Buy & Hold 101: First Steps to Owning Cash-Flow Real Estate
Hey, everybody, today we’re kickin’ off a terrific series that’ll cover the nuts and bolts about Buy & Hold properties and even dig deeper, too…
In fact, we're going to absolutely crush this topic… First, we’ll cover the definition of buy, fix and stay and how to prepare yourself to become a landlord because it’s extremely important. Then we're going to talk about the extra power team members you're going to need when holding long-term rentals.
To get things started now, we’re gonna talk about buy, fix and stay along with the benefits of holding long-term rentals.
Defining Buy and Stay
Buy and stay is exactly what it sounds like. It's owning a property with the intent of allowing somebody else to utilize that asset in exchange for compensation. Your compensation is often referred to as rental income. Rentals could be either residential or commercial, but we're going to focus on residential today.
The landlord is the person who typically owns the property. It could also be referred to as the lessor. The tenant is the person or entity that is occupying the rental property and is referred to as the lessee.
So, we have the lessor, the landlord, and the lessee (which is typically the tenant).
The goal of any long-term investor is to purchase an asset, at a discount, and then allow appreciation and amortization to take its toll – in a good way. Then, hopefully live off the cash flow that the asset produces or sell the asset at some point in the future for a nice profit.
Now rentals, in my opinion, should be part of your overall retirement plan, right?
Let me talk to you about how to prepare yourself to be a landlord. It's different than pretty much any investment strategy that we've covered. There's a lot to it. Being a landlord can be extremely easy or extremely difficult, depending on the roles that you decide to take on for yourself.
If any of you have read Michael Gerber's book, The E-Myth Revisited, there are 3 basic evolutions (or levels) most entrepreneurs go through before they truly become successful:
- Technician – The technician is always stressed and always busy. They have consistent work that needs to be done.
- Manager – The manager always has consistent work but the payoff gives them some gratification for all their efforts. They're going to feel good about the work that they're doing and be rewarded for it.
- Entrepreneur – This is where we are all trying to get to. We all want to be an actual entrepreneur. Entrepreneurs finally achieve financial freedom due to having solid systems and a solid power team that allow their money to work for them.
The goal is to move up from one level to the next level and eventually to entrepreneur. When you first begin, you may be the one person who does everything… the marketing, tenant screening, paperwork, maintenance, rent collection...
But your real goal should be to take all of that work, build out the basic business systems needed to transition over to a management role and eventually to an entrepreneurial role.
Does this mean when you first are starting out you should do all the work yourself? Not necessarily, in my opinion. I believe that you should, at least in the beginning, have a really good working knowledge of every aspect of your rental business. Mastering the technician role is not bad for a very short period of time.
Rental Property Power Team Members
In addition to your obvious power team members, such as your title officer, mortgage broker, real estate agent, handyman, etc., there are going to be some extra special team members who are going to go a long way when transitioning over to your long-term buy and hold strategy:
- Property Manager – This person is going to be the key to your success if you want to move out of that technician role. Now, we're going to talk here in a minute what a good property manager looks like… Just know that if you're going to manage your own property, you're never going to truly move out of that technician role. But when you outsource it to a highly qualified property manager, you will be able to instantly move out of that technician role.
- Insurance Agent – You're going to have issues with a rental property, guaranteed, and you're going to want a good insurance agent who places you into a policy that makes sense for your business model. They're going to look at your portfolio and tell you exactly what insurance products you're going to need, not only to help you have coverage, but also to save money, so you're not purchasing insurance products that you don't necessarily need.
- Real Estate Attorney – One who specializes in landlord-tenant law, asset protection and eviction. We do a lot of evictions when we buy properties at foreclosure auctions, and every once in a while we have an eviction when we're holding a long-term rental and our attorney handles everything. It's fairly inexpensive.
- Financial Friend – Financial friends are people who can act like a money partner on your long-term investment. This is achieved through networking. Now, you can do all the work including finding and managing the rentals, and somebody else can put up all the money. That's a great relationship with a financial friend. A great strategy we have used in the past is having a financial friend put up the money. We do all the work and they take all the cash flow that the property produces until they reach their break-even point. We've done that a few times and it's really worked out great. And then once they hit their break even, moving forward, we split all the profits 50/50.
- Mentor/coach – This is somebody who has owned or currently owns rental properties. You want to be able to buddy up with this person and ask the right questions. Get real life advice from them. Whether you're paying for it or you're putting in some sweat equity to work for them, you need to find a mentor or coach. I think that's so extremely important, especially in a long-term buy and hold strategy.
A Great Start
Whew! That was a lot and we’re just getting started…
I’ve got even more in-depth lessons coming your way for this Buy and Hold series. We're going to talk about the different types of income-producing properties that are out there, and I'm going to help you work through a tough decision on whether or not you should manage your own rentals.
I'm also going to show you how to find and interview a quality property manager and how to market and screen for quality tenants. We're going to talk about the difference between privacy and asset protection, and more...
It’s a lot of information to cover. In fact, let’s do a quick recap…
Cody’s Cliff Notes
Buy and stay is defined as owning a property with the intent of allowing somebody else to utilize that asset in exchange for compensation.
The 3 Levels of entrepreneurship are technician, manager and entrepreneur.
Power Team Members are your property manager, real estate attorney, insurance agent, financial friends and your mentor.
I hope you guys were able to cram all that information into your brain. It’s all important stuff that you really need to know to be a Clever Investor.
Hit Me Up
Got any questions as we embark on this awesome series? Hit me up in the comments section below.