In this article, I will share a complete summary of the book on rental property investing by Brandon Turner. Read the article till the end, and you will know how to invest in the rental house, generate cash flow every month and live a happy and financially free life.
The author shared 22 steps for a beginner to invest in a rental property by not doing the work actively. If you do it actively, it will not be a business, a job, or a self-employed business. And by doing that, you will never be going to become rich.
The Book on Rental Property Investing by Brandon Turner Summary
So here are those 22 steps the author advises us to do in the book on rental property investing. I know it’s a huge list, but if you are a beginner, all these are must-read in order to become a successful rental property investor. So let’s start with the first one.
Table of Contents
1. Why Rental Property Investing is the Best?
There are lots of advantages to rental property investing as Brandon says, but the following two are the best.
- You don’t need a lot of money to invest here.
- Insider trading is legal here.
Required Less Money to Invest
In the book on rental property investing author Brandon Turner says real estate is a kind of investment where you don’t have to invest all of your money. You can outsource up to 90% of it. Use some of our money, and the remaining part you will get from other investors as an OPM (other people’s money).
You can not outsource the finance in any other investment like Stock Market or Commodity Market. But, have to invest all the money to trade there. But here in real estate, you can choose not to use all of your money. That is the biggest advantage of rental property investing.
Insider Trading is Legal Here
The law will not hold you responsible if you do insider trading here in real estate. But if you do in the Stock Market, they will throw you in Jail for years.
- Real estate is all about insider trading if you want to become successful.
So what is this insider trading? It means you have access to a piece of information that the public does not have, and by using them, you are making huge profits. With that effect, the public is facing losses. They are getting out of business. The government does not want that. That is why they banned Insider Trading in the Stock market. But in real estate, it’s legal.
An Example of Insider Trading
Suppose, in your area Government has approved a new Road where you want to invest, a big reputable company is opening an office there, or a big developer got permission to develop 10 apartment buildings in that area. If that happens, the market will skyrocket, and those who invested will make millions.
Now you go and verify this information with the source you have. After the research, you know that the news is real. It’s a huge opportunity to make great money.
You did not tell any single soul and purchased as much as you could in that area in the hope after five years when these projects will be ready, I shall sell all of my properties and make huge money. That is your primary plan.
But 99% of people do not know that information. So they did not know what was coming. That is what insider trading is, a piece of information that can change the course of your history.
This piece of work is legal in real estate. But not in the stock market. If you have some hidden information about a company and act upon it, the police will arrest you and throw you in Jail.
2. The Four Benefits of Rental Property
There are mainly four benefits when it comes to rental property investing. There are the primary reasons people invest here, and those are:
- Benefits of Appreciation
- Monthly cash flow
- Tax savings options
- Easy to pay the loan
Let’s understand them one by one in the simplest form.
The best part of rental property investment is it gives both appreciation and cash flow every single year without doing anything serious. There are two types of appreciation methods that you can use to boost your property’s value, and those are:
- Natural appreciation
- Forced appreciation.
The Natural Appreciation
If you buy a property and let it stay there for a year, it will grow in value. For example, if you buy a property for $100,000, and after one year, its value will become over $110,000 automatically, and in ten years, it will go way beyond $300,000. Can you imagine that? It is Natural Appreciation.
The Forced Appreciation
The Forced Appreciation is a little different. You will force the house to appreciate. That way, you can gain way more return than a natural appreciation.
Let’s take an example from the book on rental property investing, you have bought a rehab house for $70,000. If you installed a new electrical connection, changed all the water pipelines, installed a wi-fi, a parking facility, and a washer and dryer for those tenants. You have improved the house. Now the value will skyrocket, maybe up to $100,000 if you want to sell it.
If you want to rent it, you can charge more rent than the average price in that area. That way, you will earn more money by using forced appreciation. Both work wonderfully. You just check what you can do to maximize your revenue in the rental property investing and then make your move.
The Cash Flow
Cash flow is like the blood in your body. If the blood system gets interrupted, you shall die soon. The same thing happens in rental property investing, if anything wrong happens to your cash flow, your rental business will perish.
The main thing about cash flow management is the Net Operating Income (NOI). It is the difference between your total income in a year and total expenses. Let’s understand this with an example.
For example, you have a rental property with five units in it. All those five families are paying you $2,000 each month as rent, in a year at $24,000. That means your total income is $24,000.
Now imagine your total expense in that building is $20,000 per year. That means your net cash flow is $4,000. The property is generating positive cash flow. If it is $25,000, the property is generating negative cash flow. You may want to sell it or do something that will increase the cash flow.
