How do you leverage a property to buy another one? If you can crack that code
then you can buy as much real estate as you possibly want. My name is Kris Krohn
and today i'm gonna be sharing with you how you rock it in the game of real
estate. How you go from one home to two, two to four. You can go from four to many.
And ultimately achieve your financial goals.
For just a moment, imagine buying a property and being able to rip 30, 40, 50
thousand dollars of equity out of it. As in like cash in your hand that you can
go spend anyway you want. Or what if you actually took that equity out and placed
it in another property? And what if instead of just 2 profitable
properties, you then turn them into 4 and then 4 into 8. In this video here, I want
to actually share with you how you can get real estate populating. If it's
working, how do you actually get yourself doing more and more and more of it? Check
it out. So today, what I want to do is I want to give you some examples of what
this looks like. I'm going to put this up on our on our trusty white board.Llet's
just say for examples sake that I'm purchasing a house. And let's just say
that this house has a value of $200,000. Okay? So, a $200,000 house, we're still
underneath the median. And let's just say that for whatever reason, you actually
owe $120,000 on this house. It could be that
it was an investment property and you got a really good deal on it.
Maybe you inherited this property. Maybe you've just held it for a really long
time. Most people if they own property for 5-10 years, it goes up in value
and then they actually wind up having some equity. Remember that on paper, this
equity does nothing for you and I want to define that. That the difference
between the value and what you owe is the equity. So in this case, 200,000
minus 120,000 that's $80,000. But remember,
it's only on paper. There's no benefit that it gives you unless you're actually
strategically tapping into it. For this example, what I want you to understand is
that you could go to a bank and you could say, "Hey, Bank. I want to actually
take some of my equity out of this property." Do you think the bank will give
you all $80,000? No, the bank is not going to do that because
they'll basically say, "Wait, you want to mortgage this property up to its maximum
current value?" The bank says, "That's too risky for us because what if you stopped
making payments? Then your house comes to us and there's no equity in it." And for
them equity equals safety. For you, equity equals growth not just safety. So, let's
say that you want to get some of this equity out. The reality is is that banks
are constantly changing and how much money they'll allow you to access.
Quite often, banks will allow you have up to an 80% mortgage on the
property. What's 80% of $200,000? Forget that you put in your calculator.
$200,000 times 0.8. And that number would be a $160,000.
So, the banks are saying if you go up to an 80% LTV, don't get lost with me here.
I'm teaching you some new jargon. Loan-To-Value. If you go up to an 80
percent loan-to-value, that's $160,000. But look at
what I owe. I owe a $120,000. So, what's the difference
between what I owe and how much the bank will give me?
Well, 160,000 minus one 120,000 is
$40,000. Well, check this out for just a moment: $40,000 is enough
for you to go and actually purchase your next property. For example, let's just
multiply and say for a moment I'm going to give you a really cool shortcut on how I
do this really fast. If I'm purchasing now my second property and the bank says,
"Hey, this house has a value." Let's just call it of a 180,000.
By the way, it's worth 200,000 but this is what you can get it.
For the bank says, "Well, we want you to put down 20% on that 180,000.
10% is 18 grand. 20% is 36,000.
It's about that forty thousand mark. So, that 40,000 transfers into this
property and you're going to owe around $140,000 on
this house. You essentially took the equity from this house and moved it to
this one. I want you to understand that you could take it and you could actually
just go and spend it. You could take that and you could buy a car, you could take a
really really nice couple of vacations. You could go buy some different things.
But I'm going to tell you right now if this property did such a good job getting you
to this point, then imagine what would happen if you doubled your wealth. Or
very similarly, I know of 2 properties that are growing for me. And guess what I
can do in time? I can take 2 homes and it's always this game: How do I turn them
into 4 homes? Now, I want to give you the science. This is the formula that I
use when I do this. I want to introduce you to a concept right now that I call a
lease option. At the end of this video, I'm going to recommend a series. A very
short series that I made on how all of this works. So, I'm going to give you
enough information really understand this principle but
certainly in the video, I'll go a lot deeper and give you more information on
that. So, videos up there in the top corner you can access that now or later
at the end of the video. But this is essentially what a lease option is. Lease
option is where you get a chance to purchase a house and instead of just
renting it like most people would do to cash flow it, I'm going to show you how to
actually get a much higher rent. You see on an entry level property, most people
will actually collect a cash flow of maybe 200 dollars a month. I can show you
how to double that and in some cases get 400 to 500 dollars a
month of cash flow. These are homes that you purchase in your backyard. And if you
follow the strategy you got to give you in my book that's for free for everybody.
