez: Mm-hmm. Cory: there for some other reason, take a distribution and then it goes into your personal account. Same thing is Jon G. Sanchez: Absolutely. Absolutely. Cory: if the if the unit needs a new toilet. Well, don't buy out of your personal account and go put it in the unit. Give the hundred dollars as a contribution to the LLC, have the LLC Jon G. Sanchez: Sure. Yep. Mm-hmm. Cory: buy the toilet, and then you know have your plumber install it if we're being legal. Jon G. Sanchez: That's right. That's right. Yep. Cory: so you can still access all the funds, you can still get all the benefits, just run Jon G. Sanchez: Absolutely. Cory: everything through the company account. Jon G. Sanchez: Yeah. Yep. And remember you do have to file a separate tax return for that LLC. People always forget that one too. They forget they forget to tell their Cory: Unless it's single use. Jon G. Sanchez: Yeah. Yeah. They forget to tell their accountant that they have this LLC and yeah, therefore, yeah, when it's applicable, you're right. you know, they they they don't file a tax return. And for many people it's it's you know, an LLC is a pass through entity. It's everything's gonna flow down to your personal return. So, Cory: Correct. Yep. Jon G. Sanchez: you know, it's to your point, it's not that hard. It in a sp it's like anything else. Once you do your first one, you're gonna go, Psh this was a piece of cake and probably, you know, just form your own going forward. But where I like to really bring the attorney in is is on the operating agreement because again, that's that's the the first line of defense that you have. So as you see, we're passionate about this. It's gonna be a great topic from one rental to ten. But when we come back, we're gonna get down to the stock market side of things. Welcome back to the John Sanchez show on News Talk 780 KOH with Corey Edge of Edge Reality. Again, Dwight has the afternoon off. All right, before we get to our topic from when rental to tent, let's give you the recap of the market today. As Corey and I were saying during the break, pretty quiet day again, just this slow, steady climb up, no complaints. We finished with a gain of 160 on the Dow 0.30% to a close of 53,577. NASDAQ rose 171.66%, and the SP higher by 24 points, closing at 7,677. kind of a perfect storm today if from a good sense. oil prices were down, bond yields were down right across the board. the 10 year fell today very nicely down seven basis points, but Corey was a it was a nice pullback right across the board and all the the various bond maturities. you know, again, yield closed there four sixty four. But man, the thirty year was down six basis points. The short end of the curve, two year was down four basis points. So yeah, just everything, which again. Quite surprising considering all the announcements yesterday of the new economic sanctions against Iran and 60 other countries. And then, of course, the last 48 hours of this tit for tat tariff war with Canada now, so on and so forth. But yeah, news of those things affect the bond market? Not today. let's see, oil prices down two dollars and sixty-nine cents, eighty-two twenty-nine a barrel, and gold gave up just eighty cents. That's a very unusual small close at four thousand six ninety-four twenty. Corey, we had consumer confidence rating dropped a little bit, 89.4% for August. But new home sales for July, man, what a tough number. I d I don't know. I don't know if the rest of the country follows the seasonality that you've always said about Reno, where you know, kind of fourth of July is our peak. Ten point or excuse me, ten and a half percent decline nationally on new home sales for the July. Man, that was a big number. Cory: Yeah. And you gotta remember that's been this this jump up in rates, right? And Jon G. Sanchez: That's right. Cory: if Dwight was here, I'm sure he'd say the same thing. There's a there's some of it that's affordability, but some of it's just buyer exhaustion. You know, they're just not Jon G. Sanchez: Yep. Right, right. Cory: and I think like because when we get the construction permits, we talked about this last week, like the multifamily has always done well and seems to be doing good, Jon G. Sanchez: Yes. Cory: but the single family at some point when you exhaust people long enough, they just give up. And there's like I'm just gonna rent. Jon G. Sanchez: Yeah. yeah. you're right. Cory: Why why would I even fight this? I'll just become a tenant. so Jon G. Sanchez: Yep. Yeah. Cory: you gotta be careful, you know, because I think some of the builders play this and and rightly so. They don't want to add too much inventory because it puts a it'll put a squeeze on their pricing. They like the limited supply. Jon G. Sanchez: Sure, sure. Cory: but you gotta be a little careful, right? Because if you keep these people