Rental Property

Where Can I Make Money Buying Rental Properties- Find It, Figure It, Finance It

In financing, Rental Property, Tips, Tricks & How To's by Jo Garner0 Comments

Are you interested in building YOUR wealth with real estate? Where can you find buy rental properties that make a positive cash flow and how do you know when it is a good deal? Alex Craig of Turnkey Properties in Memphis will be talking about where to look to find the golden goose properties that make you money. I will be talking about how to finance it.   

Welcome to Real Estate Mortgage Shoppe!  Please subscribe at www.JoGarner.com so we can stay in touch.   Let’s talk about what you want to accomplish in the real estate financing world.   Call me directly at (901) 482-0354.   

To Your Success,

Jo Garner, Mortgage Loan Officer   Jo@JoGarner.com  www.JoGarner.com

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Good morning, Memphis! Welcome to our internet listeners and podcast listeners across the 50 states! You’re on Real Estate Mortgage Shoppe. I’m your host, Jo Garner, Mortgage Loan Officer.  You can connect with me at www.JoGarner.com. Our general topic is WHERE CAN I MAKE MONEY BUYING RENTAL PROPERTIES-FIND IT, FIGURE IT, FINANCE IT

If you have a question or comment text me at (901) 482-0354 or call me directly off the show at (901) 482-0354.  

FIND IT, FIGURE IT, FINANCE IT

Are you interested in building YOUR wealth with real estate? Where can you find buy rental properties that make a positive cash flow and how do you know when it is a good deal? Alex Craig of Turnkey Properties in Memphis will be talking about where to look to find the golden goose properties that make you money. I will be talking about how to finance it.   

Joining us in the studio we have Alex Craig of Turnkey Properties sitting around the table. Alex  started investing in real estate in 2007. After 8 years in the corporate world he became a full-time real estate investor.   Alex owns and manages a portfolio of homes.  He is the cofounder and president of Memphis Turnkey Properties GP, Little Rock Turnkey LLC, CB Properties of Memphis LLC, and passive owner of Gus’s Fried Chicken in Knoxville, TN. You’ve done very well in real estate, Alex.   Tell our audience a little bit about you and what you do at Memphis Turnkey Properties.  And then tell us how to be a success in real estate like you are. 

Alex, over the years I have watched some of my clients build a lot of wealth buying real estate investment properties.   Some of these customers start with one money maker then the next and the next and so on.   Eventually they are able to quit their day jobs and just live on the income from their real estate investments.  A couple of days ago on Facebook I saw a picture of one of my clients in Bermuda shorts and a t-shirt, tropical drink in hand, in front of a beachfront restaurant with his family all-smiles around him.   I remember when he first started buying rental houses.  Today those houses are treating him fine.

Alex Craig and Jo Garner

Alex, how did you get started in real estate? 

A big part of what makes a good real estate deal is the financing terms.  If you are going to keep a house, getting a fixed rate mortgage at a low rate is going to determine how fast you start building wealth.  So many of the investors I work with today are buying properties to keep.  The mortgage principle and interest payments are fixed with a rate in the 4’s or low 5’s for 30 years. This market has allowed landlords to continue raising the rent on tenants fairly regularly.  What we see happening is wealth building as the income to the landlord increases between the fixed principle and interest payment and the rising rents.  The lower the interest rate, the easier it is to a bigger rate of return on your investment.   

Mortgage rates have held steady this week in anticipation of the Federal Reserve meeting next Wednesday.   The mortgage rates currently are hanging at a low point.  The conventional 30 year rates for primary residences ended the day between 4% and 4.25%.  The 15 year rates came in around the low to mid 3’s.   For a 30 year loan on conventional, you can still get rates in the 4’s.  MAKE YOUR PLAN. LET’S WORK YOUR PLAN.  IF THE DEAL WORKS FOR YOU TODAY, DO IT TODAY! But you have to talk with me personally so I can work with you.  You can connect with me at www.JoGarner.com or call me directly at (901) 482-0354.

INTEREST RATE DETERMINES BUYING POWER

One aspect of financing that makes buying rental properties so attractive today vs a few years ago or maybe in the future is the amount of buying power you can get while the mortgage rates are low like right now.  For instance, if the mortgage rate for an investor buying rental property is in a range of 4.875% on a loan for 120,000 for 30 years, the fixed rate payment would be about $635 P&I per month.   If the rate moved up to 5.75%, the payment would be $700/mo.  You may have just lost about $10,000 worth of buying power.  In other words, you may only qualify for a house $10,000 less than the one you could have easily qualified for if the rate was.  A lot of factors could change that number through.

