Real Estate For Beginners - YouTube

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

a lot more to share and as always, check

out my website. Descriptions in the link

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creating a lot of money right now.