This blog is to provide investors opportunities to create wealth through real estate. We will teach you the in's and out's of the fix and flip process. We will help you flip to build cash, and buy and hold to build WEALTH!
In this original FB live post, Cashflow Kris discusses the state of the economy as trade war loom and the stock market is taking a massive hit.
Kris talks about the history or the stock market, and discusses the topic of INSANITY! Finally Kris will break down a tale of a Million dollars, invested 2 different ways in 2018 and 2019.
Please leave a comment or question regarding this or any other topic.
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Cashflow Kris explains how a down year in the stock market can set your retirement goals back in a big way. Do you have a plan to avoid the next stock market bust?
Transcription: Hey everybody! How are you doing? It's Kris Ontiveros with Investors Edge Real Estate Group here in Phoenix, Arizona. In our current market, which we are in February of 2018, we've had a couple of really bad down days. The stock market has had two 4+% losses in just the last week, so all of the gains that we had, which were awesome, the stock market has been doing fantastic, don't get me wrong; but all those gains that we had are just instantly wiped out. That is the problem, and that is the trouble with investing in the stock market. Majority of America dumped 96% of all retirement money is in the stock market. Only 4% is self-directed, and that's a major problem. On this video, I'm want to show you how one down year can really, really hurt your retirement plan. This is the problem, your financial adviser, they're not going to tell you about down years. One of the differences between real estate and the stock market is that with real estate, in cash flow, you're not going to have a down year. You're always going to be able to control the amount of income that you have, and so that cash flow is never going to be a negative. You're never going to lose money on a deal. Now, real estate values also go up and down. They're not nearly as volatile, but you might have a down year. But the beauty is when you're talking about retirement, the value of the real estate makes zero difference. It's all about the cash flow. Again, that's not something your financial advisor is going to tell you about, because he probably doesn't know anything about it. Let's get started. This blue line here, this is what the stock market industry promises you. This is what Wall Street says is going to happen. Let's just do some math. If we start at 50,000, and we make 10% a year, over 15 years, you'll be over at 208,000. Really good. It's nice upward trend. When you look at the books, if you read the books, and you go on their sites, these are really the kind of lines that you're going to see, but this is not realistic with the stock market. I want to show you what one bad year could do because this year might be the bad year. I hope it's not. I hope the stock market continues to keep going up and up, but we all know it's not going to happen. It's been, what about, 10 years now since we've had the last down markets. We've got 10 up years, which is not common at all. Let's look at this. Here's what Wall Street tells you is going to happen with your 50,000 when you invest it. But here's the reality. Let's grab the red marker. This is what happens if you have a 10% down year. Let's just say you started last year with 50,000. Let's guess that in 2018, we're going to have a negative 10, which happens all the time. That's going to take us down to below 50. And now, our starting point is much lower. Assuming that there's only one down year, which it's not going to happen, but let's just look at it. We go, it goes up, up, up. Eventually, we're going to get up to around the 170,000. If we have one down year, it's going to set you back. Instead of 208,000, you're going to be almost $40,000 short of that; 20% short on one down year. Here's the problem is the gap. Let's just say you don't even have a 10% down year. Let's just say you have only a 5%. If your projected 10, 10, 10, and you had a negative 5, if you want to catch up the next year, it's going to take a 27% return to get you back to even. If you go down here, and you want to get, and you're two back up to here, that's a 27% return that you're going to need to get the following year. Do you know how to make 27%? Better yet, does your financial adviser know how to make 27%? I highly doubt it. The next line we're going to look at is cash flow. Strictly rental real estate. Our rental income from our real estate. This what is great about real estate. There's multiple ways to make money. This is for the passive investor in the stock market. The only way for them to make money is in an up market. Yes, if you get technical, and you know how to trade, you can make money in a down market. But that's not the passive investor. The passive investor has to have an up market to make money. Here's what cash flow looks like. As you start here with ... All we're going to do is assume a 3% appreciation rate in rent, and later on, we're only going to show a 3% appreciation rate in value, which we're not too worried about value, but I still want to show you the power of it. At 3% growth, real estate is not going to keep up with the stock market at 10%. It generally doesn't. It is a little bit less, but with all the many benefits of real estate, it makes it a much better return in the long run. Here's our cash flow. You can see it's going to be a nice 3% trend. Up, up, up, up. stock market is finally going to recover and surpass us, boom; 140,000. We took our 50,000, and we've taken it up, and now it's worth 140,000. That's