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00:00This video is about real estate investing for beginners.
00:04You will learn how people are getting rich with real estate, but this is your warning.
00:10It's not for everyone.
00:11I'm going to show you the good and the bad of real estate investing, and you can decide
00:16for yourself whether real estate investing is a good fit for you or not.
00:21Now in today's video, we're focusing on rental properties, and the concept is straightforward.
00:26There's three things that are happening.
00:30The first thing that's happening is that you're renting out your property, and the second
00:33thing is that the tenant pays you enough rent to cover your expenses.
00:39So essentially, they're paying off your mortgage.
00:42And the third thing that is happening is that your property is appreciating in value.
00:48So this process builds your wealth, and that's the overview.
00:52It's very simple, but let's dig deeper.
00:55Now here's what I'm going to show you.
00:57I'm going to show you how you get rich.
00:58I'm going to show you the math.
00:59I'm going to show you the advantages of real estate investing compared to stock market investing.
01:06And I'm going to give you 10 crucial tips from personal experience.
01:10And you must hear this.
01:11You have to hear these.
01:12These are going to save you so much money.
01:15Now let me show you the math.
01:16You need to see this.
01:18And let's demonstrate with an example.
01:21So let's say that you have $30,000 to invest.
01:25And what are your practical investment choices?
01:29You can invest that $30,000 in the stock markets.
01:32You can earn interest in a savings account or a CD or a rental property.
01:39So just for fun, let's compare.
01:42So let's start with the rental property.
01:44You have $30,000.
01:46You use that $30,000 as a down payment to buy a $300,000 property to rent out.
01:53And let's say that you get a 30-year fixed mortgage with a 4% interest rate.
01:58So at the time of making this video, it's higher than 4%, right?
02:03I understand that, but I'm sure that interest rates will come down in the future.
02:09And some people are thinking about renting out their home that has a 4% or even a 3% interest
02:15rate.
02:16Anyways, in this scenario, your mortgage payments will be $1,289 a month.
02:22That's going to be your principal and your interest.
02:25Property taxes will be around $400 a month.
02:28Insurance will be, let's just say $250 a month.
02:30Feel free to adjust these figures.
02:33But roughly, your expenses all in will be $1,939 a month.
02:41If you can find the tenants that's going to pay you rents of $1,939 a month or more, then
02:48after 30 years, you've paid off the mortgage.
02:52If the property appreciates in value, let's just say 4% a year, then in 30 years, that property
02:59will be worth $973,000.
03:03So essentially, you've turned your $30,000 into $973,000 in 30 years.
03:10So that's about a 12% return annually for 30 years.
03:14So how does this happen?
03:16How do you get a 12% return?
03:18It's because you're benefiting from the leverage.
03:22So let me explain.
03:24So your initial investment was $30,000 for the down payments to buy the property, right?
03:30As I said, the property is going up in value 4% a year.
03:35So think about it.
03:36It's not your $30,000 down pay that's increasing in value by 4% a year.
03:43It's the $300,000 property that's going up by 4% a year.
03:49So for example, if you make a 4% return on $30,000, then you would make $1,200.
03:58But if it's the $300,000 property that's going up in value by 4%, then you make $12,000.
04:06In the math that I presented to you, I said the property will go up by 4% a year.
04:11Historically speaking, it's between 3% to 5%, which is why I chose the middle, 4% annual
04:19appreciation.
04:20Now, I want to address this because I know some people are concerned about this.
04:25In our example, you might say, Brian, in 30 years, if the property appreciates in value
04:31from $300,000 to $973,000, that may not be a lot of money in the future because of inflation.
04:40You know, I agree that 30 years is a long time from now.
04:43My response is, I want to give you a different perspective.
04:46So here's how I see it.
04:49So having a rental property will be your protection against inflation.
04:54In these crazy times that we live in, we don't know how bad inflation is going to get, especially
04:59in 30 years.
05:00We don't know what the Federal Reserve is going to do in terms of money printing.
05:05Maybe inflation will get further out of control.
05:08Maybe home prices will inflate way more than 4% a year.
05:12Regardless, at the end of the day, you will own a property debt-free.
05:19So let me put it to you like this.
05:22Imagine if today you owned an additional property right now that was 100% yours, no debts, no mortgage.
05:31Would that be a meaningful amount of money to you?
05:35It probably would be for most people.
05:37It would add to your financial security.
05:39I'm sure that you would feel much better about your financial position.
05:43And I guarantee you, it's going to be the same thing in the future.
05:48In the future, if you own an additional property that is 100% yours, no debts, no mortgage, you're
05:54going to feel much more financially secure.
05:58And it doesn't matter how bad inflation gets, because if inflation gets out of control, then
06:03your property will just go up higher in value.
06:06Now let's do this.
06:07Let's investigate the alternative that most people would gravitate towards.
06:13So rather than investing your $30,000 into a rental property, how about taking that money
06:18and investing it in the stock markets?
06:21You know, you can buy index funds, you can buy REITs.
06:24That would give you real estate exposure in the stock markets.
06:29And let's say that you make an average return of 10% a year over the next 30 years.
06:34That is a generous rate of return.
