this video is about real estate investing for beginners you will learn how people are getting rich with real estates but this is your warning it's not for everyone I'm going to show you the good and the bad of real estate investing and you can decide for yourself whether real estate investing is a good fit for you or not now in today's video we're focusing on rental properties and the concept is straightforward there's three things that are happening so the first thing that's happening is that okay you're renting out your property and the second thing is
that the tenant pays you enough rent to cover your expenses right so essentially they're paying off your mortgage and the third thing that is happening is that your property is appreciating in value so this process builds your wealth and that's the overview it's very simple but let's dig deeper now here's what I'm going to show you I'm going to show you how you get rich I'm going to show you the math I'm going to show you the advantages of real estate investing compared to stock market investing and I'm going to give you 10 crucial tips
from personal experience and you must hear this you have to hear these These are going to save you so much money now let me show you the math you need to see this and let's demonstrate with an example so let's say that you have $30,000 to invest and what are your practical investment choices you can inv invest that $30,000 in the stock markets you can earn interest in a savings account or a CD or a rental property so just for fun let's compare so let's start with the rental property you have $30,000 you use that
$30,000 as a down payment to buy a $300,000 property to rent out and let's say that you get a 30-year fixed mortgage with a 4% interest rate so at the time of making this video it's higher than 4% right I understand that but I'm sure the interest rates will come down in the future and some people are thinking about renting out their home that has a 4% or even a 3% interest rate anyways in this scenario your mortgage payments will be $1,289 a month that's going to be your principal and your interest property taxes will
be around $400 a month insurance will be let's just say2 50 a month feel free to adjust these figures but roughly your expenses all in will be $1,939 a month if you can find the tenants that's going to pay you rents of $1,939 a month or more then after 30 years you've paid off the mortgage if the property appreciates in value let's just say 4% a year then in 30 years that property will be worth $973,000 so essentially you've turned your $30,000 into $973,000 in 30 years so that's about a 12% return annually for 30
years so how does this happen how do you get a 12% return it's because you're benefiting from The Leverage so let me explain so your initial investment was $330,000 for the down payments to buy the property right as I said the property is going up in value 4% a year so think about it it's not your $30,000 downpay that's increasing in value by 4% a year no it's the $300,000 property that's going up by 4% a year so for example if you make a 4% return on $330,000 then you would make $1,200 but if it's
the $300,000 Prof property that's going up in value by 4% then you make $122,000 okay in the math that I presented to you I said the property will go up by 4% a year historically speaking it's between 3 to 5% which is why I chose the middle 4% annual appreciation now I want to address this because I know some people are concerned about this in our example you might say Brian in 30 years if the property appreciates in value from $ 300,000 to $973,000 that may not be a lot of money in the future because
of inflation you know I agree that 30 years is a long time from now my response is I want to give you a different perspective so here's how I see it so having a rental property will be your protection against inflation in these crazy times that we live in we don't know how bad inflation is going to get especially in years we don't know what the we don't know what the Federal Reserve is going to do in terms of money printing maybe inflation will get further out of control maybe home prices will inflate way more
than 4% a year regardless at the end of the day you will own a property debt free so let me put it to you like this imagine if today you owned an additional property right now that was 100% yours no debt no mortgage would that be a meaningful amount of money to you it probably would be for most people it would add to your financial security I'm sure that you would feel much better about your financial position and I guarantee you it's going to be the same thing in the future in the future if you
own an additional property that is 100% yours no debts no mortgage you're going to feel much more financially secure and it doesn't matter how bad inflation gets because if inflation gets out of control then your property will just go up higher in value now let's do this let's investigate the alternative that most people would gravitate towards so rather than investing your $30,000 into your rental property how about taking that money and investing it in the stock markets you know you can buy index funds you can buy REITs that would give you real estate exposure in