That’s all about the cash flow. It’s your blood. Make sure you manage it well. Otherwise, your business will go bankrupt soon. Remember, Cash flow is the King as Brandon Turner says in the book on rental property investing.
There is a tremendous opportunity the author shares in the book on rental property investing for you to save your real estate taxes using:
- 1031 tax exchange
All of these you can use for saving taxes in the real estate business. But the question is, why Government is allowing these as they are not getting their money?
Because they want more affordable houses, more rental units, and more business. They can not do all of it by themselves. They need an investor like you who is going to do their work. That is why they are giving you concession in taxes. So you continue your investments.
I will explain all these tax codes in detail in the Tax Saving Steps. For now, know that you can save a lot of taxes just by investing in real estate. Although, you can scroll down and read those tax tips right now. It’s up to you.
Loan Pay Down
It’s easy to pay your loan using the tenant’s money. You took a loan to buy the property and put it on rent. With that rental income, you will pay your EMIs every month. That way, you will pay the loan amounts without any disturbance.
But people say the rent is not enough to pay out EMIs. Most of the time, we have to use our own money to pay the EMIs. It does not work. It is fake.
But let me tell you, that happens because you have chosen the wrong property for your rental investment journey. When you buy a house, you should also check these loan factors as well. Will this house be able to pay my EMIs on time? If it is, then invest or leave it. There is no hurry.
I know it’s risky, but it works in every country. Identify a great rental property and take the loan and grow your business. Otherwise, you will lose money every month.
3. The Disadvantages of Rental Property
According to the book on rental property investing Turner says, there are some disadvantages to this rental property investment that you need to know. Those are:
- It will take time
- No income for six months
- Some people will take your sleep away
- Rent collection problem
Let’s discuss all of these one by one.
When you invest in a rental property, know it will take some time to generate money. It does not happen overnight. First, choosing a rental property, doing the analysis, and then buying it is a long process.
Plus, you might not get any tenants for about six months. That means you will lose money as you have to pay your EMI to the bank. That is why the author advises that you keep aside the total expense it needs for about six months and then spend the rest amount. Know that your property will not generate income the right way.
Some bad people will always disturb you. They will always call you and argue even if you have a legal agreement with them. They will use force to scare you and even damage your building. You have to handle all of these. Rental property investing is a difficult business, not suitable for an amateur.
And lastly, they will not pay rent on time. People will say I have a problem, my son got sick, or I will do it next week. They will try to avoid the payment. But you must stick to the agreement and take rent out of their pocket.
Don’t go easy on them. Those tenants will try to over-smart you, and seeing that more tenants will start not to pay rent on time. That will hamper your real estate business. So become an alpha male and follow your contract.
You have to take care of all these disadvantages. And then you can invest, make some money, and maybe become financially free.
4. Six Keys to Rental Property Success
If you want to become a successful rental property investor, follow these six keys from the book on rental property investing.
- Think the right thoughts. Don’t think I can’t. It’s difficult. Think, how can I? That will open doors for you, and the solution will appear.
- Write your goals down and read them aloud every day.
- Collect and verify all the resources you need in this business.
- Create a great plan and execute it the right way.
- Acquire the right assets to run the business.
- Analyze all of these from the bottom and start investing.
If you follow these six keys as Brandon says in the book on rental property investing, you will surely become successful in this business.
5. The Ten Members of Your Real Estate Team
These are the ten members you need to run your real property business success.
- Your wife: Your spouse is the most important member of your team. Her advice will sometimes make all the difference. Take her with you if you have one.
- A partner: A good partner will invest and support you in everything. He will make sure you are doing it right.
- Real estate agent: He will help you find a great property.
- Insurance agent: An insurance agent will make sure your property is protected. If your property is small, you might not need him, but if it is big multifamily, then you should get insurance.
- Real Estate Attorney: Let me tell you, there is a big difference between a real estate lawyer and a normal lawyer. Don’t choose a normal one. He knows nothing about the real estate laws.
- Contractors: He will help you rehab the whole house so you can rent it out quickly.
- Accountant: A CPA will manage all the accounts you have in your business.
- Bookkeeper: A bookkeeper will keep track of all the data in your business. He will inform you of those data if you want it that way.
- Lender: A lender will lend you money to buy properties.
- Property manager: A manager will manage your whole tenant community. If anything happens, he will handle all of that.
There are the ten guys you need in your rental property business if you really want to become financially free via this monthly cash flow method.
6. How to Analyze a Rental Property
There are different ways you can use to analyze a rental house. But here, we will use the NOI formula according to the book on rental property investing. First, calculate how much money you are earning from the property as an income.
I mean, you will have the rental income but along with it, do you have other income like the parking facility you provide, the wi-fi service, or the extra maintenance you give them? How much money do you make extra from the property? Calculate all those.
