Roadmap to Buying Rental Properties

Speaker 1 0:00

Welcome to how to buy your first rental property a six step roadmap to buy your first rental property and start your financial freedom journey . I am Violeta . I am a first gen real estate investor and I've been investing for about 10 years . But the first few years was kind of by , I guess by mistake , by accident , because I didn't know what's real estate investing . But now I'm strategically investing and you know my goal is to make real estate investing feel less intimidating and feel like it's more doable . So what are we going to talk about today ? I'm going to share my journey and you know my future plans , because it's kind of like nice to see someone's journey . It makes it seem more like doable . We're also going to cover briefly on why you should invest in rental properties . You know , like why am I so passionate about it ? So we're going to talk about the benefits of how it makes you money , which is four pillars of wealth . And then we're going to get into the six steps on how to buy your first rental property and show you the roadmap . You see , like these multi-millionaires where they have like over 100 plus properties , they have these big portfolios and , you know , seems like out of reach for the new person , for someone that's getting started

My Journey

Speaker 1 1:44

. Reach for the new person , for someone that's getting started . So I like to show my journey because it's kind of like a standard journey . So I started in 2014 when I bought my first home . I didn't again intend to , you know , invest in real estate . I just wanted to buy my first house , right , because the American dream and I ended up house hacking , which is house hacking is basically when you know you live in a property or a house or whatever and you find a way to generate income . And here I just rented out one of the rooms to one of my coworkers , so didn't know that was a strategy , and I bought my first home using a VA home loan and I got stationed in Texas . I did the same thing , bought another house , made the first house , I rented it out and then in 2020 , I got stationed in California and I made both of them rentals . So then I had two rental properties . I did buy my third home when I was in California in 2021 . I sold the second house because it wasn't making me money I think it was making me like $30 in cash flow so I decided to sell it , to switch my strategy to multifamily , which is when I bought my first duplex . So , 2021 , I bought the first duplex . Then , in 2022 , I decided to , just you know , get away from single family homes completely , and so I sold the first home and bought a second duplex . And then , 2023 , I decided to sell one of my cars that I owned outright . I didn't have a loan on it anymore , and it was just like you know what we have three cars for no reason and I want to buy some land , and so that's what I did Sold my Lexus and bought 10 acres of land . And then now I'm right here just in the planning stage of what I'm going to do with my land .

Speaker 1 3:50

So why do

Four Pillars of Wealth

Speaker 1 3:52

I love rental properties so much ? There's something called the four pillars of wealth , and it's basically the four ways that having a rental property is going to make you money and help you keep more of that wealth . And , of course , the first one is income . Obviously , you're going to invest , you're going to look for that cash flow , that money that's coming in from the rental income , and you know , cash flow is your monthly rental income minus your monthly operating expenses , and we'll get a little bit more into detail once we get into , like , that step . Then you have your appreciation , which is just the increase in value of a property over time , which is why you know holding a property long-term gives you better benefits . On average , your property is going to appreciate over , you know , about three to five percent per year in the lifespan of a decade . So if you look at a , you know , 10-year block , you're going to average it out and it's going to be like you're getting 3% to 5% increase in those years . Same thing with equity . Equity is just going to be the difference of , you know , the market value of the property that you own and you know how much you owe on that Over time . Your property , the principal , is getting paid down and so that's more money . That's being , you know . Now you have equity in that property and then , after a certain amount of time or when you get enough equity , you can pull that money out , just like how I did with one of my properties . With my first home I did a cash out refinance . I pulled that money out and I used that to help fund to buy one of my duplexes . And then the last one is the tax benefits . This is how you reduce your tax liability and this is how you keep more of your money , right . You learn strategies and all of it is legal , right . This is all you know .

Speaker 1 6:08

The IRS lets you do all these things and you know you may have heard about depreciation , which is that you're able to deduct every year for us . You know the timeframe that you have the property , you're able to deduct the wear and tear of that property minus the land , because you can't deduct the land . And then , of course , you have your regular deductions . Each you know house or property that you have , every rental property . It's like its own little small business . It's like its own little small business , I guess little business . So it has operating expenses . So the interest , the upkeep , maintenance , all that , those can be deductions , tax property and all that can be deductions and all that helps reduce how much tax you're going to pay on the rental income that you're getting for that year . So that's more money that you're keeping . You're still getting that money , you're still using it to maintain the home or whatever , but you're not paying as much taxes on that money .

