To everyone still reading these, I’m currently working on “Estimating Rehab Costs” by J. Scott.

I’ll be releasing those notes on the same subreddit I released these on! They should be done
within the next two months.

Notes on
“Rental Property Investing”
by Brandon Turner

The First Step - What You Want

The first step to being a good Real Estate Investor is having a written statement of what you
want. This is your WHY statement.

The Four Wealth Generators

“The price is what you pay, the value is what you get” - W. Buffet

1. Appreciation
a. Natural - Time, Economy, Area Growth
b. Forced - Rehab, Renovation, and Additions
c. This is icing on the cake, not the main return on investment. Bad deals with
speculative appreciation are still bad deals

2. Cash Flow
a. Calculated by income from all investments - expenses from all investments
b. Can be pre calculated with historical and estimated standard data
c. This is the key to a solid and stable return on investment
d. Needs to be present ASAP once you purchase

3. Tax Savings
a. Achieved by collaborating with a good investment based CPA
b. Tax savings still don’t make a bad deal good

4. Loan Paydown
a. Using rent $ to pay the loan down can increase cash flow once it’s paid
b. Is automatic like appreciation
 c. Amoritization = Interest:Principal ratio

Leverage and Security

Leverage - Borrowing money to invest in a higher than cost cash flow.

The down payment size is less important than the quality of the deal. For example, 100k with
30% down = 70k leverage. 70k with 0% down = 70k leverage. The deal is what is important, and
the higher investment means more risk.

You must be able to understand the local market and analyze good deals with your local market
data.

Always keep 6 months of property costs as reserves for security in case of vacancy or disaster.

Top 5 Difficulties of Rental Property Investing

1. Building wealth takes time
a. Consistent action, over a long term
b. Like investing, you must stick to your plan, even when the market dips

2. It can be mind and time consuming

a. Efficient ownership means outsourcing, limiting work hours, and formulating a
good plan before you begin investing
b. You are a business owner, you don’t unclog toilets at 2 a.m.

3. Dealing with difficult people

a. Screen contractors, managers, tenants, lenders, etc. in advance to limit your
exposure to difficult and potentially costly people.
b. Run this like a business.

4. Paperwork and Bookkeeping

a. Quickbooks or Google Sheets
b. Use a CPA (Screened, with Real Estate experience)
c. Have a financial ROI model
d. Leases, agreements, etc.

5. You could lose your investment

 a. Good research, planning, and screening can mitigate this risk

Why So Many Real Estate Investors Fail

1. They take on too much risk
a. Too much leverage
b. Multiple bad deals
c. Too many properties too fast
d. Constant refinancing equaling low equity

The right team, reserves, plan, research, and preventative maintenance can limit your risk.

2. Not enough education

a. They jump in before doing the legwork
b. They don’t have patience to look for good deals
c. They are busy, rather than effective
d. They don’t use the tons of free info available to them

3. They do not analyze enough

a. Don’t have analysis paralysis, but you have to run the numbers

4. Business or Hobby
a. They treat it like a hobby, or like a job, instead of like a business
b. They treat tenants like friends
c. They don’t have clear policies or systems
d. They don’t think of themselves as a CEO

Keys to Eliminating the Above Problems

Risk = Power AND Danger, use it like a tool and manage your risk tolerance

Build a solid education and constantly learn

Always run the numbers and analyze a property as much as possible

Work ON your business not IN your business

Real Estate can be a job or an investment, make it an investment so you can do what you love
with your financial freedom

The Two Mindsets on Cash Flow

1. Cash Flow Per Door
a. Trying to get a flat rate per door on every property you buy (I.E. $200 per door)

2. Cash on Cash ROI

a. Trying to get a certain percentage ROI every year
b. Calculated using total investment, appreciation, and cash flow to determine ROI

The 5 Keys to Real Estate Investing Success

1. Thinking the Right Thoughts
a. Having an investment and business mindset
b. Write down and frequently reference your goals