as tenants long enough, they're just gonna be happy being tenants and forget it. Jon G. Sanchez: Yep. Yep. Yep. No, you're absolutely right. And speaking of mortgage rates, according to Mortgage News Daily, the 30 year of mortgage today down four basis points to a yield of six point seven four percent. All right, NVIDIA was a good mover. Gotta mention tomorrow's gonna be a really, really important day. We have NVIDIA earnings after the close. stock gained four dollars and forty-seven cents today to two twelve ninety-five. tomorrow we also have personal income, personal spending, and of course the Fed's favorite measure of inflation, which is the personal consumption expenditure. so we'll we'll see how that number comes in and how the market reacts there. let's see, Mordeno was another big star performer again. I remember they formed that kind of joint partnership with Merck was that last early part of last week? that new cancer study that they've they've released. But today the stock was up $19.94, 14.36% gain to $158.83. let's see, another big standout today on the downside was Dick's Sporting Goods. Down thirty point six eight percent, fifty-five dollar and two cent loss to one twenty four thirty one. in sympathy, Nike Dow Component down a buck twenty-eight. Decker Outdoors was down about three dollars and thirty-four cents. rest of the, you know, SpaceX today, two point two percent gain up two dollars and ninety-seven cents, one thirty-seven ninety seven. But yeah, I'm not seeing any really other major standouts on my screen. So yeah, overall, like I said, pretty decent day. We're just, you know, n nothing major going on. you know, AI wise, again, we're at the tail end of earnings. We're on the retail side of it now and Those usually don't really affect the market too much. But we did have consumer confidence. Like I said, reading came in at 89.4 for August, dipping a little bit from July's reading of ninety point two. And then Corey, I know this is just your absolute favorite economic report. The SP K Shiller home price index of July, of July, up two point one percent. So just why do they do it? Cory: Yeah, I mean it's hey, July's not bad though. I remember that used to like, you know, four or five months behind it felt like. So I'll take that. It will be Jon G. Sanchez: Yeah. Yeah, yeah, yeah, exactly. Yeah, you're right. You're right. Cory: interesting to see. Hopefully, yeah, I think next Tuesday we'll be able to do the local market report because I've been tracking it weekly. and the price, not to put anything out of the back because we'll see how it shakes up. the price has stayed elevated, but the number of sales has dropped immensely. so Jon G. Sanchez: Get it. Cory: we'll you know, hopefully we can go through that next Tuesday in more Jon G. Sanchez: Yeah. Cory: detail and just kinda see how the everything's reacting. Jon G. Sanchez: Absolutely. Love it. Cannot wait. All right. before we go to break, I want to give you a quick reminder of my upcoming educational webinar next Wednesday, of course, on an estate planning topic. And here's the situation. You wouldn't go 10 years without seeing a doctor. So why in the world would you go 10 years without checking your estate plan? Families change, assets change, everything's changed. The laws change, so on and so forth. And an estate plan that worked for you years ago when you originally had it created may not work for you the way that you think it does today. So join me this Wednesday, August the 26th, tomorrow, 6 p.m. for my free webinar, The Estate Planning Checkup. We're going to check your trust, your beneficiaries, your powers of attorney, and how your assets are titled. Visit specialized trusts.com to register today again. 6 p.m. tomorrow, specialized trust.com. All right, as we said at the beginning of the show, our topic's gonna be now from one rental to 10, how real estate investors can build wealth. You buy your first rental property, it's producing income, you're feeling on top of the world. You call up Corey and you go, hey, I'm ready for number two. And maybe, maybe number three and number four. Corey's gonna go, no, no, no, no. Let's crawl before we walk. But what we want to do for those of you like Corey said that has a passion for it, how do you turn that one rental property into two, five, ten, whatever your number is? So when we come back, Corey's gonna break down how everyday real estate investors can build a real estate portfolio and again the mistakes to avoid along the way. Welcome back to the John Sancho Show on News Talk 780 KOH with Corey Edge Vegility. We finished with a gain of 160 on the Dow. NASDAQ 171, the SP higher by 25. All right. It is time that we get to our real estate topic. Once again, turning one property into two, three, five, ten, whatever the number is. Doesn't really matter. Once you kind