Essentially, if I buy this house, this is the magic right here. Because I have an
increased rent by doing a lease option versus normal rent, it means that when I
go back to the bank, the bank says, "Well Kris, what allows us
to determine whether we want to give you a second house is whether we feel like
you are under control with your first house." And so, I then I say, "Well, bank.
what do you mean by under control?" They're like, "Well, we want to know that
whatever your rent is, we want you to be collecting 30% more cash flow than it." So,
let's just say on the sample house right here that I have a mortgage (That's what
the M stands for) of $1,000 a month. If I'm doing a rental, I can rent this for
1200. Just like you see there that extra 200 bucks.
But this entry level house if I actually put a family in there and say, "I want you
to be able to buy this house for me in a couple years." We're going to do a lease
option. Or it's like a rent to own. Then they're giving you a non-refundable
deposit but more importantly, they're paying a premium on rent. So, if this
family is now paying $1,500 a month, this is what they're paying me in rent. That
means there's a difference of how much? $500 a month.
This is the magic ratio I came to share with you today. The bank wants you to
basically have a 70% margin on that. That means if you take a look at I'm
collecting 1,500, 66% of that is going to my mortgage.
The other 33% of that is coming to me as pure cash flow. And that means that I
have enough left over. I'm at ratio and exceeding it that the bank
actually wants. So, the bank says, "Wait a second. We're counting 70% of your rent.
Because you're collecting $1,500 of rent and 70%
of that is over a thousand bucks." Guess what? You've magically qualified
for your next house. Even if your income does not go up.
That's the magic my friends. So, you need to have a really good cash flow on a
buying hold property. And I usually cannot make it work with a straight
rental. That's why I cross that out. I can generally show you how to make
twice as much money on a lease option than you can a straight rental. So, before
I really share with you what your next step looks like, we need to have a quick
conversation about debt. Because I know some of you are watching this and you're
automatically thinking, "Kris, if I just go from one house to the next house
today, I'm going to have debt." I could have $150,000 of
debt on..." If I buy 6-7 homes, I'm going to have
a million dollars of debt. And I want you to look at my face right now.
Do you see that smile? I love that. Like, I want to have as much of it as I can. But
don't get me wrong. You were taught right as a kid "get out of debt". What they were
saying though was get out of liability debt. You see a bad debt, it costs you
money and it doesn't make you money. This real estate, guess what it's actually doing?
It's making you money. When there's $500 left over at the end of
the month, the bank says, "Sure, let's get you another property." Now, I have 2
properties that let's just call it 500 a month. That's a thousand a month." I get
2 more properties. 2,000 a month, I'd do it again. 4,000 a month. So, the reality is
is that because this debt makes you money, it's productive. It creates a value,
it puts people to work. It's a good thing. Same word, there's a
good meaning and there's also a bad meaning. It's super important for you to
understand that so that you really get hooked on the good meaning. Now, to
summarize us up, we started this video off by telling you, what if you could
actually do a deal and access $40,000? I don't know about you but when you're
just starting out financially, 40,000 is a lot of money. Today,
I can make $40,000 in an hour because I'm buying so much real estate. What I
want you to walk away with is saying, "Okay. Now, I know how to buy my next
property." But I'm going to tell you right now, you're going to need a little bit more
training which is why I a little video series it's all about
lease options. It's 4 videos. They're very short and it'll actually go into
super in-depth. What does the lease option, how can you use it to maximize
money, how do you create freedom cash flow dollars and how can you start doing
it in the backyard today.