the stock markets and let's say that you make an average return of 10% a year over the next 30 Years that is a generous rate of return and let's oversimplify so let's say that you don't pay any taxes on the annual gains so this could be done in a retirement accounts so these are some pretty optimistic variables after 30 years your 30 grand will become $523,500 and you can compare that to 9 73,000 with a rental property so here's what's happening although your rate of return would be higher in the stock markets you're not experiencing
the benefits of Leverage so in the stock market example it's your $30,000 that's going up in value in the rental property example your $300,000 is going up in value so let me tell you this and I'm going to be straightforward with you with the rental property you can build your wealth faster compared to the stock market but that's not guaranteed to happen things can go wrong with a rental property now bad tenants vacancies unexpected repairs weather related catastrophes a housing market crash you name it but then again things can go wrong with the stock market
too all I'm saying is that real estates is definitely a viable investment option it's time tested now you you already understand what you need to do you need to find tenants to pay off your mortgage as your property goes up in value but as you know so many things can go wrong so I'm going to give you 10 essential tips that's going to help you avoid these very expensive mistakes and this is not going to be your generic cookie cutter advice this is coming from my personal experience and it's going to save you a lot
of money it's going to keep you protected as well my tip number one is to use an LLC please I cannot stress this one enough I highly recommend that you operate with a business entity so this is for your legal liability protection and please do this correctly the last thing you want is some freak accidents or some Troublemaker suing you if you're not operating as an LLC then you can become personally liable and all of your assets are at risk your home your stocks your savings all your money and you must do this correctly you
can't just create an LLC and say that you're operating out of it no that's not how it works so let's say that you're thinking about renting out your home instead of selling it right then you have to deed it and transfer your property to the LLC you got you have to do this properly okay but what if you have a mortgage in that case your lender has claimed to your property right so how can you just transfer the property from your name personally to an LLC if you have a mortgage in most cases the lenders
don't care they're not going to put up a fight if you continue to make the mortgage payments but sometimes yes you need written consent from your mortgage company to transfer your property to the LLC I've never had a problem with this I would recommend that you you have an attorney do this it's not going to be expensive because this is very basic stuff for them but yes protect yourself with an LLC this is a must my tip number two for you is to get landlord insurance so you can have your renter get renter's insurance but
you need a landlord policy so this is how it's going to work your insurance is going to be your first line of defense but if some kind of freak accident happens and you get sued for more than what your policy covers then you're going to be in deep trouble but this ties in with tip number one about the LLC because the LLC will protect protect your personal assets because it separates you from the rental property but to be clear you don't need insurance you don't need an LLC but I would recommend both highly recommend both
I personally have both my tip number three is screening for a tenant so getting a good tenant is crucial if you get a bad tenant it's a disaster so I know this from personal experience it is miserable rent is late rent goes unpaid it's stressful and worst of all they can Trash the place so it's terrible I would recommend the credit check you need permission to pull their credit reports and I would recommend a background check so of course you need their consent but I do this to filter out the people with red flags my
tip number four is about dealing with tenants if you don't want to deal with tenants then it's going to cost you money that's the truth so you're going to have the option to hire a management company so they're going to take care of everything for you finding tenants you know they'll run a credit check they'll run a background check and you get to choose who you like they'll collect rent for you they'll deal with repairs Etc but all this this convenience it's going to cost you how much they charge you it's it's going to vary
a lot it depends on your city your area what services that you're requesting but honestly it's like the Wild Wild West when it comes to pricing pric are all over the place you'll see I would recommend that you ask your real estate agents for a referral or ask your friends or family I would also recommend that you look at Yelp so just make sure that whatever they're going to charge make sure that makes sense financially if they're going to charge you too much and the numbers don't work out then then don't do it my tip
number five is to act quickly with bad tenants if a tenant is not paying then you have to take action quickly don't let this drag out this may require legal action honestly when this happens to me I don't want to deal with this I get my attorney involved and they know the drill this is standard stuff but that's why it's so important to screen for good tenants so you don't end up in this bad situation I have not been put in this situation for quite some time because I learned my lesson as a rookie my
