Book notes: The Book on Rental Property Investing by Brandon Turner

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The Book on Rental Property Investing: How to Create Wealth and Passive Income Through Smart Buy & Hold Real Estate Investing by Brandon Turner

Synopsis:

“Every strategy, tool, tip, and technique you need to become a millionaire rental property investor!

If you’re considering using real estate investing to build wealth or obtain financial freedom, this book is a must-listen. With hours of in-depth advice, The Book on Rental Property Investing imparts practical and exciting strategies that investors across the world are using to build significant cash flow with rental properties. 

Brandon Turner – active real estate investor, best-selling author, and co-host of the BiggerPockets Podcast – has one goal in mind: to help you find success and avoid the junk that pulls down so many wannabes. New and experienced investors alike will learn how to build an achievable plan, find incredible deals, analyze properties, build a team, finance rentals, and much more – everything you need to become a millionaire rental property investor.” -Audible

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Opening thoughts:

Real estate investing has always been one of those things that interested me, but I’ve never done any research or learning towards getting involved in it. I figure I might as well at least dip my toes in with some real estate books and start to get a feel for it. I do have plans to finally own real estate int he next year or so. Hopefully this book will have some good insights that can point me in the right direction on where to start.

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Key notes:

• He says you should never learn from just one person and the best learning comes from the collective experience you can get from others

Chapter 1: why I love rental properties

• He loves rental properties because you can leverage someone else’s money for potential greater return
  • It allows you to buy larger properties for far less cash then you might need to purchase stocks or other investments
• One reason why it’s good is because insider trading is legal, meaning you can leverage information not well known to your vantage
  • Also, you can make money without you there
  • When you have to make money by being there, that’s called a job

• Rental properties take it advantage of four sources of wealth generation:
  • Appreciation
  • Cash flow
  • Tax savings
  • Loan pay down

1. Appreciation is an increase in the value of an asset overtime
   • Natural appreciation versus forced appreciation
2. Cash flow is the amount of income left in your business after all your bills have been paid 
   • Cash flow is the lifeblood of any rental property investor
   • Important: buy rental properties that offer cash flow today
3. Tax savings
   • US government like real estate investors. They provide housing for the increasing rental minded population and ensure stability in the economy
   • Therefore, the government chooses to reward and encourage real estate investors through favorable tax treatment
4. Loan paid down
   • You can automate part of your wealth building by simply obtaining a loan on your rental property and using the income from your tenants to pay that loan down each and every month
   • The portion of interest versus principal is defined by a term known as amortization

• House hacking: buying a multi family property with 2 to 4 units and living in one of them so that you can obtain a bank loan for as low as 3 1/2% down through the FHA loan program
  • This is a great strategy for individuals who are just starting out and have limited cash and experience
  • However to qualify, you have to live on the property for at least one year
• The second option and common standard is a 20% down loan
• The amount of reserves, or cash on hand for various expenses, is important to consider
• He recommends at least six months worth of expenses for each unit you have
• How much money should you have to get started?
  • The simple answer is enough to cover your down payment and your reserves 
• Downfalls of rental property investing:
  1. It takes time
  2. It can be all-consuming
  3. You have to deal with difficult people
  4. It requires paperwork and bookkeeping
  5. You can lose your investment
• Risk is a powerful and dangerous tool that cuts both ways
• If you wanna prevent yourself from failing, you have to treat rental property investing like a business and act like a CEO
  • Monitor your businesses health
  • Hire the right people to do the right jobs
  • Continually find ways to improve your bottom line to create a long lasting business
• Build a solid educational foundation for yourself before you get into deep
  • Don’t skimp on the math, always understand the numbers for any property you
  • Work on your business, not in it. Treat it like a business
• Because rental property investing builds wealth in the long run, you probably won’t make a lot of money quickly and might not be able to quit your job immediately
• One essential truth: find what you love to do in life more than anything else and do that for a career
• By reinvesting your cash flow back into your business, you can leverage the power of compound interest to build a crazy amount of wealth in the long run
• If you’re considering the numbers and what you need to quit your job, one investor suggests your business should make at least three times your current job before you think about quitting
  • 1x for tax, 1x for survival, 1x to reinvest and unexpected things

Chapter 2: the five keys to rental property success

• 1. Think the right thoughts
  • Tip A: write down your goals and read them out loud every day
  • Tip B: realize that you are who you associate with
  • Tip C: change your “I can’t” to “how can I?”
• 2. Study the right source 
• 3. Picking the right plan
  • The goal of a plan is to get you thinking, learning, and strategizing
  • Focus on the why not just the goal
• 4. Acquire the right asset 
• 5. Manage the right metrics 
• Unlike other investments, rental properties must be continually maintained and managed