FANNIE MAE’S LIMIT OF 10 FINANCED PROPERTIES

Here’s another reason to jump in while you can to start building your real estate portfolio.  Fannie Mae, the biggest loan buyer in the nation, loosened up on their rules a few years ago.   At one time if you owned over 4 financed properties, Fannie Mae would not allow you to get one of their low, fixed interest mortgage with the low payments.  You were forced to pay much more for other type loans.  But today, Fannie Mae will still give you a chance to qualify and enjoy a low fixed rate for up to 30 years as long as you don’t own over 10 financed properties.  They don’t count commercial buildings or properties with over 4 units.

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QUESTIONS ANSWERED BY ALEX CRAIG

Alex talks about Memphis as being a hot spot for individuals and institutional investors worldwide.  Alex says, “It is my feeling, the average Memphian is the least educated individual when it comes to the investor market, so my questions may sound elementary, but  I can tie it in to the big picture.”

1) Why Memphis — main thing here is to talk about price points for individual investors as they can’t get this in their backyard and 20% down loans allows them to build their portfolio quickly.  

2)  Why Real Estate? Blended return. Cash return from rental income, appreciation, tax breaks and if a loan is on the property, equity build up by rental payments

3) How to be successful — I think this is really important. Especially for local investors. The business is way beyond paint/carpet, i.e. lipstick on a pig.  It is now about providing a quality product.

Memphis Rental Home Market Heating Up

While Memphis has been on the radar for landlords well before the housing crash, as of late, the demand for rental homes here is heating up more than ever with individual and institutional buyers from all over the world.  According to Chandler reports, 31% of all residential parcels in Memphis are owned by investors, with 25% of the purchases in 2016 being from investors.  

A recent ATTOM report showed Memphis as the # 1 flip market in the country, and this is not the flipping you see on HDTV, rather flipping rehabbed properties to investors. Internally we are certainly seeing this as Memphis Turnkey Properties, not including it’s other market in Little Rock, we will flip 85 to 100 homes.  By the end of this year, we will have 650 properties under management, 92% which are from out of state investors

WHY MEMPHIS?

Why Memphis? The 3 main reasons are price point, stable economy and demand for rental homes. The majority of these purchases are from out of state investors where the feasibility due to unfavorable purchase to rent ratios, high property taxes, high state income taxes simply makes owning cash flow investing properties in their own market unrealistic.  

The myth has been these investors are purchasing only homes in lower income, lower rent areas.  The reality is, investors are buying all over Shelby County which includes the suburbs of Memphis too. While one can be successful in areas all over Shelby County, we do advise the lower rent areas to be handled by local investors as the management often times can be more hands on.

Because a large amount of Memphians prefer to rent, combo that with homeownership decline, these rental homes on the market is answering an demand, especially by those landlords who go that extra mile and put nice homes with upgrades on the market.

REAL ESTATE GIVES YOU BLENDED RETURNS ON INVESTMENT

Real Estate has always been popular to own because it provides blended returns that when operated correctly, will more often the not, beat other traditional investments.  A blended return would be the cash return on rental income, if a loan is involved (which most investors get 30 yr loans on these properties) equity build up by tenant rent payments, appreciation and tax write offs.  A 10% cash on cash return can easily be 20% or higher with all the blended return. Memphis is a perfect fit within this cash flow model. With rates still low, getting conventional loans on these homes with 20% down provides a pathway to quickly build a real estate portfolio.

MORE THAN “LIPSTICK ON A PIG”

All of this sounds very attractive, but as they say, the devil is in the details. Where we see the most successful investors are ones that understand this is more than a paint a house, lay some carpet, rent the house and collect a check business model. It is much more complex as the business has evolved and with more retail quality rental homes on the market to choose from, the best qualified tenants are bypassing the tired looking homes for homes that have been updated.

Those tired looking homes will have to be the lowest priced home in the neighborhood to get occupied. Those homes are likely to suffer from high vacancy too as tenants in the Memphis markets are quick to get up and move if the landlord is not running their property correctly.  

Just like any business, success of owning real estate must be established on the front end. By this I mean, rehabbing your home correctly, adding upgrades such as vinyl plank flooring instead of carpet in high traffic areas, kitchen updates with ceramic tile, new counter tops, new faucets, refurbished cabinets and updated lighting.  Bathroom updates area also equaling important.  Adding such features as curb appeal, new roofs and updated HVAC systems will make your home more marketable.

The key feature to tie all this together is experienced property management from property managers that are also successful landlords too. These management companies will be innovative and customer service centered to create a positive living experience for the tenant, which will reduce vacancy cost.