tip number six deals with the security deposit so make sure you know the laws when it comes to the security deposits in your city some cities are so strict with security deposit rules and you can get in big trouble if you don't handle it correctly so you may need to put it into separate accounts you may need to handle the interest income a certain way and if you screw something up it can be an expensive mistake over something so small a small detail so for example in Chicago many landlords feel that it's not worth the
potential legal hassle so they they may charge a non-refundable movein and move out fee instead of a security deposits so please make sure that you know the security deposit rules where your property is located my tip number seven is that you must find a good deal when you buy a property if you just pick an average home or property haphazardly on MLS or redin or Zillow or wherever you can run the numbers you're going to see that they don't work out so finding a good deal from the start is key you can't just pick any
property I'm just keeping it real here before you buy a property run the numbers the mortgage property taxes association fees special assessments maintenance Insurance Etc and compare that to how much you can realistically rent it out for so check the comps so see what something similar is renting out for in the area and you're going to see that many properties the math just doesn't work out and you would lose lose money so shop around for a good deal a good deal is when the numbers work out so listen if you need a good spreadsheet to
Crunch your numbers for your rental property or potential rental property then I have a spreadsheet that you can use it's helpful because you don't want to miss something and you want to stay organized it's free no sign up necessary come to my website you can download it so I'm going to leave a link for you down below my tip number eight for you is to build a good credit score if you have a good credit score then lenders will give you a lower interest rate if you have a bad credit score then lenders are just
going to reject you or they're going to offer you higher interest rates so I have a really good video on how to improve your credit score quickly so I'm going to leave a link for that down below as well my tip number nine for you deals with taxes so listen don't worry about the taxes for your rental property so let me explain I'm going to tell you two very important things the first thing is that it's not complicated to report a rental property on your tax return so even if your rental property is within an
LLC it's still just reported on your personal income tax return it's a piece of cake so you can easily do it on Turbo Tax yourself your accountant can easily take care of it it's not complicated and the second thing is that your rental property is most likely not going to increase your taxes okay so how can this be you're collecting all this rental income how are you not going to pay any taxes on this it's because in most cases you're going to have enough tax deductions from your rental property to offset the rental income so
you can deduct all the expenses that are obvious to you like mortgage interest property taxes association fees Insurance repairs maintenance Etc but Additionally you get a tax deduction call called depreciation so the IRS says that your property is decreasing in value so you get a tax deduction which is funny because most likely your property is increasing in value so listen it's just a stupid tax rule that makes no sense but it works in your favor my tip number 10 deals with taxes when you sell your rental property so here's my advice you don't want to
pay any taxes when you sell your rental property so here's what most people do if they sell their rental property they use that money to buy a new rental property it's called a like kind exchange and then you don't pay any taxes or people hold on to rental properties until they die and then there are tax benefits when you die your heirs will receive the property with no tax consequences and when they sell it they won't have to pay any taxes this applies to you if your total assets are less than $13 million if you're
single or $26 million if you're married and this gets adjusted for inflation each year so if you have less than those amounts then you and your heirs will not pay taxes it's called the death tax exemption all right listen this is very important I walked you through the process of how you get rich over time and I gave you some solid tips from experience for your protection if this all sounds overwhelming or too crazy you may just want to consider your Alternatives such as just adding more money to your retirement accounts buying index funds maybe
a 529 plan you can buy some REITs in the stock markets but seriously if this doesn't sound right for you is if it sounds like a big headache then don't do it stay away I like real estate investing because it gives me diversification outside of the stock markets and the tax advantages are just wild but if you're going to move forward with the rental property then I am cheering you on and once you gain some experience and you get into the rhythm you're going to see it's not that difficult and if you do this you
will open up a whole new sector of investing opportunities for yourself please subscribe I thank you for the support and wish you a very nice day take care
