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Jonathan Cook: On today's episode of The Investing Revolution, we're going to talk about three of the most popular strategies in real estate investing. We're going to talk about the long term buy and hold the cash flow strategy and the BR strategy. This is the Investing Revolution, a podcast designed to help your real estate investment strategy. On this podcast, we'll teach you the actionable steps to take in pitfalls to avoid so that your real estate investing can thrive. Welcome to the investing revolution I and your host, Jonathan Cook and with me is my lovely co-host Christine Bennett. How are you? I am doing well. Yes, yes. Today, we're going to talk about some really fun, exciting stuff. This is like it's definitely one of my favorite podcasts.
Christine Bennett: Oh, we're going to talk about all my favorite things for now.
Jonathan Cook: Oh my gosh, this is so today. What we are going to talk about is strategies. We're going to dive into the SFR strategies and definitely not. And SFR is the the single family rental strategies, right? We're going to get into all or, well, probably not all, but we're going to get into the most popular versions of the single family rental strategy.
Christine Bennett: Look, guys, there are so many ways, so many strategies we we're going to we're going to dive as deep as we can, but there's a lot of ways to make money here. We're going to talk about the most popular, the ones that we see most often, but we're not excluding or saying there aren't great other options to make.
Jonathan Cook: Oh, absolutely. And what's interesting is especially when we get to like the build to rent model, and because that's relatively new every couple of years, there's going to be new models that come out. There's going to be new strategies that we will dive into in later episodes when we find a little bit more out about them, for sure. And there's models that exist now that we're not going to get hyper focused in on. But what we're going to do today is we're actually going to take the single family rental strategy, which is like an overview strategy. We're going to dive into several of these. These like hyper focused strategies. Why should you buy a single family rental and then what strategies are we going to operate in? And we talk about strategies a lot. I know, I know I do, because let's talk about why a strategy is so important, and I know we've given an overview on this. But having a strategy, a very specific strategy is it's one of the first steps. I mean, we discussed it when we were talking about, how do you get started in this? It's such an important step to have your strategy really ironed out. You have a focus. This is what I'm trying to accomplish. Because Christine, I know, I know you have seen this and we may have both done a little bit of this when you just decide I'm I'm going to invest in real estate. I'm just going to go. I've got I've got this whole idea. I'm going to start buying real estate. It's a good investment. Which way? Oh, I forgot that.
Christine Bennett: That was a page, Jonathan. Hey, hey, personally attacked here, buddy. I've been there. Done that. Well, from it.
Jonathan Cook: So let's talk about real quick before we actually dive into the individual strategies like can you discuss and I certainly have my own handful of stories like why is the strategy so important? Like like we gave an overview in a previous episode, but like, let's talk about what happens if you don't build a strategy early. First thing, like what? How do you start investing in real estate if you don't build a strategy? You watched HGTV this one time and said, Oh, that looks fun.
Christine Bennett: So here's the deal. It's like, it's like trying to make a recipe without the ingredients or without the recipe book. It's like, Hey, I'm going to go put some carrots, some celery, some green beans, and maybe some filet. What are you going to do with that? They're all great items, but until you have a plan on how to put it all together, you have a big ol hot mess in your kitchen.
Jonathan Cook: I think that that's such a good analogy. It's almost like, OK, I want food even. It's just, I want food. There's bunches of food in my house. I'm just going to cook it all. I'm going to cook. I'm just going to grab, Oh, I like kidney beans. Oh, I also like cheesecake. You know, I can mix that to you. At least got to know I'm building a dinner or I'm building a lunch, or I'm building, you know, whatever. And then it's all right. So what am I building the entree? Am I building? Am I building the main course of the entree? Am I building the meat itself, or am I going to make a steak? I'm going to make chicken or whatever. And then they're side items, and then there's different courses. And then there's real estate. Investing is very similar to that
Christine Bennett: Strategy is just a fancy word for make a plan. Yeah. Oh my gosh. Before you execute. Otherwise, you just have a big mess. So.
Jonathan Cook: Analogies aside, I want to use I want to talk about the dangers that I see in going at this without a strategy like the true honest to God dangers like no metaphors like actual properties because I know you've seen them and I know I have to.
Christine Bennett: You mean like people lose money and get sued and.
Jonathan Cook: Yeah, yeah. Yeah, that happens. Let's talk about that. Yeah, so
Christine Bennett: It's a real thing.