of get this whole process down, sky's the limit. Whatever you want to do, how much money you want to spend. Okay, Corey, let's get let's get to this topic here. I'm gonna start off with a with a crazy question for you. If someone, again, as I've said a few times to you today, Corey, owns one property, they're feeling really good, they feel successful, and they call you up and say, Corey, I wanna own five properties, what's the first thing you're gonna tell them? Cory: Go talk to Dwight. Unless Jon G. Sanchez: Ha ha ha. Cory: they're unless they're independently wealthy. But I Jon G. Sanchez: Ha ha. Cory: mean, because most people need to leverage it up. They need to get loans for that. And you can Jon G. Sanchez: Yeah. Cory: do it. So I don't know if I don't want to jump ahead, but the Fannie Freddie guidelines say you can have 10 loans in your name for invest. I think you can have 10 total. So obviously one of them would be your primary, usually. Jon G. Sanchez: Mm-hmm. Cory: So nine investment properties. So if I had a client or a new person that said, I've got I've got $300,000 and I don't want to pay cash. I want to lever this up as much as possible, as much money as they'll give me. Go see Dwight, because you can get up to 10 loans. and see. I I don't remember the down payments. It was always 20% down on investment, but I think it's lower now, maybe 10 Jon G. Sanchez: I did too, yeah. Cory: or 15. but that's the the the thing is, so let's say you and I own a rental and we've owned it for five years and we've built up a hundred thousand dollars in equity. We don't have to take that $100,000 or redo our loan or whatever and use that to go buy the next one. Because theoretically, hopefully, we've still been working for those five years. We've built up the disposable cash again in the five years. So we can just repeat the process again. Use the disposable cash similar like we did on the first Jon G. Sanchez: Mm-hmm. Cory: one. We're gonna go get another one. The rental income from the first property we own will be count towards our income, right? So it's not like you have to qualify with. all that debt because the rental income will offset 75% of Jon G. Sanchez: Mm-hmm. Cory: it. so a lot of times what I see is unless you are switching from I hate single family and I'm going straight to hotels or Jon G. Sanchez: Mm-hmm. Cory: something like that, most people's lives stay the same. Their budget stays the same. So every couple of years they'll accumulate another property because they've built up that nesting again, just like they did the first time, if you will. Jon G. Sanchez: Without even touching the equity on the existing rentals. Cory: Correct. And sometimes it's good. Like if that was free and clear and you and I came across a big land deal and we needed to get our Jon G. Sanchez: Mm-hmm. Cory: hands on five hundred grand and we have this rental property over here and say, okay, well, our nest egg isn't that big yet, so let's lever up the rental property and go chase this other deal and we can pay that off if we want to later or something. Jon G. Sanchez: Mm-hmm. Cory: But most people won't change the rental property they have. And most of the successful people I deal with, you know, they'll come in and say, I've got I have one client, I think he's got like 27 properties, and he's just accumulated them over the years and just over the years and over the years. but he's never, to my knowledge, I don't think he's ever used one to buy the next one, if you will. I'm sure he could. Most of them have very little debt, if any. Jon G. Sanchez: Interesting. Interesting. Yeah. Yeah. yeah. I bet. Yeah. Cory: but that just he that just he he wasn't in such a hurry that he felt like he needed to do that. Jon G. Sanchez: Okay. So that's been a long-term plan. Love it. So what are some of the critical questions that we need to ask before we buy property number two? Cory: So if we have one, so I guess the the thing that I would say if you came into my office and we're talking, then my first question would be, how is property number one going? How are your so but all your accounting's going great? It's not stressing you out, the tenant's not calling you directly. Jon G. Sanchez: It's going great. It's going great. Couple hundred dollars a month positive cash flow. Yep. Yep. Yep. Got a L L C. I've listened to the John Sancho show for years and yeah, it's everything's great, Corey. Everything's perfect. Yeah. Cory: If everything's going perfect and if you need a loan, I'm gonna say, well go talk to Dwight. But if you've already talked to Dwight, great, let's go do it again. So what's Jon G. Sanchez: Yeah. Yeah. Cory: the best part of that, right? Like let's assume it's a three-bedroom, two-bath, and your tenant is a small family with school age kids. Well, do you like that because you have that you