Speaker 1 7:21

And then there's something called bonus depreciation , that is , it's a temporary thing . It's supposed to get like phased out . I think 2026 is the last time you're able to . It's different with the regular depreciation . Regular depreciation you deduct the wear and tear of the property , again minus the land , the property again minus the land . And then bonus depreciation is you get to deduct the wear and tear of things that you put inside , like appliances or anything like that . There's a list of what you can , so make sure you double check that , but it's an added bonus . You get to take this up front off the bat when you put a rental property in service , meaning that's when you start renting it , and right now I think you could deduct up to 60% because it gets phased out . Every year it gets reduced by 20% . So that's why I say 2026 is going to be the last time , because it's going to be like at 20% . So talks that about renewing it . We don't know , hopefully it does , but you know , just so you know there's that extra benefit

The 6 Step RoadMap

Speaker 1 8:32

.

Speaker 1 8:32

So what steps do you need to take to buy your first rental ? Because that's like the biggest question , right , like how do you start , what do you do ? And so I found that you know there's six big steps , right , and I've broken them down . I created this roadmap to give you an idea , make it , you know , easy to kind of follow , and it starts with your mindset and goals . So , before anything I think with anything you do you always want to , like , address your mindset and the goals that you would like to accomplish .

Speaker 1 9:07

And then the second step you'll move into your finances , which is um , I broke it down into like analyzing your own finances and then , of course , figuring out how you're going to fund uh , you know your rental property . How are you going to buy it ? Then you have your strategy . Think of strategy as , like the route that you're going to take to fulfill your goals . For example , you want to be a millionaire . There's several different ways to become a millionaire right , there's lots of different strategies . With real estate investing , especially with rental properties as well , you can really get creative . And then , of course , there's different types of properties . So we'll get into that and figure out what you know goes with what you're trying to accomplish .

Speaker 1 10:00

So next one is analysis . So next one is analysis . Again , this one is also broken down into two , which is analyzing the market you know you want to pick a good market to buy your property and then analyzing the property itself to make sure that you're actually making money right , because that's the goal to make a profit . And then the fifth step is management . How are you going to manage your property ? There's a lot that goes into it and we'll get into that . And then the last step is creating your plan and figuring out how you're going to scale , how you're going to grow

Step 1: Mindset & Goals

Speaker 1 10:40

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Speaker 1 10:40

All right , so again , step one is your mindset and goals , and it's split up into two , and I want to say that mindset plays a key role with real estate investing , because this is the way you think , this is what your values are , what your beliefs , how you feel about real estate investing , and this is what kind of shapes your goals , which is the second step . But it also determines how you're going to react and overcome obstacles and challenges that may come up , because real estate investing , of course , it's nice to make money , but it also can be challenging at times . You're , you know , no matter how good you are , there's only , there's always going to be that one year that's kind of like challenging Mine was last year and with the right mindset . If you don't have the right mindset , like some people may just stop there and not be able to overcome that and overcome their fears , especially right now with their , with the housing market . There's a lot of people that don't even start because the fear of the market or the high interest rates or whatever stops them right there .

Speaker 1 11:56

So , really taking the time to understand where you are mentally , how you're going to , like you know , hype yourself up when something does go wrong . Obviously , don't put yourself to , like you know , hype yourself up when something does go wrong Obviously don't put yourself at risk . But some things can be overcome . But if you have a mindset that , like you're not able to be creative and finding solutions , then you're not going to get past that point . And it could have been just something simple that you just needed to pivot a little bit . Then you would have been able to come right back and be profitable again , just like how I did with my properties . First two years was freaking awesome , was making money . Then last year's , like a lot of things came up and it was stressful , but I'm back on track now and so that's what matters .