Jonathan Cook: Yeah, one of one of the, you know, stories that I get as a BDM, people call me and hey, you know, your property managers, I've got this great real estate investment that I want you guys to take over and manage for me. And they start describing, and what's funny is this. I mean, and this is going in my book as well specifically about this. This story is not one story. It is. I mean, I've heard this same exact story like uncountable numbers of like hundreds, literally hundreds of times. And it's it is so often like verbatim the same over and over and over that it's shocking. It is. So I had this real estate agent friend of mine and he got this great deal on a property. And I understand that real estate investing is a good idea. So because my real estate agent, Buddy, tell me this great deal, I bought it. And you know, he had told me or she had told me they had told me that, you know, the rent price should be some outrageous numbers. How it always starts out. It's it's it's some crazy, overpriced number. And you know, they had this property manager in their office that does sales, but really, you know, their sales weren't all that good.
Jonathan Cook: So they do property management on the side. So I gave it to this person to do the property management and they couldn't get the rent and it took a long time to rent. And then once we got it rented, the renter was bad. But because it's because property management and the investing in revolution or the investing in real estate. Because of how long it takes to notice oftentimes your mistakes, it'll go two or three years before they realize how much of a mistake that they made because it wasn't the strategy that they wanted. They were wanting, you know, appreciation and cash flow and the long term investment at the same time. And maybe they wanted to do some improvements in it later, like they're trying to mix all these strategies together in one property that doesn't fit all of them. It fits one probably really, really well, but it certainly doesn't fit all of them, and they are never happy. They will bounce from people to people to people until somebody usually me runs into and goes, Well, what was your initial strategy on this property? They're like, I don't know, a real estate investment. I wanted to buy a real estate investment.
Christine Bennett: I'm laughing because I've literally been there. I mean, you know, you, you go and you're investing and investing in real estate. It's elusive, you know, it looks exciting. It looks like fun. It looks like, you know, this notion of passive income. People are attracted to it. And like I said, I've been there. I didn't really know what my strategy was. I just bought it. And in hindsight, I figured I figured out that I was just waiting for it to appreciate. But I mean, we've all been there then. This is the whole purpose of today's show is to talk about talk about the strategies, because literally, I mean, it's not. It's not rocket science, and it's not. It shouldn't be pretentious. This is just have a plan, have have a goal in mind when you're looking at a property and you know, that's how you're going to set yourself up for success.
Jonathan Cook: Absolutely. So I mean, that's exactly right. You have to have a goal like that. You have to have a plan to get that goal or a goal to make the plan. Vice versa. Both of them simultaneous. Whatever. Let's let's let's get into this. So if we're talking single family rentals, so that's that's SFR, and there's going to be a ton of acronyms and we say a lot of acronyms.
Christine Bennett: Yeah, we're going to we're going to break those down.
Jonathan Cook: And we're sorry to you. But so we're going to we're going to explain some of these. So SFR, when I say SFR, that stands for single family rental. That's what I mean. When I say SFR, that means it's not apartments. It's not a multifamily unit. It's not a duplex, not a quad. It's not several properties in one address. It is a
Christine Bennett: House, one house,
Jonathan Cook: One house that is a single family residence. So we're talking about the single family rental strategies, and that is like an overview strategy that is the umbrella in which all of these other strategies are going to fall under. And I think it makes a lot of sense, Christine and tell me if you want to take it to one of the other strategies first. But I think the one that most people end up with or start with tends to be that kind of old school, long term buy and hold. It's it's I mean, that's what accidental landlords most of the time run into. And yeah, maybe they were never intentionally investing in a property, but maybe you've been you've inherited a house, or maybe you bought a house and you lived in it for a few years and you want to upgrade. But you're like, I don't really want to get rid of this one. And you know, it's it's a it's a hedge against inflation. It's a good investment for your retirement because appreciation that's going to come naturally and a lot of the time that's going to be way better than what, like a, you know, CD is going to hold or, you know, some sort of other safe investment. But long term buy and hold is a really safe strategy if it's done
Christine Bennett: Properly, of course. Of course, you know, long term, it's this concept has been around for a really long time. Very simple. You buy it, you hang on to it. And in the interim, you are making sure that you have some cash flow. So you have a tenant or resident and you are looking at your numbers and saying, you know, how much repairs is this property going to take? How much how much does it cost to basically run this property? At that point, you have to change your mind to an especially accidental landlords, and we have this conversation almost daily is changing your mindset that this is now a investment vessel. You know, this is a thing that's going to get you from. The house that you loved and lived in a lot of times and you're emotionally connected to. Now this is a way for you to make make money. You know,
Jonathan Cook: It's a business now. It is.
Christine Bennett: It absolutely is a business and and that's the hardest. I think both both of us will agree. That's the hardest conversation to have with an owner who has just moved out. Maybe they're either upsizing downsizing.
Jonathan Cook: And what's what's really funny is, I mean, both of us have been through pre licensed courses a long time ago, which is not not to say that we're old people,
Christine Bennett: But speak for yourself.
