Real Estate Investing for Beginners; AirBNB’s
-This is a transcript from Go Gaddis Radio to listen to the episode click here-> https://on.soundcloud.com/WnHDb
Welcome back to Go Gaddis Real Estate Radio right here on AM nine 20. The answer on this fine Saturday morning in this segment, real Estate Investing for beginners. What do you need to know if you want to delve into real estate investing and Airbnbs? How do they work? Are they safe? What are the pros and cons of investing in an Airbnb?
And for me, sometimes I'm even worried about staying in an Airbnb, uh, because of the stories I've heard about videos being used and things like that when people don't necessarily know. So I'm looking forward to that segment. My name is Cleve Gaddis. You're listening to Go Gaddis Real Estate Radio right here on AM nine 20.
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Have you ever heard that real estate investing is the most misunderstood and easy to screw up way to invest? I have had many, many conversations with investors over the years, or potential investors over the years, and they get overwhelmed by details and they continue to see all of the negatives in investing in real estate and the potential downside.
And I'm not even pretending for a moment that there are not potential pitfalls. There are not issues that can cause real estate investment, and I'm talking about. Residential real estate investment, they're pitfalls. The reality is it can be an amazing way to get her an investment return. We got a listener question from Carl and Monroe.
My parents have told me for years that investing in real estate is a tried and true method of making money. What are some simple steps for a beginner to take to get started? And I have some great answers for you and I'm gonna break it down. Uh, for you into a total of seven points. Number one, you gotta know your numbers.
You gotta invest four cash flow, and you have to be able to analyze properties very quickly. And the way I suggest you do that is by using the 1% rule. The 1% rule is simple. If a house rents for at least 1% of the purchase price or the acquisition cost, it might. Might M I G H T, all capital letters might be a good investment.
So if a property, for example, you were buying it for. Let's just say a hundred thousand dollars. And I know you can't buy a hundred thousand dollars properties in Atlanta. Uh, not right now anyway, but according to the 1% rule, it should rent for at least a thousand dollars a month. If it rents for a thousand dollars a month and it passes the 1% rule, and on average, it should turn out to be a good investment for you.
Once you've determined. Whether or not it meets the 1% rule, you're gonna have to do some additional research to get all the information you need about, you know, income and expenses and all of that kind of good stuff. But the 1% rule, great way to get started. And tip number one. Tip number two, know the high cost of living areas.
Ever heard anyone complain, they live in San Francisco or New York, so they can't invest in real estate. Makes sense to me that they would be correct. And the 1% rule can show you why if you buy, buy a house, for example, for $900,000, but it rents for $3,000 a month, you're nowhere near passing the 1% rule.
Some argue that you'll make it up in appreciation and, and the truth is, is that those high cost of living areas can have significant appreciation, but they also have. You know, a very volatile market. It goes way up and way down and way up and way down. And, and all of the changes in pricing from the rest of the country, um, are, are exacerbated in those areas.
And so my advice for you, if it doesn't meet the 1% rule and you're in a high cost of living area, I'd look for somewhere else to invest my money. There's many, many second and third tier cities, and I mean, in terms of population. Around the country in great places to invest. So you gotta know what I call the cash flow myth.
You wanna follow the 50% rule appro, approximately 50% of your gross rent on a single family property will go to expenses, taxes, insurance, repairs, hoa, capital expenditures, property management. Remember, a mortgage though is not included in that 50%. So if you bought that house for a hundred thousand bucks, rents for a thousand dollars a month.
In our example, 500 bucks is considered. Expenses might not be quite that much in metro Atlanta, but let's say your mortgage payment is additional 600 per month. 600 per month. Your cash flow basically is 400 a month because a thousand rent minus 600 mortgage equals $400 in profit. Right. The reality is you have an additional $500 in expenses and a $600 mortgage, which is a total of $1,100 a month, which puts you in a negative cash flow position.
I would suggest that under no circumstances should you invest in a property that does not generate positive cash flow on a monthly basis. I remember talking to real estate investor after real estate investor in the early two thousands who said, Hey, I'm losing a little bit of money every month, but I'm gonna make it up in appreciation and.
Uh, 2008 to 2012 showed them that that was not the case. So tip number one, know your numbers, the 1% rule tip number two, know the high cost of living areas and avoid them. Tip number three, know the cash flow. Myth myth. And don't invest in a property that doesn't have cash flow. Number four, know your finances.
You should get your finances in order before diving in. I'm in the process of selling my current home, buying a new home, and, um, I'm a fairly organized person, but to get everything together for the lenders and everybody who needs stuff, it can be a little bit overwhelming. So my suggestion is get all your ducks in a row.
