Ryan has over 22 years of experience investing in residential real estate and is breaking down how he would invest in real estate in 2024 if he had to start all over again.
This blog post is for you if you don't have any money to start investing in real estate or if you have some money saved up. He shares strategies for both.
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How I'd invest in real estate from scratch in twenty twenty four.
All right, guys, let's just say I was starting in real estate in twenty twenty four right now. Let's say I didn't have any of the resources I had, but let's say I had the knowledge, but I didn't have the properties or anything else like that. What would I do? Well, the first thing that I wanna talk about is the difference between income and cash flow.
Okay? So fix and flipping properties, wholesaling properties, doing those things is fantastic and you can make a really good amount of money, but it isn't passive income unless you build a business and put systems in place where people are running that and you can step away. So that's something where you're always doing something. It's active income, meaning you're having to do something to make money.
Now, the money can be really great with those things, but the question is what do you do with that money in order to get you passive income. So for me, the end goal is passive income. Retirement, financial freedom, for me, is how many months I can go without having to work. Now, I may want to work and I may not want to work, but how many months can I go without having to work?
That's my definition of financial freedom. And so the first thing I like to do is I like to start and say, okay. What's that number? What is that dollar amount that you would need on a monthly basis that is passive in order for you to not have to work again?
You may want to, you may not want to, but what does that number look like? For this purposes, I'm just gonna say, that's six thousand dollars.
Roughly seventy two thousand dollars a year. Let's just say now, you may want a lot more than that. You may want a lot less than that. I don't know what that is, but I'm gonna start with six thousand dollars in passive income.
So the question is, how can I get this passive income? Well, there's a few ways you can do it. You can do it through rentals, which I look at as long term rentals. Short term rentals can be passive, but if you're managing it yourself, it's back to that active income strategy because you're in charge of that.
So this would have to be hands off vacation rentals, which, means a full management company is taking care of it that you trust. So but long term rentals, hands off vacation rentals.
This could be hard money lending.
And so and this could be some limited partnerships, which could be investing in other things. Now, yes, you can look at apartment complexes. You can look at everything else like that. My recommendation, if you wanna do those, look to do those in limited partnerships with people who have a lot of experience.
My two favorites are rental long term rental properties and hard money lending. Those are my two favorites.
So if I was saying I, I'm starting all over. I want six thousand dollars a month in cash flow.
How am I going to get that? Well, the nice thing about rentals is there's a few ways to make money. Right? So in a in a rental situation, I'm making money, number one, by the values increase. Number two, I'm making because the rent increase over time.
I've got some tax savings.
I've got, which is kind of the depreciation. This is appreciation.
I've got the amortization which is the tenant is paying down my principal balance. Right? So, I've got values going up. I've got rents going up.
I've got tax savings that are helping, and I've got my debt being paid down. And so one of the things I really look at with these, with these rentals is the market increase is going to help me drastically, which is why I look at the rentals. So let's look at this. Let's look.
Okay. So this gives you a pretty good idea.
In the nineteen hundreds, I don't know what that is, around ten thousand dollars, you can see it was flat in the nineteen forties is really where it started to pick up, and ever since then, it's been picking up. What I think is really interesting for people to realize is two thousand eight, two thousand ten, you can see things did come down, but they went from, you know, one seventy five to one sixty five. This drop in here was less than twenty percent.
And that's a reason why banks love you putting twenty percent down is if you put twenty percent down, their risk is really, really low, if something like this actually happens. But here's what's interesting. It went down and it came right back up. Now a lot of people are like, I wanna time the market and buy right here.
That's not how you do it. It. What you do is you consistently buy and you do what's called dollar cost averaging. So if you buy a house for two hundred fifty thousand this year or next year, buy one for two hundred and seventy thousand, and the next year buy one for two hundred and ninety thousand, and then prices go down to two hundred and you buy one at two hundred, your average of those is dollar cost averaging.
So two twenty, two forty, two sixty, two hundred. We add those up. These are thousands. We add those up and then we divide it by one, two, three, four, and that gives us our average.