Jonathan Cook: Ok, yeah, whatever. But my point is, like most real estate agents, this is something that we talk about in pre licensed. I mean, it is the most base term of real estate investing. It's buy low, sell high. I mean, it's that to the nth degree, it is. It is the greatest version of this. And it's, you know, you're trying to buy something in an area that is a safe investment, typically meaning it is an area that you see a lot of growth potential in. It is a nice area. It's good school systems, it's a beautiful house. It has some upgrades into it because you lived in it. It is a creature comfort type of home. It is something that you see the value in an area you recognize. This area is going to be, you know, such a beautiful area in the future. Like Sonya, like Sonya, Georgia, this is a really good area for a long term buy and hold strategy. It has been for years. I mean, if you bought in this NOIA 10, 15 years ago, I mean, you've doubled and tripled your investment in several areas here. And that's great. This is a good plan for your retirement because not only are you collecting rent and rent, probably on on most of these properties. Actual true net cash flow probably isn't going to happen in the first couple of years. It really, really usually doesn't. But as you pay down that principal collecting that rent, you are paying that principal down. You can refinance to get a lower rate. Whatever you're paying that principal down to where in 20 years when we say long term, I mean, long term, it's not one or two years, it's 10, 15, 20.
Christine Bennett: That's the beauty I think of. The buy and hold strategy is that sometimes you don't have an expectation that it's going to have a profit right away. Sometimes you're you're just using it as tax shelter. You are banking on the appreciation you you don't really want this huge payout right away. You don't want to, you know, have all these capital gains. So that's the beauty of it, is that you can set yourself up with buy and holds to have cash flow immediately. Or you can set it up to where, Hey, I'm choosing this, this type of property or this neighborhood, and I don't expect it to be profitable right away. This is a long term business decision that I'm making, and that's the beauty of it.
Jonathan Cook: I think that's a really good kind of transition into what are the benefits of a long term buy and hold tax shelter. You said it. I mean, my lord, what a good like. There are so many tax benefits to owning real estate in general, which is I mean, that's why this is the probably the most actual popular strategy, because it's it's almost unintentional. It in a lot of cases, maybe not in most, but, but in a lot of cases, it's this is the American dream, right? Like this is the actual white picket fence American dream. This this is it. It is. I own a property. The home that you live in. It's a long term buy and hold strategy, even if you plan to live there forever. Guess what? It's a long term buy and hold strategy. That's what it is. You are. You've invested in an area, you've invested in yourself and your children, and whatever it is or your family, whatever, whatever your situation is you've invested in. I bought this house. Even if you're living in it, you've bought this house and it is a long term buy and hold strategy. I'm going to live in it. I'm going to hold on to this strategy. I'm going to hold onto this house for some number of years, a long term, and you're going to get benefits from it.
Jonathan Cook: Tax benefits is one of the big, big shelters right there because you look at your depreciation schedule, it's why it's important to have a CPA. You can take that down from a twenty seven and a half year schedule. If you can focus on this drop down to 15 for certain systems, you can separate things out, but you need to plan for that. Fifteen years is a long time, but that's about how long major systems last your roof, your HVAC, you know, water heater, plumbing, electrical, things like that. Those have a very long shelf life. You're not having to replace those every couple of years, every three to four years, replacing them every 15. And if you're depreciating right, you can actually use that, that that loss, that major loss of I had to replace my roof and it was $20000 that. And be good for you in a tax shelter because it can lower your annual income. You can use that as a loss, which is a good thing to several people, like the benefits of this, it's so safe, like it's really hard to mess up a long term buy and hold strategy.
Christine Bennett: So I would agree with that. And like I said earlier, it's universal. You can if you if you want to cut your time down on how long, how quickly you pay it off, if it if it's financed, then you can set yourself up for that. So you already know that you're taking a strategic loss over a period of time, like you said, the other thing that's really and I don't think most people think about it, but we deal with tenants all the time. And at the end of the day, that's where the money is coming from, is the person who is living in the home. And I've I've come across this quite often where a tenant of prospective qualified tenant goes. So what? What does the owner want to do with this property? They're looking for people and investors who specifically want to do long term buy and hold because it gives them security. And we have tenants who are in properties for three five years. They want to know that there are investors who plan ahead and plan to hold on to the property.
Jonathan Cook: Years ago, one of the first time that I ever ran into a. Homeowner, as a property manager that had a single tenant in their property for 17 years, it was shocking. The management agreement that they were on was unrecognisable from what you're seeing at the time. It was like because their tenant moved out because they moved, they had a job transfer and moved out. And at that point in my career, like part of my role was to make sure that we got the the new management documents in place so that we could renew it, remarket this thing. And I was doing a lot of those those steps, and I called her and sent her the new management agreement. She's like, Jonathan, I don't understand this management agreement and I got these rates are so different everything. And I'm like, Well, hang on, let me let me pull up your and it was like the original management agreement that our company had built, like they were one of our very first clients and they had only had one tenant in that entire time period. She owed like nothing on the house anymore, and it was making her so much money and it was it had appreciated over one hundred percent from what she had bought it to. And I was like, OK, you have a great investment here. Let me tell you how we handle things now because you bought this property when I was in high school,
Christine Bennett: But it's powerful. I mean, that kind of that she, she or he may not have planned that initially, but it's kind of one of those things that, you know, the passive approach.