just going to go. You can see, oh, stock market's got us beaten. Even with the down market, the stock market's got us beaten. That's not true. Let's look at a traditional stock market. A traditional stock market is going to have at least two down years in 15 years. Really that last year might be a third. Now, let's look at the stock market with two down periods. We're starting down here again. Stock market is going to go up. But then, we've hit the seven-year mark again, and so now we're going to have another down year. And then, it continues to recover, and boom. A little bit less than real estate at only 3%. Your traditional, this is what's going to happen. It doesn't go on a straight line. You have your down years in the stock market. A traditional stock market is going to hit you, get you up to about 140,000 opposed to 145,000 for your straight cash flow. But what if you have a down year? That's what I don't like about stock market. One of many things, is it's a financial roller coaster. When are you going to get off? Maybe I want to retire in 2030. What's the stock market going to be like? Any prognosticators out there? Anybody with that magic ball, that magic crystal ball? Tell me please where is the stock market going to be in 2030. Is it going to be an up market? Is it going to be a down market? Are we going to be higher? Lower? Where are we going to be? You don't know. Nobody knows. That's why I like real estate. What if you have a down year when you want to retire? Instead of up here at 140, another 10 negative, another bad year, you're down to 114,000. They promised you, "Oh yeah, just stick it in for the long term. You'll be at 208,000." When in reality, there's a really good chance you're going to be at 114,000. This is very common. A lot of people have their plan but it requires too many assumptions by your financial adviser, and a lot of times, you're not going to get there. The main reason is because they don't have a very good return on investment. This is just the cash flow in real estate. Now, we're going to get to the nitty-gritty on why real estate is so much better. As I've said in my previous videos, there's five reasons why real estate is a superior investment. Number one is leverage. With the same 50,000, we can leverage at 5 to 1, but we're just going to assume 4 to 1. For a $50,000 down payment, we can buy a $200,000 property. Now, we're only going to assume a 3% appreciation rate on this one. On this we're talking about equity. Two of the great things about real estate: First of all, that it goes up and you get to leverage, and so your larger asset is going up in value; but secondly, is with that leverage, your tenant is paying your loan down. Every single month, your loan gets smaller and smaller. The value goes up, the loan goes down, and so your equity grows. If you want to look at the equity portion, you put 50,000 down. This is assuming we're not getting a discount. You put 50,000 down, so you have 50,000 in equity. You owe 150. Watch it grow. It is going to grow so much that we're not even going to be able keep it on the chart. If we wanted to write this down, it would be way up there, because your equity in 15 years is going to be 311,000. That's only at a 3% appreciation rate. Historically, for the last 100 years, Arizona has appreciated at around the 6% to 7% clip. We're only going half on the valuation. We're only going half estimates on the cash flow as well. You can see, the difference is so clear. I don't understand why people are in the stock market when you have an investment like real estate. Again, let's look at it. Very, very best case scenario, you're up here. You turn your 50,000. There's a 15-year plan; it's a long time. You turn your 50 into 208. Great. What are you going to do with that? Next, most likely, you're going to be between 140,000 and 170,000 in the stock market. Your cash flow is going to take that 50 up, and you're going to make 145,000 in those 15 years. But just look at your equity, guys. Remember now, this property, you put it on a 15-year mortgage, so it started here. While the valuations were going up, the amount you owe is going down. After 15 years, you own nothing on the property. It's worth 311. It's probably going to be worth more than that. This is a very conservative number. You have 300,000 in equity. You've made a 145,000 in cash flow. And so now you have a value of over $450,000. That's going to be double. It's going to be triple. It's going to be a much better investment than the stock market. Here it is. If you want to protect your retirement account, don't worry about the stock market roller coaster. Worry about cash flow. Worry about passive income. And use all the benefits, the five benefits of real estate, to improve your retirement plan. If you to set up an individual retirement plan, and I'm talking here's where you are, here's where you need to be, we can get you there. We will set up an action plan so you can create the cash flow that you need to be able to retire wealthy, instead of just getting by.
When working on bigger projects, or small projects that still require a city permit, city inspectors have a huge impact on our budget, schedule, and success of a fix and flip. Here are 5 flip tips that will help you get through the toughest inspectors
1. - Be on time - When you schedule an inspection, get your contractor the number of the inspector. Give them a call to get an idea of when they will be at your property. Make sure the contractor isn't late! Inspectors are generally VERY BUSY. If they get there and nobody is there, they will leave in a heartbeat. This will cost you time, money, and you will have a pissed off inspector for next time, which leads us into tip number 2.
