Investing In Real Estate – Part 2
I am listening to an audiobook called “The Entrepreneur’s Blueprint to Massive Success” by Peter Voogd. It talks about if you want to be a millionaire, hang around billionaires and you will get there faster. It talks about getting a mentor to help you achieve your highest success. Sounds like we were on track with last week’s blog! So, now what? Well, let’s continue with our interview with our successful real estate investor and see what kind of nuggets we can glean.
I asked, “Why do you continue to invest in real estate?” It is either invest in real estate or the stock market. He does not have much interest in the stock market. If he worked for a company with a 401k, etc., the stock market probably would have been more impactful but you have no control of whether it’s up or down, etc. He feels like he can beat the system in real estate much more than he can in stock market.
He currently owns about 65 properties in Texas, Tennessee, and Indiana. They are mostly single family with a few condominiums sprinkled in. He was opposed to condos at first, mostly because of the HOA fees, but a certain Realtor found him such a great deal on about 10 units that he decided he could look past the politics of the HOA and go straight to the bank with what he could clear each month. (I never claimed to be above the occasional shameless plug). His mentors always purchased single family properties so that’s what he was indoctrinated in and he feels that, if you need to liquidate, single family properties are easier to sell.
A common question I get about real estate investing is, “what do you look for”? Here is what this investor looks for as far as criteria to purchase a new property? His perspective may be a bit interesting. Coming out of California, losing $200/month was acceptable because values were appreciating exponentially each year. If you are not in a market where that is the case, you may need to look at it differently. In alternate markets, he looks for positive cash flow on day one then just ride it out as a long term investment. In general, he simply looks for “conforming” property – not the biggest, not smallest, just something that fits in the neighborhood. Red flags for him are foundation issues and floor plan issues that can’t easily be fixed.
His advice to someone who is considering investing in real estate? Read “The Wealthy Code; What the Wealthy Know About Money That Most People Will Never Know” by George Antone. It talks about positive and negative leverage. Leverage is critical when you are starting with no money which is why 90% financing on rental property is so appealing. He also suggests you get into an investment group or association meeting such as FIBI (For Investors by Investors). They have keynote speakers and educational opportunities. You will learn every end of the spectrum and meet people with similar interests, get tips and possibly learn from others’ mistakes.
Some people, especially new real estate investors can be very DIY. They can think they can do everything themselves and save some money. This investor has used a Realtor from the beginning and a property management company not long after getting his first few properties. He feels it is valuable to get another set of eyeballs on the transaction, the purchaser is way too emotional about it. If you use a Realtor that is experienced, they will see things you may miss. For in state properties, it may be good experience to manage the first one or two on your own so you can understand how tenants think, etc. but DO IT WITH A MENTOR. For out state properties, you’re not going to jump on a plane every time a tenant calls to say the water heater is out and you can’t trust them to do right thing. Therefore, the property management company is more important than the property. If you have the wrong property management company, it doesn’t matter what the property is, they can and will screw it up.
The last pieces of advice for those new investors that he wishes he knew before he got started in investing is these:
Real estate investing is not a phone call away from turning property into cash. As you get started, you will need a line of credit, angel investor, etc. You can’t call your Realtor and say, “Sell” and the money is in your account tomorrow.
Buy when everyone is selling and sell when everyone else is buying.
When you meet a tenant, look at their car because that is what your house will look like when they move out.
That is some great advice from an investor who has been investing in real estate for over 30 years. If you are thinking about getting started on your own real estate empire, consult with professionals on the front end so you give yourself the best chance of conquering the market in the most efficient way possible with as few pitfalls as possible. Remember it is a long term investment. You can flip a house and make a nice profit or make a little each month in rent, either way, it is not a get rich quick solution. Be smart and listen to your mentor and you can be the next Donald Trump, hopefully with a different hairstyle. Good luck!
Photos courtesy of hywards and adamr via freedigitalphotos.net
Michelle Froedge is a residential Realtor and Principal Broker in the Greater Nashville and Williamson County areas of Tennessee. “Mom” to four-legged fur babies, Tyler and Livvie, Auntie to Zelamie, she is a vegetarian and sings in her spare time. Michelle has lived in Nashville and Franklin since 1997 and has been selling homes since 2004.