Jonathan Cook: It's really cool to see what it is.
Christine Bennett: It's very cool. You know, over time, this thing has that they maybe didn't mean to do or didn't really want has turned into this really cool additional income that they weren't really expecting.
Jonathan Cook: Oh my god. Yeah, it was. It was. It was a house that she had lived in. She had lived in it and moved out.
Christine Bennett: So to add to that, though, had she understood what she had, oh my god. She could have duplicated it, she could have leveraged it, I mean, that's that's kind of the other part of building a good team.
Jonathan Cook: Having resources and luckily she was with a really good property management company that entire time. So it was as maximized as that investment could have been. The rent increases were annual. It was a really well maintained property. It had an excellent tenant in there. That was when we came up with tenant scoring, by the way. And 17 years worth of residency, and they were still like an eight point five out of 10, which is that's a shorthand scoring system that we use here revolution to determine the quality of a tenant overall while they're
Christine Bennett: In the world. Don't worry, everyone, we are going to do an entire episode on that. Absolutely.
Jonathan Cook: We just want to. It's a really there's a lot of math to it, but the point is that tenant was a great tenant. They had a really good team in place accidentally. Very clearly, it was an accidental landlord situation. They had no idea what they had had, but it was a great investment overall. At the end of it, after 17 years, man, it was. It was fantastic. Now could that have been a much quicker, stronger, better return? Of course it could have been. Of course it could have been if it would have been intentionally purchased as a different type of strategy, and maybe that would have been the house to do it in. Oddly enough, it would have worked in several different strategies just because of where she happened to have bought. The Southeast is rife with properties that can be used in a lot of different strategies, so the long term buy and hold the purpose of what I'm trying to get across with what that long term buy and hold strategy looks like is it is super, super safe. It is. I mean, it's like the seed of real estate investing. It's like, you know, that return is going to be pretty steady. You know, your maintenance is going to be relatively low. And if you plan it out properly,
Christine Bennett: Well, let me just go ahead. I just want to interject with planning and having proper expectations. That's the that's the thing. We we deal with this all the time. You get an owner, they call, they need property management or they call, they want to sell their investment property because they didn't have the right expectation. They're like, you know, maintenance is so expensive. My tenant didn't pay for a period of time or, oh my gosh, I've had to do an eviction last year. I've had the property for 10 years. You have to look at it like a a business like we said. I mean, you have to have proper expectations. Yeah.
Jonathan Cook: And this is a slight tangent. So stop me in a second. But one of the things that I always find fun about those kind of homeowners is when they're like, Oh, I've been spending so much money and then I'll open up their ledger and like their ownership ledger. And I'm looking at that going, Oh my God, you've made, you know, $12000 a year for the past six or seven years
Christine Bennett: And spent less than
Jonathan Cook: Five percent. And this is the first time that you've had a major maintenance item. It's a roof. Yes, roofs are expensive. Congratulations, you've had this property for a long time. You've just now had to put a roof on it. You're not spending all kinds of money. This is the thing that you were going to have to spend eventually anyways if you plan to keep the property. And but that's where it comes to that planning session, which why we have those planning sessions with our owners, we want them to understand well within your strategy. Here's how we need to plan for this. Your roof is x amount of years old. That means in this many years, we need to go ahead and plan. This is how much a roof generally will cost replace in this many years. You're going to have this maintenance expense, so plan for it. Set aside a reserve HVAC water heater. There's certain items that we know are going to have a shelf life, right? Paint flooring, of course those do, but painting is way less expensive than replacing a roof, right? So that is why that is such a safe strategy because it lasts so long. It's very passive. It doesn't take a lot of effort to do really well because I mean, people do it on accident all the time. And so it's a pretty good overview of that, and we'll actually talk way more in depth in how to maximize those returns. In a later episode where we dive specifically into just this, we're going to talk for an hour about long term buy and hold strategy. So but let's let's move on a little bit from that. So mind,
Christine Bennett: Oh no, I'm here for it. So let's let's break down a really fancy buzzword cash flow. Oh yeah. So what is cash flow
Jonathan Cook: Money that you're making outside of all of your expenses? The cash that you make
Christine Bennett: Said we just like, did we just break the. We just break the internet with
Jonathan Cook: Like the investing revolution, Christine?
Christine Bennett: Oh my gosh. Like, that's really how simple it is. I mean, like, I mean, that's really how simple it is.