And then calculate your total expenses. How much money do you have to spend to maintain the whole property? Expenses like:
- Mortgage Payment
- Tax payment
Calculate all these and then use the below formula for your NOI or Net Operating Income from that property.
- NOI = Total Income – Total Expenses
- NOI = $20,000 – $15,000 = $5,000 (for example)
Not only that, analyze all the following things.
- Cap rate which is 6% – 10% normally
- Cash on cash return
- Return on investment (ROI)
Calculate everything that is related to mathematics. Then you can tell if this property will be profitable or not. That is why the analysis part is necessary. Do it seriously as Brandon says in the book on rental property investing.
7. How to Choose a Property Type
The book on rental property investing says you must choose a type of these property investments to become successful. Because without a niche, you might go lost in the jungle of this vast real estate world. You should choose a niche and then invest. Choose any of the followings:
- Single-family rentals
- Multifamily homes
- Condominium or condos
- Commercial Retail
Most rental property investors choose the Multifamily option or commercial office for investment. But you can select any of these. But, you must choose one.
8. Identify A Great Real Estate Location
Location is everything in the real estate business. A location can make and break your investment. That is why you must choose a great location to invest in. Here are the three identifiers of a great real estate location.
- New jobs in the market: Where the jobs are, people are, and the demand will follow. More new jobs equal more demand for houses and more rental income for investors. Choose an area where the unemployment rate is low.
- New startups: Look for new startups and small businesses. It will give a sign of the market trend if the market is growing or not. If people are opening a new business, then demand is increasing and the value with it. That will give you a great ROI on your investment.
- Population growth: Lastly, verify the population growth. Jobs and new business will drive traffic into the market, but if the people are not staying there for years, it will not benefit you.
Analyze and see if people are living in that area, and those who are coming there, are becoming permanent members of the society. If yes, then it is a good area for rental property investment. You have found a great location. Now all you need is to identify the right property.
9. How to Find A Great Rental Property
The author Brandon Turner says, you have five ways to identify a great rental property, according to Brandon Turner in the book on rental property investing, and those are:
- Multiple Listing Services (MLS): You can ask your agent to give you the MLS list. They always have that. It’s a general list that every other agent who is part of the association will have that listing. Ask them and look for your desired property.
- Direct Mail: You can use direct mail to generate leads. You have found some houses, and you want to buy one of them. You will send some direct mails to their owners. If you send 100 physical mails, two will call you. Direct mail is one of the best offline ways to generate leads.
- Eviction records: You can use the list of eviction notices to get a great house. People are unable to pay their mortgage payments. So banks are forcing them to leave the house. But you can use this opportunity or buy that house for less price and then by renting it you can make some money.
- Marketplace websites: Visit marketplace websites like Zillow and search for your desired property. Some online websites have some great properties that you will not find offline. That is why have a look at those websites. You may like one of those.
- Referrals: And lastly, the referrals. It is the best lead generation method out here. More than 32% of leads come from a referral platform. From a friend or somebody, you know well. That is why you must build your network as soon as possible. That is how people will recommend you.
These are the five steps for identifying a rental property in any market. Use those and generate leads.
10. The Best Rental Investment
3 BHK, or 4 BHK are the best rental properties for single-family investment. For multifamily, the author suggests 2BHK. If your main goal is to get monthly cash flow, choose any of these two types.
Plus, some other things also affect this identification of the best property.
- Age factor
- Ease of life
These can also affect the decision of those tenants to rent a house or not. But you can be sure that most people will choose a 3BHK apartment over a 1BHK.
11. Finance Your Rental Property
Just know, you will invest all your money there but outsource most of it. People are always ready to invest in properties. All you need is to approach them and ask for their money.
Here are the three sources you can use to finance your investment.
- Use partner. Invest with a friend.
- Search for a lender who invests in rental properties.
- Approach a Bank and get the loan.
But will they approve your loan? Because getting a loan approved is not easy as it seems. So what do to get the approval?
12. Getting Your Finance Approved
All these breaks down to your business plan. How will you return their money in a few years with profit? They only want their profit, that’s all. The bank will approve a loan on one basis it’s the ability of your rental property to generate income for all of you.
If your building can generate constant monthly cash flow, then there will be no problem getting the approval. Submit all the proof that your property is eligible and it’s a good business. Then wait a few weeks and approve your loan in no time.
You can get up to 90% of the total property value if the property is as good as you say, and you are a trustworthy person. If you are a well-known man in society, they will not ask many questions, but if you are a beginner, they will disturb you a lot before the approval. That is a fact that you need to face in the business.