And so our dollar cost averaging, it's better to dollar cost average into these properties than try and time the market because you can it's impossible to time the market, and you lose the opportunity as time goes on. So that puts me in into them at two thirty. Now if prices are at two hundred for a long time, maybe I buy another one at two hundred. That's going to put me two hundred plus two hundred plus two sixty plus two forty plus two twenty divided by five.
Whoops.
It's gonna put me at two twenty four. So you can see if the market goes up and then it goes down, that's going to help me. And then if the market starts heading back up like we saw right here, that drastic incline, now you're gonna see the overall go up. And so this dollar cost averaging of regularly buying. Now maybe this is I'm gonna buy a a property every year, maybe I'm gonna buy a couple of year, maybe I'm gonna buy one every other year, but it's saying I am going to buy properties on a systematic time schedule rather than I'm gonna buy properties at whims. Now, if we know where to load in the market and you're like, instead of buying one property this year or one property, maybe I'll buy two this year. That might make some sense to do, but you've got to be prepared for that, which is why we are having this conversation.
Okay. So next thing we've gotta do is say, what is it going to cost us to do, what what am I gonna need for rentals to end up making the money that I need to make? Well, let's just do this. Let's do Atlanta, Georgia. Why not?
Okay. So one of the things that you will see here is average rent. K. So average rent for a five bedroom is thirty nine hundred. Now we can actually let's do a ZIP code. Okay.
In this area, average rents for a four bedroom house is twenty seven twelve a month. Okay? So twenty seven twelve a month. I'm gonna we're gonna get rid of this. Remember, our goal is seven or six thousand dollars, seventy two thousand dollars a year. So our goal is passive six k a month.
K? This is this whole concept of beginning with the end in mind. Right? Like, what do we want?
So I really recommend four bedroom houses for my area. Four bedroom houses in this area is rented for two thousand seven hundred and twelve dollars. Okay? I'm just gonna say they rent for let's just call it twenty seven hundred to make life easy.
Okay?
That's the average rent for a four bed.
Okay. Now what happens is you've got some cost you've got to think about when we're dealing with these properties. Okay. So you're going to have property tax.
You're gonna have repairs.
You're gonna have capital improvements.
And you're gonna have some vacancy.
And you're also gonna have insurance, property insurance. Okay? So property insurance, let's say I I think on average, we're probably paying about fifty dollars a month, for property insurance.
And so it may be as high as a hundred dollars a month depending upon the area that you're in. You can package it. You can do those things. Let's just say it's seventy five a month divided by twenty seven hundred. So that's gonna be two per let's just say it's three percent a month is what you're spending on your hazard insurance.
Vacancies, my vacancies are super low, but I plan on five percent vacancy.
Capital improvements, I plan on five percent capital improvements. Capital improvements are improving something that you're gonna do once and that's gonna last a long time. For example, if you're gonna fix up the roof, then that roof is gonna last for a long time, but you'll eventually need to replace something else. Now repairs is like the toilet stopped working.
I plan on five percent for that. And then property taxes, that's a known quantity. So I can come in here and get a good feel for what property taxes are. So let's just come down here.
I've never been to this area, actually.
So I don't know, but tax information's right here. So the tax assessed value on this is three hundred fifty two thousand. Property taxes is fifty ninety. So if we take the, the assessed value divided by fifteen ninety nine. That means whoops.
Fifteen ninety nine divided by three fifty two three twenty.
So we're roughly one one point four percent, of the of the purchase. So in this situation, let's just say our property taxes are going to be, just say it's five thousand dollars a month divided by twelve. So that's four hundred and sixteen dollars a month, and you're gonna divide that by twenty seven hundred, and that's gonna be fifteen percent. Now a little secret here, I don't want my property taxes. They can't be more than I ideally, my property tax equals one month's rent. So in an ideal situation, my property tax for this property is no more than twenty seven hundred dollars.
This one this is not a house that I would buy as a rental. Let's just try and find something else here.