know, tenant base? Do you like it because maybe it's close to a school and that's why they're there? Like what are the parts of it that work? Because if we do this 10 times, inevitably one of those is gonna go wrong. Not with the property, but maybe with the tenant. So if we can figure out what part of it you enjoy other than the cash, everybody enjoys the cash, but what part of it has made it successful in that investor's mind, then let's go try to replicate that. or maybe they're like, I bought this house in the Northwest Reno, and it's been the best neighborhood, and the tenant's been awesome, and he said all the neighbors are awesome, and all this. Great. Well, let's go back to Northwest Reno, because clearly whatever you did up there. is worthwhile and trying to, you know, recreate so they can get the same, you know, effect next time. Jon G. Sanchez: Is it hard to replicate a property? Cory: You may not replicate the exact property, but you're trying to replicate the experience and maybe the tenant base, right? So, and again, I'll just generalize, but in certain parts of Reno Northwest, out in the North Valleys, you're gonna have more families, people getting close to schools, younger age kids, all those things. So we can replicate the same tenant base, even if it's a different house, if you will. Bigger house, smaller house, apartment, doesn't matter. because we're gonna get the same tenant base. Now, if all of a sudden our house that's been very successful is in Northwest Reno and we're charging, you know, average rents and we've got an average tenant in there. And you come and say, Listen, I want to buy a house in Montre. I'm like, okay, well, this is a completely different profile, right? Like Jon G. Sanchez: Yeah, right. Yeah. Cory: these people might fight you a little bit more. They tend to have lawyers. If you you know, I mean, like it's gonna be a different experience. Jon G. Sanchez: Yeah. Different. Yeah. Cory: but if it's a twenty cap, like let's chase it. But if Jon G. Sanchez: Yeah. Right. Cory: it's a five cap just like the one in the Northwest Reno, well, why don't we just stick with what we know? Because it's working, it's making sense. Jon G. Sanchez: Right, right. All right, let's move on to our second area. The four ways a rental can build wealth. Let's start with the first one. Profit. How do we determine our profit? Cory: Cash flow. I mean, if we're talking about annualized, monthly, whatever, cash flow is the biggest thing. And we should have, if we did a good job, we should have determined that before you even bought it. We should have done all the expenses, all the the what-ifs, all the scenarios. it's not always a perfect game. We're going to get something wrong, but if we're close enough, then it should at least pay for itself and hopefully have some positive cash flow on a fixed rate loan, hopefully. So If we go in and the first the only thing you can buy right now is an adjustable rate loan and it's gonna be two years. And you come to me a year later and say, Man, this thing is cash flow. Great, I want to buy another one. Be like, remember, John, you're gonna adjust in two years. Right? Jon G. Sanchez: Yeah, good. That's a great point. That's a great point. Cory: So let's make sure it's gonna cash flow when this when this loan adjusts, because everything's Jon G. Sanchez: Resets. Yeah. Cory: everything's hunky dory right now, but when your payment goes up six hundred dollars, it may not be anymore. Jon G. Sanchez: Right. Cory: so monthly cash flow is a fantastic way. obviously appreciation. Right. And that's something you don't really control. And I I try to tell people, especially if they're long-term, don't worry about whatever the value is going to be what the value is. You're not going to sell it, so don't worry about it. It's Jon G. Sanchez: Mm-hmm. Cory: going to go up, it's going to go down. And you know, if you're a super long-term investor, then your kids or your grandkids can worry about what the value Jon G. Sanchez: Mm-hmm. Cory: is, right? It's it's producing income for you. and it's going to appreciate over time. Doesn't mean it's going to appreciate every day or every month or maybe even every year, but over time it will appreciate. that's usually the big chunk, right? That's the one everybody's after. depreciation, the phantom write-off, right? So we get to do your taxes and we get to do your your income versus expenses and all the hard money stuff, and then you get to depreciate it. So you get the little fun calculation that your accountant can do or now AI can do for you Jon G. Sanchez: Mm-hmm. Cory: of how much more you get to write off on your taxes legally to depreciate that house. and and get a little bit of a tax bump for you, a little bit extra income there. and you tell me the fourth one I'm spacing. Jon G. Sanchez: well we've