Transcript
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Introduces the idea that real estate has its own language and explains basic property types like single-family homes, duplexes, condos, and townhouses.
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 howto 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 gonna do today is I'm going to take this daunting vocabulary and I'm gonna helpyou understand some of the basics of it that will help you really get into the go whole game of real estate so what I've got is I've got some different words on the screen and what I'm gonna dohere is I'm gonna 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 Iwant 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 SF 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 issplit 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 homesjust like it it's probably called a condo or a townhouse so for me I specialize often in this whole game a single-family real estate so SF H single-family homes right so that's what we mean by home next I
Explains how mortgages work, how down payments and interest fit in, and how rental income creates cash flow. It also defines equity as the difference between a property's value and what is owed.
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 a hundred and fifty thousand dollars u.s.then most people don't have a hundred and fifty thousand 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 moneyand the bank will give them a mortgage the mortgage is and another name for that is a note that's where the bank says all right we looked at your job history we looked at the money you're making wefeel comfortable with you we're actually going to give you a mortgage which means we're gonna 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 a hundredand thirty-five thousand so I put fifteen thousand dollars of the down payment and there was a hundred and thirty five thousand dollar mortgage now that mortgage is gonna come with an interest rate because the bank's gonna say we'renot 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 backover 30 years and I've got that interest rate they'll do some math and they'll tell you essentially what your payment's gonna 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 it's not a triplex or multifamily it's just a home with onedoor 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 gonna rent it out another wordfor 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 paythe 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 amortgage 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 will 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 whatI'm saying because I'm telling it to you the right way okay so I've $65,000 of equity you might say but Chris what about my fifteen thousand that I put down that's not part of the equity because you would
get this fifty thousand 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 lookingfor 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 two real quick let's
Recaps the example and breaks down PITI: principal, interest, taxes, and insurance. The speaker explains why banks require these components and how they protect the loan.
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 aduplex 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 $50,000of equity 200 minus 150 but then I put fifteen thousand dollars down to now have a mortgage of a hundred and thirty five thousand and my total equity between what it's worth and what's owed now is $65,000 mymortgage payment is eight hundred a month but I chose to rent it to somebody else they're paying me a thousand a month that leaves two hundred dollars 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 piti what Chris principal interest taxes insurance a bank will normally wrap all four of these core componentsinto your mortgage payment the reality is 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 apayment 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'llactually say hey we don't 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 gonna weigh it down
in 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 gonna take a twelfth of your taxes every month and after a whole year wewill 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 couldbe 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 gonna have itinsured banks will not give you a loan without insurance so piti 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
Covers the idea of buying below value and selling above it to create profit, including the role of margin and selling costs. The video closes with a summary and encouragement to keep learning.
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 encapsulants I dia that it was worth more and I paid less andif 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 representsmy value 150,000 represents what I paid I did put some money down but leaving that out of it there's fifty thousand dollars of profit to make when you go to sell it if you were wrong on your marginhere and you could only sell it for a hundred and sixty thousand then you're like well Chris there's still at least a ten thousand dollar difference between 160 150 and then I would say what about realtor fees that
are 6% 6% of 160 thousand it's almost ten thousand dollars so that's now wiped out because there's costs when you sell this stuff - so you think about all these things so when you buy low it's like Igotta buy low enough to create a tangible benefit when I sell high I gotta buy low enough so there is a significant difference so that after all my costs I still make enough money that says this was worthwhilefor 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 gonna have asix month head start on me that just was confused after my first six months of working with my mentors let's just give you the unfair advantage and get you rockin 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 and learning the basic language of this incredible world of real estate listen it's it's foreignstuff 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 thisvideo 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 where we got a lot more to teach you got alot more to share and as always check out my website descriptions in the link below I love giving people shortcuts to creating a lot of money right now