Chapter 3: 4 sample plans

Chapter 4: the 10 members of your real estate team

1. Your spouse – probably be the most important member
2. Your mentor or accountability partner
3. Your real estate agent
   • A real estate agent is typically paid by the seller so it’s a no brainer if you are buying
   • But if you’re selling, you have to factor in the 3 to 6% it will be paying them
   • A great real estate agent understands the investor mindset
   • Find agents who are hungry to work for you and add value. A good agent also has a pulse on the market
   • A good agent should be fast, reliable, and tech-savvy
   • A good agent it’s also well-connected with people you may need to know, such as contractors, lenders, etc.
   • Lastly, a good agent has honesty and integrity
   • The best way to find a good agent is through referrals
     • Should you get your own real estate license?
       • Pros: You get better access to properties and listings, and you also get to keep part of the commission costs on deals which will save you money or a late leverage
         • You also can earn money when you help other people find deals
       • Cons: getting your license requires upfront costs of about two to $3000 and then several thousand dollars per year afterwards to maintain it
         • You must also attend a significant amount of educational classes before you can get your license and take a test
         • Agents also have a lot of paperwork to manage which can add a lot of administrative work to the mix
         • Lastly, if it’s not something you do best, it’s probably advice to let a better real estate agent do that part so you can focus on other things
4. Lenders 
5. Contractors or handyman
   • Finding good contractors is one of the hardest parts
   • He believes us because some of the best contractors are not the best business owners
   • When looking for contractors, be proactive, not reactive
   • Price versus cost
     • Price is what you may initially pay, but cost is the total expense it might accrue down the line
       • Example: dishwasher a may be at a lower price, but it may cost more money to run each time then dishwasher b
   • In terms of construction, pick any two:
     • Price
     • Quality
     • Service
       • You can’t have all three
   • Ask for referrals
   • Always ask for references
   • Give your contractor a clear list of expectations
     • Also, have several good contractors who can compete for your business and treat them fairly
6. A bookkeeper
7. A CPA
8. Lawyer
9. Your insurance agent
   • He recommends finding an insurance broker rather than just an agent at a specific company so that they can shop around at different companies for the best rate and coverage and can switch your policy without having to take your business elsewhere
10. Property manager

Chapter 5: analyzing a rental property

• Understand the fair market value of renting your property through being your to date on listing in your areas
  • Also understand your true cash flow from income and expenses
• Be aware of true expenses
• Do the calculations on what a good percentage of the rent you should set aside for capital expenditures for each property
• Even if you’re going to start up managing your own properties, you should still budget for a property manager and pay yourself that fee
  • This way you will be able to account for that expense when you hire property managers in the future
• Your total monthly expenses is called your operating expenses
  • Also calculate your monthly mortgage payment based on loan amounts and interest rate for your loan period
• Cash on cash ROI, COCROI, helps you to compare to other investments like the stock market or mutual funds
  • Cash on cash return = total annual cash flow divided by the total investment you made thus far (down payment + forced appreciation)
• Rule of thumb: 50% rule
  • This states that a rental properties expenses tend to be about 50% of the income, not including the mortgage, principal, and interest payments
• Rule of thumb calling the 2% rule or the 2% test. This is the ratio between the rental income and the purchase price
  • If it is greater than 2%, then that’s good.
• Total return = total profit / by total invested capital / by time in years
• Analyze more deals so you can make more offers and potentially buy more properties that are actually good investments

Chapter 6: investing while living in an expensive area

• You need to actively look for great deals to get them
  • The more properties to look at and analyze, the more likely you are to come across a good deal 
• Connect with others and find out what type of real estate investing is working in your area
  • Sometimes you’ll have to find the right niche if the traditional route has too high of a barrier of entry
• Try looking at middle-class areas on the outskirts of the expensive areas where workers in the expensive areas were commute from
• If you were investing at a distance and utilizing the do it yourself method, it is important to get a good property manager
• Long-distance method #2: use a long-distance partner
• Long-distance method #3: turnkey investing
  • This is a loosely defined investment strategy in which an investor buys, possibly rehabs, and has a property managed by third-party
  • There are both benefits and disadvantages to turnkey investing
  • He recommends always do your research and analysis to see if it’s right for you

Chapter 7: types of rental properties

• Type: single-family residence, or house
• Type: multi family residence
• Type: condos
  • Could either be single or multi family
• Type: townhome. Like condos, typically has HOA
• Type: REOs (real estate owned) / Foreclosures
  • a property that has been foreclosed by a bank and now owned by the bank, typically they are great deals but usually have some sort of problem that most people don’t want to deal with
• Types: fixer-uppers

Chapter 8: location, location, location!