got tax treatment, which you just covered. We got appreciation. The last one is our principal reduction. Cory: Yes. That so I always tell this story because it makes me look like an idiot. Right during the great financial crisis, we were going through short sales, this and that. And one of our listeners called and he was picking my brain. He goes, Listen, my my daughter has a rental. She's upside down. She thinks she should sell it. I don't think she should. And I was right in the heat of it. And I said, You know what? You should probably sell it. And I had all these reasons. Jon G. Sanchez: Yep. Yep. Which was a perfectly legitimate answer during that crisis. Cory: Well, because the whole I mean, the we were going back to the Stone Age and who the heck needs a house, right? Jon G. Sanchez: Yeah, yeah, that's right. That's right. Cory: And he said, Why would I sell it? That it's paying it's not cash Jon G. Sanchez: Ha ha. Cory: flow, but it doesn't cost her and it's paying down her principal every month. Every time the tenant pays her rent, she pays her mortgage, it's bringing it down. And he was absolutely right. I mean, he I could not have been more wrong. So not only did she get to recover, get all the equity appreciation, but it's probably paid off by now. Like how long ago was that? It's Jon G. Sanchez: Sure, sure. wait. Cory: You know what I mean? So every month your tenant is is reducing the amount you owe. Jon G. Sanchez: All right, so let's recap that again. The the four ways a rental can build wealth, the cash flow, the principal reduction, the appreciation, and the tax treatment. Okay, Corey, next one. Let's get squeeze this part of this one in before we go to break. How do I buy property number two? Cory: Again, I would go through the same scenario you went through the first time. If you used a loan and you have your nest stakes save up again, you can get up to ten federally, you know, backed loans, if you will, Fannie Freddie loans. so go through the same process again. Go back and see the lender. Let's go find the next property. Try to stick with the same playbook if the first one was successful. Jon G. Sanchez: All right, we come back, we'll talk about the power and the danger of that L word that Corey mentioned, leverage. yeah, this is a great way to multiply a portfolio. However, of course, there's always risk to that. Welcome back to the John Sanchez show on Newstock seven eighty KOH. Mr. Eds, before we forget, let's get your phone number going, please. Cory: six seven three six seven zero zero. Jon G. Sanchez: Beautiful. Thank you. All right. We've been talking about from one rental to 10. Now, on to the next one, Corey. The power and the danger of leverage. Corey, let's say, you know, again, it's one of the great things about real estate, is one of the few assets that you can leverage, right? Let's say someone comes to you and they have $100,000. Of course, they can go out and spend, you know, $100,000 outright. It's not going to get you much, of course, or if anything at all. Or they could use the $100,000 as part of the equity required to control a substantially larger piece of real estate. Dependent upon the financing. If Cory: Correct. Yeah. Jon G. Sanchez: the leveraged property appreciates, your returns on the invested equity severely magnified, right? You're appreciating on, let's say you bought put $100 down, you bought a $500,000 home, you get a 10% appreciation, that's $50,000. It's not $10,000. It's not on the the the cash you put in, it's on the value of the property. Sounds great. But of course, Corey, as we you and I both know, leverage works in both directions. The property's decline, rent stops, tenant quits paying, you know, major repairs, et cetera. Talk to me about the risk in today's marketplace of leveraging, because to me that's the fastest way to build a you know portfolio of real estate, but also we have our risk. Cory: So the lever the beauty of real estate and we have this self-contained little pre-built business and it's easy to get a loan. It's easy to get leverage. You can go in. In your example, I have $100,000. Great. I can buy a $500,000 property, right? I mean, if 20% and everything else being equal, I can control this. And in that same example, if it goes up 10%, you're right. That 50 grand isn't really on the 500 in in my math, it's on the hundred. So I have a 50% it I have a 50% upside on my cash investment, which is beautiful, right? The problem with leverage is you have to keep paying, like you said, whether the tenant moves out, whether the market goes down, whether the property goes upside down, which happens a lot. The the ones I get most nervous about, and I'm seeing a ton of them right now, and I'm sure you do too, are the are the private, I don't want to say private, but they are essentially private lenders, if you will, the