Jonathan Cook: Ok, so like what? What shocks me because you set it right? It's a buzz word, and it's a buzz word that people don't understand. People want cash flow. And they don't know what cash flow is, they say, well, my mortgage is $1000, my rent is fifteen hundred, so I've got five hundred dollars cash flow and I'm like, You are missing so many items.
Christine Bennett: More items,
Jonathan Cook: Bit taxes, insurance management. We got to factor those in. Well, how do we factor that it? It's math, man. It's math.
Christine Bennett: So the reason I said it like that earlier is because it shouldn't be intimidating. It shouldn't be one of these things that is like, Oh, you know, only an expert can do this, you know, only only the elite can do this. Not necessarily. Whoa.
Jonathan Cook: Whoa, whoa. No. Well. You have to understand what you're talking about.
Christine Bennett: Yes, of course, or align yourself or align yourself with people who do.
Jonathan Cook: If you if you listen to the episode two and we talked about team building, yeah, you're right, it shouldn't be difficult because you should have built a team beforehand. You're right, Christine. This should be super, super easy. You shouldn't have to go find a new expert because you should have built your team properly to begin with before you bought cash flow property. Right? Yeah, exactly. So when we're talking about cash flow here, let's talk about what does a typical cash flowing property look like? Do long term buy and hold properties usually look like a cash flowing property, sometimes sometimes, but usually not really. Yeah, sometimes if I'm targeting a cash flowing property, where am I going to maximize my cash flow? If my intent is, I want as much cash flow as I can get out of a rental property? I'm not buying the same type of investment that I'm buying in a long term buying home. Absolutely not. No, I am buying a C class property like this, and C class is a separate buzz term that we probably need to define. But a classification of a property is relatively difficult to to actually define because a C class will be different in every area that you're looking.
Christine Bennett: It's a little subjective. I agree it is. I agree. I think so.
Jonathan Cook: Could you actually define what what you look at? Let's say let's look at Orlando. Let's look at Daytona. What does I see? Class property rent for in that metro?
Christine Bennett: Ok, so Orlando is going to be separate from Daytona. Separate them out. So let's say a C class property today is probably going to lease around $1000 or something like that. Give or take a I would say a one one. Yeah, that's about
Jonathan Cook: What a C class property rents for here in Atlanta, even in the south Atlanta area. And there's there's different parts, of course, but I mean, I typically see a C class property in an older community. Usually it's a it's an existing area. It's it's an older area. Oftentimes those properties are not exactly, I wouldn't say, always distressed, but they're in areas where maybe it's just because their age you see some distressed properties occasionally on a few blocks, but the rent value is typically, you know, around a thousand dollars a month. I think you nailed it. That's that's and there's some range. Yeah, there's definitely some buffer up and down even a little bit, but that's what your typical C class property is. These are and not to pigeonhole tenants, but but these tenants are typically, you know, blue collar workers. I mean, these are your everyday people. This is this is, you know, these aren't business owners renting these houses. Some of them might be, of course, and you can never generalize everything. But these are these are not the most expensive areas. I mean, these are areas where it is likely inexpensive to buy. You know, relatively strong rent, so if I'm picking a cash fund property, I am intentionally trying to find a cash flowing property.
Christine Bennett: The one thing I want to add to this and this is something that I feel really strongly about C-Class properties don't necessarily mean dilapidated. They shouldn't mean that they are not taken care of. It just means that a lot of times we're looking at, you know. These more basic carpeting or just
Jonathan Cook: A lower income area exactly than your higher income area, it's an income bracket. That's the idea that we're looking for here. Exactly. And typically speaking in America, your C class areas are going to have the largest pool of tenants because the the majority of everywhere in America is going to be lower income than that because there's a larger percentage of people with lower income than with super high income. That's just the numbers that we're talking about here. And real estate investing, especially in a cash flow strategy, is a numbers game. This whole thing is a numbers game. When I sell properties and Christine, it's been a long time since I've actually intentionally gone out there trying to sell properties, but occasionally I will if I'm selling. A cash flow investment, the likelihood that the. Investor goes out there and sees the property, or I go and I actually like, look at the property and tour it like you would like a is like nil. I am selling that property on a spreadsheet. We are opening it, opening up an Excel spreadsheet, diving through the cash on cash return, looking at the cap rates, trying to estimate the ages of the roof and the HVAC system. Seeing what small due diligence period?
Christine Bennett: Absolutely.