If you, if you're self-employed, get the last couple years of tax returns. Get all the K one s and all the different schedules for everybody to see. Get the last two months worth of bank statements. Get a p and L from your business if you're employed. Last two years worth of W two s, last two paychecks, last two months worth of bank statements.
Get all that together and make sure you are prepared, and if you're not sure whether or not you're prepared to buy a home, then have a conversation with a lender. You can talk to John Birchfield with. Capital City Home Loans, who was a guest on the show in our prior segment. He is our preferred mortgage provider, has a heart of a teacher and he'd love to talk to you.
He can be reached by calling 6 7 8 2 2 6 7 8 8 7 6 7 8 2 2 6 7 8 8 7. Tip number five, on your first few houses, play it safe. Pay off debt, especially credit card debt before you mess around with any real estate investing. Certainly bonus points for paying off vehicles and student loans before investing as well.
Put 20% down on investment properties. For the most part, I put 30 or 35% down and try to get you a fixed rate mortgage for 30 years. Gen Gen, generally, even if I can get a better rate at 15 years, I get a 30 year rate. So the payment is more affordable, and I always try to pay down additional principle every single month.
I'm not investing for the cash flow myself, I'm investing for retirement. Well, when I'm 62 or 65 or whatever, want to be able to have a certain level of income with actually having to get out and do, um, work every single day. Don't make investments that don't seem like good investments initially, and I hate to say it, but sort of set a higher bar, set a higher standard.
If an investment doesn't perform correctly, then move on. Number six tip is have some cash reserves. If you do not have some cash in the bank, then Murphy's Law says you will continuously have issues to deal with on your rental property. That actually required cash if you have a little cash in the bank.
Then you won't have any unexpected expenses. I know I'm generalizing, but that is the way it's always worked out for me. And the last tip is educate yourself. You need to pick a certain amount of time, but not too much time to ed. Educate. Educate yourself on real estate to maybe give yourself three months or six months and soak in all the information.
You can read books, listen to podcasts, and then you could commit to taking some sort of action. If you have wanted to be a real estate investor. Sometime in the next few months, we are going to have an online real estate investing seminar where you can ask any questions you want to ask. So make sure you stay tuned to the radio show so you will catch when that is going to be on the schedule.
The next topic is have you ever rented an Airbnb? Was it a good experience, a bad experience? Was it something that you would do? Again, we got a listener question we've heard. The term Airbnb, but we don't know much about how they work and are there steps to take to make sure we get what we pay for. And um, real quickly, you know, Airbnb is an online marketplace that connects people who wanna rent out their home to people who are looking.
For accommodations in specific locales. I have rented Airbnb several times. I'll be honest with you, I'm not crazy about renting an Airbnb, uh, because I don't know what's there. I don't know who's looking. And maybe that's weird for me to be that way. And I'm sure there's a lot of people listening going, oh my gosh, Cleve, you're crazy.
They're perfectly fine. Um, and maybe I should worry about that in a hotel. But I am certainly interested in having my privacy. According to Airbnb's, latest dated has an excess of 6 million listings covering more than a hundred thousand cities and towns and 220 countries. Quite amazing when you simp, when you think about it.
The reality is, is that an Airbnb can offer a homey place to stay that maybe has more character than a hotel and maybe a kitchen, so you can avoid eating out. And they have an online database of thousand thousands of homes that are available for rent. Um, Airbnb has very specific policies about safety and security.
Again, that's my concern. I'm not saying you shouldn't get an Airbnb, but I certainly would be concerned the pros for Airbnbs or you get a wide selection, you get. To look at listings for free. Uh, you can customize your searches, you can look for additional services. And sometimes cons are you basically might not see what you get and you might have potential damage, or you might be responsible for potential BA damage.
You might have some added fees. You might pay taxes that you don't expect, and it isn't legal everywhere. In a future show, we'll talk about. Airbnbs and how they might work from a residential real estate investment standpoint. I've got some clients that make two times as much money off of their Airbnb rentals as they did when they were single family rentals.
The segment of the show is brought to you by o Kelly and Sohan. They are preferred. Mortgage provider. They're a full service law firm with 26 offices all over Metro Atlanta. They specialize in residential real estate closings, home purchases, refinance, closings, corporate relocation, real estate contract review.
Title insurance matters, the whole nine yard 7 7 0 4 9 7 1 8 8 0 7 7 0 4 9 7 1 8 8 0 is the number to call. We're gonna take a quick break when we come back in our neighborhood Spotlight, Barrington Trace in Atlanta. Also what's new with Open Door and Zillow and Real estate scams to be aware of. Stick with us.
We'll be backed.
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