How To Leverage One Property To Buy Another


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.

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