LENDING FOR LEVERAGE

Lending is a great way to build a portfolio quick. 20% down, under 5% to secure a 30 yr loan.  Excellent cash flow can be developed and if the portfolio is large enough, one can start paying down mortgages and get several homes paid off in a relatively short period of time. I can’t think of a better wealth building tool.

GET A LIFE—GET A PROPERTY MANAGER

Property Management. There is a lot to know and an solid deal can be a massive loss if not run well. Even if you do not want to pay a property manager, I strongly suggest letting them place a tenant as they have more experience of red flags to look out for. Property Managers also can more often the not, unless the owner is doing the work, get repairs items done much cheaper then individual investors due to leverage of being a high volume customer to vendors in their respect field.

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QUESTIONS ANSWERED BY JO GARNER:

  1. What are the most popular mortgage products you use for investors buying 1 to 4 unit rental properties?
    • 20% down payment  and 30 year low, fixed rates .   Investors build wealth because the principle and interest payment stays low for up to 30 years.  While the investor is enjoying a principle and interest payment that never goes up, conversely, the month rent income is steadily going up.    As rents increase year after year, the positive cash flow between the low, fixed mortgage payment and the amount of income coming in from the tenant, is getting larger and larger.  That is where I see my investor mortgage clients building wealth for themselves.  
    • (Jo tells story of an investor who started out small and now no longer has to work a job.  He can go on exotic vacations with his family and enjoy doing fun things in life that others only dream of doing.  Les Brown, a motivational speaker says, “ You must be willing to do today the things others won’t do, in order to have the things tomorrow others won’t have.”)
    • Figure the Capitalization Rate: Jo gives example of a common real estate investment deal like one I did a year ago that shows you why the low 30 year fixed rate can work for a lot of investors:  Sales price $114,000 with $22,800 down payment and a loan amount of $91,800 on a 30 year fixed rate of 4.375%   The rental income on this property was $1,300/mo. The buyer’s Principle and Interest payment was $455/mo.  When you add in taxes and insurance, the total payment was $614/mo .  Then add in property management fees and maintenance costs, he had a net profit of $512/mo or $6,144/year.   That’s pretty good for the first year.  Just comparing the net profit without the mortgage divided into the price he paid for the house, his capitalization rate was 10% return on investment.
    • Sales Price$114,000
    • Rent Income: $1,300/mo  $15,600/yr income
    • Property taxes and insurance per year $1,908
    • Property Management and Maintenance per year $2,088
    • Total Rent= $15,600
    • Taxes and Insurance/year
    • Property Management and Maintenance/year=Net Rent $11,604/yr
    • Net Rent $11,604 divided by / Sales price $114,000=  Capitalization Rate of 10%   Pretty good!
  2.  The Quick Cash Back Refinance Loan-   One loan product that tends to be a winner among my investor clients is the Quick Cash Back Refinance Loan.  When the investor pays cash for a house or borrows money secured on a different asset and not on the house he is buying, I can refinance the property he paid cash for right away and get him his money back.
  3. On standard loans, investors will sometimes have to show they have their name on title to the investment property for at least 6 months to a year before they can refinance and get their money back.   But on the Quick Cash Back Refinance, I can process a cash back loan secured on that investment property and close quickly and get the investor up to 75% Loan-to-Value based on the appraisal value or the sales price and closing costs showing on the closing papers from when he bought the property just a few days ago.
    • Call me if you want to see how to get your cash back quickly so you can buy your next house sooner rather than later.
  4. Where do your investors get the money to put down?
    • Does anyone remember that old 70’s song by Paul Simon, “50 Ways To Leave Your Lover?”  Well, there are about that many ways to get money to pay down to buy a rental property.
    • The loan program requires a minimum 20% down for buying a single-family rental property. One loan program only requires 15% down for the single family rental house.   You can buy your primary residence, for nothing down or close to it, but rental properties require more down payment.
    • he minimum down payment for buying a duplex or tri-plex or 4-plex is 25% down payment.
    • Here are a few places you can go to dig for gold:
  1. Borrowing against an stock or bond account or mutual fund.
  2. Borrowing against a 401k
  3. Getting a cash out refinance from a different property
  4. Cash value in a life insurance plan
  5. Get an equity line of credit secured on a different property other than the one you are buying.   
  6. These are just a few.—there’s more  but you don’t want to use gift money to buy a rental property.  You don’t want to borrow the funds unsecured.  

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ANNOUNCEMENTS:   

Talk Shoppe offers free networking & education to anyone interested in real estate or in business. Talk Shoppe meets every Wednesday 9A-10A CT at Nova Copy Conference Center 7251 Appling Farms Parkway Memphis, TN .  This Wednesday May 3rd, 2017, Arnold Dormer, experienced real estate investor in the Memphis area since 1962, will be presenting: “Getting Started Right Investing In Real Estate.”  