Tax information, that's six thousand on two forty seven. So, maybe this area is more expensive. If so, I'd be looking for another area, but I never want it to be more than two times. So twenty seven hundred times two, k, fifty four hundred, and the property tax on that one was five thousand.
So that's okay. Right? I never want it to be more than two. One is ideal.
Okay? So let's talk about this, guys. Let's talk about all this. So we're looking at this without having a loan in place, and then we'll add the loan in later.
So this is saying if this house was paid off, what would it be getting me in cash flow? And I'll show you how to do that. So, we know that it's twenty seven hundred, and we've got four hundred sixteen dollars in property taxes. Repairs, twenty seven hundred times point o five is a hundred and thirty five dollars a month in repairs.
Capital improvements is a hundred and thirty five dollars. Vacancy is a hundred and thirty five dollars, and we said this is gonna be seventy five dollars. So when this is all said and done, I've got four sixteen for property taxes. I've got a hundred and thirty five dollars for repairs.
I've got a hundred and thirty five dollars for capital improvements. I've got a hundred and thirty five dollars for vacancy, and I've got seventy five dollars. So it's eight hundred ninety six dollars is basically what we're at. So if I subtract that from the twenty seven hundred, subtract eight ninety six, that's gonna equal one thousand eight hundred and four dollars.
Okay? So if I if my goal is six thousand a month, okay, then six k, and I'm getting eighteen forty. So I go six thousand divided by eighteen o four. That means I need three point three houses paid off in order for me to make my six thousand dollars that I'm looking to a month.
Okay? But you're gonna say, well, Ryan, how am I gonna pay these houses off? What am I gonna do? I'll get to that.
Hang hang with me here. Okay. So what's gonna happen initially is you're going to want to purchase a property like this. So what happens here, so is you wanna get into a property with little to no money down.
If you've got money that you can put down and you can put twenty percent down, that's great. But if you don't, like most of us, like I didn't, you've gotta find creative ways to do that. And the way that you do that is through what's called getting a good deal.
You're buying a wholesale deal rather than a retail deal and by doing value add. Okay? So we're adding value to the property by being by doing doing, repairs to the property. And we find those types of properties, when we are looking for properties that meet two criteria.
Let's go somewhere else. Let's go Austin, Texas. Okay?
So we find these types of deals with two things. One, there has to be we're looking for people that have motivation, and we're looking for people that have equity.
Okay?
Motivation.
These are people that are going through a difficult circumstances. For example, like we put here on the software, these are called involuntary liens. So if you click on these and you come to the filter, you can see what that filter is. These are residential, single family, condo, townhouse. Maybe you want condos, maybe you don't. You come in and change that.
They are not listed on the MLS.
Maybe you want something that is listed in MLS. There's reasons. The lien is for more than five thousand dollars. The value of the property is under fifth five hundred thousand and the equity, there's thirty percent or more of equity. So the motivation is gonna be they have this involuntary lien.
The equity, I know they got thirty percent or more of equity based upon doing a reverse amortization. So those are the types of deals that I'm gonna actually go after here. Here's another category. These are people that are in bankruptcy. These are people in bankruptcy that have some sort of equity. This is a list of people that are out of state owners that are probably burnout landlords.
This is a list of non owner occupied, meaning it's a rental property, which is also burnout landlords, but they live in the same state. This is a list of pre foreclosures, and this is a list of properties that were on the market and actually failed.
The other thing that you can do is you can do MLS sniping where you look at stuff that's on the MLS that's been on for a long time that has equity so that you can make offers to those. That's a whole other subject. I've got a video that goes through that. But those are the types of deals that we're actually looking for.
Now if you have the money, what you're gonna do is you're going to buy it, You're gonna renovate it, and then you are going to just rent the property. So to buy it, you'll probably have to put close to twenty percent down. You can probably do less, but if you got the money, you do it. And maybe you're gonna spend thirty to seventy thousand dollars on doing a renovation. And if you've got the money, then you would put that money into it and then you would get a long term loan and, and then you would rent that property out. Now let's say on this specific property, I think the property we were talking about was three hundred and fifty thousand.