the non-QM loans. So it's Jon G. Sanchez: Mm-hmm, mm-hmm. Cory: incredibly easy to get money now for rental property. Incredibly easy. But those are gonna be non-QM loans, meaning they don't have to, for the most part, Show that you can repay it or do the 30-year mortgage or have the non-balloon or have any of those safeguards that were hopefully there to protect us from going through what we went through in the great financial crisis. So you're seeing a lot of investment loans that are short term, maybe two, three years. They're gonna have a balloon, or they're adjusting rate, or they're no qualified. if you have a tenant that pays a thousand, we're gonna give you a those work fantastically until they don't work. And then it turns into a snowball. that cascades when these interest rates on these private, again I keep calling them private, but it's just private financing markets or whatever you Jon G. Sanchez: Right. Cory: want to call them. when they start adjusting or when you can't get out of them, because the promise is always, this is a three year loan with a three year balloon at 12%, but you're gonna refi out of it. If you can't refi out of it, it doesn't, it doesn't work. I Jon G. Sanchez: Yeah. That's it. eight nine, all over. Yep. Cory: was helping one of my clients, well I I shouldn't say it's my The attorney's my client. His client isn't my client, if that makes sense. But the attorney called me on a property that wasn't selling out somewhere in the Reno area going through a divorce. So I looked at it and I said, the price is too high. Well, she's already going, she's already trying to get 50 grand less than what she paid. I go, it doesn't matter. It's still priced way too high. Jon G. Sanchez: What you paid. Cory: So I looked at the whole neighborhood, John, because there's a lot of properties for sale in this specific little neighborhood. 50% of the ones on the market right now are asking prices less than what they paid for them. Within the last two years. Jon G. Sanchez: No kidding. Cory: And it's not drastic, it's not crazy, but it's low down payments, assuming market will continue to go up and the market hasn't, I mean, it hasn't Jon G. Sanchez: Mm-hmm, mm-hmm. Cory: cratered, but it's been kind of steady. and so when you factor in all your sell costs, commissions, all that stuff, yeah, you're you're upside down. And that can happen on investment properties just as well. Jon G. Sanchez: Absolutely. Absolutely. And it's and it's even magnified more on the investment property side because typically that's the signs, and not saying it is this time, but that's typically the signs where the economy's showing signs of weakness, right? And you and I both, what happens next? People start losing their jobs. Usually your renters are gonna be people that are either, you know, kind of getting their financial life together, haven't been on the job a long time, therefore don't have a lot of job security. They're kind of the first ones to go when a company announces a layoff. So now they can't pay the rent, you can't pay the mortgage, and let the cascading effect work. So yeah, great point there. Cory: Yeah, and God forbid you're managing your own property when they cry to you that they lost their job because you're gonna be like, that's okay. Yeah, don't worry about paying. Like, it turns into a mess. Jon G. Sanchez: That's right. That's right. That's right. Yep. Yep. All right, Corey, with a little more than a minute left, let's let's hit on again something really, really important, which is the distinction between the the what we're looking for in the property with it being a rental versus what we look at when we're buying our primary residence. So thirty seconds on this one. Cory: So again, we just want something that usually a three-bedroom, two-bath that's bulletproof, if you will. So you don't need the fancy tile and the corion countertop. You don't need all the high-end stuff that you need. You just need something that a tenant can take care of: two-tone paint, carpet, linoleum, the acrylic shower bases, no wood burning fireplace. Kind of all the things that are easily fixed and nobody can really screw up, you know, unless they really want are trying to screw it. Jon G. Sanchez: Right. Right. Kind of like buy buying a kind of a stripped down car for your teenager for the first time. Good analogy there. That's right. Base model. Cory: Absolutely. No question. Absolutely. Yep. Base grade. Base model. Yep. Jon G. Sanchez: man. Great information, Corey. We'll do this one again 'cause there's still so many other things, but I think everybody gets the picture. Once one more time, your phone number. Cory: six seven three six seven zero zero. Jon G. Sanchez: Beautiful. You are the man. Thank you, buddy. Appreciate you. God bless. We'll see everybody tomorrow on the John Sanchez show.