• Locations and properties can be classified in different ways and ranked subjectively
  • He gives an example of class A, B, C, and D descriptions
• Crime data is important to get from research and talking to locals or law enforcement
  • Location near good schools is also important for families
• The job market is also important for finding good tenants
• Looking at population growth, and housing starts & building permits
  • It shows the number of new homes being constructed in an area, which can show if the supply may outpace demand in the future 
• Transportation and accessibility of your property for commuters is important to consider
• The price-to-rent ratio is the median monthly rental price in your area (zip code) divided by the median sales price

Chapter 9: how to find rental properties

1. The MLS – multiple listing service

• Finding a great agent is key to success with the mls
• Set automatic alerts
• Look for hidden, value-add opportunities
• Analyze a lot of properties, make a lot of offers. You will fail often but it’s a numbers game
• Old listings can also give potential to a good deal
• Focus on “distressed” properties that need some work
• Make your offer clean, one without a lot of contingencies
• Work when nobody else is working

2. Direct mail marketing for offers

• This is reaching out to homeowners and soliciting offers if they’re willing to sell. If even a small percentage call back and potentially sell, this strategy would pay off immensely

3. Driving for dollars

• The practice of driving through a neighborhood you want to invest in, looking for potential deals
• You’re looking for properties that may seem distressed or neglected for any number of reasons

4. Eviction records

5. The bigger pockets marketplace

6. Craigslist

7. Wholesalers

• Wholesalers find a property at a good deal and sell it to you at a slighter higher price
  • The trick is to find a good one

8. Passion

• Once you let the world know what you want, other people will help you get it

Chapter 10: which properties make the best rentals?

• 3-4 bedroom houses seem to make the best rentals for houses because they tend to attract long term tenants
• 2 bedrooms are great for multi-family properties
• Consider age of a property as this can reduce or increase rehab, monthly, or maintenance costs
• Buy in locations where people want to live, like availability of nearby businesses they’d want to go to
• Sometimes, properties have a “hidden bedroom” you can create that will increase its equity more than your cost

Chapter 11: submitting your offer

• An earnest money deposit is used to show goodwill and intent
  • There can be legal reasons for backing out in which you get your money back, or in some cases you won’t get it back
  • Work with an attorney to figure out the logistics and details
• Contingencies can be used to allow you to back out of an offer
  • Two common contingencies: inspection w/ professional in certain timeframe (such as 10 days), and financing
• Every real estate offer can be boiled down to:
  • Who is making the offer to whom?
  • What is being bought and for what amount, where is the financing coming from?
  • When am I planning on buying it (closing)?
  • Why would I back out of the offer (contingencies)?
  • How is it all going to happen (the fine print)?
• The offer you make depends on the deal
  • Make sure your numbers pan out after doing an analysis

Tips:

• Work fast
• Submit a letter with your offer, what you plan on doing with the property, and include a photo to make it more personable
• Discover the sellers true motivation for selling 
• All cash offers help
• Remove financing contingency from the offer
• Waive the inspection contingency
• Offer a shorter closing date
• Give 2 offers
• Offer to clean out the property

Chapter 12. Real estate negotiation

• Both parties want the same thing: a sale
  • In a good negotiation, both parties walk away feeling like they’ve achieved mostly what they wanted
  • A little back and forth is a good thing
• Negotiation tips: be prepared to walk away from a deal at any time. This strengthens your position
• Tip: use math and data

Chapter 13: financing your rental property

• Finance types:
  • All cash
  • Conventional loans
    • Step 1: shop around for conventional loans before getting the property under contract 
    • Step 2: get pre-approval. Step 3: submit the property information
      • Overall, conventional loans are great because they are low-cost and have stability, and he strongly recommends we use them if you were able to
  • Portfolio lenders
    • By using portfolio lenders who don’t sell the loans to government entities, there’s more flexibility and creativity with qualifications and what they will allow
  • Private lending is borrowing money from private individuals rather than institutional lenders
  • Hard money is essentially private lending with a professional
    • Typical private lenders may not be professional and it is more based on the relationship between the two
    • Understand what a private lender is seeking in order to improve your chances of a successful deal 
    • Start building relationships by building your personal brand
• Make sure your proposal and presentation has a nice design, it’s concise, has good math, and is a good deal for the private lender
• Home equity: if you own your own home, you may be able to use some of the equity in your home to purchase rental properties
  • Equity means the spread between what is owed on the property and what the property could sell for
• Partnerships can also be valuable tools when investing in rental properties because two people can work together to cover for each other‘s shortcomings