  1. Talk Shoppe events are free thanks to advertisers like Peggy Lau, Independent Rep with World Ventures. Connect with Peggy at (901) 289-0747. She can show you how to earn first-class vacations and have fun with your own travel community.  You can share your awe-inspiring stories of oceans and mountains, different cultures and the good food too.
  2. Thank you to Talk Shoppe sponsors, Troy and Lynn McDonald of Erin McDonald Insurance Agency.  Lynn McDonald works with many real estate investors with Memphis Investors Group in Memphis.  Lynn offers a very competitive landlord policy.  She also  recommends you ask your tenant to buy renter’s insurance.  It’s the best insurance you will never have to pay for.  (901) 849-7101
  3. FOR THIS PODCAST OF REAL ESTATE MORTGAGE SHOPPE AND MORE, GO TO JOGARNER.COM
  4. Real Estate Mortgage Shoppe reminds you that IF THE DEAL WORKS FOR YOU TODAY, DO IT TODAY.

SPECIAL NOTE:  REAL ESTATE MORTGAGE SHOPPE  RECOMMENDS THAT YOU CONSULT WITH A FINANCIAL, LEGAL OR OTHER CERTIFIED, LICENSED PROFESSIONAL BEFORE ACTING OR INVESTING ON ANYTHING YOU HEAR OR SEE FROM THE CONTENT ON THIS SHOW OR BLOG POSTS. THE INFORMATION WE SHARE ON REAL ESTATE MORTGAGE SHOPPE IS GENERAL IN NATURE MEANT FOR GENERAL EDUCATIONAL PURPOSES ONLY.

 

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REJOINERS:  

 

  • Pat Goldstein, Realtor with Crye-Leike for TN and MS (901) 606-2000
  • Gwen Christensen, owner of Builders Floors and Interiors www.buildersfloorsandinteriors.com  She can get your quality flooring installed for less than the big box stores

 

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ABOUT ALEX CRAIG, PRESIDENT OF TURN-KEY PROPERTIES

Alex Craig

Alex Craig became a Real Estate Investor in 2007, after eight years of corporate experience as National Sales Manager and Director of Marketing for Worldwide Adhesive and Plumbing Manufacture. He is a lifetime native of Memphis and a graduate of the University of Memphis with a Bachelor of Science in Education. Alex owns and manages a portfolio of houses in Memphis and in Little Rock, AR. He is the cofounder and president of Memphis Turnkey Properties GP, Little Rock Turnkey LLC, CB Properties of Memphis LLC, and passive owner of Gus’s Fried Chicken in Knoxville, TN. Outside of work, Alex enjoys travel, golf, basketball, and spending time with his wife (cofounder of Memphis Turnkey and CB Properties) and three daughters. 

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About Jo Garner

cell: (901) 482 0354

 jo@192.232.195.219

www.JoGarner.com

  Twitter: @jogarner

Jo describes her job description: As a mortgage loan officer, my job is to give my client the benefits they want from their financing terms– listening to my client and determine what’s of the most value to THEM–  What is their comfort level on a house payment, how much are they comfortable paying down, what type of financing do they need to get the house they want to buy or refinance. Different clients have different priorities in life—some are buying their first home with very little down payment funds.  Some are recovering from medical challenges, divorces or preparing to send children to college and some are embarking on a long term goal of buying properties to build rental income. Whatever their personal priorities are, my job is to put together a mortgage with comfortable terms that will help them achieve their goals.”

Jo Garner is a mortgage officer with extensive knowledge in tailoring mortgages to her customers who are refinancing or purchasing homes all over the country.  She offers conventional, FHA, VA or other loan programs for refinancing and purchases.  

Jo can help you look at rent vs buy, when it makes sense to refinance, how to get the best deal on your home  purchase financing.   

Jo Garner  has been in the real estate/financing business for over 20 years.  She got her start in Portland, Maine where she first began her real estate career. She received her real estate education from the University of Southern Maine  and was personally mentored in San Diego, California  by Robert G. Allen, author of Nothing Down, Creating Wealth and The Challenge. 

On moving back to West Tennessee in 1987, she went into business buying and selling discounted owner-financed notes secured on real estate.  In 1990 Jo went to work for a residential mortgage company and has been a mortgage loan officer for over 20 years.  Her goal is to offer excellent, affordable service to her customers, tailoring the loan programs to the specific needs of her clients.  

In addition to her work in the mortgage field, Jo Garner  is the primary sponsor and founder of Talk Shoppe in Memphis. www.TalkShoppe.com  Jo is host of Real Estate Mortgage Shoppe  and currently publishes on her blog www.JoGarner.com

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