Jonathan Cook: That's that's what that strategy looks like, and you have to have someone that really grasps all the moving parts for it to do it really, really well, because if you're expecting. Three hundred dollars a month in cash flow. But you didn't factor in something as simple as annual taxes. And let's say you've bought in an area where the taxes are massively high. Well, guess what, your three hundred dollars a month cash flow drops down to like a buck fifty. And you are hurting if your strategy is to make a monthly amount, because that's, I think, the best way to build. A cash flow strategy is to start with how much monthly income do I want to earn with this real estate investment? That's step one. I want to buy a cash flow property. I need to make this much per month with it and then you build the strategy around that. That's like the base level up. So if you're wanting this much cash flow, then these are the areas where you can potentially make that. Here's the rent. Here's the sales price of the property. Here's what a mortgage cost. Here's what other fees costs. Here's what it's going to cost you. And this is what rent is, and that's why you need a team that really understands the local market like. Most of our investors, like most of our investors, are non local investors, right? They're not from here. They don't they don't live in Georgia or Florida. They live in the West Coast. They live in another country. They live someplace else. And they recognized that we have. Better cap rates, this is where a cap rate really does come into play, like I think cap rates are a very incomplete analysis on a property. It is it is not telling you a whole lot other than rent versus sales price, right? That is all it really is. It is. It is annualized rent divided by the seller's price done like that's the whole thing. So that's what a cap rate is.
Christine Bennett: Yes, yes. Agreed. And I think this is this is also the beauty of like the cash flow strategy is that when you're looking, you know, like you said, it's mostly a numbers game, especially with the cash flow strategy you're looking at. You're looking at how you can maximize either monthly cash flow for a period of time or stabilize that same number. Sure. So those are those are the things that you can look at doing that strategy and we're going to actually we have another episode coming where we're we're we're going to pull up the spreadsheets. We're going to geek out and we're literally going to go through a oh my god, entire investment analysis. So that's that's where the cash flow strategy is, is probably weighted the heaviest on just numbers and how you can manipulate that, that monthly or quarterly sometimes. And I think I think that one is so who.
Jonathan Cook: Who is the ideal cash flow investor? It's I mean, that's where it comes down to like if who is going to choose this strategy, the person that's going to choose this strategy, typically speaking, is someone trying to make ancillary monthly income. I need more monthly or quarterly or annualized. I need my income to be higher. I'm not. I don't have enough, you know, so much money that I don't care about making income. I'm going to I'll save this money for the future. This is my retirement. No, no. These are people that are like, I need a higher income. This is where and this is kind of a little pet project of mine kind of goes into the the philosophy of real estate investing that that, you know, in my book where I talk about this, which isn't published yet. So don't anybody look for it just yet? It's it's where I'm talking about this is the greatest impact. And in my opinion, this is one of the greatest impacts to the American people. Because literally last night, when we were talking about the dwindling middle class in America, it's because people don't have enough income versus inflation and cost of living and things like that. So this model is something that almost everybody can do if they have the right team around them and the right knowledge of how you can make this option work. Almost everyone in America, if you have. A relatively decent income can handle this. This is what people in what should be the middle class right now, but we just can't make it over that hump or like, Oh, I would like to be there and like, hey, one hundred thousand a year in income isn't what it used to be.
Jonathan Cook: And like, how do you make that one hundred thousand a year feel like a hundred thousand dollars a year as you invest it in something like this and take your one hundred thousand dollars a year and turn it into one hundred and twenty thousand dollars a year because you bought one cash flow and rental investment. And then you take that, you leverage it and buy a second cash flow and real investment. Now, one hundred thousand dollars a year becomes a hundred and fifty thousand dollars a year, and you just you can scale this up in such a short. Period of time with the correct moves and the correct knowledge that this can become. The answers to building back the middle class in America. And if you do it right by making a really good product, it doesn't even have to feel gross like the landlords, I know landlords. Nationally, speaking in in the metaverse and in the, you know, the memes and stuff, people don't like landlords. I get that because, oh, you're making money off of me. Well, it's it's worse if you're not giving somebody a good product. If you actually can give somebody a nice, safe, happy, respectable place to live, then nobody. Nobody dislikes that landlord. That landlord is the hero. Of course, that's where you can really make a change in America.
Christine Bennett: Even so? Cash flow, a cash flowing property, does not mean a property that is not well maintained. As a matter of fact, I would say because the cash flow strategy is so scalable, this is where you see portfolios being built. And this is this is where owners who have 10 units, 15 units, they've learned a lot along the way. They understand the value of taking care of a property. They understand it because they've probably they've probably gotten to the point where they want to set themselves up to refinance or have some additional goals with this portfolio. So this. Me personally when I first really started and. Cash flowing was was what I wanted to do. I wanted to really understand it and that's what brought me to property management, and this is one of my favorites. Oh, quite honestly, my god.
Jonathan Cook: Absolutely. But you just said a thing, Christine, which leads us into the actual my actual favorite model.
Christine Bennett: Are you going to throw out the big acronyms again?
Jonathan Cook: Really acronym pun acronym Tom. So it's time to talk about Bear for her. It's cold. So let's talk about the bird, Christine. What does Bird stand for?
Christine Bennett: Ok, so it is buy and rehab. Rent, refi and repeat repeat.
