Rent Where You Live and Buy What You Rent Out

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I get asked this question all the time, Mike “should I rent or buy?

If you’re looking to get started in investing in real estate, you won’t want to me this because it’s perfect for investing in real estate if you’re a beginner.

Video Transcription:

What mommy and daddy taught us about the savings account to buy this house, to save it, doesn’t work today.

Welcome to Mentor in the Masi. Guys, today we’re going to talk about renting versus owning, and how important it is to really know this topic, because there’s a lot of controversy in the topic itself, because you guys probably hear me talking a lot about this in a lot of my videos, where I say things like you may want to buy, and sometimes I say you may want to rent.

Now, under certain circumstances, as I said, there are going to be times where you’re going to buy. I don’t necessarily mean don’t buy a house. What I’m alluding to is that this should be for your rentals, okay?

So, let’s talk about this for a minute.

Unlearn and Relearn

In order to progress, financially, to get somewhere in life, we were taught as kids, you guys know this, we were taught as kids that, you know, to buy a house, to raise a family, to get the dog, the white picket fence, right?

The whole, you know, mid class life, and that you would use that house to basically use it as a saving, so that way, in 30 years, you would have your house paid off, and after your house was paid off you’d have all this magic equity in your home.

So, that’s what we were taught. And so, today, in 2019, things are a lot different, right?

Just like we talk about the savings account. 15 years ago, you could put $20,000 in a savings account, and you would get 10% interest on your money. Today, you’re lucky to get a half a percent.

So, what mommy and daddy taught us about the savings account, to buy this house, to save it, doesn’t work today, but it did work back then.

What I am telling you is this. 95% of people watching this, you, maybe 99% of you guys, do not buy a home as your primary residence.

The Difference Between Buying and Renting

I’m going to give you a couple of examples, but I think it’s really important that you understand the difference of why you shouldn’t buy, andΒ why you should rent, and why you should rent is to make money, okay?

You can scale rentals much faster than buying a primary residence, okay?

So, for example, where we live, okay? I rent, okay?

If I were to purchase the home that I’m in, I would drop probably 25, $30,000 on a down payment. I’d have renter’s insurance. I would have, you know, I’d have the property taxes, insurance, the whole nine yards, right? Mow the lawn. You have a lot of responsibility.

But besides that, I’m tying up $25,000 of money that I could be using towards multifamily.

Now, that’s another topic, where we’re going to talk about multifamily versus buying single, and I might even cover that in this video, but just bear with me here on this one.

Do I Rent Or Buy

So, the question is, do you buy or rent?

You buy what you can rent to others, and you rent where you live yourself. I’m going to say it again. You want to buy properties that you can rent to others, purchase those ones, and rent where your primary residence is, okay?

Because you can’t really scale your primary residence. You can scale rentals. You can buy them, rent them out. And the cool thing about the rentals is the people pay the mortgage off for you. You don’t pay for it.

use other peoples’ money.

I want to use other peoples’ money to pay off the properties that I buy. Then I rent them. The rentals are being paid by the people.

So, while I’m sitting and waiting, it’s being paid off, the mortgage is being paid off, and in the meantime, I’m also making hundreds and hundreds of dollars a month.

Now, for people who are saying to me, Mike, look, I don’t have a whole lot of money to put down.

I’m going to give you the ratio so you can kind of paint a picture of what you can actually buy, and if you don’t have a lot of money, you may want to start, remember I told you, under certain circumstances, in the beginning, that you may want to purchase a home.

We have a lot of people that are in real estate that they want to purchase may be a single family home at first, might be a good move, okay?

Flipping Houses To Get Your Cash Flow Up

So, if you need to get a little bit of cash flow up, get a flash flow up.

Right now, the average is $55,000 on a single flip. So, you know, for a person that’s making $30, $40,000 a year, and they do one flip, they add another $40, $50, you know, whatever it is, $50,000 on their income.

It’s a good move, okay?

So, in a case like that, you may want to start to get your cash up by doing a flip, a flip or two, okay?

Get your cash up, and then you’re going to want to get into multifamily.

Multi-Family vs Commercial

Now, what is multifamily? Multifamily is commercial, and basically commercial means five or more units at the same location. So, residential is under five units, the commercial is above five units.

The reason you want to do that is that you never want to rely on one person.

When I started, I bought a single-family residence, many, many years ago, and what happened is, I relied on one person, and when that person moved out we were devastated, and the reason is because then I had my own mortgage payment, and I had to rely only on one person’s rent.

When they moved out, and it was vacant, I ended up covering their payment as well. So, you don’t ever want to rely on a one single family unit to rent.

Now, if you’re doing it for a flip, great. Make a little money, flip it.

But when you buy, remember, in real estate, that you can buy three-quarters of the real estate with 25% down.

Let me give you an example. Let’s say you’re looking to get five units, okay? There’s a five-unit commercial property.

If you can get five units for, say, $200,000, you can buy $200,000 in real estate with just $50,000 down.

That means you only put a quarter of the money down, but you own 100% of the real estate. It’s one of the only investments that you own 100% of real estate, but you only got to put down about 25%.

So, with $50,000 down, now you own a building that is worth $200,000, okay?

That’s the magic, and the way that you can scale is to keep investing, taking the money, and investing, and investing it into more multifamily units.

My recommendation is to definitely, definitely rent. Rent where you’re at. Take your money out, if you’ve got equity in your home right now, take that dead money out and put it towards something that can make you money. That money is just sitting there. So, take that money out and use it to invest, okay?

The Holy Grail

I mean, this is the holy grail. I mean, what I tell you guys is what I’ve been doing for the last 10 years, and it’s really just, it’s nice to get, on the first of the month, it’s nice to get checks. Checks come in on the first of the month, because not only on the renters paying the mortgages off but we’re getting a nice size check because of all the accumulation of all the rents that we’ve been able to put together in all the units.

When you’ve got over 100 units paying you $1,000 a month, right? If you do the math, you can see that it adds up, but it just takes getting a little bit of cash flow started.

The key is, if you need to do a flip or two at the beginning, which is what I did, I didn’t have the cash to put the 50 grand down, okay?

But what you can do is start doing the flip. I’ll do videos on flips as well, so I can show you guys how to do the flips, and how to actually do your first flip.

But the key is to get a flip, make the money, sell the deal, get out of it, hold the cash, do another flip, hold the cash, and then take the proceeds of the two units that you just sold, and then put that down on something that is definitely more than five units.

The units that get wiped out when we have a down economy, when there is a bear market, what usually happens is the single family or the very low units, they get wiped out, and they get taken away.

The ones that are typically 16 or above are the ones that actually make it through a down market.

The Conclusion

So, ideally you want 16 units plus, but I’m okay with you starting with a single family, just to do a flip, cash out, maybe do one or two of those, and then take that money and invest it into like a five unit, six-unit deal, and then just expand from there.

Thank you guys for watching Mentor in the Masi, if you haven’t subscribed, make sure you hit the subscribe button. I’m bringing this channel to you guys once or twice a week, so that way you can learn business, learn how to scale, learn the real estate market, learn really just how to make a ton of money in business, and that’s the education piece of this.

Take care.

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