Speaker 1 12:43

So make sure and of course , like I said , it affects what goals you want , the strategy that you're going to pick that's achievable to you , that's doable to you , and then also have the mindset of to continuing to learn , like I am always learning . I just have that habit I'm always reading . I have two books that I'm finishing up on , um , uh , real estate investing , because you know I want to see what other people think about it , and other strategies or things like that . So if you're interested in those two books , um , I could put it at the end , if I remember to post it . If not , remind me , uh , cause they're actually pretty good books .

Speaker 1 13:22

Um , just one goes really into detail , and so the next one , the second part of step one , is your goals . You know , what do you want to accomplish when you invest in rental properties ? Because , like you know , do you want to go big , like I was saying earlier , with with these multimillionaires that have these hundred plus properties . Decide what you want to do , because I think sometimes when people hear about investing in real estate , it's automatically like , oh , you want to be like a big time or whatever , and sometimes you just want to invest . You know enough , like me , I just want to raise chickens , and , you know , grow my own land and provide for my family , and I want to travel the . You know enough , like me , I just want to raise chickens and you know , grow my own land and provide for my family and I want to travel the world . That's it .

Speaker 1 14:09

But regardless of what your goal is , you want to make sure that you follow the smart method you know , because you want to be as specific as possible , like what it is that you want to accomplish and you want to , you know , have it measurable , like calculate that , like take the time to figure that out with mine , to replace my income , I think I need about 15 properties . Um , I think I gave one or two just in case for , like , cushion and stuff , and so I calculated that out . If I want to replace my current income so I could live my dreams , I need about 15 properties and that's pretty much it . So I calculated that out and I even calculated how much each property should cash flow for me to accomplish that . So it's around , you know , 10 or 15 , depending how much cash flow those properties bring me .

Speaker 1 15:04

And then attainable , right , you don't want to like set yourself up and make a goal of , you know , buying these , like in California , like there's . There's no way . I bought this one because of the VA loan , so it made it attainable to me , but you know some people are , you know , even though you can make money in California . You know it's a big down payment . So invest , make your goals somewhere where you can , you know , make that money and it's attainable to you . And then , of course , relevant , make sure that your goal is to what your lifestyle , the lifestyle you want , like I don't want to have 100 plus and have to manage you know a big portfolio and stuff . To have 100 plus and have to manage you know a big portfolio and stuff , when all I want to do is just sit in my backyard and you know , chill and be with my chickens and be in the pool or something like I don't want to be that . Or I want to go travel the world , but then I had to worry about , you know , the properties back here . So and that includes with the management that we'll get to in a little bit and then time bound , like when do you want to accomplish these goals ? Mine , I had five years to get like halfway and then , you know , about 10 years I expected to kind of reach my goal . So

Step 2: Finances

Speaker 1 16:21

set deadlines for yourself , all right .

Speaker 1 16:24

Step two is your finances , and again this step is broken up into two because you want to do one where you analyze your current finances , want to see where you're at . You want to see what you can do . So first step is create a budget , which I do have one for free that you could download . So I'll include all those links so you could download it . But it's a simple Excel so you could go through it and kind of see where your money is going . Definitely do this step because creating a budget is great practice for when you get to managing your property , because of course you're going to be balancing the finances and making sure you're actually making a profit .

Speaker 1 17:17

And then you want to understand your risk . How much risk can you take ? Are you making enough money to invest , like , somewhere in California or buy these luxury properties or like , can you do something smaller , that is , you know , less risk that you could put like 25k down and just has a lower risk ? And how fast can you recover if something goes wrong and ensure that you have , like , an emergency fund ? So that's what saved me last year was that I had the money set aside for all these things and like and you know , just extra money that kept me afloat and luckily , survived it . Now back on track . So that's the good thing . Um , so I know how far I could get stretched out before um , before I put myself in financial ruin . So definitely take the time to calculate that .