Jonathan Cook: So we talk about scalability. We talk about actually becoming a wealthy person. This, in my opinion. This is the best way to do it. The problem that I think most people. Realize, because because everybody knows or well, not everybody. Several people in the real estate investing world will throw this acronym out there. I had to correct somebody on LinkedIn a couple of weeks ago about a strategy that was off the rails, and she clearly had no idea what she was talking about with it. And I was like, Let me give you a 12 hundred word correction. Here it was on LinkedIn. That was too many words. I don't care. I did it anyways. She deleted her post in mine afterwards, but because it was bad advice. This is where I think people recognize that you can become absurdly wealthy with the proper birth strategy. You and I literally had a conversation of, Hey Christine, what is the quickest way to make a million dollars cash? And we both bear fur. Yeah, it's the quickest way to wealth,
Christine Bennett: But it's not easy.
Jonathan Cook: It doesn't work everywhere, and it doesn't work if you don't have the people that know how to do it. That's the problem. Sorry, go ahead.
Christine Bennett: So it's not just cash on hand, too, and this is this is the biggest thing that I think people get hung up on is. Debt to some people is very, very scary. Leveraging money is very, very scary. Once you get over, it doesn't work well, yes. And I get it. I've been there too. Once you get over that hump and you realize that not only not only are you perhaps and usually in a bur, you are cash flowing at least a little bit. Once you realize that you have some sort of positive cash flow and you also at the same time are building your net worth, you're building a larger portfolio, you're building a you're building a little empire here. And I think that's what most people, it scares them because it feels unattainable. But once you really break it down, these are really simple words. Oh my God, they are really, really simple.
Jonathan Cook: So this is in part building. I mean, I hashtag empire building all the time, every time I talk about this, because it's exactly that. This is how you build your own little kingdom empire. This is how you build well. And like I, I want to dive into how this actually works. And we have a we will have a very long discussion later about really specific information about how to actually operate this and do this. Well, like we might even talk about actual zip codes like where it works because it doesn't work everywhere. The whole idea. The way to make this work is you have to buy a distressed property like that is literally step one.
Christine Bennett: That's where you get the first R. Yeah, you're building it in. You got to rehab it, and you can't be afraid of
Jonathan Cook: It and guess what that. Of course, that's the biggest risk. It's the biggest risk because it's going to give you the biggest reward. It's the biggest risk. What if you tear down the walls of a nineteen fifties, you know, bungalow and find that there's, you know, something crazy in those walls? What if? What if, like, Oh God now have to get extra permits? Oh, now I've got to rewire the whole termites.
Christine Bennett: But that's just, yeah, there's all kinds of fun. There's a lot
Jonathan Cook: Of risk in there, which is why it's so important to have people that really know what they're talking about before you just buy one and hope it purrs, right? Like you've got to have the right people there. And this is, I mean, you don't have to be an expert in it, but you have to have somebody that knows what they're talking about when they get this going, because you've got to add in your value, the purpose of this. So let's discuss how this works and overview you buy a distressed property that is under value from the median in an area. Mm hmm.
Christine Bennett: And there's A.. So there are a numbers game. It is very much the numbers game. There's also certain percentages you want to look at, and that's in our deep dive. We will go over that percentage is under market value and then
Jonathan Cook: That are ideal. And again, kind of go back to the thing that we always harp on. Don't let perfect get in the way of good. Yep. So after you found the address that's going to work for you or the area that's going to work for you because you have some distressed properties, what these areas typically look like, they're usually older. It's very similar to the cash flow structure. It's a typical similar type of property. But what you're seeing in there, these are the areas that and I don't like this word because it has some negative connotation, but you start to see some of that. Gentrification or that recapture that, and it's and it's honestly it's because of an income bracket, it's because first time home buyer properties are long going away like there's not new builds. You don't see a lot of new construction that's in that, you know, first time home buyer price range. And so the ideal version of this is you buy the distressed property and you give it the modern features. You give it the recessed lighting you put in the LVP floors. You actually make it nice almost to the level of what it could have been in a new new construction, but you are able to buy it at such an under. Valued price, because you have to put in the work, you rehab it and make it a nice home that you can charge a rental value that it's worth now because you've done the correct rehab that you can now cash flow your property if you've bought it for, let's call it one hundred, you've put thirty thousand dollars into it, you rent it for twelve hundred dollars a month. That's a really strong cap rate that is a massive amount of of actual monthly income because if it's done right and you handle it, all those systems to begin with. Guess what? You restart those systems. You're not worrying about your roof, you're not worrying about your HVAC, you're not worrying about your water heater. You've taken care of those in that rehab process. So your maintenance cost. Guess what? It's now
Christine Bennett: Low. So this is where I feel really strongly, I think. I think especially in an effective birth, the rehab is the most important part.