06:37And let's oversimplify.
06:39So let's say that you don't pay any taxes on the annual gains.
06:43So this could be done in a retirement accounts.
06:47So these are some pretty optimistic variables.
06:51After 30 years, your 30 grand will become $523,482.
06:57And you can compare that to $973,000 with a rental property.
07:03So here's what's happening.
07:04Although your rate of return would be higher in the stock markets, you're not experiencing
07:10the benefits of leverage.
07:13So in the stock market example, it's your $30,000 that's going up in value.
07:19In the rental property example, your $300,000 is going up in value.
07:24So let me tell you this, and I'm going to be straightforward with you.
07:27With a rental property, you can build your wealth faster compared to the stock market.
07:32But that's not guaranteed to happen.
07:35Things can go wrong with a rental property.
07:39Bad tenants, vacancies, unexpected repairs, weather-related catastrophes, a housing market crash,
07:46you name it.
07:47But then again, things can go wrong with the stock market too.
07:52All I'm saying is that real estate is definitely a viable investment option.
07:57It's time tested.
07:58Now, you already understand what you need to do.
08:02You need to find tenants to pay off your mortgage as your property goes up in value.
08:08But as you know, so many things can go wrong.
08:11So I'm going to give you 10 essential tips that's going to help you avoid these very expensive mistakes.
08:17And this is not going to be your generic cookie cutter advice.
08:19This is coming from my personal experience.
08:22And it's going to save you a lot of money.
08:25It's going to keep you protected as well.
08:27My tip number one is to use an LLC, please.
08:30I cannot stress this one enough.
08:31I highly recommend that you operate with a business entity.
08:35So this is for your legal liability protection.
08:38And please do this correctly.
08:41The last thing you want is some freak accidents or some troublemaker suing you.
08:47If you're not operating as an LLC, then you can become personally liable.
08:51And all of your assets are at risk.
08:54Your home, your stocks, your savings, all your money.
09:00And you must do this correctly.
09:01You can't just create an LLC and say that you're operating out of it.
09:06No, that's not how it works.
09:08So let's say that you're thinking about renting out your home instead of selling it, right?
09:13Then you have to deed it and transfer your property to the LLC.
09:18You have to do this properly.
09:20Okay.
09:20But what if you have a mortgage?
09:22In that case, your lender has claimed to your property, right?
09:26So how can you just transfer the property from your name personally to an LLC if you have a mortgage?
09:31In most cases, the lenders don't care.
09:37They're not going to put up a fight if you continue to make the mortgage payments.
09:40But sometimes, yes, you need written consent from your mortgage company
09:45to transfer your property to the LLC.
09:48I've never had a problem with this.
09:51I would recommend that you have an attorney do this.
09:54It's not going to be expensive because this is very basic stuff for them.
09:58But yes, protect yourself with an LLC.
10:00This is a must.
10:01My tip number two for you is to get landlord insurance.
10:05So you can have your renter get renter's insurance, but you need a landlord policy.
10:11So this is how it's going to work.
10:12Your insurance is going to be your first line of defense.
10:16But if some kind of freak accident happens and you get sued
10:20for more than what your policy covers, then you're going to be in deep trouble.
10:23But this ties in with tip number one about the LLC, because the LLC will protect your
10:29personal assets because it separates you from the rental property.
10:34But to be clear, you don't need insurance.
10:37You don't need an LLC.
10:39But I would recommend both, highly recommend both.
10:42I personally have both.
10:44My tip number three is screening for a tenant.
10:47So getting a good tenant is crucial.
10:49If you get a bad tenant, it's a disaster.
10:53So I know this from personal experience.
10:55It is miserable.
10:57Rent is late.
10:58Rent goes unpaid.
11:00It's stressful.
11:01And worst of all, they can trash the place.
11:03So it's terrible.
11:05I would recommend the credit check.
11:07You need permission to pull their credit reports.
11:09And I would recommend the background checks.
11:12Of course, you need their consent.
11:13But I do this to filter out the people with red flags.
11:18My tip number four is about dealing with tenants.
11:21If you don't want to deal with tenants, then it's going to cost you money.
11:24That's the truth.
11:26So you're going to have the option to hire a management company.
11:29So they're going to take care of everything for you.
11:31Finding tenants.
11:33They'll run a credit check.
11:34They'll run a background check.
11:35And you get to choose who you like.
11:37They'll collect rent for you.
11:39They'll deal repairs, etc.
11:41But all this, this convenience, it's going to cost you.
11:46How much they charge you, it's going to vary a lot.
11:50It depends on your city, your area, what services that you're requesting.
11:55But honestly, it's like the wild, wild west when it comes to pricing.
11:59Prices are all over the place.
12:00You'll see.
12:02I would recommend that you ask your real estate agents for a referral.
12:06Or ask your friends or family.
12:08I would also recommend that you look at Yelp.
12:11So just make sure that whatever they're going to charge,
12:14make sure that makes sense financially.
12:16If they're going to charge you too much and the numbers don't work out, then don't do it.
12:21My tip number five is to act quickly with bad tenants.
12:25If a tenant is not paying, then you have to take action quickly.