Speaker 1 18:18

Figure out what you can set aside again , this is part of like your goals . Can you set like 200 aside ? What can you do ? Maybe you could do stuff on the weekend , whatever , right , that's part of you know , going through your finances . And then , of course , figuring out your credit score so that way you could be ahead of the game and nothing pops up when you finally do try to go get a loan and you could take action now . And same thing with your debt to income ratio Pay down some of those debts so that way you could get the best loan options for you . Once you get to the second part , you can do these at the same time , right , of course , figuring out what's available to you so that way you can start taking action to be able to get the loans that you want . But figure out what loans are available to you , so , like , if you're military or prior veteran , whatever you can do , the VA loans there's , like other , the USDA loans , fha loans for , and then there's , of course , down payment assistance . And then make sure that it goes hand in hand with your strategy , right that it's going to apply to whatever your strategy you pick .

Step 3: Strategy

Speaker 1 19:40

Which is the next step is figuring out your strategy .

Speaker 1 19:46

Again , real estate investing has so many strategies , there's so many different ways . It really , you know , comes down to how creative you want to be with it , and so definitely take the time of what you want to , you know , keep with your goal in mind , of what you want to , you know , keep with your goal in mind of what you want to accomplish , determine what strategy you want to use and also your mindset and what you're able to like , deal with , cause , like , for me , house hacking , renting out a room that was doable , you know , but some people just don't want to have , like roommates or live with somebody else or whatever . So then , house hacking , that way isn't for you . But maybe you can , um , like I said , put RV hookups , like how I am , and then somebody could park there and you charge them for that , like . It really is a lot of different ways that you can do . You could do , like , just buy the properties to rent them out off the bat . You could do the Byrd method , which is you buy a property , fix it up , rent it out , wait a few either for it to appreciate , or that you've built enough equity by paying it down , then pulling out the money and then using that to buy another property . And then you can combine them . I mean there's so many strategies out there . Find one that works for you , what you're willing to deal with . I combine house hacking and the bird method .

Speaker 1 21:22

I bought my first home house , hacked it In the meantime , I fixed stuff in there and then , once I was able to , when I left , I rented it out and then after some time I was able to pull cash out and then that's how I bought the other property . And then there's also different types of properties . You can do RV parks , mobile homes you know tiny homes like me , multifamily properties , single family I mean and you can even buy office spaces . But office spaces right now are kind of iffy , with everybody wanting to work from home and stuff , so that's a little bit higher risk in my opinion right now . But you can mix and match however you want . You can put RV hookups , like I said . You can let someone park if you have land or whatever . You could buy land and build tiny homes or buy land and make it a mobile home parks I know people that do it all types of ways . So all right .

Speaker 1 22:24

So ,

Step 4: Analyzing

Speaker 1 22:26

uh , step four is learning how to analyze , um the market and how to analyze , you know , the potential property that you want to buy um for , uh the market , um , you want to look at . You know population trends , so you definitely don't want to pick a market that people are moving out from or you know having some issues in you know high . You know , for me I wouldn't invest in somewhere like Florida where there's like a lot of hurricanes or something like that . Right , it really depends what you're comfortable with . But definitely , look at the population and you can do that by looking at , like , city data . I mean Google , at this point , can just pull it from all those sites too . So sometimes I just do that , I just Google it and then it pulls up all these things that I can look at .

Speaker 1 23:24

Then , of course , you want to see the rental market and see how much you know you can expect to charge for rent and how it's going . Is it going up , is it going down , is it pretty stable ? So that way you can get an idea when it comes to actually analyzing the property . And then , of course , you wanna look at the sales prices of that area . What is the median ? Don't use average , because the problem with average is that you might have in the same block , especially like where I live , like I have homes that are like selling for like over a million . I mean , I'm in California , right , so it's just like all over the place , and so if I use the average it's going to kind of skew it , because you have a million dollar home and then you have like regular and then you might have something else . So I would look at the medium , the median , the middle ground , and that would give you a more kind of accurate picture of what you can expect to pay for a property . And again , if you get a realtor or something like that , they can help you with that portion and then understand that market , like the laws and regulations like over here is very tenant friendly , you know pro tenant , so it's a little bit more difficult over here in California and in some other places is pretty balanced and so you want to know that as well and what you can do in the target market , because especially now they're coming out with like regulations and laws to prevent Airbnbs and stuff like that . So you don't want to go buy a house , thinking that you could Airbnb it out and then come to find out that you can't .