2. Study the right source

a. Books, blogs, reddit, youtube, podcasts

3. Pick the right plan

a. What is the end goal
b. Which strategy is best for your risk tolerance and goal
c. What will you NOT do
d. How often will you buy
e. How will you finance everything
f. Be flexible with your plan when it needs adjustment
g. Have 5, 10, 15, 20, 25, 30 year goals, with salary / ROI requirements
h. Determine your WHY for this investment

4. Acquire the right asset while avoiding liabilities

a. The right property
i. Fits your plan
ii. Fits your budget
iii. Fits your ability to manage

5. Manage the right metrics

a. ROI
 b. Expense data
c. Market data
d. Net Operating Income (NOI) = Rent - Operating Expenses - Debt Service
e. Total Investment (TI) = Down Payment + Closing Costs + Rehab
f. Cash on Cash (CoC) = NOI / TI
4 Sample Real Estate Investing Plans
1. Multi Family Plan (MFH or MFR)
a. Cash Flow Goal - $200 per door
b. Only buy at 80% Estimated Market Value
c. Must be capable of 10% Forced Appreciation without outpacing nearby homes
d. Must be capable of 3% appreciation per year due to area growth
e. Year 1
i. Buy, Rehab, and Rent
f. Year 2
i. Save up profits
g. Year 3
i. Buy 2nd Property
h. Year 4
i. Buy 3rd Property
i. Year 5
i. Sell all and buy an apartment complex using 1031 deferment
j. Year 6
i. Manage effectively
k. Year 7
i. Manage effectively
l. Year 8
i. Sell and buy a much larger apartment complex

2. Single Family Home Plan (SFH or SFR)

a. Cash Flow Goal - $300 per property
b. Only buy at 80% Estimated Market Value
c. Must be capable of 10% Forced Appreciation without outpacing nearby homes
d. Must be capable of 3% appreciation per year due to area growth
e. Year 1
i. Study and Save
f. Year 2
i. Buy a 3B 2B or similar property
1. Save Cash Flow
2. Save Personally
g. Year 3 - 5
i. Buy a similar property each year
h. Year 6 - 8
 i. Buy 2 properties per year and hire a property manager
i. Year 9
i. Buy 3 properties
j. Year 10 and on
i. Buy 4+ properties, continue or retire
3. House Hacking
a. Owner occupied financing, similar to first two plans

4. BRRRR Strategy
a. Kin to house flipping but maintaining ownership of the asset

The 10 Members of Your Real Estate Team

1. Your spouse
2. A mentor or accountability partner
3. A Real Estate Agent
a. Understands investment mindset
b. Responsive
c. Hungry (but not so much that they’d sell you anything)
d. Knows the local market well
e. Tech Savvy
f. Has investment knowledge or experience
g. Can give you 1 on 1 time
h. Well connected
i. Honest
4. Lenders
5. Contractors and Handymen
a. Price / Quality / Service (You usually can only get 2 of these)
b. Get referrals
c. Ask your current people who they like to follow on a job site
d. Explain your expectations
6. Bookkeeper
7. CPA
a. Find prior to buying
b. Preferably has REI experience or knowledge
8. Lawyer
a. Real Estate Specialized
9. Insurance Agent
a. Brokers can be better than agents
10. Property Manager
Analyzing a Property
*** You earn your money as soon as you buy, if you don’t know you made money the day you
close, it’s a bad deal ***

1. Cash Flow (Income - Expenses)

a. Income - Rent
i. Check local market, papers, agencies, craigslist, competitors, etc.
b. Expenses
i. Taxes
ii. Insurance
iii. Flood Insurance
iv. Water / Sewer / Electric / Gas
v. HOA
vi. Lawn Care
vii. Pest Control
viii. Vacancy (5-10%)
ix. Repairs (10%)
x. Capex ($200 / Month)

2. Rules of Thumb for Quick (but dirty) Analysis

a. 50% of the rent - Mortgage = Estimated Cash Flow
b. Fair Market Rent / Purchase Price should = 1 - 2 %