12:28Don't let this drag out.
12:30This may require legal action.
12:33Honestly, when this happens to me, I don't want to deal with this.
12:36I get my attorney involved and they know the drill.
12:38This is standard stuff.
12:40But that's why it's so important to screen for good tenants so you don't end up in this bad situation.
12:46I have not been put in this situation for quite some time because I learned my lesson as a rookie.
12:51My tip number six deals with the security deposit.
12:56So make sure you know the laws when it comes to the security deposits in your city.
13:02Some cities are so strict with security deposit rules and you can get in big trouble if you don't handle it correctly.
13:08So you may need to put it into separate accounts.
13:11You may need to handle the interest income a certain way.
13:14And if you screw something up, it can be an expensive mistake over something so small, a small detail.
13:21So for example, in Chicago, many landlords feel that it's not worth the potential legal hassle.
13:28So they may charge a non-refundable move-in and move-out fee instead of a security deposit.
13:35So please make sure that you know the security deposit rules where your property is located.
13:40My tip number seven is that you must find a good deal when you buy a property.
13:46If you just pick an average home or property haphazardly on MLS or Redfin or Zillow or wherever,
13:52you can run the numbers. You're going to see that they don't work out.
13:56So finding a good deal from the start is key. You can't just pick any property.
14:01I'm just keeping it real here.
14:03Before you buy a property, run the numbers, the mortgage, property taxes, association fees,
14:09special assessments, maintenance, insurance, etc.
14:14And compare that to how much you can realistically rent it out for.
14:18So check the comps. So see what something similar is renting out for in the area.
14:24And you're going to see that many properties, the math just doesn't work out and you would lose
14:29money. So shop around for a good deal. A good deal is when the numbers work out.
14:34So listen, if you need a good spreadsheet to crunch your numbers for your rental property or potential
14:40rental property, then I have a spreadsheet that you can use.
14:43It's helpful because you don't want to miss something and you want to stay organized.
14:49It's free. No sign up necessary. Come to my website. You can download it.
14:53So I'm going to leave a link for you down below.
14:56My tip number eight for you is to build a good credit score. If you have a good credit score,
15:02then lenders will give you a lower interest rates. If you have a bad credit score, then lenders are
15:07just going to reject you or they're going to offer you higher interest rates. So I have a really good
15:12video on how to improve your credit score quickly. So I'm going to leave a link for that down below as
15:17well. My tip number nine for you deals with taxes. So listen, don't worry about the taxes for your
15:24rental property. So let me explain. I'm going to tell you two very important things. The first thing
15:29is that it's not complicated to report a rental property on your tax return. So even if your rental
15:36property is within an LLC, it's still just reported on your personal income tax return. It's a piece of cake.
15:43So you can easily do it on TurboTax yourself. Your accountants can easily take care of it.
15:50It's not complicated. And the second thing is that your rental property is most likely
15:56not going to increase your taxes. Okay. So how can this be? You're collecting all this rental income.
16:04How are you not going to pay any taxes on this? It's because in most cases, you're going to have
16:10enough tax deductions from your rental property to offset the rental income. So you can deduct all
16:16the expenses that are obvious to you, like mortgage interest, property taxes, association fees, insurance,
16:23repairs, maintenance, et cetera. But additionally, you get a tax deduction called depreciation.
16:31So the IRS says that your property is decreasing in value. So you get a tax deduction,
16:38which is funny because most likely your property is increasing in value. So listen,
16:44it's just a stupid tax rule that makes no sense, but it works in your favor.
16:48My tip number 10 deals with taxes when you sell your rental properties. So here's my advice.
16:54You don't want to pay any taxes when you sell your rental property. So here's what most people do.
17:00If they sell their rental property, they use that money to buy a new rental property. It's called a
17:06like kind exchange. And then you don't pay any taxes or people hold on to rental properties until
17:13they die. And then there are tax benefits. When you die, your heirs will receive the property with
17:20no tax consequences. And when they sell it, they won't have to pay any taxes. This applies to you. If
17:26your total assets are less than $13 million, if you're single or $26 million, if you're married,
17:34and this gets adjusted for inflation each year. So if you have less than those amounts,
17:39then you and your heirs will not pay taxes. It's called the death tax exemption.
17:46All right, listen, this is very important. I walked you through the process of how you get rich
17:50over time. And I gave you some solid tips from experience for your protection.
17:56If this all sounds overwhelming or too crazy, you may just want to consider your alternatives,
18:02such as just adding more money to your retirement accounts, buying index funds, maybe a 529 plan.
18:08You can buy some REITs in the stock markets. But seriously, if this doesn't sound right for you,
18:14if it sounds like a big headache, then don't do it. Stay away.
18:18I like real estate investing because it gives me diversification outside of the stock markets.
18:24And the tax advantages are just wild. But if you're going to move forward with a rental property,
18:30then I am cheering you on. And once you gain some experience and you get into the rhythm,
18:35you're going to see it's not that difficult. And if you do this, you will open up a whole new sector of
18:41investing opportunities for yourself. Please subscribe. I thank you for the support and wish you a very nice day. Take care.
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