FIRE Real Estate Triangle – Deal Finding, Financing, Management

Do you remember the fire triangle as a kid? It was the triangle that represented the three necessary parts of a fire.

1. Heat Source
2. Fuel
3. Oxygen

Without any single side of this triangle, you can’t have a fire. Take away the heat, and you’re left with just a pile of wood. If you try to start a fire in a vacuum, your match won’t light; you need oxygen. Without fuel, all you get is a spark. All three are critical to achieving that beautiful, memorizing flame.

FIRE Real Estate Triangle

If you want to be successful at Rental Real Estate, it is not much different than that fire triangle. We broke it down into three main parts to show the essence of what makes the whole thing tick. Without any side of the triangle, the whole thing can fall apart and will not get to your destination of STEALTH WEALTH.

1. Finding Deals
2. Financing Strategies
3. Management

We will explore all of these sides in greater detail in the future, but here’s a quick primer on each and why they are so important.

Finding Deals

Finding that deal is the “spark” it’s how you get the Real Estate fire started. You have to have a sweet, sweet property to buy. One you like, one you believe will make you money. Of course, this takes effort and some skills, and without those, you’re bound to end up with a stinker of a deal — one that might get you to even, or worse yet, one that will lose you money over time. Dave and I quickly learned that this side of the triangle is where you can make the most money in the short term. We always say now, “You make all your money when you buy.” While once in a while you might be able to get a deal on the MLS, most deals we have found off-market and provides us the most built-in equity on day one of purchase. Wholesalers, yellow letters, friends, bandit signs are all ample sources of deals where there are tons of discounts to be had. Buying a property at 50% of market value feels oh so good and is an instant rocket boost to your net worth!

“You make all your money when you buy real estate, not when you sell.”

Financing Strategies

Okay, so you’ve found a deal, now you have to find a way to pay for it. Are you going to pay cold, hard cash? Will you borrow money from friends, or possibly even strangers (hard money), to get your taste of real estate? Or, will you go the traditional route and get a loan from a bank? However, you choose to finance your new income-producing asset will have a significant impact on how fast your net worth grows for years into the future. Interest rate, amortization schedule, loan type, balloon payments are all examples of levers that can be pushed or pulled to build the perfect financing for any deal. For the first couple, you can probably get away with doing 30-year conventional loans, but eventually, you’ll run out of “bullets,” and then you’ll have to go to more creative methods. We’ve discovered portfolio loans with local banks to be our best option. We typically do a 20-year note with 20% down and a very fair interest rate with zero points.

Management

Now that you’ve found your asset, and you’ve paid for it, now to get it to start producing income for you in the most efficient and effective way possible.

We like to call all of our houses our little “factories” because they make us money. We hate when a factory goes down because a tenant moves out or stops paying, and so with management, your goal is to keep your “factory” in tip-top performance.

Pay a Property Manager or Nah?

In our neck of the woods, a property manager charges about 8% of gross rents AND a month’s rent to get a new tenant. At first, we didn’t know what we were doing, so we begrudgingly paid a property manager. They did an OK job, but we realized they were nickel and diming our tenants for things for which we never saw the revenue. Quickly we learned and built systems (more on that later) that made it, so we effectively manage 50 properties with just two people. Also, we have day jobs that are not property management. We are kinda a big deal. We want you to be a big deal in real estate, too, so follow along with us, and we can slay this net worth marathon together.

Let’s Start a Huge Real Estate Fire

So in our world, FIRE stands for Financial Independence, Retire Early. However, we think Real Estate should be a huge part of anybody’s FIRE plans if they want to accelerate and amp up their plans. Remember to scour your resources for the best deals, secure incredible financing, and manage the asset with a specific intentionality. If you follow the Real Estate Fire Triangle, you are sure to be well on your way to joining the Stealthy Rich Club and boosting your net worth.