Chapter 14: how to get a loan approved guaranteed

• One of the biggest secrets to understand is that the first person you sit down and talk to you is just a salesperson
  • They are not going to be able to make a decision on your loan
• The underwriter is the one who takes the information from the salesperson and either approved or denied the loan
• Industry secret: lenders need you more than you need them
  • Ask your banks or lenders what criteria they use for approving loans or being a good candidate
• The codes to get approved:
  1. The property type. Some lenders only lend on certain property types
  2. Property location
  3. Property condition
  4. The loan amount
  5. Debt to income ratio
     • Front end debt-to-income is your total monthly housing payment divided by your monthly income
     • The back end DTI is the relationship between how much total debt you have and how much income you make
     • The most important thing you can do is make sure you are below the threshold of what the bank wants to see
  6. Loan to value ratio or LTV 
  7. Credit score
  8. Repayment source
  9. Experience
  10. Cash reserves
  11. Recent credit changes
  12. Compensating factors

Chapter 15: the due diligence process

• Due diligence on smaller properties can be broken up into four major categories:
  1. The title inspection
  2. The document inspection
  3. The physical inspection
  4. The ownership preparation
• Your goal when buying real estate is to only buy properties that have a clear title
• After the physical inspection, you may want to get inspections for the plumbing, asbestos, lead-based paint, and pests or wood destroying organisms

Chapter 16: getting ready to close

• Understand the different insurance coverages you’ll need and can get
  • You also need liability coverage and it’s recommended your tenants get renters insurance as well
• You must keep your rental property expenses separate from your personal income
  • If you have the property owned by a legal entity, using your personal checking account will destroy any protections the entity might otherwise offer
  • It’ll also make your bookkeeping far more complicated
  • Open a separate business checking and savings account for the property
    • The checking account will handle the income and expenses, and the savings account will hold the security deposit given by the tenant
• Benefits of an LLC
  1. If you get sued, it can separate that asset from your personal ones
     • Gives you some protection in these cases
  2. Tax efficiency
  3. Operational flexibility
• One drawback is that banks don’t lend to LLCs
  • You could potentially transfer it after the purchase, but make sure you get permission from the lender first
• You should also consider your situation as it could cost more to create and maintain an LLC than the protections give or the income from your investment property
• Ultimately, he suggests you talk to a lawyer and a CPA to get their advice
• However the biggest thing is to not let the question of an LLC stop you from taking action

Chapter 17: managing your rentals (Part 1)

• Self managing versus using a property manager
  • One downside is price
  • Another downside is most property managers suck
• When managing your property, you have to treat it like a business and put the systems in place so that it can be a successful investment
• Inspect your property before renting it out, take high-quality photos, and get a separate Google voice number that you can forward to other numbers
• Research the right software for bookkeeping and management of other landlord processes

Chapter 18: managing your rental properties (Part 2)

Chapter 19: exit strategies and 1031 exchanges

• One strategy is to hold forever
  • Just keep in mind the level of involvement needed for your rentals and how you can make them more passive in the long term
• Another option is you can sell with seller financing, which has some benefits over a regular sale
• Another strategy is to cash out completely and put your money somewhere else like in the stock market or somewhere passive
  • Or you can become a hard money lender
• A 1031 exchange allows an investor to differ paying taxes on the profit of a property when it is sold as long as another like-kind asset is purchased using the profit received
  • There are some rules regarding this exchange such as they have to be both real estate investments and they cannot serve as your primary or secondary residences
  • You also have a 45-day window from when you sell the property to identify up to three potential new properties to buy
  • The next step is the 180-day window in which you must officially close and have a title transferred to you

Chapter 20: final thoughts

• The five success principles of rental ownership
  1. Manage effectively
  2. Increase income
  3. Decrease expenses
  4. Execute your plan
  5. Give back
• Cultivate an attitude right now of generosity in yourself and become the kind of person who contributes to society 
• The most important thing is to take action

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Closing thoughts:

This book delivered everything I was expecting out of my first real estate book and then some. There were a lot lot of great insights and actionable advice, which I think is the hallmark of a great book in my mind.

I also love how it’s very beginner friendly, and breaks down a lot of real estate terms and concepts. I was mostly looking for a good entry-level type book, and it was good choice.

Another good thing was how it took you from start to finish, not just buying and managing properties, but also the mindset, picking your team, analyzing the numbers, and what to do at the end of your real estate career (if ever).

Highly recommend this book if you’re in the same position as me, which is ready to start looking around and getting into the market in the next year or so.

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One Takeaway / Putting into practice:

The biggest and most important action step that the author recommends is to take action. That’s an obvious one. But for me, what I specifically need to do is:

• Shop around for real estate that matches my criteria AND apply for financing options (such as FHA loan)

Thankfully, my finances and credit are all good, but now I just need to start seriously looking at places and probably get advice from other people who are more experienced in home-buying.

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Nutshell:

The A-Z and everything in between that you need to know about rental property investing.

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Similar books:

• Never Split the Difference by Chris Voss
• Unshakeable by Tony Robbins
• The Startup Checklist by David S. Rose

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Rating:

4/5

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