13. Do the Due Diligence
The book on rental property investing says about this due diligence process that you just check the following five things before you put your money into work.
- Title Inspection: Verify the title deed of the property that you are about to purchase. Make sure it’s clean. If it has more than one owner, it will take more time to process the documents. Give this paper to your lawyer and tell him to verify it.
- The Documentation: Check all other documents related to the property, tax codes, legal codes, owner details, and all the certifications. Check everything in detail. That way, you will know the property is safe to invest in.
- A Physical Review: Hire a contractor or an engineer and prepare a physical review paper. Look for damaged items in the house and how much it will cost you to repair them. If the expense is high, you can negotiate with the owner to reduce the price as it will cost you extra money to repair those things.
- The Crime Rates: People don’t want to live there, where the crime rates are high. Safety is your first priority in the housing business. Check it well enough with the help of police records.
- No Amenities: Make sure the property has all the amenities a family needs to make their life easy. If it is not there, install some and add that to your pricing. That way people will be interested in living there.
So, use these five due diligence techniques before buying the property. These will make sure that you are not making a huge mistake in this rental property investing business.
14. Now Close The Deal
You have researched everything you need and will purchase the property. It is time to negotiate the price with the owner.
You want the property as low as possible, and the owner wants it as high as possible. Be a PRO negotiator and take him to a common ground where both can be satisfied.
Don’t spend more money than you can handle. Your research says I should get this property within $35,000, not a single penny more than that. If you do, then you will face heavy losses. But, the owner is asking for $40,000. Your work here is to convince him or raise your price a little.
That is what negotiation is. Try to reduce it as much as possible if not, then leave or buy it. You have two options.
15. How to Manage Your Rental Properties
Investing is easy but managing the whole building is not. If you want a constant cash flow from your rental properties, try to manage it properly.
Don’t try to do it by yourself. Hire a Property Manager. He will manage everything your tenants need even in the middle of the night by taking some free, about 3% -4% of the total rent, or you can give him a salary.
If your rental house is small, then you can manage it. But if it’s big, hire a manager. It will help.
16. How to Save Your Real Estate Taxes
There are three primary options you have to save your property taxes, and those are:
- Depreciation: This real estate law will allow you to show zero income on your rental property. That way, you can save the whole tax amount you had to pay. I have written a complete article about this law with mathematical calculation. Check that out.
- Amortization: It’s like the depreciation law but applicable for your mortgage. You can use this to reduce taxes as the lowest amount.
- 1031 Tax Exchange: This exchange law is applicable to differ the capital gain tax. When you sell a property, pay the capital gain tax, which is 20% of the total profit. By using this, you can save the whole amount. You will reinvest your profit into a new property. That way, the government will allow not to pay the capital gain tax.
There are more tax codes that you can use to reduce it, but these three are the best of them. Use these, and reduce your real estate taxes on rental property.
17. Increase Your Rental Income
Try to increase the income as much as possible. You are getting a rental income already. But along with it, offer other services that may boost your cash flow. You can offer them the following services:
- Washer and Dryer
- Parking facility
- Kids garden
Think a little of what you can offer that will boost your revenue.
18. Reduce Your Expenses
Don’t waste your money. Measure every single thing that is taking money out of your pocket every month. Analyze, and try to find a way to reduce them. I am not saying reduce it all the way. No, buy at least some. The more you can, the better. So, your revenue can boost.
19. Hold the Property Forever
Don’t sell your rental property few years. Hold it for decades. You will see the compound effect starts to work. This rental property will save you in a market crash and help you to live a financially free life. Hold it like forever.
20. Go For A Shopping
I should have told you this at the beginning. When you try to identify a rental unit, search it as if you are buying fruits. Be super selective, and bargain in every step. That will save you a lot of money and will help you to keep yourself away from damaged fruits and vegetables.
21. Take Action Now
You have learned all the things you need to start a rental property. It’s time you take action to make all these work. Without it, you will reach nowhere. Take action and take action now.
22. Give it Back
Remember, you are getting all this with the help of GOD. Don’t dissatisfy him. Donate some of your money. Build something that will help people in their daily life. Donate money to charity. GOD will be happy for you. He will give you more to donate.
So that is all for the book on rental property investing book summary by Brandon Turner. He has written this book for a beginner. I think the book has everything you need to become a rental property investor from scratch. I recommend you to buy this book. Thanks for reading.
What are the top benefits of rental property?
You do not need a lot of money to invest in a rental property, and insider trading is legal here.
What is the net worth of Brandon Turner?
The estimated net worth of Brandon Turner is well over $10 million.
What is forced appreciation in rental property?
It means you will force the house to appreciate by adding some amenities, and repairing it so that it sells on the market at a regular price.