Speaker 1 25:21

The next step is the property analysis . Of course , you want to calculate for cash flow . Which cash flow is your monthly rental income minus your monthly expenses , and this is like your operating expenses . So , whatever you get per month in rental income , you want to deduct the expenses . Like , maintenance you want to set aside . Even if you don't have maintenance that month , you want to set aside a certain percent . I do 8% for my properties because mine are older , so I used to do 5% , but then last year taught me to that I should do increase that , um , just because my properties are old .

Speaker 1 26:08

And um , also , if you have , you know , a property manager , uh , the interest property taxes um , you divide the yearly property taxes by 12 and you get your monthly . So you subtract that as well . Insurance , same thing , divide by 12 , and then , uh , you subtract that as well . Insurance , same thing , divided by 12 , and then , uh , you get that . So you deduct all that and that whatever's left over . That's your cash flow and that's before taxes . Right , you could get a little bit more in the weeds with your taxes , but , um , that's kind of hard because everybody's in different tax brackets and in different areas , so , like you know .

Speaker 1 26:44

But if you you also want to kind of look at cash , on cash return , this is just kind of like it's an annual thing , it's like for a short , short time frame , but this will help you kind of figure out how good your property is doing . It's basically your return for for that property , but it is the annual cashflow divided by the total cash invested . Um , which is good for , um the properties that I am in because they give a high cashflow , um , but it didn't , I didn't , it didn't require me to put that much . I think I put like 30 , uh 30 K on these and then they bring me , um , you know , pretty good cashflow . So I think the first two years not counting last year , because last year was , you know , the bad year Uh , I think I was like at 20% of return on my investments . So , um , I put 30 , uh 30 K down and I was getting 20% return , which went back with the payback period , because then you could kind of calculate how long is it going to take for that property to make back that money that you invested , and then after that it's pretty much like all profit , basically because you got your money back .

Speaker 1 28:14

Um , there is this one percent rule . Uh , nobody really uses it as much anymore , just because , um , inflation and everything's so pricey insurance and all that stuff . So you really want to actually calculate it , um , but they used to use the but I put it on here just in case you hear about it , because they might . Some , I don't know someone might still use it out there and I don't want you to , you know , get led astray by thinking that like , oh , you know , just calculate the 1% from the purchase price of whatever property , and you know , if it's , if you , if the monthly rent is 1% from what you're going to buy it for , then you should be good , right ? Um , I don't want you to accidentally get led astray . I'm I'm very into the numbers . I like to get into the weeds because I want to kind of really know what I'm getting myself into . I don't like , uh , guessing too much and a lot of you know some of it is , you know , obviously , but want to reduce that as much as possible . And again , I do have , if you haven't downloaded it yet , I have that free rental property calculator which has most of these on here and some other extra stuff to help you figure out your cashflow automatically , so that way you don't have to do as much math and

Step 5: Managing Your Property

Speaker 1 29:36

stuff .

Speaker 1 29:36

Step five is managing your property . So you want to obviously manage your rental properties effectively because you want to make a profit , and this is where it gets . You know , some people get in trouble because you get so hyper fixated with I want to , you know , buy my property to make money , but then you have to manage the property as well . You have to know how you're going to collect rent , you know . Are you going to use an app or what when Venmo , like all that you have to figure out . How are you going to , you know , do background checks ? How are you going to find your tenants , like , how are they going to submit maintenance requests ? Like , are they just going to call you , like every single time something's going on ? Are they going to email you Like ?

Speaker 1 30:26

You know , having some systems in place to manage your properties , you want to ensure that you're tracking the income and the expenses . I use the rental property income and expense tracker that I have . This one is paid , so if you're interested , I'll include that in the email as well , but I like that one . I put my monthly expenses and it gives me a monthly breakdown , and then eventually the year , of how that property did and it tracks all the expenses and so that way at the end of the year you could go to do your taxes and it's like here's all the expenses that I had and stuff . Still keep your receipts , obviously , because , um , you need them in case you ever get audited or if the tax preparer wants them , whatever . But you get an idea and it's a good tool and it has charts and stuff visuals so that way you could see how your properties are doing and keep track , because you want to balance all that , the expenses .