I'm gonna wanna buy that property for about seventy percent at least. I'm gonna wanna be three fifty times point seven o. So I'm gonna be wanna be somewhere around two hundred and forty five thousand that I'm buying that property. So if I'm buying it for two hundred and forty thousand dollars, and I've gotta put twenty percent down on that, and then I'm gonna pay, let's say, fifty thousand dollars for rehab, two forty five times point two zero, that ends up being forty nine thousand dollars. That ends up being about a hundred thousand dollars that I'm into this, which means my loan on this property is is for two hundred thousand dollars.
Let's just do a quick loan calculator here. Let's your purchase price is two hundred and fifty. We're gonna put twenty percent down.
Annual taxes is a little less than that.
Let's just say that.
The interest rates right now, I think, are gonna be probably six six and a half.
We're not doing any insurance. We're not doing so my payment is gonna be sixteen fifty nine. Okay?
So on this, I'm paying sixteen fifty nine, which means I am cash flowing after all of my expenses.
Eighteen o four minus sixteen fifty nine means I'm cash flowing a hundred and forty five dollars a month. K? So you're gonna say, well, that's not a lot of money. Yes. It's not a lot of money, but it's gonna go up over time because let's look at rental graph. So this gives you an idea here what's happened over rents over time. So let's just take twenty twenty one.
We'll take well, let's take twenty twenty, which is eleven o four, to twenty ten, which is eight ten. In the year twenty ten, the average monthly rent was eight hundred and ten dollars. K? In twenty twenty, ten years later, the average monthly rent was one thousand one hundred and four dollars So let's talk about what that increase is.
So we take one thousand one hundred four dollars. We subtract eight hundred and ten dollars, which means it went up two hundred ninety four dollars. We're gonna divide that by eight hundred and ten, which is what it was originally, which means it went up thirty six percent in ten years. We're gonna divide that by ten, so it went up three point six percent, every single year.
So we're seeing a thirty six percent increase in rents over a ten year period. Well, what does that do to this twenty seven hundred dollars? Well, this twenty seven hundred dollars ten years from now is gonna go up thirty six percent on average, which means the twenty seven hundred is now going to rent for three thousand six hundred and seventy two dollars ten years later, which now means that your cash flow if your payment is sixteen fifty nine, your payment your cash flow now is two thousand dollars a month every single month. And that's with still having the loan on the property.
Okay? So that's the long term game with this is this goes up. And you may say there's no way rents are gonna go up that high. Believe me.
Trust me. They will. You see it on the graph here. But the other place that you're gonna see that, I've seen it.
I've had places that rent for eight hundred dollars that now are renting for twenty five hundred dollars. Twenty years later, I've seen places that are rented for a thousand that are now renting for three thousand that are my own properties that I have purchased. I've seen this. This is going to happen.
Will there be ups and downs? Yes. One of the interesting things here, though, is if you come and look at two thousand and eight, between, two thousand and five and two thousand and ten, rents didn't go down, guys. And you're gonna say, well, Ryan, like, how do I how do I reconcile this?
How do I make all this work? Or you may say, I don't have the money to put twenty percent down.
I'm glad you asked. I was in that same situation, and I'm gonna show you how to do it.
Okay. So your goal is six thousand dollars a month of passive income, but you don't have much money to start with. There's two approaches to this. Approach number one is you do deals to get money so you can put the money down in buying the rental properties and even pay for the repairs. The second way to do this is to use the BRRRR method. Okay? Which means you buy, you renovate, you rent, and then you refinance.
Both of these work. There's pros and cons to both of them. So when I talk about doing deals, my recommendation would be that you do one of three types of deals.
I would look at doing land flips.
I would look at doing wholesale.
And I would look at doing fix and flips.
If you've got a day job, which I hope you do and you're taking care of your family, I think it's a lot easier to do land flips is the easiest that takes the least amount of time.
The next one, wholesaling just takes a long time to find the right properties. So my number two would be fix and flips. But if I was starting all over again in twenty twenty four, I would be doing land flips. I'd be doing land flips so I could get enough money so I could put some money down on some of these deals.