Types of Rental Properties

1. Single Family Homes (SFH / SFR)
a. Pros
i. Plentiful
ii. Easy to sell
iii. Fewer bills
iv. Easy to finance
v. Easier to manage
vi. More stable tenants
vii. Higher appreciation
viii. Less expensive
b. Cons
i. High cost per unit
ii. Slower to scale
 iii. Limited # of loans
iv. Expensive rehabs
v. More competitors
2. Multi Family Homes (MFH / MFR)
a. Small = 2-4 units
i. Usually considered residential
b. Large = 5+ units
i. Usually considered commercial
ii. Uses Cap Rate
c. Pros
i. More cash flow
ii. One loan, many units
iii. One insurance policy, many units
iv. Math over emotion seems easier
v. Income valuation, not Comp / Market Valuation
vi. Less competition (depending on your market)
d. Cons
i. $$$$$$
ii. More management intensive
iii. Competition is less, but more intelligent
iv. More complicated
v. Fewer properties to choose from
vi. More government regulation

3. Real Estate Owned or Foreclosures

a. Owned by the bank
b. GREAT deals
c. Commonly distressed because of:
i. Lengthy vacancy
ii. Vandalism
iii. Unkempt and unmaintained
d. Banks are emotion based and they don’t want the property. If they run the
numbers on your offer and it works for them, they’ll take it, no matter how low the
offer.

4. Fixer Uppers (SFH or MFH)

a. Bad smells can mean easy money
b. Can be risky and stressful, but very profitable
c. Pros
i. Less competition due to perceived hard to solve problems
ii. Easy forced appreciation
iii. Potentially more cash flow depending on the area and market
iv. Unique financing options (construction loans)
 d. Cons
i. Hidden expenses (sometimes you don’t find til after purchase)
ii. Potentially more start up costs with out of pocket rehabs
e. Always ask yourself
i. How bad is it
ii. Is it worth it
iii. Do I have the time
iv. Do I have the skills
v. Do I have the desire

LOCATION LOCATION LOCATION

Neighborhood Classes
1. Class A
a. New buildings
b. Popular restaurants
c. Best schools
d. Wealthiest population
e. Highest cost
2. Class B
a. Older version of Class A
b. Con - Usually more upkeep and maintenance
3. Class C
a. Less wealth
b. Cheaper properties
c. Con - Usually more repairs and rehab needed
4. Class D
a. Basically a warzone
b. Not safe
c. Do not buy

Value adding investors like to buy class C properties in class B neighborhoods and benefit from
the increased appreciation once it is brought up to the local standard.
Location Tips
1. Always check crime data
a. www.crimereports.com
2. Always check school data
a. www.greatschools.org
3. Always check market unemployment
a. www.city-data.com
b. High unemployment means more and stricter screening
4. Check local price to rent ratios (Jonesboro = .5 - 1%)
5. Check with other local landlords about vacancy rates
6. Check floodplains to see if you need flood insurance (don’t be afraid of these props)
7. Check the property tax and valuation
8. Check cost of landlord insurance

How to Find Properties

1. MLS Listings through a licensed RE agent
2. Direct Mail Marketing
3. Drive For Dollars (Legit drive around and look for props)
4. Eviction Records
5. Bigger Pockets Marketplace
6. Craigslist
7. Wholesalers

Which Properties Make the Best Rentals

- 2-4 Bedrooms
- Built post 1975
- Has a garage or covered parking
- Tenant can pay utilities
- Smaller yards and gardens (easier upkeep)
- Off street parking
- AB or C+ neighborhood
8 Problems That Are Cheap to Fix and Lower Purchase $
1. Bad Smells (see pg 181)
a. Easy to fix
b. Drives competition away
c. Usually only hard to deal with if it’s environmental or from the sewer
2. Hidden potential third bedroom
a. Turn a 2B2B with a storage room into a 3B2B for easy profit
3. Ugly counters and cabinets
a. Easy and cheap to update
b. Since people buy kitchens, price will be lower
4. A Bad Roof
a. Scares off competition
b. Not too expensive if you shop around
5. Mold
a. If you the moisture problem is easy to fix, so is the mold
b. Be wary of foundation, basement, rampant mold
6. Compartment Houses (closed off floor plans)
a. Easy to turn into an open floor plan
7. Jungle landscaping
a. Cheap to fix and make look much nicer
8. Junk
a. Easy and cheap to clean up and remove

3 Problems That Are NOT Cheap to Fix

1. C-D Neighborhoods
a. You can’t control / fix the neighbors or area
2. Foundation Issues
a. Big $$$$
3. Shared Driveways
a. Out of your control, and a pain
Real Estate Negotiation

Submitting an Offer
On an MLS Property
- Agents are typically free for the buyer
- Selling agent CAN be the buying agent but it’s conflicting sometimes

On Non MLS Property

- Start with a casual verbal offer
- Ask their lowest price
- Negotiate with facts and data, you’ve already run the numbers
- Purchase and sale document (Find at:)
- Local title company
- Online
- Office supply store
- Other investors
- Use a local attorney to check the document
- Earnest money deposit
- 1-2% of the price
- Held by a third party (title company)
- Contingencies
- Inspection
- Financing
- Official Offer Document
- Who is making the offer to whom
- What is being bought and for what amount
- Where the buyer is getting the funds
- When the buyer plans to buy
- Circumstances in which the buyer can back out
- How it’s going to happen (instructions for the third party)
- How much to offer
- It doesn’t matter if it fits your numbers and your goal
16 Tips for Getting the Deal
1. Work Fast
2. Offer your best (by the numbers)
3. Use a letter
4. Discover WHY they are selling (help them hit those goals)
5. Good offers should make you uncomfortable (because they’re usually low)
6. All cash helps
7. Remove the financing contingency (risk)
8. Remove the inspection contingency (risk)
9. Close Fast
10. Submit 2 offers
a. 1 with contingencies, lower offer without contingencies
11. Higher earnest money
12. Pre Approval financing letter
13. Include an escalation clause (Ebay bid style)
14. Offer to clean out anything they don’t want to take with them
15. Pay the closing costs
16. Offer again later if they refused. Usually if it’s still on the market they’ll accept

Sellers respond in 3 ways

1. Accept
2. Reject or Ignore
3. Conter Offer

The original offer is RARELY accepted

Both parties want the same thing - a sale
In good negotiations, everyone wins
Negotiate at ALL points during the sale

Points to Negotiate
- Price
- Closing date and location
- Contingencies
- Financing (seller, bank, private, etc.)
- Closing costs
- Home warranty
- Repairs
- Credits (for repairs not made before sale, contingencies, etc)
- Possession date
 - Items left behind

13 Negotiation Tips
1. Be prepared to walk away
2. Know your role (buyer vs seller market)
3. Always get the last concession
4. Find the true motivation for their sale
5. Use a red herring
a. “ (low ball) is my offer, but you have to leave the appliances
b. They’ll think they win by keeping the appliances and taking the low offer
6. Institute a penalty for concessions (time between communication, etc)
7. Stick to your numbers, and give them the data
8. Don’t get offended
9. Negotiate with comparative property data
10. Don’t be insulting
11. Let them feel good, offer lower than your max and let them bring you up
12. Demonstrate why you’re a good buyer (renovation, care, etc)
13. Go lower than their lowest price
Financing Options
1. All Cash
a. No debt
b. Less ROI
c. Higher Cash Flow
d. More Taxation
e. No loan paydown
f. Less benefit from appreciation
g. More liability in some aspects
h. Can finance at any point to leverage later

2. Conventional Loan
a. 20-30% down
b. DTI (debt to income ratio) requirement
c. Steps
i. Shop
ii. Pre approval
iii. Submit a property plan
iv. Underwriting
v. Appraisal
vi. Underwriting part II
vii. Close
d. Low interest
e. Long terms
f. Professional financing
g. Max # of loans = around 10
h. Slow processing
i. Contingent on property condition
j. Not entity friendly (i.e. LLC)

3. Portfolio Lenders
a. Local Banks
b. Higher Interest
c. Shorter Term
d. Balloon Payments Possibly

4. Private Lenders
a. Hard money then seasoned mortgage
b. 6-12% interest
 5. Home Equity Loans, Partnerships, or Seller Financing
How to Get a Loan Approved
1. Convince the loan officer you deserve the loan (easy)
2. Get THEM to convince the underwriter (hard)
a. They know making no deal is better than taking a bad deal

12 Digit Code to Unlocking Loan Approval

1. Property Type (Res. or Comm.)
2. Property Location
3. Property Condition (post rehab)
4. Loan Amount
5. DTI Ratio
6. LTV Ratio (Loan to value, 70-80%)
7. Credit Score
8. Repayment Source
9. Experience
10. Liquid Reserves
11. Recent Credit Changes
12. Compensation Factors (waivers for some of the above)

Have these materials ready for the loan officer:

- 2 years of tax returns
- 2 years of W-2’s
- 2 months of pay stubs
- A Personal financial statement
- Bank statments
- Purchase and sale documents
- Property descriptions and numbers

Property Due Diligence

1. Title Inspection (~$1,000)
a. Check for easements, covenants, and liens
b. Must have a clear title
c. Title company does this leg work, but check it
2. Document Inspection
a. Check rent, taxes, disclosures, leases, utilities, deposits, maintenance, and HOA
3. Physical Inspection ($300 - 500)
a. Hire someone ASAP when an offer is accepted
b. Have the utilities on
c. Be there to learn
 d. Decide what issues are important enough to put contingencies or credits on
Getting Ready to Close
- Order Insurance
- Actual Cash Value (ACV)
- For older fixer uppers
- Replacement Cost Policy (RCP)
- For good condition homes
- Coverage A (see pg. 267)
- Below 80% LTV (see pg. 267)
- ACV may be better
- Ensure it covers outbuildings
- Loss of rent coverage?
- Liability
- Require tenants to have renters insurance
- Setting up bank accounts
- Local bank / online / or chain
- Set up a system for checking and savings accounts
- Keep separate from personal accounts
- Set up a home office
- Gather forms (important, see pg. 269-270)
- Prepare bookkeeping
- Quickbooks
- Google Sheets
- Ask your CPA what they’d like to see
- ALWAYS do a final walk through at closing
- Plan out the rehab before hand
- Sign the Docs
- All members of the loan and title must be present
- Bring ID
- Bring a certified check
- Read the document for mistakes
Managing Your Rentals

1. The role of a property manager

a. Advertise vacancies
b. Screen tenants
c. Approve and sign leases
d. Take phone calls from tenants
e. Schedule regular maintenance and appointments
f. Give late notices
g. Evictions
h. Income and expense records for the individual property

2. It’s a BUSINESS
a. See pg. 286
b. Make office hours
c. Automatic rent collection

3. Have it 100% ready before you rent it out

a. Take photos for advertisement and security purposes

4. Have a second phone number app or a whole phone

5. Find great tenants

i. Yard signs (see pg. 288)
ii. Craigslist
iii. Newspapers
iv. MLS
v. Existing tenants
b. Pre screen over the phone
i. Criteria (see pg. 291)
ii. Income = 3x rent
iii. 600+ Credit score
iv. Proof of income
v. References (rental related)
vi. 2 people per room MAX
vii. No smokers
c. Have them drive by before meeting you to make sure they want to live in the area
d. Set batch showing times (creates competition)
e. Give ANYONE an application to avoid discrimination claims
f. Application (see pg. 292)
 i. Have a processing fee (~$15 per person)
ii. Release of information signature
g. Background and Credit Checks
h. Document application denial reasons
i. Deposits are due 24 hours after approval
j. Buy a lease online
k. Have a formal signing
l. Make a move in condition report

Maintenance and Repairs

- 10 Most Common Repairs

1. Fridge / Stove / Dishwasher
2. Water leak in ceiling or windows
3. Water leak in sink
a. Usually the drain pipe, easy to fix
4. Slow drip from faucets
5. No hot water
6. Bugs / Pests / Rodents
7. Garbage Disposal
a. Best just not to have them
8. Toilet water leaks
a. Easy and cheap
9. Clogged toilet
10. Furnace
a. Act fast
b. Change filters on time

- Landlord Vs Tenant Responsibilities

- Find AR Landlord - Tenant Laws

- Smoke alarms, heat, appliances, plumbing, is up to the landlord to maintain
- Fix yourself or hire out for repairs. Don’t let tenants call people out. Bill the tenant
- Annual Preventative Maintenance
1. Interior
a. Vacuum fridge coils
b. Replace fire alarm batteries
c. Check carbon monoxide detectors
d. Sweep fireplaces
e. Clear the dryer vent
f. Flush the water heater
g. Repair bathroom grout / caulk
h. Tighten handles and knobs
i. Clean out showerheads
j. Check door and window weather stripping
2. Exterior
a. Gutters
b. Check siding / roof for damage
c. Sump pump?
d. Check garage door (including auto reverse feature)
e. Look for signs of termites
f. Check tree and powerline spacing
g. Recaulk doors and windows in need
h. Trim the landscaping
i. Inspect the crawl space and close any openings
j. Touch up the paint in need
k. Fertilize the lawn
l. Check water valves
m. Wash the exterior (power washer) with mildew cleaner

Holding Tenants to the Rules

- Late rent fee and documentation
- All people and pets must be approved
- Nice properties = better tenants = consider allowing pets
- Pet addendum
- Fee per pet
- 20 Ib limit
- Breaking a lease is a legal situation
- Be serious and direct
- IF YOU ARE UNHAPPY IT’S A PROBLEM WITH YOUR SYSTEM
Exit Strategies and 1031 Exchanges
1. Hold forever
a. Warren Buffet Style
b. Just make sure the properties are 99% passive by the time you want to retire

2. Seller financing
a. Higher sales price usually
b. Lower tax bill
c. Passive income
d. Use a lawyer for this

3. Cash out
a. TAXES

4. 1031 (like kind) (See pg 330)

Five Success Principles

1. Manage effectively
2. Constantly look to increase income
3. Constantly look to decrease expenses and liabilities
4. Follow and execute your plan, even through down markets
5. Give back to the REI community and your local community

Book Recommendations
1. The book on flipping houses by J. Scott
a. Estimating Rehab Costs
2. Ultimate Beginner’s Guide to REI
a. Free
b. www.biggerpockets.com/ubg
3. The Book on Estimating Rehab Costs by J. Scott (Specific to rehab costs)
Addendums
Brandon Turner’s “The Book on Investing in Real Estate with No or Low money down”

Fixed Cost Method of Evaluating ARV

Formula: Max offer = ARV - Fixed costs - Investor’s desired profit - wholesale fee - rehab costs

Fixed Costs
- Inspection Costs: ~$400
- Lender Fees: ~$1,000
- Closing Costs: ~$2,000 or ~3%
- Mortgage Payments: ~Est Mortgage Value
- Property Taxes: ~$600 (Estimate)
- Utilities: ~$1,000
- Insurance: ~$200
- Commissions: ~$4,000 or ~3%
- Selling Closing Costs (If Flipping / Wholesaling): ~$4,000 or ~3%
- Home Warranty: ~$500
- Termite Letter: ~$100
- MLS Fees: ~$100

Every market is different, calculate all fixed costs before running the numbers

Example:
$147,333 ARV
-$19,000 Fixed Costs
-$20,000 Desired Profit
-$10,000 Wholesale Fee
-$20,000 Rehab Costs
= $78,333 Maximum Offer (Pretty close to the 70% rule, but a bit more exact)