Speaker 1 31:31

Also , understanding how you're going to manage and keep track , like if you're planning to manage a property by yourself , um , these are . This is one of the main reasons . Besides , you know I don't want to do any of the , the , the tracking and calculating and screening tenants of this . One of the reasons I have a property manager , uh , cause I don't want to get in trouble . I want to make sure that I'm following the law , that I'm not , you know , going to get put in jail . So , if you plan on managing it yourself , know the laws , make sure you periodically stay , you know , always keep track of what's going on in your market , if any new laws pop up or whatever , so that way you can adjust and don't get yourself in trouble .

Speaker 1 32:17

And , of course , managing your time A lot of people forget about this . Are you going to do all the fixes yourself , like you know ? Are you going to be the handyman ? And , if so , like how are they going to contact you ? How often ? Like you know ? And then make sure that aligns to your goal , because if your goal is to , you know , spend more time with your family , to travel or whatever , then being the handyman is probably not going to be ideal , because then you're going to get what ? If you're like somewhere else and you get an emergency call and now you got to go fix it or whatever , um , and it might be fine when you have like one or two properties , but once you get to , like you know , five , like it gets , it gets . Uh , you'll find yourself doing a lot . Uh , if you're going to hire a handyman , contractors , landscapers , all of that , that's going to be people that you have to manage and talk to and keep track of and make sure that you do follow-ups . And how are you going to do that and be comfortable doing that , knowing where to find them , how to find them and interview them to make sure that you got a good person and not someone that's just going to like half-ass something or whatever ? So

Step 6: 5 Year Plan

Speaker 1 33:32

the last step is creating your plan and , of course , growing your portfolio , no matter how small or big you want to go .

Speaker 1 33:41

I find I'd like to do my plans in five-year increments and then work my way back . You know you could do it several different ways written down flow charts I like flow charts and then from there , you know , create a kind of more of an action plan for each year . Um , but really this is going to be your map . This is going to be what you're going to follow . Uh , and obviously it's not going to be to the T cause .

Speaker 1 34:10

You know life happens . Figure out your goal . You obviously have your ultimate goal and then from there you know , break it down to like , okay , what can I accomplish in the next five years ? And then , from there , what can I accomplish every year , and so on . And then , what steps do you need to take to get that done ? What you know , the resources , what do I need to learn stuff like that . How much do I need to save Whatever ? Get as detailed as possible . Make sure you're keeping your goal in mind , your strategy , and ensuring that you're reducing your risk , and this is going to help you . You know , keep yourself accountable and , again , revise periodically , especially when things happen .

Speaker 1 34:55

You know , go back and be like okay , so now this , something happened in life that threw a wrench into my plan . What can I do to , kind of like , get back on track ?

Overcoming Fear in Real Estate Investing

Speaker 1 35:06

And so , really , what is stopping you from going out there to buy your first rental property ? And some of the key things that I see is , of course , you don't know much about real estate investing , so you kind of like I don't know about it , so I'm not gonna do it .

Speaker 1 35:26

Right now there's that fear , hesitation , because either of the lack of knowledge or it sounds complicated , or , right now that the housing market and the high interest rates , all that .

Speaker 1 35:38

So you know you might have that fear and you don't know how to start , or I didn't put it on here but , like with the five-year plan , you don't have a plan .

Speaker 1 35:48

Um , let me tell you have , uh , at least three people that I know that have more than enough funds to get into real estate and , matter of fact , one of them was a coworker of mine and we were actually going to go into a partnership , but he could not figure out how to get over that mindset , that fear .

Speaker 1 36:11

That's why I said first step is mindset , cause if you can't get over your mindset , you're never just , you're never going to start and so and that's what happened to him , to this day hasn't started and he just has , uh , the funds there , uh , cause he didn't have a strategy . He , you know , he was uh that fear from the housing market and stuff was there and in that time I've already , you know , purchased several properties , my land and , you know , this house and doing all this other stuff , and at this point going to go buy a third duplex . So really , you have to figure out what it is that is stopping you . If you have any other questions that pop up , you could always email me at infomanichismen at gmailcom . But yeah , other than that , thank you again , bye .