That's option number one. Option number two is I would be doing the BRRRR method. And so the BRRRR method is what I'm actually doing is I'm buying a property with hard money, and I'm buying a good enough deal that I can get the purchase, the rehab, the closing costs, and everything included into that loan. So in that example, we were saying, if we're buying that for two hundred and forty five thousand dollars and it needs fifty thousand dollars worth of work, let's call it a cool three hundred thousand.
That property is gonna have to be worth more than that. So this property is gonna have to be worth, I don't know, three seventy five ish, let's say, once the repairs are actually done in the property. What that allows me to do is it allows me to go in and refinance as long as there's twenty percent of equity once the rehab is done and not have to bring additional cash to the table. These are done with called DSCR, debt service coverage ratio loans is what we're using to do this. What this does is it allows me if I buy the property right, I can buy the property, I can renovate the property, and then I can refinance the property and have very little to no money into this property as long as I'm getting a good deal and I do a great job on my rehab, which that allows me to then refinance and actually have a property that I have very little to no money in. This does change the dynamics. So let's go back to our handy dandy calculator.
So now your loan is for three hundred thousand.
Okay. So now your payment is two thousand dollars a month.
And so if if we take those things like we had listed, with the insurance and everything else like that, you're probably gonna be close to what's called a breakeven, which basically means after those expenses, you're not making any money. But the great news is you don't have money into it and you have equity in the property, so the value's in the property. So now it's a waiting game for rents to go up, for property values to go up. Now if you bought a property like this every single year, in five years from now, you've seen an increase of rents of fifteen percent.
So now you're starting to cash flow. So if you can do a BRRRR deal where you break even with those expenses when you're planning on vacancy and capital improvements and everything else like that, if you can get close to a break even point, it's worth it because the tenant is paying down the principal every single month, the property value is going up over the long term, and rents are going up over the long term. So let's say you did this for ten years. Okay?
Let's say ten years from now, let's say you bought a property every other year for ten years. What does that look like? Well, what we know is the rents have gone up and we know that the principal has been paid down. So then you're getting yourself in a situation where you're having some really positive cash flow.
And in a ten year plan, you can actually have more than six thousand dollars a month of passive income coming in. But here's the deal, guys. It starts up front. You've gotta start now.
And a lot of people say, I'll start later. I'll start later. That's the worst thing. It's back to the whole analogy of when's the best time to plant a tree and best time was ten years ago.
When's the second best time to plant a tree? And the answer is today. So there's no excuse regardless of your situation or what you're going through. There's no excuse to not get started today.
If you have bad credit, if you have issues, start doing some fix and flips. Start doing some land flips so that you can acquire that money to pay those things and do those deals. If you have some money, start buying some of these rental properties, putting some money into those. If you don't, but you have decent credit, you need to be looking at the BRRR method where you can get in for as little money as possible.
Knowing that values are gonna go up, prices are gonna go up, and rents are going to go up. So literally in a ten year period, it is more than possible for you to get that six thousand dollars of cash flow over a ten year period by looking at rentals going up, the rates are going up. So if I was gonna start all over again, I would start by either doing the BRRR method if I had extra cash. If I didn't have extra cash, I would be doing land fix I would be doing land flips to acquire money.
I would then be using some of that money to fix and improve my credit and then I would be going directly to the BRRRR type method. If I had extra money sitting on the sidelines, I'd be using that money and use my money to do part of the rehab or to put money down so that I could avoid all the other costs. That is the secret to success here if you're starting over in twenty twenty four. I think one of the pitfalls people are not thinking about is the opportunity cost of not doing it.
The biggest expense you have is the deals you're gonna miss out on rather than the deals you may do. Look. I've made some bad deals and that has sucked, but I've been way ahead by doing deals that I haven't been by sitting on the sidelines and not doing deals. And over time, as you can see by the housing graph, if over time, as long as you have the staying power, it always works out.
So I hope this has been helpful on how I'd invest in real estate from scratch in twenty twenty four.
If you want to learn more about real estate investing with me, click the button below for a quick webinar where I explain more about how all this works: