Hey friends, Kris Krohn here. And today
we're talking about real estate for
beginners. Real estate has a language to
it. And if you understand some of the
most important basic words and
principles, it can help you understand
how to make a lot of money.
So, you want to make a lot of money in
real estate and you got to learn some of
the basic language. So, what I'm going to do
today is I'm going to take this daunting
vocabulary. And I'm going to help you
understand some of the basics of it that
will help you really get into the
whole game of real estate. So, what I've
got is I've got some different words on
the screen and what I'm going to do here is
I'm going to map out what they are and what
they mean. And I think that'll be really
helpful for you. So, first of all let's
start with the most basic word up here.
It's a home. Now, I want to be really
clear that in real estate we've got
different names for this. When we're
buying a piece of real estate, you have a
lot of different types. One of them is
called a single-family home. S-F-H. And
you'll see that abbreviation, if you look
in the ads. Single family home just
basically means this is a regular home
that one person is meant to rent. Now, all
of a sudden if it is a home that is
split and has two doors, they have a
different name for it. It's called a
duplex, okay? And then of course if you
have one home with the single door but
it's connected to a whole bunch of other
homes just like it, it's probably called
a condo or a townhouse. So, for me, I
specialize often in this whole game of
single-family real estate. So, S-F-H.
Single family homes, right? So, that's what
we mean by home. Next I want to talk
about the word equity and I want to talk
about the word mortgage. Okay, if I want
to buy a home and let's say this home is
$150,000.
U.S. Then most people don't have a
$150,000 saved up in the bank.
How our young people buying houses?
Well, what they'll do is they'll go to a
bank, they'll give the bank a little bit
of money and the bank will give them a
mortgage. The mortgage is and another
name for that is a note. That's where the
bank says, "Alright, we looked at your
job history, we looked at the money
you're making, we feel comfortable with
you, we're actually going to give you a
mortgage." Which means we're going to lend
the money you don't put up." So, let's just
say for a moment, you put up the typical
3%, 5% but for easy math today. We'll call
it 10%. Let's say you came
with $15,000. Then the mortgage would be
for the difference. So, 150 grand minus
this 10% down. Down as in down payment.
Would be the remaining balance of
$135,000. So, I
put $15,000 of the down
payment. And there was
$135,000 mortgage. Now,
that mortgage is going to come with an
interest rate. Because the bank's going to
say, "We're not giving you our money for
free. You got to pay that back over time
plus interest." So, the bank says, "We're
going to do a six percent interest rate."
And you're thinking, "Okay, well if I'm
paying this back over 30 years and I've
got that interest rate", they'll do some
math and they'll tell you essentially
what your payment's going to be. Let's just
assume for this example that your
payment is $800, okay? That's just a guess
out of the wild blue. This $800 is your
mortgage payment, okay? Now, we've got a
home. It's a single-family home, it's not
a duplex, not a condo, it's not a
triplex or multifamily it's just a home
with one door and a doorknob and a happy
family inside their windows and a
chimney like that. Now, let's say that you
have this home and you decide we're not
going to live there. We're going to rent it
out. Another word for rent is lease. So, we
are going to lease the home. My mortgage
is $800 but I might get my renters to
pay $1,000 a month. My mortgage payment
is 800. My rent payment or my lease is
for $1,000 a month. So, this is my rent
payment. This is my mortgage payment. And
the difference is that if you have to
pay the bank 800 every month but your
renter gives you a thousand, there's some
leftover money. How much? A thousand minus
800 is 200. What do we call that?
That's called cash flow. And cash flow is
good. So, you buy a property. And let's say
all the sudden that this house... I'm going
to throw you a zinger. Now, this house is
worth $200,000.
It's worth 200, you bought it for 150. You
put $15,000 down, you've got a mortgage
for 135 but it's worth 200. Here's the
question. How much equity does it have?
What's equity? The equity is the
difference between what it's worth and
what you owe. So, in this case 200,000
minus the 135 is $65,000 of equity. Does
this awesome. Are you learning this
language? You can rewatch this video.
These are the basics that you want to
get really comfortable with. And
literally in the beginning, just copy me.
Just copy what I'm saying because I'm
telling it to you the right way, okay? So,
I've $65,000 of equity, you might say, "But
Kris, what about my $15,000
that I put down?" That's not part of the
equity. Because you would get this $50,000
out plus the 15 you put down.
The equity represents the total amount
between what it's worth and what's owed.
By the way, when you do investment real
estate, you're looking for equity and
you're looking for cash flow. So, I wanted
to, you know, teach you these basics, so
that you understand equity is a very
good thing. Cash flow is a really good
thing. Now, before we get to these 2
real quick. Let's just do a quick summary
on the story that we told so far. This is
a home. It is a single-family home. Single
dwelling. Meant for one family. It's not a
condo, it's not a townhome and it's not a
duplex, it's not a triplex, it's not
multifamily. And this house, at the time, I
bought it for 150. It was worth 200. I
bought it because it had equity into it.
Right there I bought it it had $50,000
of equity. 200 minus 150. But then I put
$15,000 down to now
have a mortgage of a $135,000
and my total equity
between what it's worth and what's owed
now is $65,000. My mortgage payment is
800 a month. But I chose to
rent it to somebody else. They're paying
me a thousand a month.
That leaves $200 a month
left over every month. That's called cash
flow. Now a couple more things that
you'll want to know so you can tell the
full story. This $800 a month, is that
you're P-I-T-I? What Kris? Principal
Interest
Taxes and Insurance. A bank will normally
wrap all four of these core components
into your mortgage payment. The reality
is that your mortgage payment on this
800 might actually only be like 720. The
other $80 might include principal
interest and then taxes and insurance. So,
your payment, when you make a payment
every month, a part of it goes to
principal. That means paying off this 135.
A part of it goes to interest because
the bank's got to make money. A part of
it has to go to taxes. They'll actually
say, "Hey, we don't... You need to make sure you
pay your taxes." Because if you don't then
the county will put a lien on this
property and that will encumber the
property. Encumber means they're going to
weigh it down and the bank says that's a
threat to us because we only want our
loan to be the loan on it. So, every month
we're going to take a twelfth of your taxes
every month. And after a whole year, we
will have collective a year's worth of
taxes. And we'll have it automatically
paid off so that you don't get behind on
paying your taxes. And then insurance. The
bank says, "Dude, the house could burn down.
You guys could be crazy responsible or
freak of nature, act of God, something
wild happens. If there's a flood, an
earthquake. And if that house gets hurt,
we need to know that our money's not
just lost. So, we're going to have it insured."
Banks will not give you a loan without
insurance.
So, P-I-T-I stands for Principle and
Interest. That's the core payment for
paying this off over time plus the
interest. T-I is taxes and insurance. To
make sure that the property doesn't get
encumbered with unnecessary debts added
on that could threaten their mortgage
position. And insurance just means that
it's covered. Now, we've just spent this
video training you on all the basic
language of real estate. Here's the last
one. Buy low, sell high. What does that
mean? I don't want to take it for granted.
You need to know it. Buy low, sell high is
encapsuled in this very basic idea that it was worth
more and I paid less. And if I paid less
and then sold it for more, I would what?
I'd make money. But the question is, how
much of a margin? New word, margin. What is
the difference between this and that? For
example,
$200,000 represents
my value. $150,000 represents what I paid.
I did put some money down but leaving
that out of it, there's $50,000
of profit to make. When you go to
sell it, if you were wrong on your margin
here and you could only sell it for a
$160,000 then you're
like, "Well, Kris, there's still at least a
$10,000 difference between
160 and 150." And then I would say, "What about
realtor fees that are 6%?" 6% of 160
thousand it's almost $10,000.
So, that's now wiped out because
there's costs when you sell this stuff, too.
So, you think about all these things. So,
when you buy low, it's like I got to buy
low enough to create a tangible benefit
when I sell high. I got to buy low enough
so there is a significant difference. So
that after all my costs, I still make
enough money that says, "This was
worthwhile for me." Friends, this is the
story of real estate investing. That's
what home, mortgage, equity, lease, rent,
principal, interest, taxes, insurance and
buy low, sell high all mean. And if you
get this languaging down, you're going to
have a 6 month head start on me that
just was confused after my first 6
months of working with my mentors. Let's
just give you the unfair advantage and
get you rocking it out now. Watch this
again. Practice it, learn it. Hey friends,
thank you so much for watching this
video. I hope this information was very
very useful for you. Helpful for you in
learning the basic language of this
incredible world of real estate.
Listen, it's it's foreign stuff but if
you learn it, you can do extraordinary
things. And it doesn't get a whole lot
more complicated than this. There are
more advanced terminology. But right here
we've covered all the basics. I hope you
enjoyed this video. Like it if you did.
Please share it with anyone else is
trying to get in the game of real estate.
And for you, make sure you're subscribed.
We got a lot more to teach you, got
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creating a lot of money right now.