Jonathan Cook: Oh, yeah, thousand percent.
Christine Bennett: So if you if you over, if you overdo it, you're losing money. Of course you undo it. You're losing money. Of course you are. You don't do it right. You're not going to refi. Yeah. So this is where you need to align yourself with not one, not two. You have to have a few resources to make sure that the rehab is going to come out. It's going to come out well. Shameless plug. This is why you want a property management company because we have relationships with a lot of different vendors. I mean, you need that. You can't just depend on one for a period of time because everybody has a burnout.
Jonathan Cook: Well, and exactly what you said, you can over improve these. I mean, you don't need to go and put in imported Italian custom marble in the kitchen. Lvp is a great product. I love LVP flooring. It is very durable. It lasts a very long time. And if you get the the relatively decent quality of LVP, it lasts for a long time and looks incredible and it's not overly expensive. It's much less than trying to refinish some floors from, you know, nineteen thirty five or whatever. That's relatively expensive. That can be like seven fifty a square foot, whereas LCP is closer to like five and. And it looks great. You get those really nice options. It's easy to clean, so your tenants are going to appreciate it because it's easier to clean LVP than it is. Know old distressed floors or carpet, to be perfectly honest, it's easier. I mean, let them have rugs and all that stuff too. And then you you can put in your granite countertops. Everybody likes granite countertops that got really popular 10 15 years ago. I mean, it's still relatively popular today. But like, you don't have to go marble and quartz granite is relatively inexpensive nowadays, and it looks super sharp. And again, it's easy to maintain. It's easy to clean. And then you can charge a knot. You don't want to. You don't want your target rent price to be the top market.
Jonathan Cook: You don't want it to be the top. You want it to be around the median. This is why the numbers are so important to do them all. Yep, and still cover making the nicest house at that median price range. That's what you're trying to do. And then after that's done, you've got your tenant in there. They are now happy. Your tenant loves this property because it is a beautiful, gorgeous, great home, at a at an affordable like. They feel like it is a miracle that they found this home and when it's done properly, all of these do. But now guess what? Your property is nearly as valuable as all the flips that are going on in this gentrified area. So you've got one hundred and twenty eight hundred and thirty thousand dollars into it, but you see those Aave's RV stands for after repair value. So that's when people do a flip right? They've come in, they've really improved the house and then now they're now they're selling it to an owner occupant. But you see those RV values being like one eighty five, two hundred almost and you've only got like one twenty one thirty into it. So you know, you can cash out refi, you can refinance this property at that value and take the difference. It's like selling the home only you keep it.
Christine Bennett: The other very beautiful thing about this is if you plan, you have a strategy, you work your numbers correctly. A lot of times your initial investment that you've put in, you know that 20 percent or whatever, whatever percent you need to to finance this project. A lot of times you're getting that back. Yeah, of course you are. So, yeah, it's pretty beautiful
Jonathan Cook: And your cash flowing the entire time, too. Yeah. So that's the refi you've you've done it. And this is again where it's important to have that correct team, your lender who's giving you your mortgage on this property, like that's important that you've discussed this with them beforehand. You know, a good appraiser is worth their weight in gold, but I mean, and a property manager is helpful in this case, too, because I mean, I know I have sent my comps for four appraisers many times and gotten those differences. But what's great is all right now, you've got your refi, now you have all this capital. What do you do with it, Christine?
Christine Bennett: You're repeat, repeat the process.
Jonathan Cook: Repeat, repeat until there is no more available for properties. You buy them until there aren't any left. And then what happens? Let's let's talk about this from a quick numbers game. You buy a property for one hundred grand, you put 20 into it, you refinance it for one hundred and sixty. What's the difference there? You got forty thousand dollars in the refi. I mean, there's give or take some closing costs, what have you? So now you go take that forty thousand dollars, you split it into two twenty thousand payments, you buy two more hundred thousand properties and now you put another twenty in them. You do the same process, you make forty on each one of them. It scales exponentially in a handful of, you know, maybe six months, maybe a year. You went from a portfolio worth one hundred and fifty thousand dollars to now you have a portfolio worth a million million and a half two million, depending on how many you can buy and find, it is the quickest way. It is. It is astonishing how quick your actual wealth can be built through this model, which is why we do it. Yep. And there are so many other strategies that I actually want to talk about, I mean, today we talked about the cash flow and the long term buy and hold and BR. And I really want to spend some time talking a little bit more in depth about those particular strategies. But there are so many other strategies out there, like actually like creating turkeys, the build to rent model, which is so popular right now that I want to get into that and flips, Oh my gosh, actual flips. This is the HGTV version of this, right? This is what everybody comes here to try and do. So we're going to discuss those in upcoming episodes. But you know what, for for for today, I just want to thank everyone again for listening. Please make sure to like and subscribe. And we'll see you in the next episode.