2. BE NICE! - This, like most things, is a PEOPLE business. I'm amazed how people speak to each other these days. Common respect and courtesy can be difficult to find these days, which makes it that more important to BUILD RAPPORT. Be on time, let them in, have the plans and paperwork ready, and chill out. Be nice, and let them run the show. This inspector can be your friend, or he can be your enemy. A friend will let small things slide, an enemy will nit pick every little detail. A friend will give your a complete list of items that need to be fixed. An enemy will call out missed items one inspection at a time. You do not want a spiteful inspector.
3. Hire Pro's - The best, and easiest way to get a quick approval is to have qualify workmanship. The inspector will immediately notice the quality of the work your contractors. If it looks like a pro did the work they will breeze through the house. If it looks shoddy, they will look in every nook and cranny in that house. The best contractors have relationships with the established city inspectors.
4. Verify what inspections are required - This is a pretty specific tip, and I can tell you this one has gotten me more than once. SHAME ON ME! Every city runs things their own unique way. Each city will have it's own regulation on what inspections are needed. Some cities will want to do a pre-demo walk thru, others don't want to see anything until rough. Some cities want a nail inspection for the roof. So if you already had the shingles installed, you will need to pull up a few layers so the inspector can make sure there are plenty of nails in the stud. Then you get to have your roofer come fix the repairs. Time and money. Some cities want to see the batt insulation in the wall. Before you put up the drywall, ASK if an insulation inspection is required. Ask if a drywall nail inspection is required. Going back to undo work is a crazy and costly thing that will kill your profit margin.
5. Get a business card, make a friend - Make sure you contractors are connecting with them, but as an owner I also like to show up at one or more of the inspections to build rapport and build a relationship. I pull them aside from the contractor and ask for their honest opinion on the quality of our trades. Ask things like, "this is a new electrician for me, how did he do?" They will like giving their "expert opinion" and it will give you good feedback on your contractors. Lastly get a business card. It can come in handy down the road if you have a question or if you are dealing with another difficult inspector within the same city. Getting a favorite inspector assigned to a job can really help keep the budget and schedule on target.
Kris does a walk through in a West Phoenix wholesale deal. This property needs a lot of work and is being sold as-is. This is a typical deal you can buy well under fair market value. When purchasing a rental or personal home you should consider buying a wholesale deal from Investors Edge Real Estate Group. By purchasing and rehabbing a property (we have all the contractors you need), you will have instant equity. In this example, if you purchased at $115k and put 15k into the property, you would have $20k instant equity, as the property would sell for $150-$155k in today's market. If you want to discuss anything real estate or wealth building, send us a message and lets connect! Kris Ontiveros krisonti@gmail.com
Flip tip - 3 tips when buying appliances When we are flipping homes we are looking for consistency. One of our consistent items has been our appliances. We use the same builder grade appliances all of our properties up to $300k. We will upgrade for higher priced properties since they are generally pickier buyers. Here are 3 tips to keep in mind when choosing your appliacnces. 1. Use stainless steel: We use stainless steel appliances because it is very popular and is a big bang for the buck. We always want a few WOW!! factors with our properties. People buy based on emotions, so the more warm fuzzies they have while viewing our properties the better.
2. Buy builder grade appliances at your local appliance wholesaler. We use Frigidaire or GE appliances, depending on what is currently on sale. We receive investor prices at a local appliance store which saves us a little bit each purchase. 3. Skip the refrigerator. There is alays differing opinions with this one. Many people believe in providing a refrigerator. I've always gotten away without putting them in my flips. Buyers won't be impressed with a cheap entry level refrigerator, and a good double door refrigerator is $1500 - $2,000. When you are flippin 20+ homes per year that really adds up. We always put in matching microwave, dishwasher, and stove combos. This generally runs around $1,200 installed and with all the installation kits. We found a system that works and we stick with it. Appliances is now one item we don't have to think about. We just order them and move on to the next issue. The more systems and processes you can incorporate into your business the more time you will have to grow and do more deals.
Coming to market November 28th, 2016. BP Industries has a brand new home for sale in Chandler Arizona. This 3 bedroom 1 bathroom home has been remodeled and is move in ready.
We have amazing loan programs so you can buy this home for LOW to NO MONEY DOWN! Complete our quick application to see if you qualify.
https://docs.google.com/forms/d/e/1FAIpQLSdFT6PP19C933aaYrEwrZDEpWjgCYSxIqOgmfw8yYnTE_TDxg/viewform
Kris Ontiveros
US Preferred Realty
602-292-5747
krisonti@gmail.com
Kris Ontiveros is a Real Estate Investor as well as a licensed Realtor with US Preferred Realty in Mesa Arizona. Kris fix and flips residential real estate in the Phoenix AZ market. Contact us with any questions or potential deals. We are always looking for properties and private lenders.
